MiMedx Group, Inc. Aktie

Good afternoon, and thank you for standing by. Welcome to the MiMedx First Quarter 2026 Operating and Financial Results Conference Call. [Operator Instructions]. 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 MiMedx. Thank you.

Thank you, operator, and good afternoon, everyone. Welcome to the MiMedx First Quarter 2026 Operating and Financial Results Conference Call. 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 mimedx.com. Joe will kick us off with some opening remarks and a summary of our operating highlights, and Doug will provide a review of our financial results for the quarter, and then Joe will conclude with some additional updates. We will then be available 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 and expected market sizes for our products. 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, 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 www.mimedx.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. The start of the year has been an eventful one for MiMedx as we navigated the new reimbursement dynamics and continue to leverage growth opportunities for the company. I am extremely proud of our team as they are once again rising to the challenges of the day. In this case, the reset of Medicare pricing for skin substitutes. While our wound care franchise was negatively impacted, our Surgical business continued to excel in Q1. For background, the January 1 implementation of the new Medicare reimbursement framework marked a significant change for the wound care market. Reform was necessary and inevitable given the massive amount of fraud, waste and abuse that permeated the category. However, the final rules were not well defined and have created a whole new set of challenges for industry participants attempting to adapt to the changes.

While we did expect to experience some disruption, especially for the first half of the year, none of us could have foreseen the obstacles we are experiencing nor the magnitude of the market contraction. And unfortunately, the dislocation is resulting in patients not receiving the care they need, calling for additional modifications to the Medicare reimbursement program. Rest assured, MiMedx can navigate these choppy waters better than most, thanks to our strong balance sheet and diversified top line.

Unlike many other industry participants, our business is buoyed by nearly $200 million of 2026 surgical and international revenue and has no exposure to the structural changes taking place in the wound care market, both of which grew by double digits in Q1. It remains to be seen how many other companies will be able to financially withstand these disruptions. I will touch on some of the headlines on the quarter, then circle back for a deeper dive on the 2 businesses.

For the first quarter, year-over-year net sales were $59 million. Our Surgical business was up 13%, and our Wound Care business was down 60% from the prior year. Our adjusted gross profit margin was 72% in the quarter. We had an adjusted EBITDA loss of $12 million. We ended the quarter with $142 million in cash. We completed enrollment in our EPIEFFECT randomized controlled trial, drove a full market release of our PRP product and began selling a few of our newly licensed surgical products.

As a reminder, for the past few years, the company has been following a strategy that prioritizes the continued innovation and diversification of our product portfolio in support of both our Wound Care and Surgical businesses. We also continue to seek opportunities to expand our surgical footprint in numerous specialties. Our intent has been to drive comparatively higher growth with surgical-related products to achieve a more balanced business mix and take advantage of what we believe is an incredibly large and growing opportunity for our surgical portfolio. The plan has been working. And as a result, we have realized 50% top line growth in our surgical business over the past 3 years. We will continue to make investments in support of this strategy.

Let's take a few minutes to unpack what's happening in the wound care market. Where it is clear the Medicare reimbursement reform is creating collateral damage. On January 1, CMS changed from an ASP reimbursement methodology in favor of the new fixed price system for skin substitutes. Also, at the very last minute, CMS without explanation decided not to implement the new LCDs, which would have required manufacturers to prove product efficacy to qualify for Medicare reimbursement, a customary requirement for other medical products. Finally, at the same time, they initiated the WISeR model in 6 states, which now requires prior authorization to qualify for reimbursement.

As providers attempted to adjust, they quickly became clear that MACs were ill prepared for the change. As a result, claims process has slowed dramatically, with at least one of the MACs not processing any Medicare claims for most of the first quarter.

In that MAC alone, our year-over-year first quarter wound revenue dropped by 72%. Making matters worse, the WISeR implementation has been an unmitigated failure. It is apparent the tools they are using were not properly tested. In one of the WISeR states, our wound revenue was down 84% in Q1. The practical implications of our long prior authorization due to these kludgy systems can be devastating for patients.

To state the obvious, this model should not have been implemented at the same time as the reimbursement methodology change. And of course, without LCDs, no guardrails exist to prevent ineffective products entering the market. The challenges have caused several providers to stop using skin substitutes altogether, at least temporarily. This cannot persist for long or patients will suffer, amputations will increase and people will die.

To sum up the government's efforts in a nutshell, good intent with poor execution. That said, this reform was bound to happen. It's just unfortunate so much attention was given to the pricing fix on very little to the payment process.

The outsized economics, which have induced massive fraud waste and abuse in the skin substitute market has been eliminated. Putting aside the near-term overreaction, this reform is a good thing for the health care system and taxpayers. We must now continue to encourage CMS and the MACs to course correct, work out the kinks and quickly stabilize the wound care market.

While we are experiencing our own challenges with the sluggish transition, we have been told of other companies which have experienced 90%-plus revenue drops in Q1. Suggesting that on the other side of the reset, there will be fewer manufacturers in place to serve the market. As we entered the year, we made the decision to keep the business resource at least through the first quarter in the event of a more orderly transition. We started to see some but not many signs towards the end of the quarter of an uptick in volume in the care settings we expected to benefit from the reform. However, due to the magnitude and slow pace of the adjustment, we needed to act. A few weeks ago, we announced that we had taken steps to reduce our cost structure by approximately $40 million, which should put us on a pathway back to profitability.

In summary, we believe the wound care market will normalize. Patients need care and suppliers need a more orderly process sooner rather than later if they're going to stay in the business. When it does, product performance will no longer be set aside in favor of outsized profit potential. Our market-leading technology with its unmatched collection of clinical evidence will continue to set the standard. We also expect that at some point, CMS will set basic requirements for proof of product safety and efficacy. There will be fewer participants, and MiMedx will again flourish in the wound care space.

Let's now turn to the Surgical business, which continues to be an outstanding performer, delivering 13% growth in Q1 with contributions from the entire product portfolio. As stated on numerous occasions, One of the tenets of our strategic plan has been to expand our surgical footprint by investing in dedicated commercial resources, innovative products and meaningful scientific research to validate the clinical and economic benefits derived in the use of our best-in-class technology.

As a reminder, we made a purposeful pivot to greater emphasis on the surgical market starting 3 years ago. Given the size of the market opportunity, and the clear improvement in surgical outcomes when incorporating our products in a variety of procedures. We saw it as one of the best areas to concentrate our focus and investments.

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. I mentioned on our last call that we had added a few products to the surgical portfolio. In the quarter, we launched AmnioFix Thyroid Shields, a new variant of our AmnioFix product to be used as a protective barrier during thyroidectomy surgery, which is a procedure involving parcel or complete removal of the thyroid gland.

As a reminder, this surgery carries inherent risk due to the proximity of the recurrent laryngeal nerve and the parathyroid glands, which can be vulnerable to injury. AmnioFix Thyroids Shields is off to a terrific start and is another great example of the application of our technology can significantly reduce or eliminate postoperative comp paces.

During the quarter, we also began the limited market release of 2 of the 510(k) products we licensed, G4Derm Plus, which is a flowable peptide matrix engineered or rapid protected wound closure, product forms a 3D scaffold that mimics the human extracellular matrix and serves as an antibacterial barrier that protects the wound and controls bioburden. And Hydraulics Collagen Matrix, which is a sterile type 1 collagen powder comprised of soluble modified bovine collagen. In addition to deploying more direct selling resources and expanding our product portfolio, we have consistently prioritized the generation of rigorous scientific and clinical avenues as a crucial part of our growth plan.

On our last call, I highlighted and recently published article in the Journal of Information, which found that our DHACM and LHACM allografts exhibited immuno-modularity properties that correspond with the beneficial outcomes we observed in the clinical setting. This piece, along with other important publications like our 2025 article in Nature Scientific Reports are important reminders of the extraordinary health care benefits inherent in our technology. They indicate that DHACM and LHACM both appear to restore a balanced physiological inflammatory response and serve to interrupt pathological fibrosis, which could lead to reduced scarring and a more expeditious return to functionality.

I cannot overstress the importance of this type of work, especially during this early phase of surgical market development. We've amassed the library of data that allows us to confidently state that we have the #1 most studied amniotic tissue.

We've also been advocating for placental allografts to be upgraded from a 361 destination to 510(k) clearance, like xenografts and synthetic skin substitutes. We see this as part of the natural maturation of the sector. To that end, we expect to submit our first 2 510(k) applications for placental-derived products in the next few months.

As you have just heard, we are continuing to work through the unforeseeable disruptions in the wound care market and have taken steps to rightsize our cost structure to better enable a rapid return to profitability as the industry normalizes and our surgical business remains strong and poised for continued growth.

One final topic before I turn the call over to Doug for a more detailed review of our financial results. As announced on our last earnings call, the Board has authorized a share repurchase program of up to $100 million of the company's common stock over a 2-year period. We intend to use the repurchase program periodically on a discretionary basis, subject to general business and market conditions and balanced against other investment opportunities.

Since that call in late February, we have been focused on various strategic and operational matters, including the restructuring activity that was announced earlier this month, which precluded us from repurchasing shares. Some of those activities behind us, we are now able to move forward with the share repurchase program. Accretive investments that meet our criteria will remain our highest priority, and we do intend to allocate some capital to invest in our own stock.

With that, I'll turn the call over to Doug. Doug?

Thank you, Joe, and good afternoon to everyone on today's call. I'm pleased to review our results with you all today. As a reminder, many of the financial measures covered in today's call are on a non-GAAP basis. So as Matt indicated earlier, please refer to our earnings release for further information regarding our non-GAAP reconciliations and disclosures, including the reconciliation tables that provide more detail regarding the adjustments made to calculate our non-GAAP metrics.

Moving on to the results. First quarter 2026 consolidated net sales were $59 million down 33% compared to the prior year period. By product category, first quarter surgical sales of $36 million grew 13% versus the prior year period while wound sales of $23 million declined 60%. This marks the first quarter in recent company history where our surgical sales exceeded our wound sales. Notwithstanding the expected sequential growth from both our wound and surgical product categories in each quarter this year, we believe that this trend of greater surgical sales relative to wound sales will continue over the balance of 2026.

Within our Surgical business, we are seeing contributions broadly across the portfolio, including strong double-digit growth year-over-year from 2 of our flagship products, AmnioFix and AMNIOEFFECT, as well as solid performance from our particular lines.

To a lesser extent, our surgical revenue also benefited from the late quarter launch and early customer adoption of the innovative surgical products that Joe just mentioned in G4Derm Plus Derm and Hydraulics. Also, as Joe mentioned, the 60% year-over-year decline in our wound net sales, which was a 24% decline on a volume basis was pressured by significant disruption, confusion and chaos in the marketplace, particularly among private office and associated care settings that previously were reimbursed by Medicare for skin substitutes under an ASP plus 6% methodology.

To a lesser degree, changes to the Medicare reimbursement rules in the wound care center and hospital outpatient settings also resulted in some confusion and reluctance to utilize amniotic skin substitutes among customers. These declines were partially offset with net sales from the recent launch of our new PRP gel product.

Adding to this year's market disruption were the new onerous reimbursement preauthorization requirements imposed by Medicare's WISeR model in Texas, Oklahoma, Ohio and New Jersey, which may be good for our customers in the long run, but we're closely implemented in Q1. And lastly, regional inconsistencies and reimbursement by certain MACs contributed to the slower ramp in volumes than we initially anticipated.

Before commenting on the rest of the P&L, I wanted to remind you that earlier this month, we announced a restructuring and cost reduction initiatives. This action, which is not reflected in our first quarter results, is expected to yield annualized savings of approximately $40 million, comprised of both a 15% reduction in force as well as the implementation of other cost reduction initiatives, including executive officer pay reductions. These initiatives will result in a onetime charge of about $4 million in the second quarter. These actions were taken across the organization and the resulting cost savings are reflected in my comments surrounding our expected results for the full year.

Our first quarter 2026 GAAP gross profit was about $42 million, which compares to $72 million in the prior year period. Our GAAP gross margin was 71% in the first quarter 2026 compared to 81% last year. This year-over-year decline in gross margins was caused by the top line impact of our lower ASPs due to the wound care Medicare price cap of $127.14 per square centimeter as well as higher production costs and product mix.

Going forward, we expect our gross margin to be in the low 70s relative to full year net sales, but based on our expected sequential sales growth and the impact of our cost production measures we anticipate exiting the year with our gross margin in the mid-70s.

Turning to our operating expenses. Sales and marketing expenses were $44 million or 74% on of our net sales in the first quarter compared to $47 million or 53% of net sales in the prior year period. The dollar decrease was due to a combination of lower wound commissions associated with lower sales of that product category partially offset by increases in surgical commissions. Looking ahead, we expect our full year 2026 sales and marketing expenses to be approximately 60% of net sales while exiting the back half of the year in the mid-50s.

GAAP general and administrative expenses or G&A were $9 million in the first quarter compared to $13 million in the prior year period. This decrease primarily resulted from the reversal of previously recognized stock-based compensation expenses related to our performance stock units with vesting targets predicated on achievement of certain revenue levels. We expect full year non-GAAP G&A expenses to be 13% to 15% of net sales.

