Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
During 2025, we delivered 20.0% growth in net sales, with broad-based contributions across Wound and Surgical. This growth was driven by a combination of demand for newer Wound products (CELERATM, EMERGETM and EPIXPRESS®), increasing adoption of Surgical products across a growing number of use cases in the operating room and commercial execution. Operating and financial highlights during the year include:
•Fourth quarter and full year 2025 net sales of $118.1 million and $418.6 million, respectively, reflecting 27.1% and 20.0% growth over the fourth quarter and full year 2024, respectively.
•GAAP net income for the fourth quarter and full year 2025 of $15.2 million and $48.6 million, respectively.
•Featured the Company’s growing body of clinical and scientific evidence at Wound & Surgical-focused industry conferences, including MedStar Georgetown University Hospital’s Diabetic Limb Salvage Conference, Symposium on Advanced Wound Care Spring and Fall meetings, and Digestive Disease Week 2025, among others.
•Announced publication of health economics data in Mohs micrographic surgery
•Entered into a strategic collaboration with Vaporox, Inc., establishing the ability for the Company to co-promote and co-market its leading placental allograft portfolio alongside Vaporox’s Vaporous Hyperoxia Treatment device
•Launched EPIXPRESS® the Company’s next-generation, lyophilized human placental allograft, further expanding the Company’s broad portfolio of advanced wound care products
•Announced interim results of its EPIEFFECT® randomized clinical trial, which were published and presented, demonstrating clinical benefit associated with use of EPIEFFECT® when compared to Standard of Care.
•Announced publication in the Journal of Inflammation focused on the immunomodulatory effects of Purion® processed human amniotic membrane allografts in vitro. The study, which investigated the influence of MIMEDX DHACM and LHACM products on inflammatory response, demonstrated support of the healing cascade and tissue repair.
•Entered into an exclusive U.S. distribution agreement for RegenKit®-Wound Gel with Regen Lab USA, LLC, continuing to broaden the Company’s leading Wound product offering beyond placental allografts.
Additionally, at the end of 2025, CMS finalized sweeping changes related to the reimbursement of skin substitutes, which were implemented on January 1, 2026. These changes include: 1) reimbursing skin substitute products uniformly across the HOPD and physician office and associated care settings and 2) capping the reimbursement rate for skin substitutes at $127.14 per square centimeter in these care settings, subject to geographic adjustments. The specific policies were put into effect in the Physician Fee Schedule (“PFS”) and Hospital Outpatient Prospective Payment System (“OPPS”).
Overview
MIMEDX is a pioneer and leader focused on helping humans heal. With nearly two decades of experience helping clinicians manage chronic and other hard-to-heal wounds, MIMEDX provides a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. All of our products sold in the United States are regulated by the U.S. Food and Drug Administration (“FDA”). We apply Current Good Tissue Practices (“CGTP”) and other applicable quality standards in addition to terminal sterilization to produce our allografts.
Recent Developments
On October 31, 2025, CMS issued the final update to Medicare reimbursement for skin substitutes, which was broadly in line with the initial proposed rate (the “2026 Rules”). Effective January 1, 2026, the 2026 Rules revolutionize skin substitute reimbursement by moving away from “Average Sales Price (ASP) +6%” model to a flat, standardized rate of $127.14 per square centimeter, cutting costs by nearly 90%. The change in policy to a flat rate is primarily driven to address skyrocketing expenditures – rising from ~$500 million in 2020 to ~$15 billion in 2025 (a nearly 40-fold increase) and to combat potential fraudulent billing, such as using larger-than-necessary grafts to maximize reimbursement.
The increased spending, proliferation of Q-coded skin substitute products, and higher ASPs for these products have been under increased regulatory scrutiny over the last couple of years. In response to these market dynamics, CMS announced the 2026 Rules related to the reimbursement of skin substitutes. The changes under the 2026 Rules include: 1) reimbursing skin
41
substitute products uniformly across the HOPD and physician office and associated care settings, 2) moving the reimbursement rate for skin substitutes from the “ASP+6%” methodology to a flat rate at $127.14 per square centimeter in these care settings, subject to geographic adjustments, and 3) reclassifying some products as “incident-to” supplies under the physician fee schedule and subject to a flat payment rate. This change applies to skin substitutes in three regulatory categories: (1) devices subject to premarket approval (PMA); (2) devices subject to 510(k) clearance; and (3) human cells, tissues and cellular and tissue-based products (HCT/Ps) regulated under Section 361 of the Public Health Service Act (the “PHS Act”). The 2026 Rules were put into effect in the Physician Fee Schedule (“PFS”) and Hospital Outpatient Prospective Payment System (“OPPS”).
