MiMedx announced today its record results for the third quarter of 2017.
MIMEDX OPERATING INCOME GROWS 88% ON 31% REVENUE GROWTH
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MARIETTA, Ga., Oct. 26, 2017 /PRNewswire/ -- MiMedx, the leading biopharmaceutical company developing and marketing regenerative and therapeutic biologics utilizing human placental tissue allografts and patent-protected processes for multiple sectors of healthcare, announced today its record results for the third quarter of 2017. Third Quarter 2017 Financial Highlights
* See the accompanying tables for definitions of each Non-GAAP metric. Reconciliations of GAAP Net Income to Adjusted EBITDA, GAAP Gross Margin to Adjusted Gross Margin, and GAAP Net Income to Adjusted Net Income and Adjusted Diluted Net Income Per Share appear in the tables below. These non-GAAP measures include, but are not limited to, adjustments for non-cash charges associated with purchase accounting related to the Stability Biologics acquisition and divestiture, normalization of tax expense, one-time non-recurring cash charges and share based compensation expense. The Company recorded record revenue for the 2017 third quarter of $84.6 million, a $20.1 million or 31% increase over 2016 third quarter revenue of $64.4 million. The Company's gross margin for the quarter ended September 30, 2017, was 89%, as compared to the 88% gross margin in the third quarter of 2016. Operating Income for the third quarter of 2017 was $8.8 million, a $4.1 million or 88% increase, as compared to Operating Income of $4.7 million in the third quarter of 2016. Net Income for the third quarter of 2017 was $17.5 million, or $0.15 per diluted common share including $0.09 related to the Stability Biologics divestiture, a $14.1 million or 426% increase, as compared to Net Income of $3.3 million, or $0.03 per diluted common share in the third quarter of 2016. Net income for the quarter includes a $4.3 million gain on the divestiture of Stability Biologics as well as discrete tax benefits on the transaction totalling $5.7 million. Adjusted EBITDA* for the quarter ended September 30, 2017, was $15.6 million, a $4.3 million or 38% improvement, as compared to Adjusted EBITDA* of $11.4 million for the third quarter of 2016. Revenue for the nine months ended September 30, 2017 was $233.6 million, a $58.5 million or 33% increase over revenue for the nine months ended September 30, 2016 of $175.1 million. The Company's gross margin for the nine months ended September 30, 2017, was 88%, as compared to 87% gross margin in the same period of 2016. Operating Income for the first nine months of 2017 was $22.2 million, a $12.5 million or 129% increase, as compared to Operating Income of $9.7 million in the first nine months of 2016. Net Income for the first nine months of 2017 was $29.9 million, or $0.26 per diluted common share, including the gain on the divestiture of $0.09 per diluted common share, a $23.4 million or 360% increase, as compared to Net Income of $6.5 million, or $0.06 per diluted common share, in the first nine months of 2016. Adjusted EBITDA* for the nine months ended September 30, 2017, was $42.2 million, a $11.7 million or 38% improvement, as compared to Adjusted EBITDA* of $30.5 million for the nine months ended September 30, 2016. Third quarter 2017 Research & Development ("R&D") expenses were $5.5 million or 6.5% of Net Sales, an increase of $2.6 million over third quarter 2016 R&D expenses of $2.9 million. R&D expenses for the first nine months of 2017 were $14.4 million or 6.2% of Net Sales, an increase of $5.8 million over R&D expenses of $8.6 million for the same period of 2016. The increase was driven by greater investments in clinical trials. Selling, General and Administrative ("SG&A") expenses for the third quarter of 2017 were $60.2 million, a $12.1 million increase over third quarter of 2016 SG&A expenses of $48.2 million. SG&A expenses for the first nine months of 2017 were $168.5 million, a $36.9 million increase over SG&A expenses of $131.6 million for the same period in 2016. Increases in SG&A were primarily due to the continuation of the buildup of the Company's direct sales force in Wound Care and SSO sales channels, as well as legal costs. The Company recorded an income tax credit in the quarter of $4.4 million, as compared to income tax expense of $1.3 million in the third quarter of 2016. The credit was primarily due to discrete income tax benefits related to the Stability Biologics divestiture and equity compensation adjustments from stock option exercises in the quarter. Management Commentary Parker H. "Pete" Petit, Chairman and CEO stated, "Our third quarter results were impressive and showed extremely strong growth in revenue, robust increases in profit, solid reduction of accounts receivable DSOs and substantive increase in our cash flow from operations. Based on all factors for measuring an organization's performance, this was an outstanding quarter. I am extremely pleased with the momentum our sales organization has built, and it continues to strengthen quarter over quarter. All of our operational, administrative and corporate functions are contributing to this growing momentum." Bill Taylor, President and COO, said, "We are particularly pleased that we achieved such strong third quarter results even with