Third Quarter 2026 Operating & Financial Results Conference Call - MIMEDX GROUP INC

Financial Performance:

• Total Q3 2026 net sales were $62 million, a 45% year-over-year decrease driven by a 71% drop in wound care sales; surgical sales reached $40 million (up 9% YoY).
• Gross margin improved to 80% (up 11 percentage points sequentially), driven by cost reduction initiatives and improved manufacturing throughput, despite lower pricing in wound care.
• Adjusted EBITDA turned positive at $2 million (3% of net sales), representing a $10 million sequential improvement from Q2; GAAP net loss was $9 million.
• Liquidity position remains strong with $121 million in net cash and zero outstanding debt following the repayment of the $17 million term loan balance.
• Sales and marketing expenses decreased to $40 million (64% of sales) due to cost reduction and lower commission expenses from reduced wound care volumes.

Guidance and Future Outlook:

• Full-year 2026 standalone net sales guidance updated to $250 million–$260 million.
• Q4 2026 outlook expects high single-digit YoY surgical growth and mid-single-digit sequential growth in wound care.
• Gross margin expected to remain at Q3 levels (~80%) through Q4, with potential for improvement into 2027 dependent on product mix.
• Post-acquisition pro forma targets: Run-rate revenue of ~$400 million, adjusted EBITDA margin >20%, and net leverage <3x by the end of the first full year after closing.
• Management anticipates no significant "one-time" sales distortions in Q4 compared to Q3, projecting a more normalized growth trajectory.

Business Segments and Product Lines:

• Surgical: Demonstrated mid-teens underlying volume growth (9% reported revenue growth was dampened by the absence of $1M in opportunistic B2B placental tissue sales from Q3 2025); strong growth in placental sheets (AmnioFix, AmnioEffect) and particulate products.
• Wound Care: Experienced continued disruption from 2026 Medicare reimbursement changes, but wound care center volume grew 20% YoY and 7% sequentially, indicating stabilization.
• Innovation & Regulatory: Secured a favorable court ruling vacating FDA's classification of Axiofil (human placental particulate); two 510K applications for surgical products are in progress with clearance expected before year-end.
• Acquisition Target (Sonera MedTech): Generates >$100M revenue from surgical procedures; products are 510K cleared and access $4B in addressable markets; immediately accretive with >$20M in expected cost synergies.

Market and Competitive Landscape:

• Market shift ongoing where patients migrate from physician offices to wound care centers, a segment where MiMedx holds a strong competitive position.
• The wound care sector remains in a "reset" phase with lower overall market volume and pricing pressure; stabilization timeline remains uncertain.
• Sonera acquisition expected to shift revenue mix to 75% surgical and 25% wound care, enhancing the company's profile as a growth-oriented surgical franchise.
• Competitive advantage relies on clinical evidence generation and technology innovation as CMS establishes baseline requirements for product safety and efficacy reimbursement.

Risks and Challenges:

• Regulatory/Legal: The FTC has issued a Second Request regarding the Sonera acquisition, extending the Hart-Scott-Rodino waiting period; ongoing litigation involves two additional patent infringement cases beyond the settled Axiofil matter.
• Reimbursement: Persistent pressure from Medicare reimbursement changes affecting wound care volumes and pricing; uncertainty remains regarding final 2027 fee schedules.
• Market Volatility: Potential for one-time sales distortions and rebate adjustments impacting reported growth rates, as seen in the Q3 comparison.
• Integration: Dependency on successful closing of the Sonera deal to achieve projected synergies and margin targets.

Management Commentary and Tone:

• Tone is optimistic and confident regarding the strategic shift toward surgery and the eventual stabilization of the wound care market.
• Management highlighted the success of cost-restructuring efforts, noting the return to positive adjusted EBITDA and cash flow within two quarters of the 2025 revenue shock.
• Strong emphasis on the "strategic rationale" of the Sonera deal and the successful legal defense of the Axiofil product classification.
• CEO Joe Capper acknowledged the "noise" in Q3 but expressed strong confidence in the company's ability to serve the market with its expanded portfolio.

Analyst Questions and Answers:

• Rebate Activity: Clarified that higher Q3 rebates were due to short-term promotional activities and catch-up adjustments on accounts hitting targets; expected to be lower in Q4.
• Acquisition Timeline: FTC process is proceeding positively, but no specific closing timeline can be provided due to the "outside control" nature of the agency's review; a modest ticking fee has begun accruing on the debt facility.
• Wound Care Stabilization: No specific inflection point is forecasted; management views the market as a gradual recovery and believes MiMedx is well-positioned once the dust settles.
• 2027 Margins: Q3 gross margin of 80% is expected to be durable; achieving the 20% pro forma EBITDA margin is not contingent on immediate wound care recovery but rather on the realization of Sonera synergies and surgical leverage.
• Clinical Strategy: Continued investment in randomized controlled trials and evidence generation remains a core priority despite current R&D spend reductions from headcount cuts.

Other Key Points:

• Reached a $25 million out-of-court settlement and licensing agreement regarding a patent infringement claim; two other patent cases are litigated with favorable rulings and PTO affirmations of validity.
• Strategic pivot continues to right-size the cost structure, with G&A expected to remain flat in Q4 despite litigation costs.
• The acquisition financing includes a $300 million first-lien senior secured term loan commitment from Hafen Capital, contingent on closing.
• Management noted that the Q3 performance reflects the successful execution of a "right-sized" cost base following the loss of 42% of 2025 wound care revenue.