While there are many unknowns of the 2026 Rules, we may need to tighten inventory management, to minimize losses from expired or unused products and also revisit pricing strategies in light of the new reimbursement model. As to how the 2026 Rules impact clinical practice and physician behavior, it will only become clear as implementation progresses. We anticipate that the 2026 Rules will be a headwind to both Advanced Wound Management sales and profitability in 2026, before any mitigating actions.
Our Products
Our product portfolio is divided into two categories (1) Wound and (2) Surgical.
Our Wound portfolio includes EPIFIX®, EPICORD®, EPIEFFECT®, EPIXPRESS®, CHORIOFIXTM, EMERGETM, CELERATM, and RegenKit®-Wound Gel which are marketed for external use across a range of advanced wound applications. EMERGETM, CELERATM, and RegenKit®-Wound Gel are manufactured by third-party suppliers.
Our Surgical portfolio includes AMNIOFIX®, AMNIOEFFECT®, AMNIOBURN®, AMNIOCORD®, AXIOFILL®, and HELIOGENTM, which are marketed for use in diverse surgical applications, including lower extremity repair, plastic and reconstructive surgery, vascular procedures, and multiple orthopedic repairs. HELIOGENTM is manufactured by third-party supplier Regenity Biosciences, Inc. Additionally, in early 2026 we began distributing three additional Surgical Products: G4Derm Plus, NovaForm and Hydrelix to further expand our Surgical product offering.
From time to time, we may acquire, manufacture, or market additional Wound or Surgical products in response to market demand or to maintain our competitive position.
This discussion, which presents our results for the fiscal years ended December 31, 2025 and 2024, should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. Also, please refer to Part I, Item 1, Business, and Part I, Item 1A, Risk Factors, which include detailed discussions of various items impacting our business, results of operations and financial condition. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance.
Our Annual Report for the year ended December 31, 2024 (the “2024 Annual Report”) includes a discussion and analysis of our total company financial condition and results of operations for 2024 compared to 2023 in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Components of and Key Factors Influencing Our Results of Continuing Operations
In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.
Net sales
Our net sales are derived from selling our Wound and Surgical products to a wide range of customers, including hospitals, wound care centers and private physician offices that have clinicians using our suite of products to aid in the management of patients with chronic or hard-to-heal wounds. These customers choose products like ours based upon a variety of factors, including clinical efficacy, customer engagement programs, availability, handling characteristics, reimbursement coverage and payer sources.
Net sales are recognized based on the consideration we expect to receive from the sale at the point in time when control of the goods is transferred to the customer. For ship-and-bill sales, this occurs upon transfer of title to the customer. For consignment arrangements, this occurs upon implantation of the product on the end user . Net sales consists of the gross selling price of the product less any discounts, rebates and other customer incentives, fees paid to GPOs, and estimates for sales returns.
42
Cost of goods sold and gross profit
Cost of goods sold includes product testing costs, quality assurance costs, personnel costs, manufacturing costs, raw materials and product costs, depreciation, amortization of certain purchased assets and facility costs associated with our manufacturing and warehouse facilities. Fluctuations in our cost of goods sold correspond with the fluctuations in these costs as well as sales volume.
Gross profit is calculated as net sales less cost of goods sold. Gross margin is calculated as gross profit divided by net sales. Our gross margin is affected by product and geographic sales mix, realized pricing of our products, the efficiency of our manufacturing operations and the costs of materials used to make our products. Regulatory actions, including with respect to reimbursement for our products, may require costly expenditures or result in pricing pressure, and may decrease our gross profit and gross margin.
Selling, general and administrative expense
Selling, general and administrative expense consists of both selling and marketing (“S&M”) and general and administrative (“G&A”) expenses.
