MARIETTA, Ga., July 26, 2016 /PRNewswire/ -- MiMedx Group, Inc. (NASDAQ: MDXG), the leading regenerative medicine company utilizing human amniotic tissue and patent-protected processes to develop and market advanced products and therapies for the Wound Care, Surgical, Orthopedic, Spine, Sports Medicine, Ophthalmic, and Dental sectors of healthcare, announced today its results for the second quarter of 2016.
Second Quarter 2016 Highlights
- Q2 2016 revenue exceeds $57.0 million upper end of guidance
- Q2 2016 revenue of $57.3 million is a 26% increase over Q2 2015 revenue
- Net Cash Flow From Operating Activities of $7.3 million
- Adjusted Gross Margin* of 88.1%
- Adjusted EBITDA* of $10.1 million
- Adjusted Net Income* of $5.1 million
- Adjusted EPS* of $0.05 fully diluted
- Wound Care revenue of $42.0 million
- Surgical, Sports Medicine and Orthopedics (SSO) Revenue of $15.3 million
- Current direct sales force grows to more than 280 sales professionals
*See Tables provided with this Release for a reconciliation of GAAP to non-GAAP measures. These non-GAAP measures include adjustments for non-cash charges associated with purchase accounting related to the Stability Biologics acquisition, normalization of tax expense and one-time non-recurring cash charges.
Second Quarter 2016 GAAP Results (includes purchase accounting and one-time non-recurring charges related to the acquisition of Stability Biologics)
- Gross margin of 87.1%
- Net Income of $2.0 million
- EPS of $0.02 fully diluted
Results for Second Quarter and Six Months Ended June 30, 2016
The Company recorded record revenue for the 2016 second quarter of $57.3 million, an $11.6 million or 26% increase over 2015 second quarter revenue of $45.7 million. The Company’s Adjusted Gross Margin for the second quarter of 2016 was 88.1%, compared to 88.9% in the second quarter of 2015. Adjusted EBITDA* for the second quarter of 2016 was $10.1 million, a $488,000 decrease as compared to Adjusted EBITDA* of $10.6 million for the second quarter of 2015. Adjusted Net Income for the second quarter of 2016 was $5.1 million, or $0.05 per diluted common share, a $749,000 decrease, as compared to Adjusted Net Income of $5.9 million, or $0.05 per diluted common share, in the second quarter of 2015.
For the six months ended June 30, 2016, the Company recorded record revenue of $110.7 million, a $24.3 million or 28% increase over revenue of $86.4 million recorded in the same period of 2015. The Company’s Adjusted Gross Margin* for the six months ended June 30, 2016, was 87.3%, compared to 88.2% Adjusted Gross Margin* in the same period of 2015. Adjusted EBITDA* for the six months ended June 30, 2016, was $19.1 million, a $180,000 decrease as compared to Adjusted EBITDA* of $19.3 million for the six months ended June 30, 2015. Adjusted Net Income for the six months ended June 30, 2016, was $10.1 million, or $0.09 per diluted common share, a $673,000 decrease as compared to Adjusted Net Income of $10.7 million, or $0.09 per diluted common share, in the same period of 2015.
Management Commentary on Results
Parker H. “Pete” Petit, Chairman and CEO, stated, “We are very pleased with our progress in all of our product lines, and particularly the Wound Care portion of our business. We are also pleased with the progress we are making with our surgical products, especially now that our SSO and Wound Care sales organizations are separate, but have highly coordinated efforts. Our second quarter 2016 Wound Care revenue grew 18% over the second quarter of 2015. While commercial Wound Care nicely exceeded our expectations, the federal Wound Care revenue was lower than expected due to a Veterans Administration (“VA”) directive to all hospitals that changed their consignment processes for implants and caused disruption to purchasing patterns. These issues are now generally resolved in all but a few hospitals. Our Wound Care revenue for the first six months of 2016 grew 24% over the first six months of 2015.”
“Our SSO revenue grew 52% in the second quarter of 2016 compared to the second quarter of 2015, and for the first six months of 2016, our SSO revenue grew 39% over the first six months of 2015. We just announced one of our two new product lines to be introduced during the third quarter, and we plan on announcing the other later in the quarter. These new products should add to our growth in the last half of this year. However, we are going to continue to be conservative when it comes to our forecast until we see some additional maturing in all of these areas of our sales organization, and we conduct the launches of our two new product lines,” added Petit.