Our first quarter R&D expenses were $4 million or about 7% of net sales up 24% compared to the prior year period, driven primarily by increased costs associated with the recently completed enrollment of our EPIEFFECT and the start of the RCT enrollment for our new CHORIOFIX dual-layer chorion product as well as additional spend related to the development of future products. We expect our full year R&D expenses to be about $3 million to $3.5 million per quarter for the remainder of 2026.

GAAP income tax benefit of $4.5 million for Q1 2026 reflected an effective tax rate of 29% due to the timing and deductibility of certain compensation-related expenses. We continue to expect our long-term non-GAAP effective tax rate to be approximately 25%.

Our first quarter GAAP net loss was $11 million or $0.07 per share compared to GAAP net income of $7 million or $0.05 per share in the prior year period. Adjusted net loss for the first quarter was $7 million or $0.05 per share compared to adjusted net income of $10 million or $0.06 per share in the prior year period. First quarter 2026 adjusted EBITDA was negative $12 million or 20% of net sales compared to positive $17 million or 20% of net sales in the prior year period. Despite the anticipated continued wound market disruption in the first half of 2026, we expect our full year adjusted EBITDA to be roughly breakeven with sequential improvements in each quarter.

Turning to our liquidity. We had $160 million of cash and cash equivalents on March 31, 2026. Our first quarter free cash flow was $1 million, primarily due to the strength of our operating cash flow from working capital contributions, which was mostly offset by our first quarter operating loss. This compares to $5 million of free cash flow in the same period 2025.

In turn, our net cash balance now sits at about $142 million, down from $148 million last quarter. Despite the Q1 results, our balance sheet remains strong. And as Joe mentioned, we intend to deploy capital on a mix of M&A and share repurchases in the near term as we see these as very favorable opportunities to create incremental shareholder value.

Before I turn the call back to Joe, I want to provide our latest thinking on guidance and capital allocation. As we mentioned earlier, now that we are nearly 4 full months into the year, it is clear that the broader wound care market recovery is much lower than everyone had hoped for at the beginning of the year. It is, therefore, practical to modify top line expectations to be in the range of $260 million to $290 million. We expect Surgical to continue to deliver double-digit growth over the course of the year, driven by the continued momentum of our organic product portfolio as well as the new surgical products that we have added.

In Wound, despite the expected continued market disruption, we also anticipate a sequential volume recovery each quarter during the year for our business. However, with the continued pressure on our wound care ASPs associated with the new Medicare rules, we believe the full year-over-year decline in wound will be in line with the decline that we saw during the first quarter on a relative basis. And as I just mentioned, we expect to run at an adjusted EBITDA loss for the first half of the year moving back to profitability beginning in Q3 as our sales improve, and we realize the benefits of our cost reduction activities as the year progresses. We expect a stronger exit to 2026 and 2027. We expect to snap back to double-digit above-market top line growth in both our wound and surgical franchises with solid flow-through to the bottom line.

I will now turn the call back to Joe. Joe?

Thanks, Doug. As you've just heard, our Surgical business is incredibly well positioned for continued above-market growth. Additionally, because of the decisions we made a few years ago to focus the business, redirect resources and eliminate significant investments in a risky project, we are now in a much stronger position to work through the wound care market reset while continuing to expand in surgery.

We expect to spend the first part of this year navigating the rough orders in the wound care market due to unforeseeable disruptions associated with the implementation of a new Medicare reimbursement system. Part of our response was to adjust our cost structure, which is now complete. As mentioned, we are starting to see early signs of the expected patient migration into other care settings, albeit at a lower level and slower pace and we remain well positioned to service this market as it improves over time. Moreover, with our dramatically improved financial position, we have the option to deploy capital to accelerate our strategic plan and/or buy back our stock opportunistically.

In closing, I would like to once again thank the MiMedx team for your resilience during this challenging time after your unwavering commitment to our mission and to the many individuals we serve each day.

Let's now shift over to Q&A and open the call to questions. Operator, we are ready for our first question. Please proceed.

[Operator Instructions]. The first question is from Chase Knickerbocker from Craig-Hallum Capital Group.

Joe, I just want to start on -- so your guidance implies kind of mid-teens quarterly recovery quarter-over-quarter for wound. Can you just maybe talk a little bit more about what you saw in Q1 on like a monthly basis as far as how you saw things trend for wound? I mean did you see kind of meaningful recovery in March? And then maybe talk about how April is and kind of how that business kind of trended month-by-month in the improvement that you saw kind of through the quarter and then in April as well, if you would.

Yes.Chase, when we entered the year, we thought we would see more of a a normal trend in terms of volume pickup month-to-month. And due to all the issues that we're seeing in the marketplace, the fact that so many providers just stopped ordering skin subs all together until they work through some of these challenges, additional challenges in WISeR state, et cetera, et cetera, we didn't see volume pick up throughout the quarter. It was pretty much the same month-to-month.

And then when we got to March, we expected really to see -- number one, there's typically a normal pickup in March at any time, in any year. So we expected to see possibly even a bigger pickup as we start to work out some of the issues in March, didn't see it. March was basically flat to January and February. And so far, April has looked about the same. So we're still dealing with a lot of these issues in the wound care market.

If you look at our guidance for the rest of the year, we don't anticipate a whole lot of pickup in the wound care sector. We haven't programmed that into our guidance. We took a pretty conservative approach.

If you look at it on a sequential basis, Joe, it looks like there's some -- obviously some recovery that's implied. Can you just maybe talk about what you're hearing from customers as far as kind of specifically in wound?

I'll let Joe comment on the customer piece. But you're right, Chase. Sequentially, we do expect modest recovery in wound both on a dollar basis as well as a volume basis as we step through each quarter this year. But our overall guidance is for the full year, we're thinking that directionally will be in line with what we saw in Q1 on a relative basis.

And there could be some upside to this if we can get these arteries unclogged with some of this really, really poor implementation of these new systems that they have in place. And we've mentioned it several times, it's really bad in these WISeR states, everything is ground to almost a halt or a trickle. One of the MACs didn't process any Medicare claims in the first quarter. So that can't persist, right? That's going to get better. People are pinging them constantly on the need to get this thing streamlined. And that will happen. So we should naturally see some sort of pickup as the year progresses. Again, being as prudent as we can. We just didn't program a lot of that into the guidance.

Got it. And maybe just specifically on kind of the HOPD kind of side of things. I mean maybe speak to how that business has trended and kind of what you're hearing from those customers? I mean, obviously, still seeing a volume impact there as well. But I mean, any sense there could be a quicker recovery there?

Yes. Yes, we didn't see much of a volume impairment in the wound care center, right? So all the volume impairment we had was outpatient. It was private office, home, mobile, nursing home, et cetera. There was a little bit of impact early on, but we recovered quickly in the wound care centers. So we think that's where patients will eventually migrate. We started to see some of that in March, April, but it's real slow.

And Chase, this is Matt. I mean one other thing to that's swept up in part of this change, but it's getting buried as these wound care centers in the HOPD setting, treating bigger-sized wounds, wounds that they wouldn't otherwise have been able to treat in the old days as recently as last year with the bundled rate. They were priced out from being able to do that. Again, there's so much noise in this in the space, it's kind of hard to tease that out from these numbers, but we are seeing that take place.

Next question is from Dave Turkaly from Citizens.

The WISeR comment that you may be -- the pre-offer reimbursement, is that regardless of the setting? And if so, how do you get that change? I mean I'd like to think the government might be on your side, but -- is that something you think you can work through this year?

Yes. This is a whole new project that they implemented. Again, in an attempt to curtail around the fraud that was taking place. I do think that we'll get better as these contractors figure out the system as we understand that they tried to -- or they attempted to apply some AI tools that were failure. So they've gone back to sort of manual claims process, it has taken a lot of time. And these are some pretty high-volume Medicare states. So that really hurt us. I think that will get better, right? And so you'll start to see that clean itself up over time. And look, Medicare is very aware of all the issues related to the WISeR model. So we have to think that this is something that should cure itself sooner rather than later.

I guess, is there any formal process that you can go through to make that happen quicker? Or I'm just trying to get a handle on the commentary that dollar volume improves as we go through the year, but not a lot. But if this is still part of the, I guess, overhang, I don't -- I would agree that you would think it would get better, but I'm not sure, is there a process to help that happen more quickly?

Yes, there's notification bodies that you can contact when you have issues like this. We're dealing directly with the MACs, we're doing directly with CMS, frankly, where appropriate. So they are the folks that need to remediate the issue. But there's ways that you can connect within the contact. And obviously, as soon as we started seeing it, we were we're all over it. It's just taking some time to work through it.

If you look at the impact -- if you look at the impact to our Wound Care business, we had about a 48% drop in price. They had about a 24% drop in overall wound care volume, and we know where that came from. So our guess is there's other folks that are being impacted a lot more than we are. That doesn't make us feel better. It's just a reality. The entire market ceased up and contracted. It's not like we're losing share to somebody else. In fact, I wouldn't be surprised if we actually gained share during the first quarter. It's just that the pie got a whole lot smaller for the -- at least for the time being.

The next question is from Anthony Petrone from Mizuho Group.

Brad Bowers on for Anthony to the team. So I want to touch on that piece maybe zooming out. You talked about yourself down 24% on volume, 60% overall, presumably the bad actors are worse. The statistics that we were getting was that the marketed balloon to like $10 billion, $15 billion kind of run rate per year. Do you have any idea where that's settling out based off of Q1?

Well, there's really no data that I can point to that can validate this, but my guess is that Medicare has probably experienced a 90% to 95% reduction in payments during the first quarter.

And Brad, I think maybe 1 qualification that I think is important here. CMS solved for the runaway spend that did balloon to $15 billion by changing the payment mechanism for both that -- those care settings, the ASP+6%, but also the HOPD and wound care center, where it was a dramatically lower spend historically in the measured in the hundreds of millions of dollars. But across the board, all those care settings are now living with this new reality and the issues that we talked about.

Got it. That's helpful. And then maybe, again, just keeping at kind of a high level. Just wanted to hear about maybe the long-term mix outlook. Obviously, you reset from a lower base here on wound, but similar growth in the double-digit outlook, that would assume that the mix kind of holds here? Or do you think there's kind of room to catch up in wound? And how do you think about the long-term mix of the business and maybe margin implications on that.

Yes. Good question. We've spent a disproportionate amount of time for obvious reasons, talking about the Wound Care business and not the tremendous success that we continue to have in the surgical setting. We don't see that changing. The reason we made that pivot 3 years ago was because of the opportunity in terms of size of the market and the benefits that are derived from use of our technology in a variety of different surgeries. So we continue to lean into that. And I've said this on our last call, if you just carved out our surgical business, it's growing last year, 15% to 20%. And in the teens again this year in Q1, which is typically our slowest growth quarter. And you slapped a typical medtech market multiple on that business. We'd have a -- just on that business, you could get to a $7 or $8 per share for our stock.

So we are going to continue to lean into that. I think the wound care market will eventually find a new normal and will be a strong participant in that market. It's going to be a smaller market. We all know that now. There's going to be less participants in that market, surely. And you're just -- that you're not going to have the type of fraud that we saw for the last few years. So it's going to be a nicer neighborhood to be playing in. And we'll have one of the nicest houses in that neighborhood.

I can't stress enough the fact that where our -- our science and technology prevails and it's so obvious is in the surgical setting. So that's where we're going to mean, what the mix is, it will shake out over time, depending on what happens in the wound care market. And I do, again, I do still think it's going to be an attractive market. It's profitable for us. It's is going to be a smaller market. But we're in it -- and we're going to still be around that market.

[Operator Instructions]. The next question is from Frank Takkinen from Lake Street Capital Markets.

This is Ian on for Frank. I was wondering about the recently announced $40 million operating expense reduction and how we should think about that relative to what's required to remain profitable in 2026. Do you guys have line of sight to additional cost levers if the recovery in wound continues to lag? Or do you believe that this initiative is sufficient to kind of bridge that gap to back to breakeven?

Yes. I'll let Doug comment on some of the specifics, but I really wanted to stress the fact that when we came into the new year, everybody knew that we were going to have some disruption. We telegraphed that plenty of times last year. None of us do and none of us could have foreseen these other related issues that we're dealing with that has had a big impact on the market. So obviously, we need to take action. We made the decision throughout the first quarter to leave our cost structure in place, resource the business for a potentially more rapid rebound as I said at the outset of the Q&A session here, you just didn't see it. So we had to take action. And we lost about $12 million in the first quarter. We run hotter on expenses in the first quarter. As a reminder, we have a national sales meeting and we have higher payroll taxes, et cetera. So I think this gets us there, but Doug can comment a little bit more.

Just quantitatively, Ian, the $40 million we've already affected most of that. We'll get the rest over it over the next few weeks, but we talked about a 15% reduction in our workforce, and I would say that overall, we're in the 15% to 20% range in terms of reduction of addressable operating expenses.

And you asked if there was any other actions or levers that we can pull on if need others, we're always looking to make the business as efficient as possible. It's way too early to start talking about taking any other actions. We got to see what happens in the wound care market. I think this allows us to do what we needed to do to get back to breakeven, and we'll move back into profitability as the business grows in scale. One thing we know for sure, at scale this business becomes incredibly profitable. We saw it over the last few years. So I think we're in better shape than most and we'll weather the storm.

