MiMedx Group,: Mimedx Announces Record Second Quarter Results

The following excerpt is from the company's SEC filing.

MARIETTA, Georgia, July 28, 2014 (PR Newswire) - MiMedx Group, Inc. (NASDAQ: MDXG), an integrated developer, processor and marketer of patent protected regenerative biomaterials and bioimplants processed from human amniotic membrane, announced today  its results for the quarter ended June 30, 2014.

The Company recorded record revenue for the second quarter of 2014 of $25.6 million, a $12.1 million or 89% increase over 2013 second quarter revenue of $13.5 million, and above its latest guidance range of $24 million to $25 million. The Company’s gross margins for the quarter ended June 30, 2014 were 89% as co mpared to 84% in the second quarter of 2013. Earnings before interest, taxes, depreciation, amortization, share-based compensation ("Adjusted EBITDA"*) for the quarter ended June 30, 2014 were $2.9 million, a $1.7 million or 148% improvement, as compared to the Adjusted EBITDA* of $1.2 million for the second quarter of 2013. The Net Loss for the second quarter of 2014 was $0.4 million or $0.00 per diluted common share, as compared to the Net Loss of $0.8 million, or $0.01 per diluted common share, in the prior year second quarter.

For the six months ended June 30, 2014, the Company recorded record revenue of $45.1 million, a $20.1 million or 80% increase over revenue of $25.1 million for the first six months of 2013. The Company's gross margins for the six months ended June 30, 2014 were 87% as compared to 84% in the same period of 2013. Adjusted EBITDA* for the six months ended June 30, 2014, were $4.9 million, a $2.6 million or 113% improvement, as compared to the Adjusted EBITDA* of $2.3 million for the first half of 2013. The Net Loss for the six months ended June 30, 2014 was $1.3 million, as compared to the Net Loss of $2.4 million in the prior year same period.

Parker H. “Pete” Petit, Chairman and CEO, said, “Our second quarter results were excellent. We achieved impressive top line growth and solid improvements to our bottom line. During the quarter, we twice increased our initial revenue guidance, and we ultimately

exceeded the $25 million upper end of our latest guidance. The second quarter marked our 11th straight quarter in which we met or exceeded our revenue forecast. Our sequential quarter-over-quarter revenue growth was extremely strong, with a $6.0 million or 31% increase over the first quarter of 2014. Second quarter positive Adjusted EBITDA* of $2.9 million is the highest in our history. We are committed to continuing our progress of period-over-period revenue growth and improvements in our profitability.”

Bill Taylor, President and COO, stated, “Our second quarter revenue growth was mainly due to growth in our wound care offering, EpiFix®, which has been used in over 40 different types of acute and chronic wounds. The sites of service for EpiFix® include in-patient diagnosis-related group ("DRG") cases, hospital outpatient cases, as well as cases performed in the physician offices. Reimbursement coverage for EpiFix® continued to expand over the quarter such that EpiFix® is eligible for coverage and reimbursement by about 200 payers, including 20 Blue Cross Blue Shield plans, all Medicare Administrative Contractors ("MACs") and over 20 state Medicare plans.”

“The revenue contribution of the additional 46 sales professionals that we added to our direct sales force during the first quarter of 2014 began to show its impact during the second quarter. The experience and relationships these new professionals have brought to the Company has been extremely complementary to the wealth of talent we had assembled prior to this latest sales expansion initiative. We expected these additions would begin impacting our growth in the second quarter, and we are very gratified that they have lived up to that expectation. Wound care sales continued to be the primary driver of the Company’s second quarter revenue growth, increasing by 181% over second quarter of 2013 and sequentially by 40% over first quarter of 2014. We expect to continue building our direct sales force to 150 or more sales professionals by the end of the year,” added Taylor.