Bill Taylor, President and COO, said, “Our wound care revenue from commercial accounts surpassed our expectations. Our contracts with Group Purchasing Organizations (“GPOs”) and Integrated Delivery Networks (“IDNs”) provide us a significant advantage over our competitors in growing our surgical and wound care business. We currently have national contracts with the five largest GPOs in the country. As a result of these national GPO contracts, more than 95% of the U. S. hospitals currently have access to our allografts. Our contracts include our full line of dehydrated human amnion/chorion membrane (dHACM) allografts. The majority of our IDN relationships are entrenched within the GPO contracts; however, we also have numerous IDN systems under direct contract. Most of our IDN relationships include a commitment level for our allografts. In total, our current contracts with GPO’s encompass over 5,500 U.S members.
“In the second quarter of 2015, we had a major new wound care product introduction, our mesh configuration, which resulted in unusually robust sales for the quarter. This product addressed the concerns caused by the expiration of the CMS ‘pass through status’ which had negatively impacted first quarter of 2015 wound care sales. The mesh product resolved this pent up demand, and it helped drive significant wound care sales in the second quarter of last year. The unusual ‘spike’ in the second quarter last year effectively dampened the prior year quarterly comparison to be ‘only’ 18%. But, as you can see, the more normalized comparison of first half 2016 is a robust growth of 24%,” noted Taylor.
Petit added, “With respect to profitability, the second quarter was our 18th consecutive quarter of recording positive Adjusted EBITDA*. We were also pleased with the strong adjusted gross margins of 88% that we had in the second quarter. As we have stated for years, our operating profits can be quite variable because of our investment decisions such as new sales territories, new product initiatives, and the clinical and scientific studies that support the new product initiatives. Our operating profits are controlled by management decisions generally on a quarter to quarter basis. When we see operating investment opportunities that we believe have potential for the excellent returns on investment that we have traditionally shown, we will take those opportunities. MiMedx still remains in the dynamic growth phase of our business evolution, and it is extremely important that we build our infrastructure ahead of our needs. In the second quarter, we significantly ramped up expenses relative to our international opportunities not only in Europe but also in Asia. We have had these initiatives quietly underway for some time, and they finally reached the point where we had to make additional substantial investment.
“During the quarter, we also saw a significant increase in our ongoing expenses for our clinical and scientific studies. We currently have 24 clinical studies ongoing with more than 120 clinical sites under management. We have two major wound care studies that are being finalized, and this is the point at which the project expenses ramp up considerably. These two large studies will complete our principle initiatives for diabetic foot ulcers (“DFUs”) and venous leg ulcers (“VLUs”). When these studies are complete, we will have accomplished randomized controlled trials (“RCTs”) on approximately 600 DFU and VLU patients. With our SSO initiatives, there are numerous requests for additional clinical and scientific data which we are in the process of fulfilling. It is important to note that our successes in reimbursement and regulatory approvals are heavily influenced by our investment in these studies, and we expect to continue our aggressive posture of advancing our growth through clinical and scientific evidence which demonstrates the beneficial outcomes from our allografts,” commented Petit.
Petit continued, “One year ago, we were still primarily focused on the advanced wound care market investments. In 2016, we have added a major commitment to the SSO sales infrastructure and related clinical and scientific initiatives. More than half of the 24 on-going clinical studies are based on products for the SSO market. We have expanded our sales agent network, including the management, training and education of this network and expanded our marketplace leadership in general through surgical society conferences and field meetings. These conferences now span across orthopedics, spine, sports medicine and abdominal pelvic surgical specialties. Also the majority of our current SSO revenues are tied to GPOs. We pay the GPOs a percentage of gross sales, and this has been a larger expense than budgeted. While this has added to sales expense, these relationships are strategically important and have been a significant contributor to our impressive SSO growth.”