Okay. That was very helpful. And just one more for me. Recognizing it's nearly impossible to quantify this with precision. But how are you guys thinking about the amount of competitor inventory still sitting in the channel that needs to clear at those discounted prices? And are you seeing the pace of dumping slow at all? Or is it still a pretty meaningful headwind?

It's a meaningful headwind and I think it will be for the first half of the year, at least.

All right. Thank you, guys.

This concludes the question-and-answer session. I would like to turn the floor back over to Joe Capper for closing comments.

Thanks, operator. Thank you, everybody, for joining us on this afternoon's call. We will speak to you after next quarter. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good afternoon, and thank you for standing by. Welcome to the MiMedx Fourth Quarter and Full Year 2025 Operating and Financial Results Conference Call. [Operator Instructions] 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 from MiMedx. Thank you, Matt. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the MiMedx Fourth Quarter and Full Year 2025 Operating and Financial Results Conference Call. With me today 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 mimedx.com. Joe will kick us off with some opening remarks and a summary of our operating highlights as well as a discussion of the market environment and our financial goals. Next, Doug will provide a review of our financial results for the quarter and full year. Joe will then conclude before we make ourselves available 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 and expected market sizes for our products. 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, 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.

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 www.mimedx.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 for today's call. In the fourth quarter of 2025, we once again exceeded our expectations, setting full year record highs for revenue and adjusted EBITDA, which bolstered our net cash balance to nearly $150 million at year-end. We are incredibly pleased with these results, which were driven by excellent growth in our Wound Care and Surgical businesses.

Since that record quarter, we have quickly pivoted to adjust to the new reimbursement framework in the Wound Care market and remain laser-focused on delivering continued outstanding performance in our Surgical segment. As anticipated and previously communicated, the Wound Care market is experiencing disruption following the recalibration of the Medicare reimbursement rate for skin substitutes, which went into effect on January 1. As you know, we have long advocated for reform to the Medicare reimbursement system to curtail the runaway spend and inappropriate behavior. We firmly believe the steps that we're taking will be a net positive for the industry and MiMedx as the market resets.

We flourished prior to the high ASP era and are well suited to compete and win in the new reimbursement environment.

Our Surgical business, which grew at 20% for the full year 2025, is benefiting from the investments we have been making. We expect this momentum will continue into the new year. I will touch on some of the highlights of the quarter, then circle back for a deeper dive on our strategic focus for the 2 businesses.

For the fourth quarter, year-over-year net sales growth was an exceptional 27%, finishing at a record $118 million. Both Wound and Surgical delivered during the quarter, each growing at or above 25%. Our adjusted gross profit margin was 86% in the quarter. Adjusted EBITDA was $29 million or 25% of net sales. We continue to build cash, ending the year with $148 million in net cash, a sequential increase of $24 million in the quarter, which is also $63 million higher than where we started in 2025.

I am pleased to report that our EPIFIX randomized controlled trial is nearly fully enrolled. And we expect to see a final readout in a few months with publications to follow. And we have announced collaborations to commercialize complementary products in both of our businesses. Finally, our Board has authorized a share repurchase program, giving management the ability to deploy up to $100 million to buy back our stock over the next 2 years.

Those of you who have been following the company for the last few years know that our strategic focus has prioritized the continued innovation and diversification of our product portfolio in both our Wound Care and Surgical businesses. We also continue to seek opportunities to expand our footprint in numerous surgical specialties. Our intent has been to drive comparatively higher growth with our surgical-related products to achieve a more balanced business mix and take advantage of what we believe is an incredibly large and growing opportunity for our Surgical portfolio. I outlined this plan when I joined MiMedx 3 years ago. Since then, we have achieved top line compounded annual growth of 16%. Clearly, we have executed on that plan and the results have been outstanding.

Let's take a closer look at the Wound Care business, where there has naturally been a great deal of interest given recent events. To recap, the PFS and OPPS were implemented with a price cap of $127 per square centimeter and LCD implementation was once again abandoned. During these first few months of 2026, the market is in the process of adjusting to the pricing change in a variety of ways. In the states that are part of the Wiser model, claims processing has slowed to a trickle as providers adjust to the new prior auth requirements. Medi providers are increasingly concerned with the number of audits and callbacks. Some products are being dumped in the market at very low prices, causing even more chaos. And some providers have completely shut down their businesses.

We remain positive about this business for several reasons. First and foremost, it is still a profit center for us despite the reduction in reimbursement. Second, we believe for a host of reasons, MiMedx is in the most desirable competitive position to flourish post the reimbursement changes. We are confident we will emerge as the clear market leader as more customary treatment practices return to the market. We are working closely with our customers to help them navigate these changes. We do believe it is likely CMS will eventually establish a basic requirement to prove efficacy for the products they reimburse like in all other medical product categories. Speculation is that they may move to a national coverage determination in lieu of LCDs and the clinical effectiveness requirement will still be a well-powered randomized controlled trial. This should benefit MiMedx, given our rich history of and commitment to funding robust clinical research as we bring new products to market.

Our RCT for EPIEFFECT is near full enrollment and will read out soon. We've also committed to running an RCT for another new product, CORIOFIX, a dual-level chorion membrane allograft, which is in development.

As announced a few months ago, we entered into a distribution agreement with Regen Labs to commercialize their PRP system, called Regent Wound gel. This provides clinicians with a proven alternative modality for treating chronic wounds, with provider economics that are potentially more favorable than skin substitutes. We are ramping up with this offering and the early feedback is very favorable.

In summary, we remain optimistic about the Wound Care market despite the near-term disruptions. It is still a profit contributor for MiMedx even at the lower reimbursement rates. We continue to develop products which leverage our gold standard technology. We are providing reimbursement and other assistance as appropriate to help customers through this space. We are adding complementary products, and we continue to invest in clinical research, which validates the safety and efficacy of our products. When the dust settles in the Wound Care market, companies which are committed to helping heal chronic and complex woods like MiMedx will benefit the most.

Let's now pivot to our Surgical business, which has been an outstanding performer, delivering 25% growth in Q4 and 20% full year growth with contributions from the entire product portfolio. As I stated on numerous occasions, our plan has been to expand our Surgical footprint by investing in dedicated commercial resources, innovative products and meaningful scientific research to validate the clinical and economic benefits derived from the use of our best-in-class technology in a variety of procedures.

At the outset of this year, we realigned our commercial team to dedicate more sales professionals to the Surgical business. and we'll continue to look for opportunities to augment this team even further. In terms of portfolio expansion, we recently launched AMNIOFIX Thyroid Shield, a new variant of our AMNIOFIX product to be used as a protective barrier during thyroidectomy surgery, which is a procedure involving partial or complete removal of the thyroid gland. This surgery carries inherent risk due to the proximity of the recurrent laryngeal nerve and the parathyroid glands, which can be vulnerable to injury. Damage to the laryngeal nerve can result in significant complications, including loss of voice and an increased risk of aspirin food or fluid, which can in turn lead to serious respiratory complications such as aspiration pneumonia, posing additional health risk and prolonging patient recovery.

Equally important are the parathyroid glands, which play a critical role in maintaining calcium balance in the body. Under conditions of surgical stress, these glands can become temporarily dormant, leading to pathologically low serum calcium levels or hypocalcemia. While calcium levels may gradually recover, in some cases, they fail to normalize, necessitating lifelong calcium supplementation. Slow recovery of parathyroid function can also extend hospital stays, increase health care costs and delay return to normal activity. Recent evidence highlights the efficacy of AMNIOFIX Thyroid Shield as a protective adjunct in thyroid surgery, significantly reducing or even eliminating postoperative complications. In cases where the nerve injury does occur, use of AMNIOFIX Thyroid Shield appears to accelerate the restoration of normal vocal and swallowing functions.

Additionally, the use of AMNIOFIX Thyroid Shield has been shown to minimize parathyroid gland damage during thyroidectomy. This protective effect promotes a faster recovery of the parathyroid function and helps restore blood calcium levels to normal more rapidly. Such benefits not only improve patient outcomes, but also reduce the likelihood of extended hospitalizations, offering both clinical and economic advantages. In summary, AMNIOFIX Thyroid Shield represents a valuable innovation in thyroid surgery, providing critical protection for both recurrent laryngeal nerve and parathyroid glands.

To complement our organically developed portfolio, we also licensed commercial rights to 3 additional complementary and 510(k) clear products with surgical applications. Nova form Wound Matrix is a proprietary bioblast and collagen-based been dressing intended for use in the management of partial and full thickness and surgical wounds. This marks our first nonhuman derived sheet product in our portfolio.

G4 Derm is a global peptide matrix engineered for rapid protective wound closure. The product forms a 3D scaffold that mimics the human extracellular matrix and serves as an antibacterial barrier that protects the wound and controls bio burden. And Hydraulics Collagen Matrix, which is a sterile type 1 collagen power formulated from hydrolized and modified bovine collagen.

In addition to deploying more direct selling resources and expanding our product portfolio, we continue to view scientific research as a crucial element of our growth plan. To that end, you may have seen the recently published article in the Journal of Inflammation, which found that our DAC and [indiscernible] allografts exhibited immuno-modularity properties that correspond with the beneficial outcomes we observed in the clinical setting. This study marks another important contribution to our unmatched comprehensive library of clinical and scientific research, which has positioned us favorably in the marketplace.

Because our approach in the surgical market has been producing the desired results, we will continue to prioritize investment in commercial resources, innovation and scientific research. As you have just heard, we have several new initiatives underway that we expect to be additive to our growth, and we remain incredibly optimistic about the future for MiMedx.

Before I turn the call over to Doug for a detailed financial review of the quarter, I want to share my thoughts on guidance and capital allocation. In terms of guidance, our best current estimate for full year revenue is to be in the range of $340 million to $360 million. We expect quarterly revenue to be the lowest in Q1 with substantial increases in each successive quarter as the market adjusts, patients migrate to other care settings and share is redistributed.

We anticipate full year adjusted EBITDA to be in the mid- to high teens. We will update these expectations as necessary as the year progresses. Looking through to 2027, we expect to be back to posting double-digit above-market top line growth with the margin profile we have produced in recent years prior to any acquisitions. Speaking of which, we have been vocal over the past few years about our desire to deploy capital to acquire assets, which would accelerate our strategic plan. While M&A has been our top priority for use of capital, we have remained disciplined buyers, making only a few small investments. As a result, we find ourselves with a relatively high and growing cash balance. Therefore, the Board of Directors has authorized management to buy back up to $100 million of stock over the next 2 years. If we are unable to make accretive investments that meet our criteria, we will use capital to invest in our own stock, which we believe is woefully undervalued.

With that, I'll turn the call over to Doug for a more detailed review of our financial results. Doug?

Thank you, Joe, and good afternoon to everyone on today's call. I'm pleased to review our results with you all today. As a reminder, and as Matt mentioned, many of the financial measures covered in today's call are on a non-GAAP basis, so please refer to our earnings release for further information regarding our non-GAAP reconciliations and disclosures.

Moving on to the results. As Joe mentioned, our fourth quarter 2025 net sales of $118 million represented 27% growth compared to the prior year period. By product category, fourth quarter Wound sales of $79 million increased 28% versus the prior year period, while Surgical sales of $39 million were up 25%, reflecting strong results across both of our franchises. The strong growth in Wound was driven by strong uptake of 2 new products, EPIXPRESS and EMERGE. And the robust increase in Surgical sales was driven by continued demand for AMNIOFIX, AMNIOEFFECT and our particular products, which all grew both on a year-over-year and sequential basis.

Our fourth quarter 2025 GAAP gross profit was about $99 million, up $23 million compared to the prior year period. Our GAAP gross margin was 84% in the fourth quarter of 2025 compared to 82% last year. Excluding the incremental acquisition-related amortization expense in the quarter, our non-GAAP adjusted gross margin was 86%, up about 200 basis points compared to the fourth quarter of 2024. This increase was primarily a result of product mix. Looking ahead to 2026, we expect our gross margin to be in the mid- to upper 70s and as a result of lower wound day ASPs and, to a lesser extent, lower gross margins from new products.

Turning to our operating expenses. GAAP sales and marketing expenses were $61 million or 52% of net sales in the fourth quarter compared to $48 million or 51% of net sales in the prior year period. The dollar increase was due to higher commissions expense. Here again, in 2026, we expect full year sales and marketing expenses to be between about half of net sales, reflecting a similar amount of relative commissions compared to 2025 as well as lower fixed costs.

GAAP general and administrative expenses, or G&A, were $12 million or 10% of net sales in the fourth quarter compared to $13 million or 14% of net sales in the prior year period. We expect 2026 full year GAAP G&A to be flat on an absolute dollar basis compared to 2025.

Our fourth quarter GAAP R&D expenses were $5 million or 4% of net sales, up 33% compared to the prior year period. Our R&D expenses are primarily comprised of costs associated with our RCT efforts as well as additional spend related to the development of future products in our pipeline. As Joe mentioned, we have nearly completed enrollment of the EPIEFFECT RCT and expect a full readout and publication later this year. We are now moving forward with an RCT for CORIOFIX, our latest innovation out of R&D. CORIOFIX is a lyophilized human placental allograft that includes 2 layers of Coreon with a taxed intermediate layer.

