MIMEDX GROUP INC

Previous wording

During the second quarter of 2024, the Company delivered 7.3% growth in net sales year-over-year. Growth in the second quarter was seen in all sites of service and was relatively balanced between Wound & Surgical products. In particular, the Company saw growth of its AMNIOEFFECT® and EPIEFFECT® products, partially offset by commercial challenges associated with competitive behavior in the marketplace, namely the sale of artificially high-priced skin substitute products and the ongoing uncertainty related to Medicare’s reimbursement of these products, based upon recently proposed Local Coverage Determinations (“LCDs”).

Current wording

During the third quarter of 2024, the Company delivered 2.9% growth in net sales year-over-year. Growth in the third quarter was seen in private office sites and was relatively balanced between Wound & Surgical products. In particular, the Company saw growth of its EPIEFFECT® and AMNIOEFFECT® products and initial contributions associated with sales of our recently launched HELIOGEN® product, partially offset by commercial challenges associated with recent turnover of certain of our sales team and customers, declines in sales of AXIOFILL® and the conclusion of sales of our dental product during the third quarter 2023.

Previous wording

Operating and financial highlights during the quarter included:

Current wording

Operational and financial highlights during the quarter included:

Previous wording

•Net sales of $87.2 million, reflecting 7.3% growth over the prior year period.

Current wording

•Net sales of $84.1 million, reflecting 2.9% growth over the prior year period.

Previous wording

•GAAP net income from continuing operations and net income margin for the second quarter of 2024 of $17.6 million and 20.2%, respectively.

Current wording

•GAAP net income from continuing operations and net income margin for the third quarter of 2024 of $7.9 million and 9.4%, respectively.

Previous wording

This discussion, which presents our results for the three and six months ended June 30, 2024 and 2023, should be read in conjunction with the financial statements and accompanying notes included in this Form 10-Q and the financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Current wording

This discussion, which presents our results for the three and nine months ended September 30, 2024 and 2023, should be read in conjunction with the financial statements and accompanying notes included in this Form 10-Q and the financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

We recorded net sales for the three months ended June 30, 2024 of $87.2 million, a $6.0 million, or 7.3%, increase compared to the three months ended June 30, 2023, in which we recognized net sales of $81.3 million.

Current wording

We recorded net sales for the three months ended September 30, 2024 of $84.1 million, a $2.3 million, or 2.9%, increase compared to the three months ended September 30, 2023, in which we recognized net sales of $81.7 million.

Previous wording

Net sales of our Wound product portfolio were $57.5 million for the three months ended June 30, 2024, a $4.2 million or 7.9% increase compared to $53.3 million for the three months ended June 30, 2023. The increase was primarily driven by growing contributions from EPIEFFECT®, partially offset by commercial challenges associated with competitive behavior in the marketplace, namely the sale of artificially high-priced skin substitute products and the ongoing uncertainty related to Medicare’s reimbursement of these products, based upon recently proposed LCDs, as noted above, as well as headwinds relating to turnover of certain of our sales team and customers.

Current wording

Net sales of our Wound product portfolio were $55.1 million for the three months ended September 30, 2024, a $3.9 million or 7.6% increase compared to $51.2 million for the three months ended September 30, 2023. The increase was primarily driven by contributions from EPIEFFECT, partially offset by commercial challenges associated with competitive behavior in the marketplace as well as headwinds relating to turnover of certain of our sales team and customers.

Previous wording

Net sales of our Surgical products totaled $29.7 million for the three months ended June 30, 2024, reflecting growth of $1.7 million, or 6.2% compared to $27.9 million for the three months ended June 30, 2023. The increase was primarily driven by growing contributions from AMNIOEFFECT® and AMNIOFIX®. In addition, Surgical sales for the three months ended June 30, 2023 reflects approximately $1 million of sales of our dental product which we have since discontinued.

Current wording

Net sales of our Surgical products totaled $29.0 million for the three months ended September 30, 2024, reflecting a decrease of $1.6 million, or 5.1%, compared to $30.6 million for the three months ended September 30, 2023. Sales growth from certain Surgical products, particularly AMNIOEFFECT, as well as initial contributions associated with sales of our recently launched HELIOGEN product, were more than offset by challenges in certain regions where we have recently experienced higher than normal employee turnover and, to a lesser degree, by declines in sales of AXIOFILL during the quarter. In addition, Surgical sales for the three months ended September 30, 2023 includes $1.4 million of sales of our dental product which we have since discontinued.

