MiMedx Group, Inc., the leading regenerative medicine company utilizing human amniotic tissue and patent-protected processes to develop and market advanced products and therapies for the Wound Care, Surgical, Orthopedic, Spine, Sports Medicine, Ophthalmic, and Dental sectors of healthcare, announced its results for the third quarter of 2016.

Third Quarter 2016 Highlights:

• Q3 2016 revenue of $64.4 Million is a 31% increase over Q3 2015 revenue

• Q3 2016 revenue exceeds $64.0 Million upper end of guidance

• Q3 2016 revenue beats analysts' consensus estimates of $63.1 Million

• Revenue for nine months ended September 30, 2016 is a 29% increase over same 2015 period

• Adjusted Gross Margin* of 88.0%

• Adjusted EBITDA* of $11.4 million

• Adjusted Net Income* of $6.2 million

• Adjusted Diluted Net Income Per Share* of $0.06 

• Wound Care revenue of $49.8 million

• Surgical, Sports Medicine and Orthopedics (SSO) Revenue of $14.6 million

• Current direct sales force grows to nearly 300 sales professionals

Third Quarter 2016 GAAP Results (includes purchase accounting and one-time non-recurring charges related to the acquisition of Stability Biologics)

• Gross margin of 87.6%

• Net Income of $3.3 million

• Diluted Net Income per share of $0.03 

Results for Third Quarter and Nine Months Ended September 30, 2016

The Company recorded record revenue for the 2016 third quarter of $64.4 million, a $15.4 million or 31% increase over 2015 third quarter revenue of $49.0 million. The Company's Adjusted Gross Margin for the third quarter of 2016 was 88.0%, compared to 89.8% in the third quarter of 2015. Adjusted EBITDA for the third quarter of 2016 was $11.4 million, a $439,000 decrease as compared to Adjusted EBITDA of $11.8 million for the third quarter of 2015.   Adjusted Net Income for the third quarter of 2016 was $6.2 million, or $0.06 per diluted common share, a $348,000 decrease, as compared to Adjusted Net Income of $6.6 million, or $0.06 per diluted common share, in the third quarter of 2015.

For the nine months ended September 30, 2016, the Company recorded record revenue of $175.1 million, a $39.7 million or 29% increase over revenue of $135.4 million recorded in the same period of 2015. The Company's Adjusted Gross Margin* for the nine months ended September 30, 2016, was 87.6%, compared to 88.8% Adjusted Gross Margin in the same period of 2015.  Adjusted EBITDA for the nine months ended September 30, 2016, was $30.5 million, a $617,000 decrease as compared to Adjusted EBITDA of $31.1 million for the nine months ended September 30, 2015.  Adjusted Net Income for the nine months ended September 30, 2016, was $16.3 million, or $0.15 per diluted common share, a $1.0 million decrease as compared to Adjusted Net Income of $17.3 million, or $0.15 per diluted common share, in the same period of 2015.

Management Commentary on Results

Parker H. "Pete" Petit, Chairman and CEO stated, "We are very pleased with our third quarter results on both the top as well as bottom line. It is always gratifying to exceed our revenue guidance, and continue to add to our record of 20 consecutive quarters of sequential revenue growth.  Equally as impressive is our record of meeting or exceeding our revenue guidance in 19 of the last 20 quarters.  Our core advanced Wound Care revenue was the driver of our revenue performance, especially revenue from commercial accounts.  Third quarter revenue is typically impacted by vacations of medical professionals, and we are pleased with our third quarter results in spite of that fact.  We are very satisfied with the revenue trend we have seen in the last two quarters and are enthusiastic about the fourth quarter and beyond.  With the trend we are experiencing, the robust growth we anticipate from AmnioFill™ and OrthoFlo Lyophilized, the two new product lines we launched during the third quarter, and the fact that many year-end patient deductibles are met during or before the fourth quarter, we are optimistic about our fourth quarter revenue."

Bill Taylor, President and COO, said, "For the first nine months of 2016, we had very strong growth over the first nine months of 2015, with our Wound Care revenue growing 30% and our SSO revenue growing 28% as compared with the same period in 2015.  We are especially pleased with the third quarter performance of our Wound Care team.  Led by the growth from our commercial accounts, our third quarter 2016 Wound Care revenue grew 39% over the third quarter of 2015. All of our product lines showed solid progress and maturation within our new organizational structure that has separated the Wound Care and SSO sales teams into two distinct but highly coordinated organizations. We expect this new structure to demonstrate further positive improvements in our sales effectiveness as each team continues to mature as separate organizations.

"As we communicated previously, our recently launched new OrthoFlo Lyophilized and AmnioFill product lines fill different and various needs in both the wound care and surgical markets. To address physicians' needs for a product to treat larger acute and chronic wounds encountered in the surgical setting, we launched AmnioFill and are offering the product in the multiple sizes necessary to address this need. OrthoFlo Lyophilized is designed to serve the Orthopedics and Sports Medicine sectors of healthcare, and this new product is adding to our portfolio of regenerative medicine solutions for this market sector.  These new third quarter launches, along with EpiCord, our dehydrated human umbilical cord allograft that we launched earlier this year, add to the diversity of our product lines and the expansion of the markets in which we compete," added Taylor.