the disruptions and terrible effects of the hurricanes. We continue to expand our direct sales force in order to capture the significant market opportunities available to the Company. Our direct sales currently account for more than 95% of our total revenue. Our network of distributors and Original Equipment Manufacturer (OEM) accounts represent less than 5% of total revenue. Our strategy to establish a significant direct sales presence in many 'secondary markets' has proven to be quite effective and a solid contributor to our growth." "The third quarter was a prolific one for us in the advancement of our clinical study initiatives," noted Petit. "Early in the fourth quarter, the landmark venous leg ulcer (VLU) clinical study of MiMedx EpiFix® was published. Patients treated with EpiFix showed complete healing rates of 60% within 12 weeks and 71% within 16 weeks. EpiFix demonstrated statistical and clinical superiority over Standard of Care (SOC) in the treatment of non-healing, full thickness VLUs. The only other randomized clinical trial comparing a biologically active product to SOC in treating non-healing VLU involved a product that holds the next largest market share behind EpiFix, and this product took twice as long (24 weeks vs 12 weeks with EpiFix) to heal an equivalent percentage of patients." Petit continued, "Towards the end of the quarter, we filed an Investigational New Drug (IND) Phase 2B application for AmnioFix® Injectable in the treatment of osteoarthritis of the knee. Shortly after the end of the quarter, we were notified by the Food and Drug Administration (FDA) that this Phase 2B study could proceed. This clinical trial represents a significant opportunity for the Company. The first two Biologics License Application (BLA) indications for use we are currently targeting for AmnioFix Injectable are General Tendonitis and Osteoarthritic Knee Pain. The musculoskeletal degeneration market opportunity for these first two BLA indications exceeds $12 billion. We anticipate significant adoption of AmnioFix Injectable due to its non-degenerative nature and potential to meaningfully reduce the use of opioid-based pain medication by people suffering from tendonitis and osteoarthritis. During the quarter, we were also notified by the FDA that our IND Phase 3 Achilles Tendonitis clinical study could proceed." Taylor added, "It is extremely important to highlight the potential for AmnioFix Injectable to significantly reduce the predominant use of opioid-based pain medications. With the application of AmnioFix Injectable in the management of the pain resulting from tendonitis and osteoarthritis, these patients will have a sustainable alternative to today's prevalent medications that are opioid-based. The use and abuse of opioids in pain management has become an epidemic, and we are confident that this societal factor along with the regenerative properties of AmnioFix Injectable, which are in sharp contrast to corticosteroid use, will contribute to a widespread adoption and utilization of AmnioFix Injectable in the treatment of tendonitis and osteoarthritis. "At the end of the quarter, we completed the divestiture of Stability Biologics. As reported earlier, this aspect of our business was not a strategic fit with our new focus on becoming a predominantly biopharmaceutical company. With the divestiture completed, we expect to have stronger gross profit margins and better return on investment (ROI) opportunities in biopharma compared to those in the cadaveric tissue category," noted Taylor. "Along with our excellent third quarter operational results and the multiple advances we made in our clinical study initiatives, the third quarter marked significant progress in numerous other areas. We made significant headway in our legal actions defending our intellectual property and protecting against patent infringement. We successfully cleared all protracted hurdles put up by the defendants, and are now set for our first patent trial in January 2018. Also, we reached settlement in one and won many favorable judicial rulings in our other lawsuits against employees terminated for selling competitive products. Additionally, we have taken the appropriate legal actions against short sellers and others, and have taken steps to publically expose the coordinated scheme levied against the Company by these short sellers. We will not stand for the tortious interference and damage to the value of our shareholders' investment in MiMedx caused by the illegal actions of these short sellers and their 'free speech' shills," concluded Petit. Liquidity and Cash Flow Share Repurchase Program Stability Biologics Divestiture Revenue Breakdown Fourth Quarter and Full Year 2017 Guidance Highlights
Earnings Call Use of Non-GAAP Financial Measures About MiMedx Important Cautionary Statement
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2017 2016
(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $36,522 $34,391
Accounts receivable, net 59,581 67,151
Inventory, net 10,419 17,814
Prepaid expenses 6,662 5,894
Other current assets 926 1,288
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Total current assets 114,110 126,538
Property and equipment, net of
accumulated depreciation 13,264 13,786
Goodwill 19,894 20,203
Intangible assets, net of
accumulated amortization 10,377 23,268