S&M expense includes costs to execute our sales strategy, which includes personnel costs pertaining to our sales force and sales support functions, including salaries, commissions and other incentive compensation, commissions to sales agents, customer support, travel expenses, and bad debt expense. We expect our S&M expense to fluctuate based on revenue fluctuations, geographic changes, and any changes to the size of our headcount, particularly that of our sales and marketing forces. Certain of these costs scale with sales, but can fluctuate depending on sales mix. For example, we pay sales agents a greater commission than our internal sales force, meaning that we could incur greater commission expenses if a greater proportion of our sales are through sales agents.
G&A expense reflects costs related to functions which support our business, such as legal, finance, human resources, and other such functions. This includes personnel costs associated with these functions, insurance, and certain professional fees. We expect our G&A expense to fluctuate based on headcount.
Research and development expense
Research and development expense relates to our investments to expand our product pipeline and platforms, including clinical trials as well as improvements to our manufacturing process and the enhancement of existing products. Our research and development costs also include expenses such as salaries and benefits related to our research departments, consulting costs, advisory costs, and regulatory costs.
We expense research and development costs as incurred. Fluctuations in research and development expenses are driven by the timing and cadence of our clinical trials.
Investigation, restatement and related (benefit) expense
Investigation, restatement and related expense primarily related to legal fees that were advanced to certain former officers and directors of the Company under certain indemnification agreements and our liability from certain legal proceedings that were taken against us. These costs ended during the year ended December 31, 2024.
Interest income (expense), net
We incur interest expense primarily from stated interest on our outstanding term loan and revolving credit facilities, to the extent such borrowings are outstanding. Interest on these facilities is currently based on the applicable term Secured Overnight Financing Rate (“SOFR”), and fluctuations in SOFR may cause our interest expense to vary. We generate interest income from amounts held in various money market accounts.
In addition, interest expense includes the amortization of deferred financing costs and original issue discounts associated with our credit facilities. This amount is presented net of interest income earned through our treasury management activities.
Income tax provision
We generate tax liability primarily in the United States and in various states in which we have nexus. The basis for our effective tax rate will generally approximate the United States’ federal statutory corporate tax rate (21%) plus a blended state rate, net of any federal benefit. Material deviations from this effective tax rate in each period is generally the result of the periodic effects
43
of certain permanent differences between the book and tax treatment of certain transactions, including windfall or shortfall on vestings of restricted stock awards and limitations on the deduction of executive compensation. Historically, our effective tax rate was, and in the future may be, materially impacted by changes in our valuation allowance recorded against our deferred tax assets.
Results of Continuing Operations for 2025 Compared to 2024
Year Ended December 31,
(in thousands)
Investigation, restatement and related — (8,698) 8,698 (100.0) %
Impairment of intangible assets — 446 (446) (100.0) %
Net Sales
We recorded net sales for the year ended December 31, 2025 of $418.6 million, an increase of $69.8 million, or 20.0%, over net sales for the year ended December 31, 2024 net sales of $348.9 million.
Our sales by product category were as follows (amounts in thousands):
Year Ended December 31, % of net sales Change
Net sales in the Wound category were $276.3 million for the year ended December 31, 2025, a $45.3 million, or 19.6% increase, compared to $231.0 million for the year ended December 31, 2024. The increase was primarily driven by sales of the higher priced products EMERGETM, CELERATM, and EPIXPRESS®, partially offset by ongoing commercial challenges and regulatory pressures on pricing and reimbursement, which were consistent with those experienced in the prior year.
Net sales in the Surgical category grew by $24.4 million, or 20.7%, to $142.3 million for the year ended December 31, 2025, compared to $117.9 million for the year ended December 31, 2024. The increase was primarily driven by sales of AMNIOFIX®, AMNIOEFFECT®, and HELIOGEN® across a range of surgical procedures.
Gross Margin and Cost of Sales
Gross margin in 2025 was 82.6%, compared to 82.8% in 2024. The slight decline was driven by lower yield, and manufacturing inefficiencies. These pressures were partially offset by a more favorable product mix, reflecting a greater proportion of higher-price products in the sales portfolio.
