MiMedx Announces Filing of 2018 Annual Report

March 17, 2020 at 5:43 PM EDT
Annual Report on Form 10-K includes Audited Financial Results for 2016 (restated), 2017 and 2018
2018 Net Sales of $359.1 million
Reflects Revenue Recognition on Cash Basis for all Years

MARIETTA, Ga., March 17, 2020 /PRNewswire/ -- MiMedx Group, Inc. (OTC PINK: MDXG) ("MiMedx" or "the Company"), an industry leader in advanced wound care and an emerging therapeutic biologics company, today announced the filing of its 2018 Annual Report, which includes the Company's audited consolidated statements of operations, and stockholders' equity and cash flows for the years ended December 31, 2018 and 2017, which the Company did not previously file, and for the year ended December 31, 2016, which the Company has restated.

Timothy R. Wright, MiMedx Chief Executive Officer, said: "The filing of our 2018 10-K is a significant milestone that repositions MiMedx for the future and reflects our commitment to serving urgent patient and physician needs. By instilling a culture of operational excellence, supportive of future growth and profitability, and making investments into the optimization of our Manufacturing, Research & Development, and Commercial organizations, we are positioning the Company to continue delivering evidence-based, advanced technologies that elevate the standard of care."

MiMedx continues to focus on supporting the steadily growing advanced wound care market, including investment in both clinical programs and health economics research to demonstrate the cost effectiveness of our products. Commercial efforts are aimed at category awareness, illustrating the impact of untreated wounds, and refining our sales messaging platforms. Operationally, the Company is transforming its business by strategically enhancing each functional area; implementing measures for sustainable compliance and improvement; and optimizing manufacturing processing efficiencies that support the transition of clinical and regulatory parameters for regenerative medicine. Efforts are also underway to complete and file the annual report on Form 10-K for the year ended December 31, 2019. The Company plans to announce the date of its annual meeting of shareholders shortly after it files its annual report on Form 10-K for the year ended December 31, 2019.

Highlight of Key Metrics

  • 2018 net sales of $359.1 million.
  • Restated net sales are $480.1 million from 2014-2016, representing a difference of $70.4 million compared to originally reported cumulative net sales of $550.5 million.
  • A significant portion of the restatement difference is due to revenue recognition when payment was received. Refer to "Recent Developments" below for more information.
  • Net loss of $30.0 million for 2018 reflects $51.3 million of investigation, restatement and related expenses.
  • 2018 Adjusted EBITDA of $69.1 million1.

 


Years Ended December 31,

(in thousands)


2018

2017




Net sales

$           359,111

$           321,139

Net (loss) income

(29,979)

64,727

EBITDA

3,519

50,853

Adjusted EBITDA

69,082

73,976

Net (loss) income per common share – basic

$               (0.28)

$                  0.61

Net (loss) income per common share – diluted

$               (0.28)

$                  0.56


1. Adjusted EBITDA is a non-GAAP financial measure. See "Reconciliation of GAAP Net Income to Adjusted EBITDA" for a reconciliation of Adjusted EBITDA to Net (loss) income, located in "Selected Financial Information" of this release.

 


Years Ended December 31,

(in thousands)


2016


2015


2014







Restated Revenue

$

221,712



$

153,131



$

105,257


Adjustments

23,303



34,165



12,966


Originally Reported            

$

245,015



$

187,296



$

118,223


 

Net sales were $359.1 million in 2018, of which micronized products contributed $68.4 million. Growth in net sales from 2017 to 2018 was 11.8%, resulting primarily from favorable insurance coverage developments (that resulted in an increase in the number of units sold) and increases in the number of sales personnel, both through the third quarter of 2018. Further, revenues recorded on a cash basis benefited from sales made in prior periods and collected during the current period. These effects were partially offset by unfavorable insurance coverage developments, negative publicity resulting from actions taken in response to the Audit Committee investigation and governmental enforcement matters involving the Company and its former officers, and increased turnover of experienced sales personnel later in the year.

Gross margin in 2018 was 89.9%, compared to 89.0% in 2017. Gross margin increased in part due to the mix of products sold, as well as an improvement in yield, resulting from improved manufacturing efficiency in the wound care line.

Research and development expenses decreased 11.9% from 2017 to 2018, due primarily to year-over-year decreases in clinical trial activities, completion of studies initiated in prior periods, and a reduction in pre-clinical study investment.

