MDXG - MiMedx Group: Restructuring Changes Are Paying Off

2024-01-05 13:25:00 ET

Summary

• Today, we take a deeper look at MiMedx Group, Inc., a wound care company focused on developing and distributing placental tissue allografts.
• The company is already benefiting from a restructuring of its business in June that helped MiMedx beat expectations with its Q3 earnings report.
• However, the stock has more than doubled from its lows this Spring.
• Can the rally continue in 2024?  An analysis follows in the paragraphs below.

A timid mind is apt to mistake every scratch for a mortal wound ."? George Gordon Byron.

Today, we put MiMedx Group, Inc. (MDXG) in the spotlight. In June of this year, management announced that it was suspending all current activities associated with its Knee Osteoarthritis program and disbanding its Regenerative Medicine business unit. The reason for doing so was to focus entirely on its fast-growing Wound & Surgical business. Leadership believes doing so will accelerate the company's path to profitability and positive cash flow. The move also was projected to reduce annual costs by $25 million. The company named a new CFO two weeks after these directional changes.

Early returns are encouraging, and shareholders have benefited from this move, as the stock has risen strongly since management made this move. Can the rally continue in 2024? An analysis follows below.

Company Overview:

This wound care concern is headquartered just outside of Atlanta in Marietta, GA. The company is focused on developing and distributing placental tissue allografts (skin substitutes) for various sectors of healthcare and has several products on the market. The stock currently trades just above $7.50 a share and sports an approximate market capitalization of $900 million.

The company has several products on the market and is targeting some significant addressable markets. The company's most recent launch was a product called EPIEFFECT that hit the markets late in the third quarter.

Third Quarter Results:

The company posted its Q3 numbers on October 30th. MiMedx delivered non-GAAP earnings of a nickel a share, in line with estimates. Net income rose to $8.5 million from a net loss of $8.4 million in the same period a year ago. Revenues rose nearly 21% on a year-over-year basis to $81.7 million, nearly $4 million over the consensus.

Management did a good job containing costs in the quarter, largely due to the restructuring. R&D costs fell to $3.2 million from $6 million in 3Q2022. SG&A expenses also fell by $900,000 to $52.6 million despite the jump in sales. Management projected that FY2023 sales from its Wound & Surgical business would be in the 'high teens' for the year.

Analyst Commentary & Balance Sheet:

Since late October, four analyst firms including Northland Securities and Craig-Hallum have reissued Buy/Outperform ratings on the stock. Price targets proffered are in a tight range of $10 to $12 a share.

Just over five percent of the shares outstanding are currently held short. The company ended the third quarter with just over $81 million in cash and marketable securities against $49 million in long-term debt. MiMedx delivered $11.7 million in free cash flow in the third quarter, it should be noted.

Late in December, 30 million shares of common stock were issued following the automatic conversion of outstanding shares of the company's Series B convertible preferred stock and accrued dividends. This increased shares but simplified MiMedx's balance sheet . These preferred shares were originally issued in the summer of 2020.

The CEO of the company purchased just under $650,000 worth of shares late in June, and its CFO bought just north of $35,000 of stock in November. There has been no insider activity in the shares since then.

Verdict:

MiMedx lost 33 cents a share in FY2022 on just under $268 million worth of sales. The current analyst firm consensus has the company turning a slight profit of a dime a share in FY2023 as sales rise to $320 million. The projected earnings are 31 cents a share in FY2024 on revenue growth of 11%.

MiMedx definitely seems headed in the right direction, even with a recent warning letter from the FDA. This was related to the production of the company's placental-derived tissue product Axiofill (less than five percent of overall revenues) and is likely to be resolved in the first half of 2024. In addition, MiMedx could eventually benefit from changes to Medicare/Medicaid reimbursement policies.

That said, MiMedx Group, Inc. stock has more than doubled since its lows in spring of last year. It is currently trading at around 25 times FY2024E EPS as well. Therefore, I would wait for a pullback to around the $6 level if we get a selloff in the overall market in the coming months before I initiate a starter position in MDXG.

There is no razor sharper than that of words. "? Craig D. Lounsbrough.

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