Cost of sales for the year ended December 31, 2025 was $73.0 million, an increase of $12.9 million, or 21.5%, compared to $60.1 million for the year ended December 31, 2024. The increase was driven by higher sales volume, and increased manufacturing inefficiencies.
44
Selling, General and Administrative Expense
SG&A expense increased $41.1 million, or 18.3%, to $266.2 million for December 31, 2025, compared to $225.1 million for December 31, 2024. The following table shows the composition of this expense between S&M and general G&A components (amounts in thousands):
Year Ended December 31, Change
Sales and marketing expenses increased $34.1 million, or 19.4%, year over year, primarily due to higher commissions driven by increased sales and elevated effective commission rates, along with higher bad debt expense. General and administrative expense increased $7.0 million, or 14.1%, year-over-year, driven by ongoing legal and regulatory disputes, transaction-related costs, and severance costs.
Research and Development Expense
Our research and development (“R&D”) expense was $15.1 million for the year ended December 31, 2025, compared to $12.3 million for the year ended December 31, 2024. The increase was driven by on-going clinical trials and research studies aimed at strengthening clinical and economic evidence.
Investigation, Restatement and Related Expense
Investigation, restatement, and related expenses for the year ended December 31, 2024 was a benefit of $8.7 million. The benefit resulted from various settlements related to former officers and other related matters during 2024. This was offset by the last material payment towards the resolution of matters stemming from the findings of our historical Audit Committee investigation. These expenses ceased in 2024.
Amortization of Intangible Assets
Amortization expense related to intangible assets for the year ended December 31, 2025 was $0.4 million, compared to $0.8 million for the year ended December 31, 2024.
Impairment of Intangible Assets
There was no impairment for the year ended December 31, 2025, compared to $0.4 million for the year ended December 31, 2024. The impairment of intangible assets in 2024 related to abandoned patents.
Interest Income (Expense), Net
Net interest income (expense) was $2.9 million for the year ended December 31, 2025, compared to $(1.0) million for the year ended December 31, 2024. The favorable increase was primarily driven by improved treasury management. a reduction in outstanding debt, and lower interest rates. Additionally, we recorded a $1.4 million loss on extinguishment of debt in the first quarter of 2024 due to the repayment and termination of a previous loan agreement.
Income Tax Provision
Our effective tax rates for 2025 and 2024 were 26.7% and 26.7%, respectively, on income from continuing operations before income tax provision of $66.3 million and $57.3 million for 2025 and 2024, respectively. The effective tax rate in each period was favorably impacted by vestings of restricted stock, offset by executive compensation deduction limitations.
The income tax provision for the year ended December 31, 2025 reflects the provisions of the One Big Beautiful Bill Act (“OB3”). OB3 resulted in a current tax benefit resulting from the utilization of deferred tax assets, primarily relating to the utilization of capitalized research and development expenses, and did not affect our effective tax rate in the year ended December 31, 2025.
45
Liquidity and Capital Resources
We require capital for our operating activities, including costs associated with the sale of product through direct and indirect sales channels, research and development activities, compliance costs, costs to sell and market our products, regulatory fees, and legal and consulting fees in connection with ongoing litigation and other matters. We generally fund our operating capital requirements through our operating activities and cash reserves. We expect to use capital to invest in the broadening of our product portfolio, including through potential acquisitions, licensing agreements or other arrangements, the international expansion of our business and certain capital projects.
As of December 31, 2025, we had $166.1 million of cash and cash equivalents.
Our net working capital at December 31, 2025 was $213.2 million, an increase of $66.9 million from $146.3 million at December 31, 2024. Our current ratio was 4.3 to 1 and 4.2 to 1 as of as of December 31, 2025 and 2024, respectively. We had no borrowings outstanding and $75 million of availability under our Revolving Credit Facility (as defined below).
We are currently paying our obligations in the ordinary course of business. We believe that our anticipated cash from operating activities, existing cash and cash equivalents, and available credit under the Citizens Credit Agreement, as defined below, will enable us to meet our operational liquidity needs for the twelve months following the filing date of this Annual Report.
Contractual Obligations
Contractual obligations associated with ongoing business activities are expected to result in cash payments in future periods. See Item 8, Note 14, Commitments and Contingencies, in the Consolidated Financial Statements for more information regarding our contractual commitments.