Selling, General and Administrative ("SG&A") expense for 2018 increased 17.4% compared to 2017. Sales and Marketing expense included in SG&A increased 8.7% for 2018, primarily due to an increase in compensation related to the additional headcount and sales commissions. In 2018, general and administrative expense included in SG&A increased by $25.0 million, including fees for legal and consulting services, additional headcount (prior to the December 2018 reduction in force), as well as an increase in accounting fees due to the change in audit firms in mid-2018. Investigation, restatement, and related expenses were $51.3 million in 2018.

Food and Drug Administration (FDA) Audit

In December 2019, the Food and Drug Administration (FDA) conducted inspections at both of our processing facilities. These inspections measured the Company's compliance with the current good manufacturing practice (cGMP) standards required for tissue-based products that are regulated as drugs or biological products. The FDA issued a Form 483 for both facilities at the conclusion of each inspection. MiMedx provided timely responses to the FDA regarding each 483 observation, including responses to all of the observations and commitments to corrective actions. The Company has completed approximately half of the committed remedial actions to date, and expects to complete the remaining actions during the course of 2020, prior to the expiration of the FDA's enforcement discretion period with respect to the investigative new drug application and pre-market approval requirements applicable to certain Human Cells, Tissues and Cellular and Tissue Based Products, such as our micronized, injectable products.

Mr. Wright commented, "MiMedx is committed to sustained compliance at all levels of the organization, and we are confident in the safety and quality of our products. As a leader of this important therapeutic category, we welcome FDA guidance to elevate regulatory standards and will continue to partner proactively with the Agency. We have activated updates based on recent FDA feedback, and will continue to implement improvements to further strengthen the Company's quality systems in line with the recent FDA guidance. I am confident that a transparent and open dialogue with the FDA, along with a solution-oriented approach, will further support our commitment to safety and compliance."

The Company's most recent FDA inspection for compliance with current good tissue practice (cGTP) regulations, which took place in September 2018, resulted in no observations and a no action indicated (NAI) rating, which is the most favorable designation the FDA provides after such an inspection. The transition of manufacturing from cGTP to cGMP standards generally involves implementation of additional process controls, procedural documentation, and finished goods lot testing, among other things. The Company has advanced numerous proactive initiatives including leadership changes, third-party engagement, and overall systems improvements to support the enhanced regulation of the regenerative medicine category, along with transparent reporting of developments to the Agency.

M. Kathleen Behrens, Ph.D., Chair of the MiMedx Board of Directors, said, "A robust quality culture starts at the top, and the revitalized leadership team is committed to providing sustained, visible support for quality initiatives and consistently communicating the Company's quality standards and expectations to all personnel. The patients we serve are the focus of all our efforts. MiMedx is taking comprehensive action with an unwavering dedication to advancing the clinical and regulatory standards by which our products are evaluated before they reach patients. "

Recent Developments

As previously disclosed, the Company entered into a Term Loan Agreement in June 2019, borrowing $75 million, to facilitate implementation of its strategic priorities and accelerate the Company's timeline to achieve its long-term growth objectives, including the Biologics License Application (BLA) pipeline. The proceeds of the Term Loan Facility have additionally been used for working capital, general corporate purposes, and certain contingent liabilities of the Company. The Company is currently in compliance with the financial covenants in the Term Loan Agreement.

We expect that during 2019, the uncertainties of contractual adjustments with our customers will no longer be present such that we would be in a position to determine that an accounting contract exists at the time of physical delivery of our product to the customer.  As of the date we filed our 2018 Form 10-K, the effective date of such transition was not certain. In light of this uncertainty and in the interests of providing additional information to investors regarding our results of operations for 2019, the estimates provided below regarding our 2019 performance were prepared for the entire year ended December 31, 2019 assuming that the Company continued to recognize revenue when payment was received after being adjusted for the amount expected to be refunded or credited to customers for sales returns made after payment. We expect that, once we determine the timing of the transition to a basis upon which revenue will be recognized at the time of physical delivery of the product to the customer, the final audited financial information will differ from that presented below to reflect additional revenue in 2019 in connection with such transition. We expect the amounts shipped and billed but not recorded as revenue at that date to be recognized as revenue over the following 60-90 days, consistent with our normal collection periods. At December 31, 2018, $51.0 million had been shipped and billed but not recorded as revenue.

  • We expect 2019 revenue to decline from 2018 revenue between 25% to 28%, due to the continuation of trends that began in late 2018, including unfavorable insurance coverage developments, negative publicity resulting from the investigations, increased turnover of experienced sales personnel, and related events, as well as the discontinuation of certain products in 2019.
  • We expect our 2019 gross profit percentage to be down 5% to 6% as compared to 2018 due to higher manufacturing costs and the impact of lower volumes.
  • We expect research and development expenses for 2019 to decline as compared to 2018 due to the completion of certain research initiatives and a reduction in headcount.
  • For 2019, we expect investigation, restatement, and related expenses to increase as compared to 2018 by $15 to $25 million due to costs incurred in connection with the completion of the investigations, the restatement, and the resolution of various related matters.
  • We expect other expense to increase in 2019 as compared to 2018 by approximately $5 million due to interest expense related to our $75 million Term Loan Agreement, which was funded on June 10, 2019 (and which was not outstanding in 2018).

