MiMedx Group, Inc. 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. MiMedx develops, processes, and markets regenerative biomaterials and human amniotic tissue allografts, including EpiFix and AmnioFix, for wound care, surgical, sports medicine, ophthalmic, and dental applications.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 |
|---|---|---|
| Net sales | $45.7 million | $86.4 million |
| Gross profit | $40.6 million | $76.2 million |
| Gross margin | 88.9% | 88.2% |
| Operating income | $5.7 million | $9.9 million |
| Operating margin | 12.4% | 11.5% |
| Net income | $5.4 million | $9.5 million |
| Diluted earnings per share | $0.05 | $0.08 |
| Adjusted EBITDA | $10.6 million | $19.3 million |
- Cash and cash equivalents were $38.6 million at June 30, 2015, compared with $46.6 million at December 31, 2014. Short-term investments were $7.3 million, consisting of FDIC-insured certificates of deposit.
- Current assets were $91.8 million and current liabilities were $19.5 million, producing a current ratio of approximately 4.7.
- Accounts receivable increased to $39.4 million from $26.7 million at year-end, reflecting higher sales and a significant use of operating cash.
- Net cash provided by operating activities was $7.1 million, compared with $0.4 million used in operating activities in the prior-year period.
- Investing activities used $1.2 million, primarily for equipment and patent application costs.
- Financing activities used $14.0 million, including $16.6 million for stock repurchases, partially offset by $2.7 million from stock-option exercises.
- The filing discloses no conventional material debt. Capital lease obligations were approximately $192,000, and operating lease, meeting-space, and charitable commitments totaled approximately $8.0 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 79% to $45.7 million from $25.6 million; six-month revenue increased 92% to $86.4 million from $45.1 million.
- Growth was attributed primarily to increased EpiFix wound-care sales and AmnioFix surgical sales in commercial and government accounts.
- Second-quarter net income improved from a $0.4 million loss to $5.4 million of income; six-month net income improved from a $1.3 million loss to $9.5 million of income.
- Six-month cost of products sold improved to 12% of revenue from 13%, primarily due to direct-sales growth, product mix, and higher production rates.
- Second-quarter selling, general and administrative expense increased to $32.7 million from $21.2 million. The increase reflected expansion of the direct sales force, higher commissions, reimbursement support, information technology spending, legal costs, and share-based compensation.
- Six-month share-based compensation increased to $8.2 million from $5.1 million and was a significant component of the difference between GAAP net income and Adjusted EBITDA.
- The company repurchased 1.8 million shares for approximately $16.6 million during the first six months. The repurchase authorization was increased to $30.0 million, with approximately $7.8 million remaining at June 30, 2015.
Guidance, Outlook, Risks, and Unusual Items
- Management believes existing cash, certificates of deposit, and anticipated operating and financing cash flows will fund operating liquidity needs and planned investing activities for at least the next twelve months.
- Management cited continued quarter-over-quarter revenue growth and positive profitability trends. The filing does not provide formal revenue or earnings guidance.
- Management stated that it may release all or part of its valuation allowance against U.S. deferred tax assets by year-end 2015 if profitability and visibility continue to improve. Any release could materially affect reported tax expense or benefit.
- The FDA continues to question whether the company’s micronized allografts qualify for regulation solely as Section 361 HCT/Ps. MiMedx has initiated a Phase IIB clinical trial and may pursue a biologics license application. The FDA could impose labeling or manufacturing conditions, require a biologics license, or require a product recall. Micronized products represented approximately 14% of 2014 revenue.
- A consolidated securities class action related to the FDA matter remained in discovery. The company believes the litigation will not materially affect its financial condition or results, but the ultimate outcome is uncertain.
- An OIG subpoena and related qui tam matter remained potentially subject to future government intervention, although the Department of Justice declined to intervene at that time and the private plaintiff had not initiated the action within the stated period.
- The company is involved in several patent infringement actions and related inter partes review proceedings. The PTAB denied institution on seven challenged grounds but allowed review of certain claims of the '687 patent to proceed.
- The company reported effective disclosure controls and no material change in internal control over financial reporting. No off-balance-sheet arrangements were reported.
Facts Investors Should Verify
- Whether rapid revenue growth continues while accounts receivable and allowance balances remain appropriately collectible.
- The impact of expanding sales, reimbursement, legal, clinical-trial, and share-based compensation expenses on operating margins and cash conversion.
- Regulatory developments concerning micronized products, including FDA guidance, clinical-trial progress, licensing requirements, and potential recall exposure.
- The timing and financial impact of any deferred-tax valuation allowance release.
- Outcomes of the securities, OIG-related, patent infringement, and inter partes review proceedings.
- Future stock repurchases and their effect on liquidity, share count, and per-share results.