Previous wording

Cost of sales for the three months ended June 30, 2024 and 2023 was $14.9 million and $13.6 million, respectively, an increase of $1.3 million, or 9.4%, year-over-year. Gross profit margin for the three months ended June 30, 2024 was 83.0% compared to 83.3% for the three months ended June 30, 2023. Increases in cost of sales were driven by increases in sales volume as noted above. The year-over-year reduction in gross margin was driven by the amortization of distribution rights stemming from the TELA Asset Purchase Agreement entered into during the first quarter of 2024, as described below. This was partially offset by favorable product mix and our continued execution on yield and scrap improvement projects.

Current wording

Cost of sales for the three months ended September 30, 2024 and 2023 was $15.3 million and $14.8 million, respectively, an increase of $0.5 million, or 3.6%, year-over-year. Gross profit margin for the three months ended September 30, 2024 was 81.8% compared to 81.9% for the three months ended September 30, 2023. Increases in cost of sales were driven by increases in sales volume. The year-over-year reduction in gross margin was driven by the amortization of distribution rights stemming from the TELA Asset Purchase Agreement entered into during the first quarter of 2024, as described below. This was partially offset by favorable product mix and our continued execution on yield and scrap improvement projects.

Previous wording

Selling, general and administrative (“SG&A”) expense for the three months ended June 30, 2024 was $55.4 million, compared to $52.0 million for the three months ended June 30, 2023, an increase of $3.4 million, or 6.6%, year-over-year. The increase in SG&A expense was driven by year-over-year increases in compensation related to higher salary and benefit costs from merit raises and promotions, as well as commissions driven by increases in sales volumes and proportionally higher sales through sales agents. Incremental spend from legal and regulatory disputes in the current period also contributed to the increase.

Current wording

Selling, general and administrative (“SG&A”) expense for the three months ended September 30, 2024 was $53.5 million, compared to $52.6 million for the three months ended September 30, 2023, an increase of $0.9 million, or 1.8%, year-over-year. The increase in SG&A expense was driven by year-over-year increases in compensation related to higher salary and benefit costs from merit raises and promotions, as well as commissions driven by increases in sales volumes and proportionally higher sales through sales agents. Incremental spend from legal and regulatory disputes in the current period also contributed to the increase, including our ongoing litigation with a competitor and several former employees.

Previous wording

•Commenced randomized controlled trial for EPIEFFECT®.

Current wording

Our research and development (“R&D”) expense for the three months ended September 30, 2024 was $2.9 million, compared to $3.1 million for the three months ended September 30, 2023, an decrease of $0.2 million. R&D spend in the quarter was driven, in part, by the randomized controlled trial for EPIEFFECT and ongoing investments in the development of future products in our pipeline.

Previous wording

Interest income, net was immaterial for the three months ended June 30, 2024 compared to a net interest expense of $1.6 million for the three months ended June 30, 2023, a decrease of $1.6 million year-over-year. The decrease was the result of a reduction in outstanding debt, lower interest rates under the new Citizens Credit Facilities compared to our previous borrowings, and improvements in our treasury management.

Current wording

Interest income, net was $0.3 million for the three months ended September 30, 2024 compared to a net interest expense of $1.7 million for the three months ended September 30, 2023. The decrease in interest expense was the result of a reduction in outstanding debt, lower interest rates under the new Citizens Credit Facilities compared to our previous borrowings, and improvements in our treasury management.

Previous wording

The effective tax rates for the Company were 24.1% and (0.8)% for the three months ended June 30, 2024 and June 30, 2023, respectively.

Current wording

The effective tax rates for the Company were 31.0% and 6.3% for the three months ended September 30, 2024 and September 30, 2023, respectively.

Previous wording

The effective tax rate for the three months ended June 30, 2023 reflected a valuation allowance against all of the Company’s deferred tax assets. During the fourth quarter of 2023, we noted that we were no longer in a cumulative three-year loss on a continuing operations basis, after excluding the effects of permanent book-tax differences. The absence of such negative evidence, coupled with our expectations for future taxable income generation, led to a change in our assessment of the realizability of our deferred tax assets. Consequently, the effective tax rate for the three months ended June 30, 2024 was not influenced by a valuation allowance against deferred tax assets, which had an unfavorable impact on the effective tax rate.