Citizens Loan Facilities
On January 19, 2024, we entered into a Credit Agreement (the “Citizens Credit Agreement”) with a syndicate of banks comprised of Citizens Bank, N.A. as administrative agent (the “Agent”), and Bank of America, N.A. The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $95.0 million consisting of: (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a $10.0 million letter of credit sublimit and a $10.0 million swingline loan sublimit, and (ii) a $20.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). All obligations are required to be paid in full on January 19, 2029 (the “Maturity Date”).
The Citizens Credit Agreement requires that we comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants.
As of December 31, 2025, we have $18.0 million of principal outstanding on the Term Loan Facility that bears interest at 6.1% and no borrowings outstanding under the Revolving Credit Facility.
Share Repurchase Plan
In February 2026, the Board authorized us to periodically repurchase up to $100.0 million of our outstanding common stock (the “Share Repurchase Plan”) through February 2028. The timing and amount of repurchases, if any, will depend on a number of factors, including capital requirements for inorganic business development, market conditions, our financial condition, operating results, and other business considerations. Notwithstanding the Share Repurchase Plan, management’s focus remains on executing on our strategic initiatives, including inorganic growth investments. The share repurchase program does not obligate us to repurchase any shares.
In connection with the Share Repurchase Plan, we executed an amendment to the Citizens Credit Agreement (“Amendment No. 1”) which allows us to repurchase shares during its term. Amendment No. 1 did not contemplate any other changes to the Citizens Credit Facility.
See Item 8, Note 9, Long Term Debt, Net, in the Consolidated Financial Statements for further discussion of our Credit Facilities.
Discussion of Cash Flows for 2025 Compared to 2024
Operating Activities from Continuing Operations
46
During the year ended December 31, 2025, net cash provided by operating activities of continuing operations increased $6.9 million to $74.0 million compared to cash provided of $67.1 million for the year ended December 31, 2024. The increase in cash provided by operating activities was primarily as a result of year-over-year increases in net sales, which drove increases in collections from customers.
Investing Activities
During the year ended December 31, 2025, net cash used in investing activities was $6.9 million, a decrease of $2.7 million compared to $9.6 million for the year ended December 31, 2024. The decline was primarily driven by lower product acquisition costs and reduced capital expenditures in 2025.
Financing Activities
During the year ended December 31, 2025, net cash used in financing activities was $5.4 million, a decrease of $28.8 million compared to $34.2 million for the year ended December 31, 2024. Cash used in 2025 was primarily driven by stock repurchases to satisfy tax withholding obligations upon vesting of employee equity awards, scheduled principal payments under the Citizens Credit Agreement, and profit-share payments to TELA Bio, Inc. related to HELIOGEN® sales performance. In 2024, cash usage was largely attributable to a $30.0 million repayment under the Revolving Credit Facility, which represented the majority of the financing activities for the year.
Critical Accounting Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires that we make judgments and estimates which may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We derive these judgments and estimates on historical experience and other relevant factors which we believe to be reasonable. Actual results may differ from these estimates.
Share-Based Compensation
Description
We measure the fair value of stock options and other stock-based awards granted to employees on the grant date and recognize the assessed fair value as share-based compensation expense over the requisite service period based on the award’s vesting conditions. For awards that contain performance conditions, expense is recognized if, and to the extent that, achievement is considered “probable” of occurring.
Judgments and Uncertainties
Share-based payment arrangements are measured at fair value on the grant date. The fair value of restricted stock units and performance stock units are generally measured using the last trading price on the grant date. Options are measured using an appropriate option pricing model using inputs applicable as of the grant date. In each case, the grant date fair value is adjusted for the presence of any market conditions.
Subsequent to the determination of fair value, we recognize expense to the extent we evaluate that performance conditions associated with share-based payment arrangements are probable of occurring. We determine probable performance based on actual performance to date, internally-developed budgets and forecasts for periods covered by the relevant performance condition, and other evidence deemed relevant to this determination. We re-evaluate our probability assessments at least quarterly, with any revisions reflected as a cumulative adjustment to expense. Because of the cumulative nature of adjustments, they could significantly impact our results of operations.