Our expectations for 2019 results are based on our results in the year; however, these results are unaudited and subject to period-end adjustments, along with uncertainty regarding when, and if, we will return to accrual accounting for revenue recognition. We caution the reader that actual results may differ materially from those described above.

In the second half of 2019 and the beginning of 2020, we believe our revenues stabilized. However, given the uncertainty regarding the impact on the economy from the COVID-19 virus, we are unable to provide any commentary regarding 2020 financial metrics. See Item 1A, "Risk Factors," within the Company's 2018 Annual Report.

Important Cautionary Statement
We caution the reader that actual results may differ materially from our expectations. Among the factors that could cause actual results to differ are: variances from our expectations or assumptions; changes in reimbursement policy from public and private insurers and health systems; the loss of a group purchasing organization ("GPO") or integrated delivery network ("IDN"); changes in purchasing behavior by government accounts; the loss of independent sales agents or distributors; the removal of any of our products from the market as a result of regulatory actions; the success of our marketing efforts; the fact that obtaining and maintaining the necessary regulatory approvals for certain of our products will be expensive and time consuming and may impede our ability to fully exploit our technologies; rapid technological change could cause our products to become obsolete and, if we do not enhance our product offerings through our research and development efforts, we may be unable to compete effectively; our ability to transition our manufacturing facilities into compliance with cGMP, advance our investigative new drug ("IND") applications, complete our clinical trials and pursue biologics license applications ("BLAs") for certain of our micronized products; the fact that our business is subject to continuing regulatory compliance by the FDA and other authorities, which is costly, and our failure to comply could result in negative effects on our business, results of operations and financial condition; the fact that litigation and other matters relating to and arising out of the Investigation, including the accounting review of our previously issued consolidated financial statements and the audits of fiscal years 2018, 2017 and 2016, have been time consuming and expensive, and may result in additional expense; and the fact that our variable rate indebtedness under the Term Loan Agreement subjects us to interest rate risk, which could result in higher expense in the event of increases in interest rates and adversely affect our business, financial condition, and results of operations. In addition, we discuss other factors in Item 1A, "Risk Factors," within the Company's 2018 Annual Report on Form 10-K.

About MiMedx

MiMedx® is an industry leader in advanced wound care and an emerging therapeutic biologics company developing and distributing human placental tissue allografts with patent-protected processes for multiple sectors of healthcare. The Company processes the human placental tissue utilizing its proprietary PURION® process methodology, among other processes, to produce allografts by employing aseptic processing techniques in addition to terminal sterilization. MiMedx has supplied over 1.8 million allografts, through both direct and consignment shipments. For additional information, please visit www.mimedx.com.

Contacts:

Hilary Dixon
Investor Relations & Corporate Communications
770.651.9066
investorrelations@mimedx.com

 

Selected Financial Information

 

MiMedx Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)


December 31,


2018


2017

ASSETS




Current assets:




Cash and cash equivalents

$

45,118



$

27,476


Inventory, net

15,986



9,467


Prepaid expenses

6,673



2,125


Income tax receivable

454



656


Other current assets

5,818



9,023


Total current assets

74,049



48,747


Other assets

48,795



72,508


Total assets

$

122,844



$

121,255


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

14,864



$

8,454


Accrued compensation

23,024



20,941


Accrued expenses

31,842



15,768


Other current liabilities

1,817



647


Total current liabilities

71,547



45,810


Other liabilities

1,642



1,648


Total liabilities

73,189



47,458


Total stockholders' equity

49,655



73,797


Total liabilities and stockholders' equity                                      

$

122,844



$

121,255


 

 

MiMedx Group, Inc.

