MiMedx Group, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2012, filed August 14, 2012. MiMedx develops, manufactures and markets regenerative biomaterials and bioimplants, including amniotic tissue products EpiFix and AmnioFix and device technologies HydroFix and CollaFix. The company operates in one Biomaterials segment and acquired Surgical Biologics in January 2011.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|---|---|
| Net sales | $4.884 million | $1.929 million | $8.590 million | $2.973 million |
| Gross margin | 77.2% | 56.2% | 75.9% | 47.7% |
| Operating loss | $(0.118) million | $(2.416) million | $(0.749) million | $(5.673) million |
| Net loss | $(0.744) million | $(2.504) million | $(1.838) million | $(5.851) million |
| Basic and diluted loss per share | $(0.01) | $(0.03) | $(0.02) | $(0.08) |
- Revenue increased 153% year over year in the second quarter and 189% for the first six months, primarily from increased sales of EpiFix and AmnioFix in spine, wound care, ophthalmology and orthopedics.
- Cost of products sold was 22.8% of revenue in the quarter and 24.1% for the six months, compared with 43.8% and 52.3%, respectively, in the prior-year periods.
- Quarterly selling, general and administrative expense rose to $3.384 million from $2.709 million, reflecting expanded account management, commissions, reimbursement support and clinical and marketing activities.
- Research and development expense declined to $0.503 million for the quarter and $0.910 million for the six months, primarily because of the closure of the Tampa facility and lower animal-study spending.
- Financing and net interest expense increased to approximately $0.627 million in the quarter and $1.089 million for the six months, principally from amortization of discounts and financing costs associated with convertible secured notes.
- Adjusted EBITDA, a non-GAAP measure defined by the company, was $0.923 million for the quarter and $1.237 million for the six months, compared with $(1.423) million and $(3.751) million, respectively, in the prior-year periods.
- Cash used in operating activities was $1.599 million for the six months, compared with $3.920 million in the prior-year period. Cash used in investing activities was $0.238 million, while financing activities provided $0.380 million.
- Cash and cash equivalents were $2.655 million at June 30, 2012, compared with $4.112 million at December 31, 2011. Accounts receivable rose to $3.946 million from $1.892 million, and inventory increased to $0.962 million from $0.713 million.
- Total assets were $27.472 million and stockholders’ equity was $15.668 million at June 30, 2012. The accumulated deficit was $63.859 million.
Debt, Liquidity and Capital Resources
- Outstanding financing included a $1.3 million related-party convertible line of credit, $5.0 million of convertible senior secured promissory notes, and acquisition-related convertible debt. The balance sheet reported approximately $5.286 million of fair value for short- and long-term convertible debt, including accrued interest and discounts.
- The related-party line of credit was scheduled to mature December 31, 2012, with an option to extend to December 31, 2013 by paying a $65,000 extension fee. The senior secured notes mature December 31, 2013 and bear 5% interest.
- Management stated that existing cash and anticipated operating and financing cash flows should fund operations, planned investments and debt obligations for the next twelve months. This assessment depends on continued revenue growth and access to financing or equity proceeds.
- Current liabilities included a $4.225 million earn-out liability payable in MiMedx common stock. After excluding that non-cash obligation, management estimated current liabilities payable in cash at approximately $4.015 million.
- Contractual obligations totaled approximately $8.343 million, including $7.3 million of convertible debt, $0.737 million of operating leases, $0.211 million of employment agreements and $0.095 million of royalty payments.
Material Changes, Outlook and Unusual Items
- On April 30, 2012, the company issued 2,632,576 shares valued at $3.185 million to settle the 2011 Surgical Biologics earn-out liability.
- MiMedx received the CE Mark for CollaFix Surgical Mesh CD during the first quarter of 2012.
- On July 5, 2012, after quarter-end, the company paid approximately $177,000 and issued 437,877 shares valued at approximately $893,000 to settle acquisition-related convertible notes.
- After quarter-end, the company reported that the Second Contingent Warrants became void when its stock traded at or above $1.75 for ten consecutive trading days.
- In July 2012, MiMedx called approximately 3.345 million warrants from the October 2010 private placement, raising approximately $4.9 million and issuing 3,288,733 shares as of August 3, 2012; 56,750 warrants were repurchased for $0.01 per share.
- Two customers represented approximately 54% of second-quarter revenue, including one customer at 41%. One customer represented 34% of accounts receivable at June 30, 2012, creating material concentration and collection risk.
- Management identified risks relating to limited distribution channels, product-market acceptance, regulatory and clinical developments, product delays, financial condition, customer collections and the company’s continuing losses and operating cash use.
- The company had no legal proceedings reported as material, no material changes to previously disclosed risk factors other than customer and distribution concentration, and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Whether revenue growth and improved gross margins continue, particularly in EpiFix and AmnioFix.
- Whether accounts receivable collections and working-capital requirements improve as sales expand.
- Liquidity around the December 2012 maturity of the related-party line of credit and the company’s ability to satisfy or extend its debt obligations.
- The dilution implications of convertible debt, stock options, outstanding warrants and earn-out settlements. At June 30, 2012, the company reported 12.794 million outstanding options, 7.764 million outstanding warrants and 3.248 million contingent warrants.
- Customer concentration, reimbursement support, regulatory approvals, clinical evidence and market acceptance of the company’s products.
- The sustainability of positive Adjusted EBITDA, since the company remained unprofitable on a GAAP basis and incurred $1.599 million of operating cash outflow during the first six months.