Petit commented, “We are continuing to increase our investments in clinical trials, with several in progress with patient treatment and measurement of clinical outcomes underway and many more are in the initiation phase. Our portfolio of clinical studies, including Randomized Controlled Trials ("RCTs") and cross-over clinical studies, has been a vital factor in our rapid success in securing eligibility for reimbursement coverage from all of the MACs with jurisdictions encompassing the entire United States. The compelling results of these peer-reviewed, published clinical studies are also playing a crucial part in our on-going successes in gaining reimbursement coverage from additional commercial health plans and state Medicaid programs.”

Early in the quarter, the Company announced the receipt of four newly issued patents related to the Company’s tissue allografts derived from the placenta. This brings the Company’s total to 15 patents issued to MiMedx related to the Company’s allografts derived from the amniotic membrane. “We also have approximately 70 pending patent applications related to our amnion/chorion technology that have been filed in the United States and internationally. We remain very committed to furthering the protection of our intellectual property,” stated Petit.

“We have filed our first Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”). As we communicated earlier, the filing of this IND is the first step in the process that we expect will culminate in at least two separate Biologics License Applications (“BLAs”) for certain indications for use of our micronized allografts. We expect other BLAs to follow at later dates. We are pleased with the pace of the progress we have made in our pursuit of the BLA regulatory pathway for certain of our micronized allografts. We have expanded our Research & Development (“R&D”) function in support of this initiative," concluded Petit.

As of June 30, 2014, total assets increased by $1.3 million to $86 million, compared to $84.7 million as of December 31, 2013. Cash on hand as of June 30, 2014, was $39.2 million, a decrease of $4.9 million due primarily to our share repurchase program, as compared to $44.1 million as of December 31, 2013. Cash flow from operating activities for the quarter ended June 30, 2014 was a positive $1.2 million, due primarily to improved operating results and a significant improvement in our Days' Sales Outstanding ("DSO") in accounts receivable, as compared to a negative $.8 million in the second quarter of 2013. Free cash flow which is net cash flow from operations less net cash flow from investing activities was a positive $.4 million as compared to a negative $2.1 million in the second quarter of 2013.

During the second quarter, the Company repurchased a total of 784,200 shares for approximately $4.5 million as part of the previously announced share repurchase program.

Accounts receivable increased to $20.5 million as of June 30, 2014, from $16.1 million as of December 31, 2013. This was largely due to the higher sales volume and the buildup of the Company’s commercial wound care sales during the first quarter of 2014. DSO as of June 30, 2014 were 72 days, an improvement of 15 days from March 31, 2014, DSO of 87 days. Inventory increased approximately $349,000 to $4.2 million as of June 30, 2014, up from $3.9 million as of December 31, 2013. Total liabilities increased to $11.5 million as of June 30, 2014, from $11.1 million as of December 31, 2013. Stockholders’ equity increased by $921,000 million to $74.5 million as of June 30, 2014, from $73.6 million as of December 31, 2013.

The Company recorded a Net Loss of $0.4 million for the quarter ended June 30, 2014, or $0.00 per diluted common share, as compared to a Net Loss of $0.8 million, or $0.01 per diluted common share, for the quarter ended June 30, 2013.

For the second quarter of 2014, R&D expenses were $1.8 million or 7% of Net Sales, an increase of $0.9 million over the second quarter of 2013 R&D expenses of $0.9 million due to the acceleration of the Company’s investment in clinical trials for reimbursement and regulatory purposes.

Selling, general and administrative ("SG&A") expenses for the second quarter of 2014 were $21.2 million, a $10.3 million increase over second quarter of 2013 SG&A expenses of $10.9 million, and an increase of $5.3 million over first quarter of 2014 SG&A expenses of $15.9 million. Increases in SG&A were due to the continuation of the buildup of the Company’s direct sales force in the government accounts and commercial accounts sales channels. The full quarterly run-rate of the significant expansion of the Company’s sales force that occurred throughout the first quarter was recognized in second quarter of 2014 SG&A expenses resulting in the large sequential quarterly increase in SG&A expenses. Also impacting the sequential and prior year SG&A increases were the addition of key management and infrastructure - related resources necessary to support the Company's growth, including key resources in support of its reimbursement and regulatory activities.