Consolidated Statements of Operations

(in thousands, except percentage data)


Years Ended December 31,


Change


2018


2017


$


%









Net sales

$

359,111



$

321,139



$

37,972



11.8

%

Cost of sales

36,386



35,219



1,167



3.3

%

Gross profit

322,725



285,920



36,805



12.9

%









Operating expenses:








Selling, general and administrative

258,528



220,119



38,409



17.4

%

Investigation, restatement and related

51,322





51,322



100.0

%

Research and development

15,765



17,900



(2,135)



(11.9)

%

Amortization of intangible assets

1,034



1,678



(644)



(38.4)

%

Operating (loss) income

(3,924)



46,223



(50,147)



(108.5)

%









Other income (expense)








Loss on divestiture of Stability



(1,048)



1,048



(100.0)

%

Other income (expense), net

527



(87)



614



(705.7)

%









(Loss) income before income tax provision

(3,397)



45,088



(48,485)



(107.5)

%

Income tax provision (expense) benefit

(26,582)



19,639



(46,221)



(235.4)

%









Net (loss) income

$

(29,979)



$

64,727



$

(94,706)



(146.3)

%


 

 

MiMedx Group, Inc.

Condensed Consolidated Statement of Cash Flows

(in thousands)


Years Ended December 31,


2018


2017


2016






(Restated)

Cash flows from operating activities:






Net (loss) income

$

(29,979)



$

64,727



$

390


Adjustments to reconcile net income (loss) to net cash provided by
operating activities:






Depreciation

5,882



4,087



3,333


Amortization of intangible assets

1,034



1,678



2,137


Amortization of inventory fair value step-up



203



1,485


Amortization of deferred financing costs

137



176



151


Amortization of discount on notes receivable

(190)



(12)




Change in fair value of earn-out consideration



(3,560)



(1,650)


Intangible asset impairment



590




Share-based compensation

14,768



21,195



17,732


Change in deferred income taxes

25,541



(26,670)



(5,992)


Loss on divestiture of Stability



1,048




Increase (decrease) in cash, net of effects of acquisition and
divestiture, resulting from changes in the balance sheet

18,603



(523)



6,263


Net cash flows provided by operating activities

35,796



62,939



23,849








Cash flows from investing activities:






Purchases of property and equipment

(9,419)



(5,126)



(6,205)


Proceeds from property and equipment sale

30






Principal payments from note receivable

778






Stability acquisition





(7,631)


Fixed maturity securities redemption





3,000


Patent application costs

(609)



(271)



(842)


Net cash flows used in investing activities

(9,220)



(5,397)



(11,678)








Cash flows from financing activities:






Proceeds from exercise of stock options

3,555



11,987



3,494


Shares repurchased under repurchase plan

(7,572)



(68,263)



(10,378)


Shares repurchased for tax withholdings on vesting of restricted stock

(4,914)



(4,082)



(1,165)


Payments under capital lease obligations

(3)



(29)



(102)


Net cash flows used in financing activities

(8,934)



(60,387)



(8,151)








Net change in cash

17,642



(2,845)



4,020








Cash and cash equivalents, beginning of year

27,476



30,321



26,301


Cash and cash equivalents, end of year

$

45,118



$

27,476



$

30,321


 

Reconciliation of GAAP Net Income to Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure representing (loss)/earnings before interest, taxes, depreciation and amortization, purchased intangible amortization, loss on divestiture, one-time inventory costs, investigation and restatement costs, share-based compensation and impairment of intangibles. This non-GAAP financial measure has certain limitations, including lacking standardized meaning, which may be different from similar non-GAAP financial measures used by other companies and/or analysts. Thus, it may be more difficult to compare our financial performance to that of other companies. We believe our reporting adjusted EBITDA assists investors in evaluating our operating performance. Because adjusted EBITDA is not a measure of financial performance calculated in accordance with GAAP, it should be considered in addition to, not a substitute for, other measures of our financial performance reported in accordance with GAAP, such as net (loss)/income.

 


Years Ended December 31,


Change


(in thousands, except percentage data)


2018


2017


$

%








Net (loss) income

$

(29,979)



$

64,727



$

(94,706)


(146)

%








Non-GAAP Adjustments:







Depreciation expense

5,882



4,087



1,795


44

%

Amortization of intangible assets

1,034



1,678



(644)


(38)

%

Income tax provision

26,582



(19,639)



46,221


(235)

%

EBITDA

$

3,519



$

50,853



$

(47,334)


(93)

%








Additional Non-GAAP Adjustments:







Loss on divestiture



1,048



(1,048)


(100)

%

One-time inventory fair value adjustments in connection
with acquisition



203



(203)


(100)

%

Costs incurred in connection with investigation and
restatement

51,322





51,322


100

%

Interest (income) expense, net

(527)



87



(614)


(706)

%

Impairment of intangible assets



590



(590)


(100)

%

Share-based compensation

14,768



21,195



(6,427)


(30)

%

Adjusted EBITDA

$

69,082



$

73,976



(4,894)


(7)

%








 

Cision View original content:http://www.prnewswire.com/news-releases/mimedx-announces-filing-of-2018-annual-report-301025817.html

SOURCE MiMedx Group, Inc.