As we think about the full year 2026, we expect R&D expenses to be flat on an absolute dollar basis when compared to 2025.

GAAP income tax expense for Q4 2025 was about $7 million, reflecting an effective tax rate of 30% in the quarter. And our full year 2025 effective tax rate was 27%. We continue to expect our long-term non-GAAP effective tax rate to be 25%.

Our fourth quarter GAAP net income was $15 million or $0.10 per share on a diluted basis compared to GAAP net income of $7 million or $0.05 per share in the prior year period. Adjusted net income for the fourth quarter was $20 million or $0.14 per share compared to $11 million or $0.07 per share in the prior year period.

Fourth quarter adjusted EBITDA was $29 million or 25% of net sales compared to $20 million or 21% of net sales in the prior year period. As Joe mentioned, our expectation for 2026 is to deliver an adjusted EBITDA margin in the mid- to upper teens on a percentage basis.

Turning to our liquidity. We continue to bolster our balance sheet and position the company to make growth investments. In the fourth quarter, the business generated $25 million in free cash flow and our net cash position rose to $148 million. The steady improvement in our balance sheet provides us with the ability to evaluate a range of organic and inorganic investments. We continue to evaluate numerous opportunities to grow the business and create shareholder value.

Included with today's earnings release, we also announced the recent authorization of a share repurchase program, providing us with an avenue to opportunistically return capital to shareholders. While our top capital allocation priorities remain focused on both organic innovations and M&A, having this tool available to deploy periodically as conditions warrant provides us with additional optionality for our cash balance.

In summary, 2025 was a very strong year at MiMedx, marked by record top and bottom line financial performance, which bolstered our already strong balance sheet. Just to recap, on a full year basis, in 2025, we delivered $419 million in net sales, representing 20% growth compared to 2024. GAAP net income of $49 million nearly $106 million in adjusted EBITDA, which represents an adjusted EBITDA margin of over 25%, and we increased our net cash balance by nearly 75%. We believe these results have afforded us the ability to continue to pursue attractive growth opportunities in Surgical while we navigate near-term noise in the Wound market.

I will now turn the call back to Joe. Joe?

Thanks, Doug. As you've just heard, we had an outstanding 2025 and are well positioned to achieve continued above-average market growth in our surgical business and to capitalize on the changes currently taking place in the Wound Care market.

As I said in the past, our competitive advantages are many. We have a fully vertically integrated business from product development to manufacturing, to commercialization, including donor recovery. We have an excellent intellectual property portfolio. We have arguably the most comprehensive and effective commercial organization in our space. And over the past 3 years, we have dramatically improved our financial position, amassing a strong cash balance. This gives us optionality to deploy capital to accelerate our strategic plan and/or buy back our stock opportunistically.

In closing, I would like to once again thank the MiMedx team for a tremendous close to 2025 and for your unwavering commitment to the many individuals we serve each and every day. Let's now shift over to Q&A and open up the call to questions. Operator, we are ready for our first question. Please proceed.

[Operator Instructions] The first question comes from the line of Dave Turkaly with Citizens Bank.

Thanks for the guidance in a tough environment and the longer-term outlook. Reiteration, I think that should be helpful. Joe, you mentioned some of the players in the market maybe lowering prices, maybe some ceasing. I guess I'm just curious, was that kind of what you anticipated? And then as we look at that guidance, and realize it's kind of a flex that there's a lot in flux here. How comfortable are you that you've kind of captured at least, let's say, the low end of what could come?

Yes, I would say that it is kind of what we anticipate happening once we knew what the final rules were going to look like. We had been hopeful that Medicare would have put little bit more stringency around the guidelines, but that didn't happen, right? So maybe it will over time. And so unfortunately, we're still seeing a fair amount of above average discounting in the marketplace, potentially people clearing our product as they exit the market, who knows, but there is some kind of what I'll refer to as dumping of very low-priced product, below what we think is appropriate. But yes, it's kind of what we expected.

And then there's -- it's complicated, I think, even further by things like implementation of the Wiser model in about 4 or 5 states where they're requiring a preauthorization has really slowed down the insurance verification request process that we help patients work through, which has kind of just delayed uptick of normal volume. You always see kind of a slower January, slower February as that marketplace works its way through deductible season and we typically get 40-plus percent of our revenue in March -- 40-plus percent of our kind of Q1 revenue in March. I think this year, the whole thing is just a bit exacerbated by what's happened in the marketplace. Our team is working really, really hard to help our customers work through a variety of these issues.

Right out of the gate, customers were just in a wait-and-see mode. Candidly, I think a lot of folks were expecting the government swing back around and increased the price, and that did not happen. So I think folks waited a bit to see if that was plausible. But kind of we're in the market that we're in and I think most people are just trying to figure it out. We feel real good about it post the kind of market adjustment as things reset. We'll get down to a new norm, and then we'll grow from there.

And I think, again, we'll start growing at a rate faster than the market because we did it. prior to the run-up in ASPs as you go back to late '22, early '23, we were growing at strong double digits. It was really before we saw the huge proliferation of these high-priced products. So I know when all else is equal and when everyone is not competing just on price, our organization tends to do better.

Great. And I imagine I know there was some sales force issues related to some of the newer players out there. And I'm just curious in terms of your outlook for this year, do you kind of expect a more normalized turnover rate? Or I guess, your thoughts on the sales force you have and your ability to kind of maybe even increase that given what's going on in the market.

Yes, it's a good question. I think we saw some other manufacturers make operational expense changes, including to sales and marketing ahead of this change. We made the conscious decision not to do that in any radical way because we wanted to see how things shook out, and we're trying to be as flexible as possible with our commercial organization. Again, let's wait and see how this thing settles out, see what kind of organization we need to maintain the level of reach of frequency adequate to achieve the growth objectives that we would like to see. But it's more of a -- let's work through this. I can tell you, the entire team is working really hard to try to adjust to the market and help our customers work their way through this.

The next question is from the line of Chase Knickerbocker with Craig-Hallum.

Joe, maybe just to start, I'd love to kind of get a feel for what you've seen from a volume perspective in Q1 so far in the overall market in Wound kind of relative to Q4. And do you feel like you kind of have visibility kind of most of the way through February here as far as that kind of market stabilization point that you kind of just mentioned in the previous question? Just an overall kind of state of the market, I guess.

Yes. And we saw a pretty significant drop off as we went from Q4 to Q1 as anticipated. I think we would have been forced not to anticipate a fairly significant drop. And we'll -- again, there's, I think, a little bit more kind of stagnation in the business right now, simply because of the things like briefs, et cetera, et cetera. We're seeing exceptional growth on the Surgical side that continued into the new year. So we think we'll have another good Surgical growth quarter. But the Wound Care business is recovering. It took a pretty significant shock. People are trying to adjust to it.

We launched our PRP product as an opportunity for people to bring in other modalities to treat chronic wounds, which is being widely accepted in the marketplace. And we're we've just started rolling that out. So pretty optimistic that we'll work our way through this, and we'll come out on the other side in great shape.

How are you seeing it kind of bifurcate by site of service? Have you seen any rotation into the HOPD? Is it too early to tell? And then just any sort of sign of kind of volume share gains from you guys? Or is some of the noise on kind of the product dumping you mentioned kind of shielding some of that.

Yes. So way too early to start talking about market share changes just because we're all trying to see how big the market is, really. You got to remember, a fair amount of that market share or that volume that we saw last year and prior year was probably unnecessary over utilization. So the market is resizing, and we know that several clinics, especially in the mobile care sector have closed or stopped ordering skin subs altogether. So if the market is reshaping, resizing, I haven't -- we haven't really seen significant increases in any care setting. I think volume is down pretty much across all care settings right now as the market works through this adjustment.

And then just last for me, kind of putting that all together, your guide assumes fairly meaningful sequential volume growth, at least from what I could pick up qualitatively from some of your comments. Can you just walk us through kind of in the early stages of the year here with all this noise, kind of where you're finding kind of the confidence to anchor kind of expectations there would be helpful for us to kind of incur in our models.

Yes. I mean the best color we can give you is we expect a sequential build as the year progresses. And I think it will be pretty substantial as we go from Q1 to Q2, Q3 and Q4. And again, we're rolling out some new products. We expect to see good strong growth in the Surgical business. And clearly, we'll see more growth in the back half of the year. I think it's going to take -- and we said this last year, Chase, we thought at least a couple of quarters, so this thing shakes out, resizes and the dust kind of settles. We'll see who the players are. They are still largely driving the industry and see if there's any other changes like a national coverage determination, how that helps shape the industry.

So it's -- I think first couple of quarters are going to be not easy, and we're going to have to fight hard for everything we get.

The next question comes from the line of Frank Takkinen with Lake Street Capital Markets.

Great. I was hoping to follow up on guidance. Any color you can provide on composition of revenue between wound and surgical as you look at the full year of 2026? And then as a second part of that, any color you can speak to on all of the revenue outside of Medicare wound and what that growth rate might look like specifically?

Yes. So let me take a shot at Doug, you can correct me if I'm wrong. I think at a high level, the split between -- if you take out -- I would say split between Surgical and Wound is probably somewhere close to 50-50 full year. And then maybe a little bit for international, a couple of other parts of the business. If you -- the private pay business will continue to grow at its normal rate. I don't think we parsed that out in the past. But I would say, think about it in terms of high growth in Surgical business. Obviously, the Wound Care business is going to compress well picked up accelerated volume as we progress through the year, especially in the second half of the year. And obviously, the price is going to level out. But certainly in the 50-50, Doug?

Yes. I think it will be 50-50-ish, particularly early in the year. We expect as the CMS log jam click clears the way later in the year, we're going to see more significant Wound growth together with our newest product around our PRP offering as well. So that should start to tip the balance a little bit more as we get through the year.

Fine. We -- I think we did $140-plus million in the Surgical business for 2025. If we continue to grow that at 20%, that business is up over $170 million add in a little bit for the new products that we're going to distribute apply to surgent market, a few other things that are happening. You're getting real close to $200 million of run rate revenue, especially as you exit the year. I mean -- and that's all pure-play surgical it's high growth. If you put it a traditional surgical multiple on that piece of business anywhere from, what, 5, 6, 7x revenue, would imply that our stock is being burdened with the Wound Care business. We're -- not only are we getting no value for Wound Care, we're probably being a subscribed negative value for the Wound Care business. Have you just put that to 5 to 6x multiple on the $200 million in revenue, that's high growth revenue, you're probably at a $7.5 to $9 stock. So we have to get through this. So the investor base gets more confidence in the fact that there's going to be a Wound Care business and the Wound Care business is going to get back to a normal growth rate.

And that's why I said in my prepared remarks, when looking through -- we think 2027, we'll back up over $400 million in revenue. We've got a mid-20% EBITDA margin, and the business is growing back at double digits. So we think we have to -- this is going to be a bit of a transition year, but we have to work our way through it. And I think we're in much better shape than anybody else in the marketplace to weather the storm.

That's great. Fantastic. Maybe my second one, I wanted to ask a little bit more about Surgical. What color can you provide on kind of commercial investments you're making there? And then any data packages we should be looking out for, in particular, in Surgical would be great to hear about.

Yes. We've been doing this for the last 3 years, gradually moving more dedicated sales resources into the Surgical business is probably increased -- dedicated sales are up somewhere close to 50% over the last few years. And we'll continue to look for areas still relatively small, but we'll continue to look for areas to augment that.

I don't want to go too crazy in terms of transitioning people into Surgical because we do still have a very large Wound Care business that needs to be service properties, especially at a time when it's transitioning, our patients need our help. But you're absolutely right. We'll look for areas to continue to invest there. Clearly, we have more products in development. We talked about the ones we recently licensed. There's other opportunities in the marketplace as well. So that's a business that we're going to continue to invest in.

[Operator Instructions] The next question is from the line of Brad Bowers with Mizuho Securities.

Thanks for taking the questions from Anthony and I. Maybe going to zoom out here. We've talked a lot about where we are in the quarter, progress so far. Just wanted to kind of hear how informed the customer base is? I mean I imagine ordering patterns have been kind of built up on the old system, now that we have kind of this new rule in place, maybe some of the hangover, maybe at a mechanical level. I know that it's going to be hard to predict the timing of this, but anything you can share with -- you just shared some stuff on product dumping, but just some hangover from muscle memory and how that's affecting the business.

Yes. I think there's a lot of adjustments going on, right? I think Medicare put out more clarification of the fact that they've tightened up their ability to pay for rated product. We see people changing sizes of product going from larger to smaller products. So there's just a ton of adjustment going on. Audits your way up. Call backs are way up. People are nervous. Again, I think there was a delay out of the gate as people were waiting for hoping, I guess, that there was going to be more adjustments. Certainly, there was a lot of uncertainty about LCDs were MAXs going to act to Zip LCDs were in effect or not. We don't really see that.

So just kind of -- the best way I can describe it, Brad, is just a ton of noise, a ton of adjustments, and we're kicking and calling to get back to some level of normalcy. And I think we'll get there. It's just -- I know we'll get there. It's just how long will it take to get there. And we have a team of folks out there that's fighting hard every single day to help our customers get there.