Deferred tax asset, net 17,671 9,114
Other assets 3,391 354
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Total assets $178,707 $193,263
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,767 $11,436
Accrued compensation 15,092 12,365
Accrued expenses 8,613 10,941
Current portion of earn out
liability - 8,740
Income taxes 2,329 5,768
Other current liabilities 358 1,482
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Total current liabilities 35,159 50,732
Earn out liability - 8,710
Other liabilities 1,076 821
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Total liabilities 36,235 60,263
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Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par
value; 5,000,000 shares
authorized and 0 shares
issued and outstanding - -
Common stock; $.001 par value;
150,000,000 shares
authorized; 112 110
112,703,926 issued and 111,035,248
outstanding at September 30, 2017 and
110,212,547 issued and 109,862,787
outstanding at December 31, 2016
Additional paid-in capital 163,446 161,261
Treasury stock at cost: (24,784) (2,216)
1,668,678 shares at September 30, 2017 and
349,760 shares at December 31, 2016
Accumulated earnings (deficit) 3,698 (26,155)
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Total stockholders' equity 142,472 133,000
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Total liabilities and
stockholders' equity $178,707 $193,263
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MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
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2017 2016 2017 2016
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Net sales $84,573 $64,429 $233,592 $175,139
Cost of sales 9,599 7,997 26,972 23,338
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Gross margin 74,974 56,432 206,620 151,801
Operating expenses:
Research and development expenses 5,481 2,919 14,430 8,582
Selling, general and administrative expenses 60,233 48,179 168,498 131,599
Amortization of intangible assets 418 631 1,451 1,889
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Operating income 8,842 4,703 22,241 9,731
Other income (expense)
Gain on divestiture 4,274 - 4,274 -
Interest expense, net (43) (87) (337) (254)
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Income before income tax provision 13,073 4,616 26,178 9,477
Income tax provision (expense) benefit 4,384 (1,295) 3,675 (2,984)
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Net Income $17,457 $3,321 $29,853 $6,493
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Net income per common share - basic $0.16 $0.03 $0.28 $0.06
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Net income per common share - diluted $0.15 $0.03 $0.26 $0.06
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Weighted average shares outstanding - basic 106,871,436 105,991,990 106,469,278 105,927,890
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Weighted average shares outstanding - diluted 117,501,925 112,361,179 116,547,006 112,193,701
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MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2017 2016 2017 2016
---- ---- ---- ----
Cash flows from operating activities:
Net income $17,457 $3,321 $29,853 $6,493
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 1,013 838 3,074 2,394
Amortization of intangible assets 418 631 1,451 1,889
Amortization of inventory fair value step-up 50 247 203 1,471
Amortization of deferred financing costs 45 45 135 136
Impairment of intangible assets 357 - 357 -
Share-based compensation 5,306 4,701 15,232 13,826
Change in deferred income taxes (7,527) (93) (8,557) (449)
Gain on divestiture (4,274) - (4,274) -
Increase (decrease) in cash, net of effects of acquisition and divestiture, resulting from changes in:
Accounts receivable (1,248) (8,565) 5,165 (7,671)
Inventory 1,110 (1,354) 3,738 (3,599)
Prepaid expenses 1,532 (241) (792) (2,023)
Other assets (666) 195 (402) 286
Accounts payable 244 1,656 478 (3,941)
Accrued compensation 519 566 2,873 (4,223)
Accrued expenses 605 (324) (2,228) 2,020
Income taxes 3,152 1,233 (3,438) 2,621
Other liabilities (142) (11) (794) (82)
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Net cash flows from operating activities 17,951 2,845 42,074 9,148
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Cash flows from investing activities:
Purchases of equipment (1,303) (1,546) (3,998) (5,301)
Stability acquisition - - - (7,631)
Fixed maturity securities redemption - - - 3,000
Patent application costs (90) (188) (144) (515)
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Net cash flows from investing activities (1,393) (1,734) (4,142) (10,447)
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Cash flows from financing activities:
Proceeds from exercise of stock options 2,398 532 11,590 2,548
Stock repurchase under repurchase plan (29,289) (6,848) (44,032) (10,378)
Stock repurchase for tax withholdings on vesting of restricted stock (671) (208) (3,337) (892)
Deferred financing costs - (45) - (106)
Payments under capital lease obligations (7) (7) (22) (21)
Net cash flows from financing activities (27,569) (6,576) (35,801) (8,849)
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Net change in cash (11,011) (5,465) 2,131 (10,148)
Cash and cash equivalents, beginning of period 47,533 23,803 34,391 28,486