Current wording

The effective tax rate for the three months ended September 30, 2023 reflected a valuation allowance against all of the Company’s deferred tax assets. During the fourth quarter of 2023, we concluded that we were no longer in a cumulative three-year loss on a continuing operations basis, after excluding the effects of permanent book-tax differences. The absence of such negative evidence, coupled with our expectations for future taxable income generation, led to a change in our assessment of the realizability of our deferred tax assets. The effective tax rate for the three months ended September 30, 2024 was not influenced by a valuation allowance against deferred tax assets, which had an unfavorable impact on the effective tax rate.

Previous wording

We recorded net sales for the six months ended June 30, 2024 of $171.9 million, a $19.0 million, or 12.4%, increase compared to the six months ended June 30, 2023, for which we recorded net sales of $152.9 million.

Current wording

We recorded net sales for the nine months ended September 30, 2024 of $256.0 million, a $21.3 million, or 9.1%, increase compared to the nine months ended September 30, 2023, for which we recorded net sales of $234.6 million.

Previous wording

Net sales of our Wound product portfolio were $114.6 million for the six months ended June 30, 2024, a $16.1 million or 16.3% increase compared to $98.5 million for the six months ended June 30, 2023. The increase was primarily driven by contributions from EPIEFFECT®, partially offset by commercial challenges associated with competitive behavior in the marketplace, namely the sale of artificially high-priced skin substitute products and the ongoing uncertainty related to Medicare’s reimbursement of these products, based upon recently proposed LCDs, as noted above, as well as headwinds relating to turnover of certain of our sales team and customers.

Current wording

Net sales of our Wound product portfolio were $169.6 million for the nine months ended September 30, 2024, a $20.0 million or 13.3% increase compared to $149.7 million for the nine months ended September 30, 2023. The increase was primarily driven by contributions from EPIEFFECT, which did not have comparative sales for the nine months ended September 30, 2023, partially offset by commercial challenges associated with competitive behavior in the marketplace.

Previous wording

Net sales of our Surgical products totaled $57.3 million, reflecting growth of $2.9 million, or 5.4%, compared to the six months ended June 30, 2023. The increase was primarily driven by growing contributions from AMNIOEFFECT® and AMNIOFIX®. In addition, Surgical sales for the six months ended June 30, 2023 reflects approximately $2 million of sales of our dental product which we have since discontinued.

Current wording

Net sales of our Surgical products totaled $86.3 million, reflecting growth of $1.4 million, or 1.6%, compared to the nine months ended September 30, 2023. The increase was primarily driven by growing volume contributions from AMNIOEFFECT and AMNIOFIX, as well as initial contributions associated with sales of our recently launched HELIOGEN product, partially offset by lower sales of AXIOFILL compared to the prior year period. In addition, Surgical sales for the nine months ended September 30, 2023 reflects approximately $3 million of sales of our dental product which we have since discontinued.

Previous wording

Cost of sales for the six months ended June 30, 2024 was $27.8 million, an increase of $1.8 million, or 7.1%, compared to $26.0 million for the six months ended June 30, 2023. Gross profit margin for the six months ended June 30, 2024 was 83.8% compared to 83.0% for the six months ended June 30, 2023. Increases in cost of sales were driven by increases in sales volume, as noted above. The year-over-year improvement in gross margin was driven by favorable product mix and our continued execution on yield and scrap improvement projects, partially offset by the amortization of distribution rights stemming from the TELA Asset Purchase Agreement entered into during the first quarter of 2024.

Current wording

Cost of sales for the nine months ended September 30, 2024 was $43.2 million, an increase of $2.4 million, or 5.8%, compared to $40.8 million for the nine months ended September 30, 2023. Gross profit margin for the nine months ended September 30, 2024 was 83.1% compared to 82.6% for the nine months ended September 30, 2023. Increases in cost of sales were driven by increases in sales volume. The year-over-year improvement in gross margin was driven by favorable product mix and our continued execution on yield and scrap improvement projects, partially offset by the amortization of distribution rights stemming from the TELA Asset Purchase Agreement entered into during the first quarter of 2024.

Previous wording

Selling, general and administrative expenses for the six months ended June 30, 2024 increased $6.3 million, or 6.1%, to $110.5 million, compared to $104.2 million for the six months ended June 30, 2023. The increase in SG&A expenses was driven by year-over-year increases in compensation related to higher salary and benefit costs from merit raises and promotions, as well as commissions driven by increases in sales volumes and proportionally higher sales through sales agents. Incremental spend from legal and regulatory disputes in the current period also contributed to the increase.