Got it. That's helpful. Maybe just keeping it on some of the new pieces here, just the pipeline. It sounds like the R&D spending in the quarter and also commentary suggests that you -- the real traditional med tech pipeline here. To the extent that you're setting the paradigm for what new product should look like, gathering data, generating data, publishing that, then getting the product to market, should we expect kind of a few product launches of this type of strategy a year? And how do we think about the pipeline between Wound and Surgical?

Yes. I would say amniotic products will continue to develop internally. And you should see a couple of products a year from us. And as we launch products, we'll support it with good clinical data, and we'll continue to invest in that and support those products. So that's kind of an important point you brought up, right? Because these lower price points, I can't imagine there's many manufacturers that can afford to support the development, innovation, R&D, et cetera, necessary to stay competitive in this space.

So I keep coming back to -- once we get through this transition period, we're going to be one of the very few companies that have the capability and are as vertically integrated as we are. to compete in this marketplace. So we'll see who survives. We know we will. And we know we have a nice balance in business mix between our Surgical and Wound Care business. We'll see how many competitors are left and how big that market is. But we're very confident that we're going to get our unfair share of the market.

Thank you. At this time, we've reached the end of our question-and-answer session. I'll turn the floor back to management for closing remarks.

Thanks, everybody. We really appreciate your continued interest in the company, and we'll be back to talk to you in a few months. That concludes today's call.

Thank you. Today's call has concluded. You may now disconnect your lines at this time. We thank you for your participation. Have a wonderful day.

Good afternoon, and thank you for standing by. Welcome to the MiMedx Third Quarter 2025 Operating and Financial Results Conference Call.

[Operator Instructions]

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 MiMedx. Thank you. You may now begin.

Thank you, operator, and good afternoon, everyone. Welcome to the MiMedx Third Quarter 2025 Operating and Financial Results Conference Call. 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 mimedx.com. Joe will kick us off with some opening remarks and a summary of our operating highlights as well as a discussion of our financial goals, and Doug will provide a review of our financial results for the quarter. And then Joe will conclude before we make ourselves available 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 and expected market sizes for our products. 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, 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 mimedx.com.

With that, I'm now pleased to turn the call over to Joe Capper. Joe?

Thanks, Matt. Good afternoon, everyone. Thank you all for joining us for today's call. I'm very pleased to report that our third quarter performance was outstanding across the enterprise, generating strong top line growth in both our Wound and Surgical franchises. We set new company highs for quarterly revenue, adjusted EBITDA and adjusted EBITDA margin, which added $23 million of cash in the quarter. I am extremely proud of the team's focus, which drove these superior results. We continue to prove we can adjust to challenges and advance on opportunities whenever they arise. As such, we are once again raising our full year 2025 revenue growth guidance and our expectations for adjusted EBITDA margin.

Our goal for the remainder of the year is to maximize near-term opportunities to ensure a strong finish and usher in the pending Medicare reimbursement reforms from a position of strength. The final rules are likely to be implemented at the start of 2026, and we are well prepared for a range of potential scenarios, especially given the dramatic financial improvements we made to the business over the last few years.

I will touch on some of the highlights of the quarter and then provide an update on our strategic focus, which I'm confident will help you understand why we are so bullish about the future for MiMedx. For the third quarter, year-over-year net sales growth was an exceptional 35%, finishing at a record $114 million. Our adjusted gross profit margin was 88% in the quarter. Adjusted EBITDA was $35 million or 31% of net sales. We continue to build cash, ending Q3 with $124 million in net cash, a sequential increase of $23 million for the quarter, and we expect to end the year with a net cash balance of more than $150 million.

Our Surgical business was an important contributor, growing 26% this quarter, driven by the continued growth across the portfolio. We now have over half of the target patients enrolled in our EPIEFFECT randomized controlled trial, and we have recently completed an interim analysis with favorable results. We launched a few strategic collaborations with companies offering complementary solutions in the wound care market, and we continue to evaluate additional products to expand our portfolio for both our wound and surgical businesses. In terms of our strategic focus, we continue to make excellent progress in the 3 areas we have consistently highlighted as the most important for our long-term growth.

Our top strategic priority is to continue to innovate and diversify our product portfolio. As you have witnessed, one of the ways we have been able to maintain strong momentum in the business has been with the introduction of products designed to address the numerous unmet needs in both the wound care and surgical markets. In this year alone, we continued with the full market release of EPIEFFECT, licensed and introduced HELIOGEN, CELERA and EMERGE, and we have just begun the rollout of EPIXPRESS. A randomized controlled trial for EPIEFFECT continues to progress on schedule. As mentioned, we have over half of the target number of patients enrolled and randomized, which provided sufficient data for interim analysis and manuscript submission. These favorable results will be presented tomorrow at the Tissue Repair Evidence Summit. This is excellent news as we will then have completed all the necessary steps to request reimbursement coverage for EPIEFFECT as required by the pending LCDs.

On our last call, I mentioned that we had received a TRG letter for EPIXPRESS, which confirmed its status as an FDA Section 361 product. EPIXPRESS is a fenestrated allograft designed to be used in post-acute cases where the flow or extraction of fluid is of critical importance to the healing process. The full market release of EPIXPRESS is now underway and the early feedback is extremely positive. CELERA and EMERGE allografts we licensed to remain competitive in the private office marketplace until Medicare reform is enacted, both performed well in the quarter, contributing to our growth in wound care. We also continued executing on the previously announced co-marketing pilot with Vaporox. As a reminder, the Vaporox system named VHT or vaporous hyperoxia therapy is a 510(k) cleared device that delivers ultrasonic mist and concentrated oxygen for the treatment of 9 types of hard-to-heal chronic wounds, including diabetic foot ulcers, venous leg ulcers and pressure ulcers. We are receiving excellent early feedback about this solution.

Our second priority is to develop and deploy programs intended to expand our footprint in the surgical market. To achieve our continued success in this area, exemplified by our 26% surgical revenue growth in Q3, we have committed significant resources toward the introduction of products like our Xenograft Particulate HELIOGEN, additional commercial resources and development of robust real-world evidence demonstrating the potential clinical benefits for patients, the health care economic payoff and the immense business opportunity for MiMedx. By way of example, we've mentioned the use of our technology in anastomosis procedures a few times in the past.

One of the most common complications from those procedures are leaks, which occur in upwards of 9% of patients who undergo colorectal surgery and are associated with statistically significant increases in morbidity, mortality, length of stay and rehospitalization. The cost associated with these complications is estimated to be approximately $28 million for 1,000 patients, making anastomotic leaks a nearly $14 billion challenge for the health care system. As we have demonstrated in peer-reviewed publications, the application of AMNIOFIX as a protective barrier to the surgical closure site has proven to help reduce anastomotic leaks by nearly 50% and readmissions by approximately 40%, which would provide massive savings. Given there are over 500,000 colorectal surgeries per year in the U.S., our TAM is in excess of $500 million for AMNIOFIX just in colorectal procedures. We will continue to make these critical investments and expect to generate evidence across a variety of procedures.

Our third initiative is to introduce programs designed to enhance customer intimacy. As we have mentioned, we believe the way we interact with our customers and our company's comprehensive value offering will help drive engagement and retention, especially as we transition to a reimbursement environment where profit potential is no longer a primary driver in product selection. We continue to invest in ways to enhance these relationships, including increase and improved customer interaction at various levels within the company. We also continue to experience excellent adoption of MiMedx Connect, our proprietary customer portal. In the third quarter, we saw sequential sales growth of nearly 60% for orders managed within MiMedx Connect.

We also recently added bill pay functionality within Connect for online payments and invoicing, and we are actively developing additional features to this system designed to improve workflow and strengthen the bond between MiMedx and our customers. We believe our commitment to this approach will lead to enhanced customer relationships, improved Net Promoter Scores, higher margins and ultimately an increase in the average lifetime value of a customer.

On last quarter's call, we discussed the reforms CMS plans to implement to address the runaway fraud waste and abuse plaguing the skin substitute market. As a reminder, CMS announced the following initiatives. First, at the end of June, CMS introduced the wasteful and inappropriate service reduction or Wiser model, which is focused on leveraging artificial intelligence and machine learning in concert with human clinical review to curb broad waste abuse in health care. This voluntary model, which aims to encourage safe and evidence-supported best practices for treating Medicare beneficiaries will run from January 1, 2026, through December 31, 2031, in 5 states and will examine several product categories, including skin substitutes.

Next, in July, CMS posted the proposed physician fee schedule or PFS, and the Outpatient Prospective Payment System, or OPPS, for calendar year 2026. These proposed rules move away from the ASP methodology in the private office and the bundle in wound care centers in favor of a fixed payment for skin substitutes of $125.38 per square centimeter in all outpatient sites of care, private offices and wound care centers alike. We submitted our comments to the proposed rules in September, recommending CMS consider setting a higher application fee for providers covered by the PFS, reimbursing skin substitutes as pass-through items, setting the fixed price using other reasonable inputs we highlighted, resulting in a relatively modest increase in the price per square centimeter, applying an inflationary index moving forward and phasing in the price change over time.

We believe these suggestions taken together would compensate providers appropriately for the important work they do, eliminate perverse incentives to overutilize skin substitutes and ensure product developers continue to invest in cutting-edge technologies and solutions, all while saving U.S. taxpayers, the Medicare trust fund and beneficiaries billions of dollars. Final rules are expected to be published in November to take effect at the start of the new year. Lastly, the much discussed LCDs are scheduled to go into effect on January 1. It remains to be seen if they will be modified and/or delayed once again. But as I said earlier, we are well positioned for any scenario.

As we stated in the past, we are extremely confident of the company's position post Medicare reimbursement reform. When product performance is once again the primary factor driving product selection, our best-in-class technology will carry the day. Let me offer 3 facts in support of this statement. First, in 2023, we grew our business by 20% with constant pricing. It was all volume-related growth driven in part by the introduction of a few new products and commercial execution. This was just about the time we started to see a rapid uptick of new high-priced skin substitutes entering the market, which subsequently caused our growth to slow.

Second, in the surgical market, where profit potential does not so overwhelmingly drive product selection, we have been outperforming in the market as evidenced by our 26% growth in the third quarter. And third, we've recently introduced a few wound products that are "more competitively priced. While these products are priced below the mean of other available products on the market, they have been enough to stem the attrition of customers in search of these opportunities. These 3 points illustrate that the profit potential is not such an outsized motivator in product selection and performance and outcomes are of greater importance, MiMedx grows faster than the market.

We also expect to see a number of competitors decrease in the wound care market when the reimbursement reform goes into effect as certain business models will become significantly less attractive. We, therefore, see this as an excellent opportunity to pick up market share. Before I turn the call over to Doug for a detailed financial review of the quarter, I'd like to share some of my thoughts on guidance.

First, we had a great third quarter, and we expect to finish the year in a similar fashion. As such, we are increasing our full year 2025 revenue growth rate outlook from the low teens to the mid- to high teens. We also now expect our full year adjusted EBITDA margin to be at least in the mid-20s as a percentage of net sales. Second, we were no doubt trying to determine how to model the business for 2026 post the implementation of the proposed reforms. We are somewhat in the same boat. However, it would not be prudent to project the base case from the proposed numbers and current volumes given the other factors which will no doubt benefit our business.

Until we have clarity on the CMS final rules for the PFS and OPPS, which have yet to be published, we do not want to overspeculate. At a higher level, we do expect some choppiness in the early part of the year as the industry navigates the changes. Still, we welcome these reforms and expect the change will bring much needed stability and predictability to the market. We firmly believe that the change is an opportunity for MiMedx to pick up share due to our numerous competitive advantages. We have a fully vertically integrated business from product development to manufacturing to commercialization, including donor recovery.

We have an excellent, robust and defensible intellectual property portfolio. We have arguably the most comprehensive and effective commercial organization in this space. And over the past 2.5 years, we have dramatically improved our financial position to include an anticipated net cash balance of more than $150 million by year-end. I've been running med tech companies for decades, and I can tell you that these types of events have a way of shaking out the marginal players. Our fundamentals are solid, and we are going to leverage our competitive advantages to ensure continued success in this new area. That is why I am incredibly bullish regarding the prospects for MiMedx.

Now let me turn the call over to Doug for a more detailed review of our financial results. Doug?

Thank you, Joe, and good afternoon to everyone on today's call. I'm pleased to review our results with you all today. As a quick reminder, as Matt mentioned at the top, many of the financial measures covered in today's call are on a non-GAAP basis, so please refer to our earnings release for further information regarding our non-GAAP reconciliations and disclosures.

Moving on to the results. Our third quarter 2025 net sales of $114 million represented 35% growth compared to the prior year period. By product category, third quarter wound sales of $77 million increased 40% versus the prior year period, while surgical sales of $37 million were up 26%, reflecting strong results across both of our franchises. We saw significant contributions across our business in the third quarter. In Wound, our third quarter performance was driven by new product sales of CELERA and EMERGE. In our Surgical franchise, AMNIOFIX and AMNIOEFFECT once again delivered strong double-digit year-over-year increases in sales, and our particulate products also demonstrated strong growth on a year-over-year and sequential basis.

Our third quarter 2025 GAAP gross profit was about $95 million, a 38% increase compared to the prior year period. Our GAAP gross margin was 84% in the third quarter 2025 compared to 82% last year. Excluding the incremental acquisition-related amortization expense in the quarter, our non-GAAP adjusted gross margin was 88%, up about 540 basis points compared to the third quarter of 2024. This increase was primarily a result of product mix as well as the timing of positive production variances. In light of the strong year-to-date results, we now expect our full year non-GAAP gross margin to be around 85%.