Cash and cash equivalents, end of period $36,522 $18,338 $36,522 $18,338
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MIMEDX GROUP, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures and Reconciliation
In addition to our GAAP results, we provide certain Non-GAAP metrics including Adjusted EBITDA, Adjusted Gross Margin, Adjusted Net Income and Adjusted Diluted Net Income per share. We believe that the presentation of these measures provides important supplemental information to management and investors
regarding our performance. These measurements are not a substitute for GAAP measurements, although Company management uses these measurements as aids in monitoring the Company's on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against
other medical technology companies. Adjusted EBITDA consists of GAAP Net Income excluding: (i) depreciation and amortization, (ii) interest income and expense, (iii) income taxes, (iv) one time acquisition related costs, (v) the effect of purchase accounting due to acquisitions and (vi) share-based
compensation expense, and (vii) gain on divestiture. Due to the impact of the acquisition of Stability in January 2016, we have decided to provide additional adjusted non-GAAP measures to provide comparability of normal ongoing operating results. Beginning in 2016, we have reported Adjusted Gross
Margin, Adjusted Net Income and Adjusted Diluted Net Income per Share to normalize results for comparison purposes. Adjusted Gross Margin consists of GAAP gross margin excluding amortization of inventory fair value step-up. Adjusted Net Income and Adjusted Diluted Net Income per share consists of GAAP
net income excluding: (i) one time acquisition related costs, (ii) amortization of inventory fair value step-up, (iii) amortization of intangible assets, (iv) share-based compensation and (v) gain on divestiture. Reconciliations of GAAP net income to Adjusted EBITDA, GAAP Gross Margin to Adjusted Gross
Margin and GAAP Net Income to Adjusted Net Income and Adjusted Diluted Net Income per Share for the three and nine months ended September 30, 2017 and 2016 appear in the tables below (in thousands):
Three Months Ended September 30, Nine months Months Ended September
30,
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2017 2016 2017 2016
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Net Income (Per GAAP) $17,457 $3,321 $29,853 $6,493
Add back:
Gain on divestiture (4,274) - (4,274) -
Income taxes expense (benefit) (4,384) 1,295 (3,675) 2,984
One time costs incurred in connection with acquisition - 237 - 1,088
One time inventory costs incurred in connection with acquisition 50 247 203 1,578
Other interest expense, net 43 87 337 254
Depreciation expense 1,013 838 3,074 2,394
Amortization of intangible assets 418 631 1,451 1,889
Share-based compensation 5,306 4,701 15,232 13,826
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Adjusted EBITDA $15,629 $11,357 $42,201 $30,506
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Reconciliation of "Adjusted Gross Margin" defined as Gross Margin before Amortization of inventory fair value step-up
(in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
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2017 2016 2017 2016
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Gross Margin (Per GAAP) $74,974 $56,432 $206,620 $151,801
Non-GAAP Adjustments:
One time inventory costs incurred in connection with acquisition 50 247 203 1,578
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Gross Margin before Amortization of inventory fair value step-up $75,024 $56,679 $206,823 $153,379
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Adjusted Gross Margin 88.7% 88.0% 88.5% 87.6%
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Reconciliation of "Adjusted Net Income" and "Adjusted Diluted Net Income" per share defined as Net Income less Amortization, One Time Costs, Share-Based Compensation and Gain on Divestiture
(in thousands, except share and per share data):
Three Months Ended September 30, Nine Months Ended September 30,
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2017 2016 2017 2016
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Net income (Per GAAP) $17,457 $3,321 $29,853 $6,493
Non-GAAP Adjustments:
Tax rate normalization* (7,439) (539) (11,355) (901)
Gain on divestiture (4,274) - (4,274) -
One time costs incurred in connection with acquisition - 237 - 1,088
One time inventory costs incurred in connection with acquisition 50 247 203 1,578
Amortization of intangible assets 418 631 1,451 1,889
Share-based compensation 5,306 4,701 15,232 13,826
Estimated income tax impact from adjustments (1,996) (2,384) (5,920) (7,686)
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Adjusted Net Income $9,522 $6,214 $25,190 $16,287
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Adjusted Diluted Net Income per Share $0.08 $0.06 $0.22 $0.15
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Denominator for diluted earnings per share - weighted average shares adjusted 117,501,925 112,361,179 116,547,006 112,193,701
for dilutive securities
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* Assumes a normalized tax rate of 41% for 2016 and 35.1% for 2017.
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Company Codes: NASDAQ-SMALL:MDXG |