"The third quarter of 2016 marked our 19th consecutive quarter of recording positive Adjusted EBITDA. Our Adjusted Gross Margin for the third quarter was once again extremely strong at 88%. Management believes this is a critical measure of the potential of the business. We can make intermediate term investment decisions to expand our sales force, develop and introduce new products, initiate further clinical and scientific studies, and add infrastructure for future growth that may fluctuate our operating profits on a quarter-by-quarter basis. However, we believe the optimal gauge for the Company's strength at this stage of our growth is our robust Adjusted Gross  Margin," noted Petit.

Taylor commented, "We continue to make investments in our international activities.  Over the last two years, these investments have been substantive, and we are starting to see the results of these investments in certain foreign markets. Our recent presence at the World Union Wound Healing Societies symposium in Italy drew an overwhelming amount of interest and enthusiasm from the attending physicians. Also, we continue to showcase our full line of products domestically at major conferences. We have conducted symposiums, podium presentations, education, and workshops, and independent physicians presented numerous poster abstracts reporting on the clinical and cost effective healing results of our EpiFix and AmnioFix dehydrated Human Amnion/Chorion Membrane allografts and our EpiCord dehydrated human umbilical cord allografts at the leading conferences attended by the thought leaders and most prominent physicians in our sector of healthcare. The reception among physicians for our products is enormous and their desire to utilize our allografts in their treatments of care is growing with every conference we attend."

Petit added, "The ongoing execution of our numerous clinical and scientific studies remains a major initiative for our business. At present, we have 27 clinical studies ongoing with more than 100 clinical sites under management. As studies move into their final stages, the expenses increase significantly. We have a number of studies at or nearing these later stages and our expenses for these trials continue to be a large, but critically important, cost of rapidly growing our business."

GAAP Earnings, Liquidity and Cash Flow

Due to the significant effects of purchase accounting for the January 2016 acquisition of Stability Biologics and the introduction of normal effective income tax rates in 2016 attributable to the release of the valuation allowance on the Company's deferred tax asset in the fourth quarter of 2015, the Company, beginning in 2016, has decided to provide additional non-GAAP information to enhance the clarity and comparability of its reported operating results. In addition to Adjusted EBITD, which the Company has historically provided,  the Company has reported Adjusted Gross Margin, Adjusted Net Income* and Adjusted Diluted Net Income per Share, along with the most directly comparable  GAAP results as summarized below.

On a GAAP basis, the Company recorded Net Income of $3.3 million, or $0.03 per diluted common share, for the quarter ended September 30, 2016, as compared to a Net Income of $6.6 million, or $0.06 per diluted common share, for the quarter ended September 30, 2015. The Company recorded Net Income of $6.5 million, or $0.06 per diluted common share for the nine months ended September 30, 2016, as compared to a Net Income of $16.1 million, or $0.14 per diluted common share, for the nine months ended September 30, 2015. 

Third quarter 2016 Research & Development expenses were $2.9 million or 4.5% of Net Sales, an increase of $732,000 over third quarter 2015 R&D expenses of $2.2 million. The increase in R&D expenses was due to the continued intensification of the Company's clinical and scientific studies. R&D expenses for the nine months ended September 30, 2016 were $8.6 million or 4.9 % of Net Sales, an increase of $2.5 million over R&D expenses of $6.1 million for the nine months ended September 30, 2015.

Selling, general and administrative expenses for the third quarter of 2016 were $48.2 million, a $13.3 million increase over third quarter of 2015 SG&A expenses of $34.9 million.  Increases in SG&A were due to the continuation of the buildup of the Company's domestic direct sales force in Wound Care and SSO sales channels, international sales and business development initiatives,  and expenses associated with the Company's new product launches.  SG&A expenses for the nine months ended September 30, 2016 were $131.6 million, a $34.7 million increase over SG&A expenses of $96.9 million for the nine months ended September 30, 2015. 

Cash on hand as of September 30, 2016 was $18.3 million, as compared to $28.5 million as of December 31, 2015. Net working capital as of September 30, 2016 decreased $4.8 million to $64.7 million, as compared to $69.5 million as of December 31, 2015.  The Company recorded net cash flow from operating activities of $2.8 million for the quarter ended September 30, 2016. Included in working capital is the $9.6 million current portion of the earn out liability from the acquisition of Stability Biologics.

Revenue Breakdown

The Company distinguishes revenue in two categories: (1) Wound Care and (2) SSO, which includes Original Equipment Manufacturer applications. For third quarter of 2016, Wound Care revenue was $49.8 million, representing 77% of total revenue, and SSO (including OEM) revenue was $14.6 million, representing 23% of total revenue.

Outlook for Fourth Quarter and Full Year 2016

MiMedx announced its fourth quarter revenue guidance, raised the lower end of the range of its full year 2016 revenue guidance, and reaffirmed its full year 2016 Adjusted EPS guidance. The Company's current guidance includes:

• Fourth quarter of 2016 revenue expected to be in the range of $69.4 to $72.9 million

• Full Year 2016 revenue forecasted to be in the range of $244.5 to $248 million

• Full Year 2016 Adjusted Diluted Net Income Per Share* expected to be in the range of $0.21 to $0.23

"As with our guidance for the previous two quarters, we think we are being conservative in our guidance for the fourth quarter.  We continue to expect strong incremental revenue from our recent new product launches to materialize during the fourth quarter; however, we are electing to guide on the conservative side," concluded Petit.