Turning to our operating expenses. GAAP sales and marketing expenses were $54 million or 47% of net sales in the third quarter compared to $42 million or 50% of net sales in the prior year period. The dollar increase was due to a combination of increased sales costs, including higher commissions associated with both higher sales as well as the changes we made to our sales commission plans in the middle of 2024. As a result of our year-to-date results, we now expect full year 2025 sales and marketing expenses to be between 49% and 50% of net sales, which would be a modest improvement on a percentage of sales basis compared to 2024, albeit up in absolute dollars.

GAAP general and administrative expenses, or G&A, were $15 million or 13% of net sales in the third quarter compared to $12 million or 14% of net sales in the prior year period. The dollar increase was driven by incremental spend from legal and regulatory disputes in the current period, including our ongoing litigation with certain competitors and former employees. As with other OpEx lines, we expect GAAP G&A to grow in absolute dollars for the full year 2025 and to be about 14% to 15% of net sales.

Our third quarter R&D expenses of $4 million or 3% of net sales was up $800,000 compared to the prior year period. Our R&D expenses are primarily comprised of the costs associated with our EPIEFFECT RCT as well as additional spend related to the development of future products in our pipeline. As Joe mentioned, we have prepared an interim analysis of the EPIEFFECT RCT and have submitted it for publication and presentation later this year in support of any potential Medicare coverage requirements. As we think about the full year, we expect R&D expenses to be about 3% of net sales. GAAP income tax expense for Q3 2025 was around $6 million, reflecting an effective GAAP tax rate of 27%. We continue to expect our long-term non-GAAP effective tax rate to be 25%.

Our third quarter GAAP net income was $17 million or $0.11 per share on a diluted basis compared to GAAP net income of $8 million or $0.05 per share in the prior year period. Adjusted net income for the third quarter was $23 million or $0.15 per share compared to $10 million or $0.07 per share in the prior year period. Third quarter adjusted EBITDA was $35 million or 31% of net sales compared to $18 million or 22% of net sales in the prior year period. Sequentially, our third quarter adjusted EBITDA grew by nearly $11 million as we focus on expense management that enables our sales increases to drop to the bottom line.

Turning to our liquidity. We continue to bolster our balance sheet and position the company to make growth investments. In the third quarter, the business generated $29 million in free cash flow, a record for the company, and our net cash position rose to $124 million. The steady improvement in our balance sheet provides us with the ability to evaluate a range of organic and inorganic investments, and we believe we have a healthy amount of combined firepower between cash on hand and borrowing capacity to help continue to grow and diversify our business.

I will now turn the call back to Joe. Joe?

Thanks, Doug. As you just heard, we had an outstanding quarter and expect a strong finish to the year. We set record highs for revenue and adjusted EBITDA with strong growth in both the Wound Care and Surgical businesses. We continue to generate excellent cash flow. We launched EPIXPRESS. We advanced a few pilot programs to co-market complementary solutions in the wound care market, and we increased our 2025 guidance meaningfully to reflect our strong momentum. As far as the upcoming wound care reimbursement reform is concerned, it is a matter of when, not if this is going to happen. The current trends are not sustainable. We hope these much-needed reforms incorporate our recommendations. We believe they would be beneficial to all stakeholders.

And as I said, we are confident in our ability to excel when the industry resets to the proposed guidelines. In closing, I would like to once again thank the MiMedx team for a tremendous quarterly performance and for your unwavering commitment to our mission and the many individuals we have the good fortune to serve.

Let's now shift to Q&A and open the call to questions. Operator, we are ready for our first question. Please proceed.

[Operator Instructions]

Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets.

Congrats on a really nice quarter. I was hoping to start with the guide for the rest of the year. How should we be thinking about kind of contribution from wound versus surgical? Obviously, we still have the wound policy in place through year-end, and that might change at the beginning or likely will change at the beginning. But should we continue to expect that, that grows really heavily? And then should we continue to expect that surgical business too as well? Just trying to kind of get a little bit more of the variables behind the Q4 guide.

Thanks, Frank. This is Doug. Good question. We're obviously super happy with record revenue for the quarter, led by 40% growth in our wound franchise and 26% in Surgical with regards to the guide and how that looks going forward, I would -- we continue to expect strong uptake in the surgical suite. And so I would think that, that momentum continues into Q4 and the wound business and franchise is certainly going to continue to grow at a healthy clip. So 40% is -- you have to also recall that Q3 last year was sort of the nadir of our impact from the sales turnover that we experienced in Q2. And so the comps are going to get a little tougher there in Q4. I'll leave it there.

The only caveat to Q4 as Doug mentioned, it's going to be a tougher comp in Q3. And as the rules on the rules and adjustments start to take place, there's probably some folks that will make those adjustments a little bit earlier. So back of December will be a little bit more difficult to predict. But we've got great momentum. Obviously, the first month is in good shape.

Got it. That's helpful. And then maybe just thinking a little bit about kind of post January 1. I know you mentioned you're doing a number of things to prepare for that. Maybe you call out some of those things that you're doing today to prepare for different reform options and maybe if you can extend to what you feel like would be the best outcome for your company? Is it kind of how your comments were structured and proposed? Or is there anything else you think would be kind of the best outcome for MiMedx?

Yes. I think our comments were structured and proposed would be the best outcome for the industry and for MiMedx. But we have been advocating for some time is level the playing field and take this price variability out of the equation. I think it's we don't need to revisit that. It looks like that is going to happen. So we clearly welcome the reform. And given our experience in competing on a level playing field, we're really comfortable that we're going to outperform the market. I don't want to go into details in terms of like what types of scenario planning we have done.

But again, you can imagine an environment that's less attractive from a profitability perspective, some participants are not going to be in the market, but probably not going to find this as attractive as it did over the last couple of years. So I think there's going to be ample opportunity for market share growth in a number of different ways. And look, we have plenty of evidence to that, right? We've done it in the past.

We see it today in our surgical market, how we're growing there. It's much more of a level playing field. Last thing I would leave you with is we have a great balance sheet. So if there's opportunities to do things to kind of get a share -- a little bit of share that way, we'll look at those opportunities.

Got it. And then maybe if I can squeeze one more quick one in. Cash ending at $142 million. I know you guided to greater than $150 million of cash. That obviously leaves the door open above $150 million. But how should we maybe think about cash generation if you just put up $20 million this quarter and that $150 million is out there?

Yes. We probably confused people because sometimes we talk gross cash and net cash. We still have about $18 million drawn on our line. So when we say $150 million by year-end, think of that as net. So you're probably in the high 160s from a gross standpoint. And the question is why haven't paid that line down. And it's just Doug jells at me every quarter. That's because we've -- frankly, we've been looking at so many different opportunities that we thought it made sense to do it all at the same time.

Our next question is from the line of Chase Knickerbocker with Craig-Hallum.

On the quarter. Maybe just first, Joe, I was hoping you'd be willing to share in your wound business on a overall square centimeters basis, what volume growth was either sequentially or year-over-year. I respect your comments on the uncertainty as it relates to '26, but just trying to get some sort of kind of guidepost for us as we think about Q4 and then 2026 as it relates to volumes.

Yes. As you know, we have not been public about that because there's puts and takes and ups and downs. And when you launch new products, some products need less tissue. And so your cost -- your volume per square centimeter may go down, may go up. So there's so many factors that go into that. We tend to stay away from that. We certainly stay away from it by segment. I think the way I answered the previous question, we feel very comfortable about pending changes. We feel that we're in great -- we're in a pole position to pick up share, depending on what the ultimate price is.

And the other thing, too, is depending on what other factors are associated with the new rules, is there pass-through pricing? Is there opportunity to continue to discount? How much discounting is going to be permitted. There's several other kind of like mechanics, I would say, about how these rules are going to go into effect that could affect the way people market products. So it's just too soon. We'll know the final rules in a couple of weeks. I'd say we always want the answer today, so do we, but it's right around the corner. And I have to stress, I don't see another company that is in a better position than us to compete once these rules are in effect.

Understood. Maybe just on that, have you had a chance to get any feedback on the Hill or from any sort of constituents on some of those suggestions that you made, I think, particularly around kind of the potential pass-through mechanism or like a CPI adjustment, for example, instead of a recalculation annually. I mean, have you gotten any feedback from that?

Nothing that we could publicly comment on. We work through third-party advisers who communicate directly with as much as possible. Obviously, we're in a shutdown, but as much as possible directly with CMS and the MACs and we try to put together as much information on it as we can. But there's nothing that we can share publicly that we can stand behind 100% at this point today.

And then just last, maybe just on the LCDs. That submission as far as the -- when the clinical data was -- is supposed to be submitted, it's obviously coming up here very quickly. Have you heard from the MACs as far as get your data in as in LCDs could likely be moving forward? And then on that front, I know you mentioned that the presentation tomorrow. But just kind of can you speak any more additional detail to that data or I guess, your confidence that it will be sufficient to support inclusion on the LCD as it relates to EPIEFFECT?

So I'm going to frustrate you for the third time, case, I apologize. There's really not a whole lot more I can offer in terms of LCD, go/no-go, whether they're going to be implemented, whether they're going to be modified. And all that's kind of rumor in the industry. Everybody's got their opinion. The second part of your question of whether or not we feel that we've got sufficient evidence relative to EPIEFFECT to justify reimbursement. The answer to that is yes. The analysis was very strong. And then there are steps we have to go through either has to be a presentation and there has to be a manuscript submission and then you can apply for reimbursement. And we have those steps completed as of tomorrow. So we feel comfortable that our submission is in good shape.

Whether or not they stick to that protocol is yet to be seen or I would say, requirement is yet to be seen. That will tie back to whether or not the LCDs are once again postponed and/or modified. But we're in pretty good shape with that product.

Our next question is from the line of Carl Byrnes with Northland Capital.

Congratulations on the quarter. Considering the foreseeable shakeup, obviously rising from reimbursement changes, which are longer and your cash buildup, I mean are you seeing any compelling low-hanging fruit with respect to M&A prospects or business development opportunities that would fit nicely?

Yes. I would -- the answer is yes. There are compelling assets. We have leaned a little bit more into the surgical side of our business in terms of scouring the landscape for opportunities to license and/or acquire technologies or products or companies. That does not mean that we're dismissive of the wound care business, just that if assets have any exposure to pending changes are much more difficult to value at this juncture.

But I think there's ample opportunity to kind of leverage or use our balance sheet to accelerate the strategic growth plan. So we're not -- we've said this in the past, we're not buying for the sake of buying. But if it fits our strategic plan, if it augments our current product portfolio in the wound care business, if it adds assets that are strategic fit for us in the surgical business, they're kind of the types of assets that we're looking at.

Our next question is coming from the line of Ross Osborn with Cantor Fitzgerald.

Congrats on a strong quarter. So starting off, would you walk through where you're seeing adoption of HELIOGEN and where you stand on evidence generation there?

We haven't put out a number on that, but...

It's increasing quarter-to-quarter sequentially.

It's increasing month-to-month, quarter-to-quarter. But it takes a while, right? So you have to get the product on contract, you have to get it through bid or value analysis committees, I should say. And then you have to prove efficacy at the surgical level. Feedback is great. We are building evidence around it in various cases. So I would expect it to be -- I don't -- we haven't put out a growth number on that. But let's just say it's becoming a meaningful contributor to our surgical business. And I can't stress enough how important it is for us to point out the fact that the surgical business continues to grow well.

When we decided to shut down the KOA business about 2 years ago, we did that with the intention of pivoting more and focusing more on the surgical business, and we've done that. We've added human resources to that group. We've added products, as you know, launched a few new products, including HELIOGEN, which we just started talking about, and we spent a lot of time on the evidence. I walked through one example of that in our comments. That's about 1/3 of our business today. So the surgical business is about 1/3 of our total business. You can do the math on that, and it's growing at 15%, 20-plus percent all year long.

If that was a stand-alone surgical company with that kind of growth rate, it would be -- I think we would all agree that it would be trading at a much higher multiple than MiMedx is trading at today. So we're super excited about continuing to invest in that business.

Great. And then turning to AXIOFILL, what's the path forward there following the September court ruling?

We have to kind of resubmit our arguments and likely have another hearing with the judge. So we're sort of back to the beginning. which is -- in the meantime, AXIOFILL continues to do well in the marketplace. As you remember, when we brought HELIOGEN into the portfolio, that was -- part of that was mitigation in the event that AXIOFILL went away. So we have not overtly tried to change out that product. And it has stabilized and even in some cases, grown. So we looked at our particulate business, which would be AXIOFILL and HELIOGEN together, that's a really strong business. It continues to grow. So we'll see.

We'll get through that. But we have some mitigation plans in place, including AXIOFILL for some reason, that does not go away. But we think our case is really strong. Arguments are really, really strong. And I wouldn't read anything into that delay other than it was a little bit long in the tooth from a scheduling standpoint, and that may have motivated the judge to kind of do a reset.

The next question is from the line of Anthony Petrone with Mizuho Group.

