MiMedx Group, Inc. — Q3 2022 Form 10-Q Summary
Business Context and Reporting Period
MiMedx is a placental biologics company focused primarily on advanced wound care, surgical recovery, and regenerative medicine. The filing covers the unaudited three and nine months ended September 30, 2022, compared with the same periods in 2021. The company reports two reportable segments: Wound & Surgical and Regenerative Medicine.
MiMedx primarily markets Section 361 tissue allografts in the United States. It stopped marketing its Section 351 products in the United States after the FDA’s enforcement-discretion period ended on May 31, 2021; those products may not be marketed domestically until applicable FDA approval, including a BLA, is obtained.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Net sales | $67.7 million | $63.1 million | Up 7.3% |
| Gross profit | $55.5 million | $52.9 million | Up 4.8% |
| Gross margin | 82.0% | 83.9% | Down 190 basis points |
| Operating loss | $7.1 million | $1.1 million | Higher loss |
| Net loss | $8.4 million | $2.3 million | Higher loss |
| Net loss available to common stockholders | $10.1 million | $3.9 million | Higher loss |
| Basic and diluted loss per share | $0.09 | $0.04 | Higher loss per share |
| Adjusted EBITDA | $(0.7) million | $7.0 million | Down $7.7 million |
| Metric | Nine Months 2022 | Nine Months 2021 | Change |
|---|---|---|---|
| Net sales | $193.5 million | $191.2 million | Up 1.2% |
| Gross profit | $159.5 million | $158.7 million | Up 0.5% |
| Gross margin | 82.5% | 83.0% | Down 50 basis points |
| Operating loss | $26.0 million | $8.3 million | Higher loss |
| Net loss | $29.8 million | $12.5 million | Higher loss |
| Operating cash flow | $(12.3) million | $1.3 million | Declined $13.5 million |
| Adjusted EBITDA | $(3.4) million | $15.1 million | Down $18.5 million |
At September 30, 2022, cash and cash equivalents were $73.2 million, down from $87.1 million at December 31, 2021. Current assets were $136.0 million and current liabilities were $45.9 million, producing a reported current ratio of approximately 3.0.
Long-term debt, net, was $48.5 million, consisting primarily of a $50.0 million senior secured term loan due June 30, 2025. The loan carried a 10.4% interest rate at quarter-end and is secured by substantially all company assets. The company reported compliance with its financial covenants, including a $20.0 million minimum liquidity covenant.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased $4.6 million, driven primarily by Tissue/Other Advanced Wound Care products and early sales from AMNIOEFFECT and AXIOFILL, launched in September 2022.
- Nine-month Advanced Wound Care revenue increased 10.6% to $191.4 million, but Section 351 revenue fell 89.4% to $1.8 million because U.S. sales ceased after the FDA enforcement-discretion period ended.
- SG&A increased 15.5% in Q3 and 9.3% year to date, reflecting higher commissions, travel, bad debt expense, personnel costs, consulting expenses, and $3.1 million of former CEO severance.
- Research and development expense increased 36.3% in Q3 and 36.5% year to date, primarily due to clinical research and product development investments.
- Gross margins declined because of lower production levels, partially offset by the absence of significant inventory write-downs recorded in 2021.
- Operating cash flow turned negative, primarily due to higher operating expenses, a $2.0 million initial milestone payment under the Nordic Agreement, working-capital needs, and the absence of the $9.2 million tax refund received in 2021.
- The company’s accumulated deficit increased to $191.5 million, resulting in stockholders’ deficit of $19.5 million at September 30, 2022, compared with positive equity of $0.1 million at year-end 2021.
- The company reassessed its operating structure and began reporting Wound & Surgical and Regenerative Medicine as distinct reportable segments. Regenerative Medicine had no revenue in Q3 or the first nine months of 2022 and generated $11.4 million of research and development expense year to date.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide formal financial guidance in the filing. Management stated that existing cash and cash generated from operations are expected to be sufficient to meet obligations for the 12 months following the filing date, based on its expectations for revenue, margins, and expenses.
- Regulatory risk: Section 351 products cannot be marketed in the United States without required FDA approval. The company is pursuing a late-stage biologics program for micronized dehydrated human amnion chorion membrane, beginning with knee osteoarthritis.
- Clinical commitments: Under the Nordic Agreement, the company may owe $13.3 million in milestone payments for its knee osteoarthritis clinical trial program. It had paid $2.0 million through September 30, 2022, with $1.4 million recorded as prepaid expenses.
- Liquidity and debt: The company has significant recurring operating losses and negative operating cash flow. Its $50.0 million term loan matures in 2025, and rising variable interest rates are expected to increase interest expense.
- Preferred stock overhang: Series B preferred stock has a $92.5 million carrying amount, a 6.0% cumulative dividend, and $12.1 million of accumulated unpaid dividends. Based on accumulated dividends, it was convertible into approximately 29.1 million common shares at September 30, 2022.
- Legal and regulatory matters: The company remains subject to securities litigation, indemnification claims, regulatory matters, and other litigation. The securities class action appeal was pending at the filing date, and negotiations with former executive Parker Petit remained ongoing.
- Former CEO separation: A $3.1 million severance obligation was recorded in Q3 2022, payable in installments through September 2024.
- Credit risk: The allowance for doubtful accounts increased to $3.8 million from $1.2 million at year-end 2021, and year-to-date bad debt expense was $2.8 million.
- COVID-19: Management reported that pandemic-related operational effects had largely ameliorated and did not materially affect Q3 operations, but continued monitoring potential future impacts.
Investor Verification Checklist
- Verify the sustainability of Advanced Wound Care growth and the commercial contribution of AMNIOEFFECT and AXIOFILL.
- Track operating cash burn, cash balances, and compliance with the $20.0 million minimum liquidity covenant.
- Assess the company’s ability to fund clinical trials, the remaining Nordic Agreement milestones, legal obligations, and debt repayment through 2025.
- Monitor FDA progress and the timing and probability of BLA approval for Section 351 products.
- Evaluate margin pressure from production levels, commissions, bad debt expense, inflation, and rising interest rates.
- Consider potential dilution or cash obligations from the Series B preferred stock, accumulated dividends, and approximately 29.1 million potential common shares.
- Review developments in the securities class action appeal, indemnification matters, and other litigation.