MiMedx Group, Inc

Good afternoon and thank you for standing by. Welcome to today's MyMedx Investor Conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Matt Notarianni, Head of Investor Relations for MyMedx. Thank you. You may begin.

Thank you, Operator, and good afternoon, everyone. We are excited to welcome you to today's conference call, where we will discuss our recently announced plans to acquire Scenara MedTech, as well as MyMedx's second quarter 2026 operating and financial results. With me on today's call are Chief Executive Officer Joe Capper and Chief Financial Officer Doug Rice. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the investor relations website at mymedx.com. Joe will kick us off with some opening remarks about the scenario transaction before we continue with the summary of our second quarter 2026 operating and financial results highlights. And Doug will provide a detailed review of our results for the quarter. Then we will conclude with some additional updates before we open the line for your questions. Before we begin, I would like to remind you that our comments today will include forward-looking statements, including statements regarding future sales, operating results and cash balance growth, future margins and expenses, our product portfolios, expected market sizes for our products, and expectations regarding the scenario acquisition, including expected benefits and financial performance of the combined company. These expectations are subject to risks and uncertainties, and actual results may differ materially from those anticipated due to many factors, including competition, access to customers, the reimbursement environment, and unforeseen circumstances and delays. Additional factors that could impact outcomes and our results include those described in the risk factors section of our annual report on Form 10-K and our quarterly report on Form 10-Q. Also, our comments today include non-GAAP financial measures, and we provide a reconciliation to the most comparable GAAP measures in our press release, which is available on our website at mymedx.com. With that, I'm now pleased to turn the call over to Joe Capper. Joe?