Congrats on a great quarter, very, very bullish results all around. Maybe on the 40% wound growth in the quarter, and obviously, you mentioned the final CMS LCD outcome here coming in November. Do you think there was pull forward of demand in the physician channel specifically just ahead of that ruling? Did you notice any of that taking place?

And then just when you think of underlying volumes on the surgical side, we've heard from others in the medical device space that there's some pull forward of just surgeries generally on the notion that potentially ACA policies may not renew just with the government shutdown happening here. Did you notice any pull-through on the surgical side from any Medicaid or ACA dynamics? And I'll have one quick follow-up.

We didn't notice pull-through on either side of the business. We certainly didn't notice pull forward, I should say, on the surgical side of the business. Frankly, I wouldn't expect it in the types of procedures where our product is being utilized. These are not elective surgeries. So I doubt we would be impacted by that. You might see it more in the orthopedic space or something like that, but you're not going to see it really where our products being used for the most part.

Okay. Great. And then just a follow-up again on looking at the final rule here, and I know there's just a debate out there on potentially how skin substitute products could settle on a per centimeter square basis, but also on the allotment for how many applications could be decided on in the LCD. So is there any way to just set expectations on what the range of scenarios could be on a per centimeter squared basis, but as well as a total application basis?

Yes. I think it's a good point you bring up, not limitations because there are things that we still need clarity on, which is one of the reasons why I'm staying away from speculating. And I'm going to frustrate you as much as I frustrated Chase. I just can't give you that range right now. I certainly am not going to speculate on what the final price is going to be because there's all kinds of rumors running around in the marketplace, and they are just that. We're really close to this thing being public. If I were a betting person, I'd say we're going to see it sooner in November rather than later in November.

So we're going to know real soon, Anthony. And then we'll be able to kind of plug these inputs into the way we've been modeling potential scenarios, and we'll have more clarity. But again, I have to stress that regardless of the rules, the industry will be more stable. It will be more predictable. If it resets somewhat, that's okay because this company will outperform the market as it has done in the past when the playing field is even. When everybody is playing by the same rules, especially relative to price and profitability, we will outperform the market. So we welcome it.

At this time, this concludes our question-and-answer session. I'll hand the floor back to Joe Capper for closing comments.

Thanks, operator, and we appreciate you guys being on the call today and the interest in the company. That concludes today's call, and we will speak to you after our next quarter. Thanks, everybody.

Thank you. Today's conference has concluded. You may now disconnect your lines at this time, and have a wonderful day.

Good afternoon, and thank you for standing by. Welcome to the MiMedx Second Quarter 2025 Operating and Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Matt Notarianni, Head of Investor Relations for MiMedx. Thank you, Matt. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the MiMedx Second Quarter 2025 Operating and Financial Results Conference Call. 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 mimedx.com. Joe will kick us off with some opening remarks and a summary of our operating highlights as well as a discussion of our financial goals and Doug will provide a review of our financial results for the quarter, and then Joe will conclude before we make ourselves available 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 and expected market sizes for our products. 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, 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 mimedx.com.

With that, I'm now pleased to turn the call over to Joe Capper. Joe?

Thanks, Matt. Good afternoon, everyone. We appreciate you all joining us for today's call. I'm pleased to report that we had an excellent and as you will hear today, action-packed second quarter. We grew our top line by 13%, generating the highest quarterly revenue and highest adjusted EBITDA in the history of the company. Both our Wound and Surgical franchises rose by double digits. We also posted improved margins and generated solid cash flow. Naturally, we are very happy with this exceptional performance and expect it to continue. Therefore, we are raising top line guidance today to reflect the strong momentum we anticipate in the second half of 2025. We are also preparing the company to operate under the long overdue reform to Medicare reimbursement system, which is now set to take effect January 1, 2026.

I will discuss these steps in more detail shortly. But first, let me touch on some of the highlights of the quarter as well as an update on our strategic priorities. During the second quarter, net sales grew year-over-year by 13% to a record $99 million, representing another excellent performance by the team. Our adjusted gross profit margin was 84% in the quarter. Adjusted EBITDA was $24 million or 25% of net sales. We continue to build cash, ending the quarter with $119 million, an increase of $12 million for the period, and we expect to end the year with a cash balance of more than $150 million.

Our Surgical business grew by 15% with contributions across the portfolio, including another uptick in HELIOGEN sales as adoption gains traction. We continued enrollment in our randomized controlled trial for EPIEFFECT. We began collaborations to offer a few complementary wound care solutions, and we continue to evaluate additional products to expand our portfolio for both our Wound and Surgical businesses.

Turning to a quick update on our strategic priorities. As articulated on prior calls, we have our team's collective efforts organized and focused on 3 primary areas. Our top strategic priority is to continue to innovate and diversify our product portfolio. As a reminder, this objective stems from our belief that there remain numerous unmet needs in both the wound care and surgical markets for which placental-derived allografts are uniquely capable of assisting. We are confident we can continue to strengthen our market position by adding complementary skin substitutes and other adjacent products and services. This was the thinking that led us to add HELIOGEN to the portfolio and that continues to guide our evaluation of additional solutions.

To that end, we have made recent progress worth mentioning starting with EPIEFFECT. As a reminder, we launched this product at the end of 2023 and began a randomized controlled trial late last year. We are still in the enrollment phase and expect to soon be positioned for an interim report out. This is a critical milestone given the reliance the LCDs place on RCTs.

Next, we received a TRG letter, which confirms the product is regulated under Section 361 by the FDA for another product line extension named EPIXPRESS clearing the way for its launch later this year. EPIXPRESS is a fenestrated allograft designed to be used in cases where the flow or extraction of fluid is of critical importance to the healing process. As mentioned on our last call, to remain competitive in the private office marketplace until reform is enacted, we began marketing CELERA, a higher-priced amnion chorion allograft. During the quarter, we also began selling another iteration of this product called EMERGE. Naturally, we expect these products will be deemphasized next year as Medicare reform takes hold.

Last, we are excited to begin pilot programs for a few non-skin substitute complementary wound care solutions, the most notable being the collaboration we began with Vaporox Inc. to co-market their vaporous hyperoxia therapy or VHT device. At the same time, we made an investment in Vaporox, providing us with certain limited acquisition rights. VHT is a 510(k) cleared device that delivers ultrasonic mist and concentrated oxygen for the treatment of 9 types of hard-to-heal chronic wounds, including diabetic foot ulcers, venous leg ulcers and pressure ulcers.

Vaporox's VHT has been researched in 3 IRB clinical studies, demonstrating wound healing rates exceeding 80% at 20 weeks when combined with standard wound care. Additionally, VHT is an adjunct therapy that has shown promising signs of efficacy in real-world use cases with MiMedx's advanced wound care products such as EPIFIX. Together with our leading placental allografts, VHT provides clinicians across numerous care settings, another innovative option to treat chronic hard-to-heal wounds. We view VHT as highly complementary to our portfolio.

Our second priority is to develop and deploy programs intended to expand our footprint in the surgical market. In addition to seeking opportunities to expand our offering, this objective requires significant commitment to the production of real-world clinical and scientific research. As such, we continue to fund work to produce tangible evidence in support of our technology for a variety of surgical procedures. The May 2025 issue of Journal of Drugs in Dermatology included a study on the cost effectiveness of using MiMedx placental allografts following most surgeries.

We also had the opportunity to highlight the growing body of evidence that supports the use of our products in certain surgical procedures while attending high-profile conferences during the spring months. These efforts and the expansion of other commercial activities continue to pay dividends as evidenced by our Q2 top line surgical growth of 15%, led by AMNIOEFFECT. As stated in the past, we believe we are in the early innings as it pertains to the use of placental-derived products in many surgical applications. The development of these markets will take time and perseverance, but the potential clinical benefits for patients, the health care economic payoff and the immense business opportunity for years to come make it well worth the investment.

Our third initiative is to introduce programs designed to enhance customer intimacy. As we prepare for the transition to a reimbursement environment where profit potential is no longer a primary driver in product selection, we believe the company's comprehensive value offering will heavily influence vendor selection. As such, we have been focused on developing programs which improve customer relationships and ultimately lower turnover. We have several initiatives underway aimed at institutionalizing customer-centric behavior throughout the organization.

We continue to experience excellent adoption of MiMedx Connect, our proprietary customer portal, and we are actively developing additional features designed to improve workflow and strengthen the bond between MiMedx and our customers. We believe our commitment to this approach will lead to enhanced customer relationships, improved Net Promoter scores, higher margins and ultimately an increase in the average lifetime value of customer. In addition to our superb performance in the quarter, the other big news of the day relates to recent announcements by the federal government on the steps they are taking to finally address the wildly inappropriate Medicare reimbursement for skin substitutes in private office and associated care settings.

As you know, we have spoken about this issue at length on numerous occasions and have been long-time ardent advocates for action necessary to address the obvious fraud, waste and abuse that have plagued this industry and taxpayers. We have met with or spoken to nearly every relevant 3-letter agency, which could enact reform, and we enthusiastically welcome these recent developments. First, at the end of June, CMS announced the introduction of the Wasteful and Inappropriate Service Reduction or WISeR model, which is focused on leveraging artificial intelligence and machine learning in concert with human clinical review the curb fraud waste and abuse in health care.

This voluntary model, which aims to encourage safe and evidence-supported best practices for treating Medicare beneficiaries will run from January 1, 2026, to December 31, 2031, in 5 states, and will examine several product categories, including skin substitutes.

Next, several weeks ago, CMS posted the proposed physician fee schedule or PFS, and the Outpatient Prospective Payment System, or OPPS, for calendar year 2026. CMS will accept comments until September 12, and the final rules are expected to be published in November to take effect at the start of the new year. According to the proposed schedule, CMS is moving away from the ASP methodology in the private office and away from the bundle in the wound care centers. Instead, CMS will move to a fixed payment for skin substitutes of $125.38 per square centimeter in all outpatient sites of care, private offices and wound care centers alike. We plan to submit comments in support of the new reimbursement methodology with certain recommendations regarding payment levels and requests for clarification.

Before I turn the call over to Doug for his detailed financial review of the quarter, I want to share with you a few comments regarding our updated guidance. As a result of our strong performance year-to-date and the current momentum in the business, we increased our full year revenue growth outlook from the high single digits to the low double digits. We also expect our full year adjusted EBITDA margin to be above 20%. Importantly, our expectations regarding long-term prospects for the business are even more positive given the changes pending to the Medicare reimbursement methodology.

Now let me turn the call over to Doug for a more detailed review of our financial results. Doug?

Thank you, Joe, and good afternoon to everyone on today's call. I'm excited to review our results with you all today. As a reminder, many of the financial measures covered in today's call are on a non-GAAP basis, so please refer to our earnings release for further information regarding our non-GAAP reconciliations and disclosures.

Moving on to the results. As Joe mentioned, our second quarter 2025 net sales of $99 million represented 13% growth compared to the prior year period. By product category, second quarter wound sales of $64 million increased 12% versus the prior year period, while surgical sales of $34 million were up 15%, which marks the second consecutive quarter of mid-teens growth for Surgical. We saw significant contributions across our business in the second quarter. In Wound, our second quarter sales performed -- faced a tough comparable due to solid EPIEFFECT sales last year. However, this was overcome by strong sales of CELERA and to a lesser extent, initial contributions from EMERGE.

In our surgical franchise, AMNIOEFFECT and AMNIOFIX once again delivered strong year-over-year increases in sales and uptake of HELIOGEN accelerated in the quarter as well. Our second quarter 2025 GAAP gross profit was about $80 million, up nearly $8 million compared to the prior year period. Our GAAP gross margin was 81% in the second quarter of 2025 compared to 83% last year. Excluding the incremental acquisition-related amortization expense from intangible assets of roughly $2.5 million in this quarter, our non-GAAP adjusted gross margin of 84%, roughly flat compared to the second quarter of 2024. We continue to expect our full year non-GAAP gross margin to be around 82% to 83%.

Turning to our operating expenses. Sales and marketing expenses were $48 million in the second quarter compared to $42 million in the prior year period. The increase was due to a combination of increased sales costs, including higher commissions associated with higher sales as well as the changes we made to our sales commission plans in the middle of 2024. Looking ahead, we continue to expect our full year 2025 sales and marketing expenses to be between 50% and 51% of net sales, which would be flat 1 percentage point increase on a percentage of sales basis to 2024 and up in absolute dollars.

General and administrative expenses, or G&A, were $16 million in the second quarter compared to $14 million in the prior year period. Over the balance of the year, we continue to expect G&A expenses to be around 13% of sales on an adjusted basis, which would be a decrease of around 1 percentage point on a percentage of sales basis to 2024 and up in absolute dollars. Our second quarter R&D expenses were $3 million, just up slightly compared to the prior year period. Our R&D expenses are primarily comprised of the costs associated with our ongoing EPIEFFECT RCT as well as additional spend related to the development of future products in our pipeline.

As we continue to ramp enrollment in the trial this year and prepare for an interim readout, we now expect our full year R&D expenses to be about 4% of net sales. GAAP income tax expense for Q2 2025 was around $3 million, reflecting an effective tax rate of 26%. Please note that this tax expense number does not reflect the third quarter tax reform that was enacted earlier this month. As a result of this bill, we expect modest impacts in our effective tax rate. We also expect the new tax reform to significantly decrease our cash tax payments in the near term as a result of immediate expensing of domestic R&D expense.