Taylor added, “In addition to these expenses, we have incurred expenses in preparing for the third quarter launches of our two new product lines which are related to our placenta technology. Also, while I do not like to use the word investment relative to legal expenses, we are preparing for our first patent suit trial this fall. Over the years, we have invested millions and millions in building our patent portfolio as well as defending it. We believe we are well prepared to take our first patent suit to trial this fall and expect that success in that litigation will change the environment considerably relative to any corporate entities that are not taking our patent portfolio seriously. The patents for our flagship products, EpiFix and AnmioFix, have been tested in the inter partes review (“IPR”) process. In separate rulings for each of these configuration patents, the Patent Trial and Appeal Board (“PTAB”) found no basis to challenge either patent and that these patents should be found to be valid. Our confidence in receiving a favorable decision at the conclusion of these suits is elevated based on the fact that both of these patents were upheld in the IPR challenges. We also just made an investment in the government affairs area. We found our initial activities in these areas to be very productive, and consequently, we have added additional staff. Those are some of the highlights of our current operating expenses. We certainly do not expect this level of expenditures as a percent of revenues to continue, but they are very necessary now to propel our next stage of growth.”
“MiMedx is maturing at a much faster rate than generally occurs for companies that are our size, and these expenses are part of that accelerated maturation. However, the opportunities we have with our technology warrant these investments. As with our previous infrastructure investments, we expect to see significant returns in the quarters and years ahead. Also, in spite of these increased expenses, we had $7.3 million of positive cash flow from operations for the second quarter of 2016 while reducing DSOs by 5 days,” said Petit.
Taylor noted, “We do not believe that we could have managed the significant quarter-over-quarter revenue growth we experienced without our new sophisticated Sales Management System (“SMS”) and our new sales organizational structure. While the implementation of these initiatives was painstaking, we are now reaping the sales productivity improvements we anticipated they would produce.
“The integration of Stability Biologics is progressing, and we are beginning the process of expanding their production capabilities in the Physio® bone product line and specific product lines related to burn applications. We are pleased with the early indications and results we are seeing with Physio,” commented Taylor.
“Continued additions to our Wound Care direct sales force will also drive growth. Year-to-date, we have added an additional 27 Wound Care sales professionals. The momentum we saw in Q2 2016 commercial Wound Care growth along with the expected rebound in Federal orders, the continued aggressive hiring of Wound Care sales professionals and expected additional international orders give us assurance in hitting our annual Wound Care growth target of over 25 percent. In summary, our second quarter revenue growth gives us confidence that we will stay on track to achieve our growth goals for the third quarter and full year,” added Petit.
GAAP Earnings, Liquidity and Cash Flow
Due to the significant effects of purchase accounting for the January 2016 acquisition of Stability Biologics and the introduction of normal effective income tax rates in 2016 attributable to the release of the valuation allowance on the Company’s deferred tax asset in the fourth quarter of 2015, the Company has decided to provide supplemental non-GAAP information to enhance the clarity and comparability of its reported operating results. Accordingly, the Company has reported supplemental information for Adjusted Gross Margin*, Adjusted EBITDA*, Adjusted Net Income* and Adjusted EPS* in addition to reporting GAAP results as summarized below.
On a GAAP basis, the Company recorded Net Income of $2.0 million, or $0.02 per diluted common share, for the quarter ended June 30, 2016, as compared to a Net Income of $5.4 million, or $0.05 per diluted common share, for the quarter ended June 30, 2015. The Company recorded Net Income of $3.2 million, or $0.03 per diluted common share for the six months ended June 30, 2016, as compared to a Net Income of $9.5 million, or $0.08 per diluted common share, for the six months ended June 30, 2015.
Second quarter 2016 Research & Development (“R&D”) expenses were $3.2 million or 5.5% of Net Sales, an increase of $1.1 million over second quarter 2015 R&D expenses of $2.1 million. The increase in R&D expenses was due to the intensification of the Company’s clinical and scientific studies. R&D expenses for the six months ended June 30, 2016 were $5.7 million or 5.1 % of Net Sales, an increase of $1.8 million over R&D expenses of $3.9 million for the six months ended June 30, 2015.
Selling, general and administrative (“SG&A”) expenses for the second quarter of 2016 were $42.8 million, a $10.1 million increase over second quarter of 2015 SG&A expenses of $32.7 million. Increases in SG&A were due to the continuation of the buildup of the Company’s domestic direct sales force in Wound Care and SSO sales channels, international sales and business development initiatives, increased patent litigation cost, and expenses associated with the Company’s new product launches. SG&A expenses for the six months ended June 30, 2016 were $83.4 million, a $21.5 million increase over SG&A expenses of $62.0 million for the six months ended June 30, 2015.
Cash on hand as of June 30, 2016 was $23.8 million, as compared to $28.5 million as of December 31, 2015.
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