Thanks, Matt, and good afternoon, everyone. Thank you for joining us on today's call. I am pleased to report that MyMedx is back on track to deliver dynamic growth. as we announce our intent to combine forces with Sonera MedTech to augment our already successful surgical franchise. Importantly, we are also starting to see signs of stabilization on the wound care side of the business. As expected, MyMedx was faced with an extremely challenging environment in the wound care market. We signaled on previous calls that the dramatic changes to the Medicare reimbursement system for wound care products would cause significant disruption and take some time to sort out among various constituencies. We believe the business would stabilize over time as weaker players left the market, creating an opportunity to pick up share. So far, the early signs indicate that is exactly what is happening. Moreover, our surgical business continued to post excellent performance, growing the top line 15% year over year. In aggregate, the company grew sequentially by 9% from Q1 to Q2. More on that in a few minutes. I want to first touch on the big news of the day. We are extremely excited to share the news that we have reached a definitive agreement to acquire all the outstanding shares of Sonera MedTech for a total consideration of $35 a share. This transformational combination will immediately create one of the largest regenerative medicine companies across numerous surgical subspecialties With an incredibly attractive financial profile. research to augment our surgical footprint and take advantage of what we consider an incredibly large, growing and underserved market. As I mentioned on our last call, we have raised our surgical revenue by more than 50% over that timeframe. We've also spoken about our intent to deploy capital to accelerate our surgical growth plan if we could find assets that met our acquisition criteria. We have remained disciplined in that endeavor making only a few small investments to date. Having made my share of acquisitions over the years, I know the importance of waiting for the right opportunity. Our patience has been rewarded as Cenara checks the critical boxes we were looking for in an acquisition. I would go so far as to say we believe this is a perfect strategic and cultural fit. 100% of Cenara's greater than $100 million revenue is in surgical procedures that are highly complimentary to our business. They are a growth company that is profitable and immediately accretive, even before synergies. Their products are 510K clear and unlock $4 billion of new addressable market for us. We expect the transaction to close by year end. In the meantime, we will solidify the integration plan in preparation for a fast start post-close. In 2027, We would expect a newly combined company to generate revenue well in excess of $400 million with growth in the double digits. And with over $20 million of those expected cost synergies, we would anticipate an adjusted EBITDA margin of over 20%, generating a meaningful amount of free cash flow. These metrics illustrate why we are calling this a transformational combination. The mimetic surgical franchise which is primarily soft tissue focus combined with Cenara which is roughly two-thirds musculoskeletal focus creates a business approaching $300 million in annual surgical revenue across a wide range of subspecialties. And this before factoring in the cross-selling opportunities. Cenara currently generates most of its revenue from two product lines. Their Celerate RX product is a bovine particulate was accounted for approximately $80 million of LTM revenue. It is indicated for the management of surgical, traumatic, and partial and full thickness wounds, as well as first and second degree burns. It is supported by over 20 published clinical studies and is approved and or contracted in over 4,000 hospitals. ARCA data indicates that particulates are the fastest growing subsegment in the surgical soft tissue repair category. Sonara's BioSurge is a no-rinse irrigation solution containing an antimicrobial preservative highly effective against a broad spectrum of pathogenic microorganisms. It is indicated for use in the mechanical cleansing and removal of debris from surgical wounds and requires no secondary rinsing. The Sonara team is also excited to get Ospic approved and into the market, hopefully during Q1 of 2027. Granted breakthrough device designation by the FDA, OSTIC is a synthetic injectable bone bioadhesive that we believe is a one-of-a-kind product. The initial indication being pursued is for periarticular fractures which occur at or near the joint. Periarticular fractures have postoperative complication rates of over 35%, with an average value rate of 10% to 20% for patients with lower extremity fractures. In pre-clinical mechanical testing, OSTIC demonstrated bonding to bone that was 40 times stronger than traditional bone cement. Unlike other bone graft products, OSTIC provides immediate bone adhesion and stability when traditional fixation is limited, enabling surgeons to reconstruct joints that were previously considered non-repairable. Not only are we excited about these products and the rest of the existing portfolio and pipeline, During the diligence process, we became extremely impressed with the Cenera team for creativity, desire to win, and passion for patient care, qualities that are shared by our organization. The importance of a cultural alignment cannot be overstated. We think these teams are ideally suited to combine and grow together. We will discuss more about the acquisition in Q&A, so I'll now move on to summarize the excellent progress The headline is, We Experienced Sequential Recovery in Wound and Continued Strong Momentum in Surgical. For the second quarter, net sales were $64 million. As expected, this was a significant year-over-year drop due to the Medicare reimbursement changes. More relevant to the current circumstances, it represented a $5 million or 9% sequential improvement. We also experienced sequential revenue growth for each month during the quarter, with June being our highest net sales month for the calendar year at $24 million. Wound care center unit volume grew by double digits on both an annual and sequential basis, a very positive sign for MyMedx amidst a struggling wound market. Our surgical revenue was up 15% year-over-year. Our adjusted gross profit margin was 74% in the quarter. We had an adjusted EBITDA loss of $8 million compared to a $12 million loss in Q1. This loss includes $5 million of additional bad debt expenses above our historic reserve levels to account for collection challenges primarily among private office accounts resulting from the Medicare reimbursement chains. We expect this additional expense to be transitory. Four perspectives at bad debt expenses consistent with our historic quarterly run rate of approximately $700,000 per quarter, adjusted even out of the first two quarters of 2026, would have been significantly better. As a reminder, we began reducing our expense structure starting in April, and by June, we trended near break-even, a positive indicator for the second half of the year. We bought back $13 million of magnetic stock before terminating the program as discussions developed regarding the scenario acquisition. We ended the quarter with $119 million in net cash. We moved into full market release of the newly licensed surgical products, including Gel Cordurne Plus, and we submitted our first two 510K applications, including one for a placental-derived product, both of which were accepted for review by the FDA. As we have articulated many times in the past, the company continues to pursue a long-term growth plan which prioritizes, number one, innovation and diversification to support both our wound and surgical businesses, and number two, targeted investments to expand our surgical franchise. We believe the Sonera acquisition accelerates this plan by several years. This strategy has been extremely effective, and as a result, we have continued to realize excellent growth in our surgical segment while quickly stabilizing our wound business. During the second quarter, the wound care market continued to work through the implications of the new Medicare reimbursement framework. The distracting factors we discussed during last quarter's call remain largely the same in Q2. The MACs are disorganized and behind in processing claims. Extremely low-priced products are being dumped on the market. Audits and callbacks are increasing, and the Wiser model is a complete disaster. At least in the case of Wiser, There is some hope for relief. The prolonged prior authorization and ineffective implementation have been devastating for patients. The resulting high complaint rates and concern for beneficiary access led to legislative directive for CMS to address the issue and report back to Congress. Corrective action with WISER would be a welcome reprieve. Despite these headwinds, we have been making excellent progress. Given the magnitude of the Medicare reimbursement reduction from year to year, The only logical way to measure such progress is on a sequential basis. For Q2, our wound care volume increased 22% compared to Q1. Within wound care centers, where we have been concentrating our efforts, we achieved 44% sequential volume growth. In both cases, we achieved sequential revenue growth as well. We are still in the early stages of this transition. We see this friendship growth as a positive sign for MyNetX. The proposed 2027 position fee schedule, which was published earlier this month, indicates CMS has little interest in course correcting at this time. The system and reimbursement level we have today will likely remain in place throughout next year as well. We believe that at some point CMS will set basic requirements for proof of product safety and efficacy to qualify for reimbursement. As such, we continue to fund RCTs on two of our most recent product introductions. Proof of clinical effectiveness is a standard we would welcome and see as a competitive advantage for my medics. In summary, we are making good progress as the wound care market works through this recovery phase. Once normalized, we believe our market-leading technology with its unmatched collection of clinical evidence will continue to set the standard. I want to be clear. We remain committed to the wound care market and will continue to persevere through the current market conditions. We never lose sight that people with chronic hard-to-heal wounds depend on our products. Turning to our surgical business, where we continue to experience excellent momentum with 15% year-over-year growth in Q2. We saw contributions from the entire surgical portfolio, with the fastest growth in our domestic particulate subsegment, which grew 21%. At the outset of this year, we realigned our commercial team to dedicate more sales professionals to the surgical business. And we continue to look for opportunities to augment this team even further. As I mentioned in the past, we added a few new products to the bag this year. AmnioFix Thyroid Shields, a new variant of our AmnioFix product, which is used as a protective barrier during thyroidectomy surgery, is off and running. We also moved into full market release of the surgical products we licensed earlier in the year, including Gel4Derm+. In addition to deploying more direct selling resources and expanding our product portfolio, we consistently prioritize the generation of rigorous scientific and clinical evidence as a crucial part of our growth plan, some of which I highlighted during our last few calls. We've amassed a library of data that allows us to confidently state that we have the number one most studied amniotic tissues. As you know, we've also been advocating for placental allografts to be upregulated from a 361 designation to 510 clearance, like xenografts and synthetic skin substitutes, which will allow us to articulate specific usage claims. To that end, during Q2, we submitted our first two 510 applications, one of which is a placental-derived particulate product. In summary, as you have just heard, We're making good progress working through the reimbursement-related disruptions in the wound care market. We right-sized our cost structure to facilitate a return to profitability. The momentum in our surgical business remains strong, and with today's acquisition announcement, we will transform this company and position it for tremendous growth in 2027 and beyond. Importantly, today we are also reiterating BiMedx's full-year stand-alone guidance for 2026. With that, I'll turn the call over to Doug. Doug?