Current wording

Selling, general and administrative expenses for the nine months ended September 30, 2024 increased $7.3 million, or 4.6%, to $164.0 million, compared to $156.8 million for the nine months ended September 30, 2023. The increase in SG&A expenses was driven by year-over-year increases in compensation related to higher salary and benefit costs from merit raises and promotions, as well as commissions driven by increases in sales volumes and proportionally higher sales through sales agents. Incremental spend from legal and regulatory disputes in the current period also contributed to the increase, including our ongoing litigation with a competitor and several former employees.

Previous wording

Our research and development expenses decreased $1.3 million, or 18.2%, to $5.9 million for the six months ended June 30, 2024, compared to $7.2 million for the six months ended June 30, 2023. This decrease was driven primarily by lower headcount and the timing of R&D activities compared to the prior year.

Current wording

Our research and development expenses decreased $1.5 million, or 14.3%, to $8.8 million for the nine months ended September 30, 2024, compared to $10.2 million for the nine months ended September 30, 2023. This decrease was driven primarily by lower headcount and the timing of R&D activities compared to the prior year.

Previous wording

Investigation, restatement and related expense for the three months ended June 30, 2024 was a benefit of $9.7 million compared to expense of $1.0 million for the three months ended June 30, 2023. The benefit resulted from various settlements related to former officers and other related matters.

Current wording

Investigation, restatement and related expenses for the nine months ended September 30, 2024 was a benefit of $8.7 million compared to expense of $4.7 million for the nine months ended September 30, 2023. The benefit resulted from various settlements related to former officers and other related matters as well as negotiated reductions in legal fees previously incurred under indemnification agreements with certain former members of management during the nine months ended September 30, 2023. This was offset by the last material payment towards the resolution of our historical Audit Committee investigation during the nine months ended September 30, 2024. We do not expect activity to be material in future periods .

Previous wording

Amortization expense related to intangible assets was $0.4 million for each of the six months ended June 30, 2024 and 2023.

Current wording

Amortization expense related to intangible assets was $0.6 million for each of the nine months ended September 30, 2023 and 2023.

Previous wording

Interest expense, net was $1.7 million for the six months ended June 30, 2024 compared to $3.2 million for the six months ended June 30, 2023. The decrease was the result of a decrease in outstanding debt, lower interest rates under the Citizens Credit Facilities, and improvements in our treasury management. The decrease was partially offset by a loss on extinguishment of debt due to repaying and terminating our Hayfin Term Loan during the first quarter of 2024 ($1.4 million).

Current wording

Interest expense, net was $1.4 million for the nine months ended September 30, 2024 compared to $4.9 million for the nine months ended September 30, 2023. The decrease was the result of a decrease in outstanding debt, lower interest rates under the Citizens Credit Facilities, and improvements in our treasury management. The decrease was partially offset by a loss on extinguishment of debt due to repaying and terminating a previous loan agreement during the first quarter of 2024 ($1.4 million).

Previous wording

The effective tax rates for the Company were 22.9% and (0.3)% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

The effective tax rates for the Company were 24.9% and 3.4% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net operating losses generated for the six months ended June 30, 2023 were offset by a valuation allowance. During the fourth quarter of 2023, we noted that we were no longer in a cumulative three-year loss on a continuing operations basis, after excluding the effects of permanent book-tax differences. The absence of such negative evidence, coupled with our expectations for future taxable income generation, led to a change in our assessment of the realizability of our deferred tax assets. Consequently, the effective tax rate for the six months ended June 30, 2024 was not influenced by a valuation allowance reflected against deferred tax assets, which had an unfavorable impact on the effective tax rate.

Current wording

During the fourth quarter of 2023, we noted that we were no longer in a cumulative three-year loss on a continuing operations basis, after excluding the effects of permanent book-tax differences. The absence of such negative evidence, coupled with our expectations for future taxable income generation, led to a change in our assessment of the realizability of our deferred tax assets. Consequently, the effective tax rate for the nine months ended September 30, 2024 was not influenced by a valuation allowance reflected against deferred tax assets, which had an unfavorable impact on the effective tax rate.

Previous wording

The effective tax rate for the six months ended June 30, 2024 was favorably impacted by vestings of restricted stock units, offset by executive compensation deduction limitations.