We continue to expect our long-term non-GAAP effective tax rate to be 25%. Our second quarter GAAP net income was $10 million or $0.06 per share on a diluted basis compared to GAAP net income of $18 million or $0.12 per share in the prior year period. Adjusted net income for the second quarter was $15 million or $0.10 per share compared to $11 million or $0.08 per share in the prior year period.

Second quarter adjusted EBITDA was $24 million or 25% of net sales compared to $20 million or 23% of net sales in the prior year period. In addition to the highest ever quarterly sales in this company's history, our second quarter adjusted EBITDA was also a new record and a testament to the work our team has done to scale our business as we continue to grow our wound and surgical footprints.

Turning to our liquidity. We had $119 million of cash and cash equivalents on June 30, 2025, a sequential increase of over $12 million. During the second quarter, we generated free cash flow of $14 million, representing a sequential step-up of $9 million compared to the first quarter. In turn, our net cash balance now sits at about $100 million, up from $88 million just last quarter and also double our $50 million net cash balance from just a year ago. We continue to pursue several opportunities to deploy our strong balance sheet and borrowing capacity on growth opportunities that support our strategic priorities.

I will now turn the call back to Joe. Joe?

Thanks, Doug. As you've just heard, we had an outstanding quarter, and MiMedx is well positioned to have a terrific second half. Importantly, we are in an even better position to excel once the industry resets to the proposed more orderly reimbursement guidelines. We set record highs for revenue and adjusted EBITDA with strong growth in both the Wound Care and Surgical businesses. We continue to generate strong cash flow. We kicked off a few pilot programs to co-market complementary solutions in the wound care market and increased our guidance meaningfully to reflect our strong momentum. In closing, I would like to sincerely thank the MiMedx team for an outstanding quarterly performance and for your unwavering commitment to the company and to the many individuals who rely on our products each and every day.

With that, I'd like to open the call to questions. Operator, we are now ready for our first question. Please proceed.

[Operator Instructions] our first question today is coming from Chase Knickerbocker from Craig-Hallum.

Congrats on a nice quarter here. Joe, maybe first, would love to get your thoughts on kind of how you see this market post reimbursement change. It's certainly going to come down a bit as that $12 billion of spend is reduced. If we assume $125 sticks and there's, call it, limited product discounting, do you guys have a first blush estimate on kind of the skin sub market size across physician office and HOPD together that you'd be willing to share?

Jason, first of all, let me start with a couple of high-level comments. I think as I stated in the prepared remarks, we welcome this change and we firmly believe it will be better for MiMedx long term. Number two, reform was inevitable. We can all agree -- hopefully, we can all agree that things have got completely out of control, and reform is a good thing for not just U.S. taxpayers, but our industry and for Medicare beneficiaries.

Number three, the fee schedules are the proper mechanism to address pricing. Number four, fixed pricing is a better way to reimburse for skin substances than either the ASP methodology or bundling. We can debate the most appropriate price point, but the fixed price method is a better methodology. Number five, the future state is certainly better for MiMedx in the long run. Why am I so confident about that? We have the most robust evidence in support of our technology. So when we are back to competing on product efficacy, we feel very confident in our ability to prevail. When the market is acting rationally, we win as evidenced by our double-digit growth in the surgical market and we do not compete primarily on price. Instead, product performance typically drives the decision.

Next, we're a fully integrated company. We have our own donor network, our own manufacturing, again, the best evidence and the most evidence and our own high-performing direct commercial organization. While there may be some short-term choppiness in the industry as things adjust, again, we're well positioned to compete relative to our peer group and certainly in the long term. We have full access to all care settings. We have the most private insurance coverage, which is important for Medicare co-pays. And we're certainly going to be in a position to pick up share, and we have the capacity to handle any ramp in share.

So again, we're certainly going to advocate for clarification on some of the rules as well as certain modifications. But again, when the markets act rationally, it's better for us. We're going to win. It's certainly better for the industry. The industry becomes more investable. And last, we also have an excellent balance sheet, which provides us maximum flexibility as the industry goes through some change. Second part of your question in terms of market size, it's just too early to tell, right? So obviously, we've done a lot of internal sensitivity modeling at this price and at a range of prices and certainly a range of volume levels. So again, we're pretty confident we're going to pick up a fair amount of share. Suffice to say, we feel very comfortable that we're going to be able to compete regardless of how these rules ultimately shake out.

That's helpful. Maybe kind of another one along those lines just as it relates to kind of your model specifically. Kind of based off your ASP today, is there a way that we can kind of think about, if we assume the sticks again, how we should kind of think about the dollar impact that you'll need to make up with volume? And then just can you kind of speak to your confidence level that with all those points you just made that you can kind of take enough share next year to kind of counteract any headwind that would be there and then grow and to be able to grow wound in 2026? I'm just kind of trying to get some initial thoughts on our model next year.

Yes. We're super confident we can do it. And again, clearly, we're doing a lot of modeling around this. But I would say kind of high level, we would have to pick up some share, but not a ton, right? And so if we -- these price levels are not foreign to us. If you go back and look at what our average pricing was a few years ago, we're not that far off. Obviously, ASPs crept up a little bit with the introduction of some new products, but we're in really good shape.

Got it. And just last for me. Just on EPIEFFECT, is there a time line that we can kind of think of for that readout as we have the LCD potentially still going into effect next year? Just kind of a little bit more specific on that readout, if you would.

Yes. Hopefully, later this year, we're going to have some good data to take a look at this. The RCT is going a little bit slower than we had hoped for, probably because there's 1 million of these things being run at the same time and there's capacity issues to run RCTs in the marketplace. There's only so many patients, so many doctors that are qualified to participate in studies like this. So we're moving forward. We're making traction, but knock wood, hopefully, we'll have something to report out by the end of the year. Good news is we have 2 really high-performing products that are already on the list and the LCDs go through as proposed.

Next question today is coming from Carl Byrnes from Northland Capital Markets.

Congratulations on the results. I'm wondering if you have any feel what CMS' flexibility may be in the comment period on the single fixed rate of $125.38 In other words, I mean, I would expect that, that might -- and should migrate higher, but sort of what is your anticipation with that process? And then I have a follow-up as well.

Yes, Carl, I can't handicap it. Have they done it in the past? Yes, they've made modifications throughout or I would say, as a result of comments, but I can't handicap it, right? I'm sure there's a lot of logic that went into the price point that they selected. There's a lot of pricing available in the market that would direct them to kind of settle in on a price like this. But we'll provide our comments and some recommendations on other ways to look at it. As I'm sure a lot of other stakeholders in the market will. So -- but I'm not going to handicap whether or not it's this price or at some price point higher or how much higher. I think it's impossible for any of us to know at this point.

Fair enough. And then a follow-up, considering the potential for the LCDs to become effective in January 26, would you foresee any anomalies in stocking given that you've got 2 of the 15 products that will be eligible?

Yes. It's a good question, right? And that's something that we're going to stay really close to as we start to close out the calendar year. We'll monitor kind of inventory levels very, very closely. And clearly, we're going to have more clarity as we get closer to the end of the year, whether or not LCDs are going into effect and what the final price point is and the final rules associated with OPPS and the physician fee schedule.

So we'll just watch it as tight as we can. As far as prestocking, et cetera, I don't know yet. We'll have to wait and see. I would just say, look, we've been managing inventory closely as we rotate products in and off the market for years. So we know how to do this. And we've had to do it for a long term because we're operating under the ASP methodology, which requires you to manage inventory a whole lot tighter. So I wouldn't -- I'm not that concerned about it, but it is something that we will watch incredibly closely as we close out the year.

And Carl, this is Doug. I would also add, we've already done this a couple of times as we are gearing up for the February LCDs to take effect that got delayed until April. We were prepared at that time. So you've seen us with our balance sheet and our capital wherewithal, we've been able to invest in carrying a little bit more inventory. And with our capacity and the strength of our donor recovery network and the other items that Joe articulated a second ago, we feel like we're in a good position to be prepared.

Our next question is coming from Ross Osborne from Cantor Fitzgerald.

Congrats on a stronger quarter. So starting off, maybe I want to put a finer point on the market next year, assuming the PFS goes through as proposed. Where is the low-hanging fruit for you guys to take share? And as a follow-up to that, curious to hear your thoughts on the opportunity on the mobile side of things.

What was the last part of that opportunity where?

On the mobile wound care market, with the proposed price, assuming a lot of those players will go away, curious to hear if that's an attractive market opportunity for you all.

Yes. I don't want to speak for the mobile wound care sites. I will -- let me just put it this way. In comment, we're going to support providers as much as possible. And one of the things that we will advocate strongly for is a higher application fee for providers. We would like to see them get paid more for what they're doing. I do think that the circumstances we are in now partly created because they weren't getting paid properly for what they were doing. So frankly, they were living off margin that they could get on skin subs, which is not a healthy way to pay physicians for what they're doing. So we will advocate strongly for that. And again, I think it's a much better way to go.

In terms of what -- and I think the mobile health market will be affected or will be impacted a bit more as a result of that. So hopefully, they could be compensated properly for the work that they're doing because I think it's a very important segment that's developed over the years and likely reaching more patients, patients that frankly wouldn't get the care necessary short of having that site of service available. What was the first part of your question?

Low-hanging fruit.

Yes, I'm not going to talk about that. We think we can pick up market share in a variety of different ways. I think we're -- in every site of care, you can imagine, some are stronger than others. I think there's going to be migration from one care setting to another. So we're going to make sure that we're well positioned in every one of those care settings. But in terms of like tactically where we think we'll compete best, I'd rather keep that to ourselves.

Yes. Fair enough. And then lastly, regarding the LCD, any feedback or conversations with the MACs? Curious to hear probability that, that ends up going through.

Yes. I think that's been a little quieter as naturally, last word -- last official word was they were delayed for Jan 1 implementation and -- we still have all the same advocates and advisers, and we'll try to get our position heard. But I think it's important to note that even if the LCDs went into effect back in February or in April, we still would have needed this action by CMS because again, the proper way to regulate pricing is through the fee schedules. So this step would have had to happen. As far as putting requirements in for -- to prove clinical efficacy like RCTs, that's -- it's hard to argue that that's not a good thing for health care, right, to prove that your products are clinically viable to be marketed. How that requirement comes into play remains to be seen, whether it's through the MACs, whether it's through FDA, but hard to argue that that's not a good thing for health care.

Next question today is coming from Anthony Petrone from Mizuho Group.

Congrats on a strong quarter. Maybe I'll stick on physician fee schedule and hospital outpatient and I just have a follow-up on core wound care. Maybe one of the nuances in there, Joe, is on the distinction of Level 1, 2 and 3 classification of wounds. And I think there was basically a linkage into or at least a read-through there on max utilization based on that classification. So maybe walk us through that a little bit and maybe bridge that to what is the actual mix of patients that are getting treated according to those classifications? And does that present any risk to volumes? And then I'll have one quick follow-up.

Well, as far as like impact on volumes, et cetera, it's again, too early to tell. We need more clarification on that. I think what they attempt to do is recognize that there's different regulatory pathways that are established and potentially setting tiers or categories, however, you want to look at it. But at least at first pass, they recognize it, but set the price per square centimeter to be the same for all 3. So we're working closely with -- or I would say, advocating strongly on the regulatory side as well. We think some changes need to take place on the regulatory side.

Okay. And then the broader question is, and Joe, you've been great in just calling out the expansion of billing in the category to $1 billion a month. And obviously, a lot of players in here. There's still the 17 approved products on the LCD side. And so just any updated thoughts on the shakeout as we finalize potentially physician fee schedule and outpatient to a final rule, but also these LCDs come in. How much of that $1 billion per month do you think goes away? And then ultimately, where can MiMedx kind of land in terms of share here?

Yes. I mean we're speculating, right? But it's safe to say that a fair amount of that goes away. First of all, even if all the current volume was at the lower price point, by definition, the math changes and the market is smaller in terms of total dollars in the market. But I think it's also safe to say that some of that volume is going to disappear because there was probably a fair amount of over utilization, right? And you don't have to take my word for that. There's been numerous enforcement actions announced already. I think there was another one announced today.

I think you're going to -- this is going to be on the DOJ work list for probably the next decade. We're going to be reading about these things. So there was a ton of bad behavior. And typically, that means overutilization. So my guess is some of the volume goes away and certainly price gets adjusted down. We know that it's a sizable market because we competed in this market very effectively before we saw this run-up. And even if we adjust back to -- you can kind of adjust those old volume levels just for demographics, and it's going to be a pretty sizable market, right? So we're very comfortable. And I've said it numerous times, in a rational marketplace where providers are selecting product based on product performance, safety and efficacy, we're going to win those battles. We have in the past, and we will continue to win those.

Our next question is coming from Carl Byrnes, a follow-up from Northland Capital Markets.

With respect to the partnership, when would it be realistic to see a material contribution?

Not anywhere in the near term, Carl. I mean it's a collaboration. We still have to work out some of the details in terms of how we'll work together. But if something hitting our numbers, that won't be for a while. Not -- you won't see anything until next year.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Thanks, operator. Thanks, everybody, for joining today's call. I appreciate your interest in the company. We'll talk to you next quarter.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.