Management has disclosed adjusted financial measurements in this press announcement that present financial information that is not in accordance with generally accepted accounting principles ("GAAP"). 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* is earnings before financing expense, interest, taxes, depreciation, amortization, and share-based compensation. For a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure, see accompanying table to this release. Adjusted financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Investors should consider adjusted measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.

The Company distinguishes and reports revenue in two categories: (1) Wound Care and (2) Surgical, Sports Medicine and OEM applications. Revenue for the Company's Wound Care category comprises both the sheet and powdered form. The "Surgical, Sports Medicine and Original Equipment Manufacturer ("OEM") category includes primarily AmnioFix® sales for orthopedic, soft tissue repair, surgical, dental and ophthalmic uses. This category also includes grafts in both sheet and micronized form. In the second quarter of 2014, Wound Care represented 81% of revenue, and Surgical, Sports Medicine and OEM represented 19% of revenue.

The Company also provides a revenue breakdown in terms of customer type, distinguishing between government and commercial accounts. Government accounts include the Veterans Administration as well as the Department of Defense and Indian Health Services. Commercial sales include sales through distributors, OEM sales and direct sales to non-government accounts. For the quarter ended June 30, 2014, Commercial sales represented 65% and Government sales represented 35% of revenue.

The Company estimates third quarter of 2014 revenue to be in the range of $30 million to $32 million. MiMedx also expects to record an operating profit for the third quarter of 2014. The Company has increased its previously published guidance for full year 2014, and now expects revenue to be in the range of $110 million to $115 million for full year 2014.

MiMedx management will host a live broadcast of its second quarter results conference call on Tuesday, July 29, 2014, beginning at 10:30 a.m. eastern time. A listen-only simulcast of the MiMedx Group conference call will be available on-line at the Company’s website at www.mimedx.com. A 30-day on-line replay will be available approximately one hour following the conclusion of the live broadcast. The replay can also be found on the Company’s website at www.mimedx.com.

MiMedx® is an integrated developer, processor and marketer of patent protected regenerative biomaterial products and bioimplants processed from human amniotic membrane. “Innovations in Regenerative Biomaterials" is the framework behind our mission to give physicians products and tissues to help the body heal itself. Our biomaterial platform technologies include AmnioFix® and EpiFix®, our tissue technologies processed from human amniotic membrane that is derived from donated placentas. Through our donor program, mothers delivering full-term Caesarean section births can elect in advance of delivery to donate the placenta in lieu of having

it discarded as medical waste. We process the human amniotic membrane utilizing our proprietary PURION® Process, to produce a safe and effective implant. MiMedx® is the leading supplier of amniotic tissue, having supplied over 250,000 allografts to date for application in the Wound Care, Surgical, Sports Medicine, Ophthalmic and Dental sectors of healthcare.

 June 30, 2014(unaudited) December 31, 2013ASSETS   Current assets:   Cash and cash equivalents$39,245,237 $44,077,751Accounts receivable, net20,499,578 16,092,836Inventory, net4,229,291 3,880,776Prepaid expenses and other current assets2,325,535 1,337,408Total current assets66,299,641 65,388,771Property and equipment, net of accumulated depreciation 4,680,476 4,086,106Goodwill4,040,443 4,040,443Intangible assets, net of accumulated amortization 11,004,073 11,178,573Total assets$86,024,633 $84,693,893LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities:   Accounts payable$2,445,627 $2,490,531Accrued compensation6,154,401 5,588,811Accrued expenses1,137,508 1,405,974Other current liabilities175,247 122,551Total current liabilities9,912,783 9,607,867Other Liabilities1,623,171 1,517,956Total liabilities11,535,954 11,125,823Commitments and contingencies (Note 12)— —Stockholders' equity:   Preferred stock; $.001 par value; 5,000,000 shares authorized and 0 shares issued and outstanding— —Common stock; $.001 par value; 130,000,000 shares authorized; 106,164,603 issued and 105,330,403 outstanding as of June 30, 2014 and 104,425,614 issued and 104,375,614 outstanding as of December 31,2013106,165 104,426Additional paid-in capital154,078,653 147,284,219Treasury stock (834,200 shares as of June 30, 2014 and 50,000 shares as of December 31,2013 at cost)(4,588,333) (25,000)Accumulated deficit(75,107,806) (73,795,575)Total stockholders' equity74,488,679 73,568,070Total liabilities and stockholders' equity$86,024,633 $84,693,893

 Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013Net sales$25,573,198 $13,514,743 $45,132,386 $25,071,235Cost of sales2,739,967 2,198,482 5,717,243 4,103,502Gross margin22,833,231 11,316,261 39,415,143 20,967,733        Operating expenses:       Research and development expenses1,799,803 924,468 3,189,846 2,171,222Selling, general and administrative expenses21,193,232 10,868,372 37,044,785 19,237,384Amortization of intangible assets231,959 267,638 463,290 530,234        Operating income (loss)(391,763) (744,217) (1,282,778) (971,107)        Other income (expense), net       Amortization of debt discount— — — (1,328,439)Interest expense, net(8,429) (13,172) (29,453) (27,976)        Income (loss) before income tax provision(400,192) (757,389) (1,312,231) (2,327,522)Income tax provision10,033 — — (50,275)        Net Income (loss)$(390,159) $(757,389) $(1,312,231) $(2,377,797)        Net income (loss) per common share - basic and diluted$— $(0.01) $(0.01) $(0.03)        Weighted average shares outstanding - basic and diluted105,757,178 95,988,100 105,552,330 94,599,406

 Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013Cash flows from operating activities:       Net income (loss)$(390,159) $(757,389) $(1,312,231) $(2,377,797)Adjustments to reconcile net income (loss) to net cash from operating activities:       Depreciation287,850 139,183 550,981 237,934Amortization of intangible assets231,959 267,638 463,290 530,234Amortization of debt discount and deferred financing costs— — — 1,328,439Share-based compensation2,766,352 1,502,447 5,138,716 2,487,239Increase (decrease) in cash resulting from changes in:       Accounts receivable(1,533,035) (1,940,371) (4,406,742) (4,108,313)Inventory(590,197) (263,945) (348,515) (1,197,500)Prepaid expenses and other current assets(46,539) (165,531) (988,127) (721,223)Other assets— 319,545 — 70,000Accounts payable(173,126) 781,004 (44,904) 586,027Accrued compensation740,806 (544,060) 565,590 221,472Accrued expenses(231,540) (151,569) (268,466) 85,219Accrued interest— — — (41,641)Other liabilities116,849 57,686 218,657 46,362Net cash flows from operating activities1,179,220 (755,362) (431,751) (2,853,548)        Cash flows from investing activities:       Purchases of equipment(679,583) (979,396) (1,145,351) (1,052,930)Patent application costs(120,844) (342,695) (288,790) (342,695)Net cash flows from investing activities(800,427) (1,322,091) (1,434,141) (1,395,625)        Cash flows from financing activities:       Proceeds from exercise of warrants— 243,000 774,750 1,167,624Proceeds from exercise of stock options437,635 310,310 882,707 542,841Stock repurchase(4,563,333) — (4,563,333) —Principal payments of equipment leases(27,417) (7,381) (60,746) (22,194)Net cash flows from financing activities(4,153,115) 545,929 (2,966,622) 1,688,271        Net change in cash(3,774,322) (1,531,524) (4,832,514) (2,560,902)        Cash and cash equivalents, beginning of period43,019,559 5,725,107 44,077,751 6,754,485Cash and cash equivalents, end of period$39,245,237$4,193,583 $39,245,237 $4,193,583

As used herein, “GAAP”, refers to generally accepted accounting principles in the United States.  We use various numerical measures in conference calls, investor meetings and other forums which are or may be considered “Non-GAAP financial measures” under Regulation G.  We have provided below for your reference, supplemental financial disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. MiMedx Group, Inc. next reports earnings on July 29, 2014.

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