Current wording

The effective tax rate for the nine months ended September 30, 2024 was favorably impacted by vestings of restricted stock units, offset by executive compensation deduction limitations.

Previous wording

Net cash provided by operating activities from continuing operations during the six months ended June 30, 2024 was $27.8 million, compared to cash provided by operating activities from continuing operations of $3.7 million for the six months ended June 30, 2023. The change was primarily the result of year-over-year increases in net sales, which drove increases in collections from customers.

Current wording

Net cash provided by operating activities from continuing operations during the nine months ended September 30, 2024 was $47.4 million, compared to cash provided by operating activities from continuing operations of $16.5 million for the nine months ended September 30, 2023. The change was primarily the result of year-over-year increases in net sales, which drove increases in collections from customers.

Previous wording

Net cash used for investing activities during the six months ended June 30, 2024 was $6.9 million, compared to $1.0 million for the six months ended June 30, 2023. This increase was largely the result of our investment to expand our product portfolio through the TELA and Regenity agreements as described below in “Liquidity and Capital Resources”.

Current wording

Net cash used for investing activities during the nine months ended September 30, 2024 was $6.8 million, compared to $1.7 million for the nine months ended September 30, 2023. This increase was largely the result of our investment to expand our product portfolio through the TELA and Regenity agreements, as described below in “Liquidity and Capital Resources.”

Previous wording

Net cash used for financing activities during the six months ended June 30, 2024 was $33.8 million. Cash used in financing activities was immaterial during the six months ended June 30, 2023. The increase during the six months ended June 30, 2024 was due to the repayment of the initial $30.0 million drawing under the Revolving Credit Facility, as described below in “Liquidity and Capital Resources,” deferred financing costs and other payments made as part of the Debt Refinancing Transactions, as defined below, and stock repurchases for tax witholdings upon vesting of employee stock awards.

Current wording

Net cash used for financing activities during the nine months ended September 30, 2024 was $33.8 million. Cash provided by financing activities was $0.4 million during the nine months ended September 30, 2023. The cash used during the nine months ended September 30, 2024 was due to the repayment of the initial $30.0 million drawing under the Revolving Credit Facility, as described below in “Liquidity and Capital Resources,” deferred financing costs and other payments made as part of the Debt Refinancing Transactions, as defined below, and stock repurchases for tax withholdings upon vesting of employee stock awards.

Previous wording

As of June 30, 2024, we had $69.0 million of cash and cash equivalents, total current assets of $154.0 million and total current liabilities of $40.0 million, reflecting a current ratio of 3.8. We had no borrowings outstanding and $75 million of availability under our Revolving Credit Facility (as defined below).

Current wording

As of September 30, 2024, we had $88.8 million of cash and cash equivalents, total current assets of $172.1 million and total current liabilities of $41.9 million, reflecting a current ratio of 4.1. We had no borrowings outstanding and $75 million of availability under our Revolving Credit Facility (as defined below).

Previous wording

We are required to pay a quarterly commitment fee on any unused portion of the Revolving Credit Facility, letter of credit fees, and other customary fees to the Agent and the Lenders. The Term Loan Facility will amortize on a quarterly basis at 1.25% (for year one and two), 1.875% (for year three and four), and 2.5% (for year five) based on the aggregate principal amount outstanding under the Term Loan Facility at inception, with the remainder due on the Maturity Date. We must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. We may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. We must also comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants.

Current wording

We are required to pay a quarterly commitment fee on any unused portion of the Revolving Credit Facility, letter of credit fees, and other customary fees to the Agent and the Lenders. The Term Loan Facility will amortize on a quarterly basis at 1.25% (for year one and two), 1.875% (for year three and four), and 2.5% (for year five) based on the aggregate principal amount outstanding under the Term Loan Facility at inception, with the remainder due on the Maturity Date. We must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. We may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. We must also comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants. As of September 30, 2024, the Company is in compliance with all financial covenants under the Credit Facilities.

Previous wording

Except as described below, there were no significant changes to our contractual obligations during the six months ended June 30, 2024 from those disclosed in the section Item 7, “Management’s Discussion and Analysis of Financial Condition and Results from Operations”, in our 2023 Form 10-K.

Current wording

Except as described below, there were no significant changes to our contractual obligations during the nine months ended September 30, 2024 from those disclosed in the section Item 7, “Management’s Discussion and Analysis of Financial Condition and Results from Operations”, in our 2023 Form 10-K.