Sensitivity of Estimate to Change
As of December 31, 2025, all outstanding performance stock unit awards vest on the basis of stipulated revenue targets in addition to continued employment. Cumulative expense recognized for unvested performance stock unit awards was $7.6 million as of December 31, 2025. This was based on the grant-date fair value of each award, the portion of the relevant vesting period that has elapsed and our assessment of the extent to which the vesting conditions are considered probable for each award.
47
If it is subsequently determined that the performance conditions associated with the performance stock unit awards are no longer probable of being met, or performance conditions which were determined to be probable of occurring do not actually occur, we could reflect a benefit of up to this amount in the period such determination is made. Furthermore, if probable levels of achievement are later determined to be greater, or actual achievement exceeds the level of achievement assessed as probable, we could record increases to expense to reflect this level of achievement. As of December 31, 2025, a revision of expense to reflect the maximum hypothetical attainment of all unvested performance stock units would result in a $17.1 million increase to expense. The amount of any incremental expense recognition or reversal will depend on the magnitude and timing of such change in estimate.
Net Sales
Description
We record estimates for returns and allowances as a reduction to net sales based on our expectation for such returns.
Judgments and Uncertainties
We sell our products to individual customers and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. We recognize revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to customers for ship and bill sales or upon implantation for consignment sales. We recognize revenue based on net consideration we expect to receive from the sale. This consists of the gross selling price of the product, less any discounts, rebates, fees paid to GPOs, and an expectation for sales returns.
We maintain a return policy that allows our customers to return product for any reason within 30 days of sale, and to return product that is damaged or non-conforming, ordered in error, or due to recall at any time.
We derive an expectation for product returns based on historical return patterns and other discrete factors which influence return activity, such as changes in our regulatory environment, product recalls, changes in reimbursement rates, changes in reimbursement eligibility and rules, and other factors. Determinations involving other factors are based on our estimates for product at customer sites that are eligible for return.
Additions or reversals to our return allowance, as determined necessary, are accounted for prospectively and recorded as a decrease or increase to net sales, respectively. Actual returns are recorded against the recorded accrual.
Sensitivity of Estimate to Change
We have accrued $2.4 million for sales returns as of December 31, 2025. Changes in return patterns or unforeseen changes in reimbursement policy, regulations or product recalls could cause returns significantly in excess of this estimate.
Income Taxes
Description
We have $19.9 million of net deferred tax assets to defray future tax liability. We record a valuation allowance to offset our gross deferred tax asset to the extent that realization of these assets is not “more likely than not.”
Judgments and Uncertainties
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Transactions which result in lower taxable income in the future give rise to deferred tax assets. GAAP requires that the net balance of deferred tax assets reflect the extent of utilization which is ‘more likely than not’. This is accomplished through a valuation allowance recorded against gross deferred tax assets.
We evaluate our ability to recover deferred tax assets based on projected future taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies, and our recent operating results. Judgment is required to determine whether the totality of this evidence suggests that we can recover our deferred tax assets in the future. Any changes to the valuation allowance are reflected in the period identified as a component of income tax provision expense.
Sensitivity of Estimate to Change
48
As of December 31, 2025, we had $0.3 million in valuation allowance recorded against our gross deferred tax assets balance of $19.9 million. The amount and extent of the valuation allowance may change due to changes in tax law, a revision to our expectation regarding taxable income in the future, taxable income generated in a period in which we had not previously anticipated taxable income, a change in scheduled reversals of deferred tax liabilities, and other changes.
Recently Adopted Accounting Pronouncements
See Item 8, Note 2, Significant Accounting Policies, in the Consolidated Financial Statements for recently adopted accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is primarily exposed to fluctuations in U.S. interest rates and their impact on the Company’s money market accounts and Term Loan Facility. Increases in interest rates will negatively affect the fair value of the Company’s money market accounts and increase the interest expense on the Company’s Term Loan Facility. We do not hedge against interest rate risk.
As part of our treasury management strategy, we hold non-operating cash in money market accounts to generate interest income. The interest on these accounts fluctuates with the general market for interest rates.
The interest rate on our Term Loan Facility is currently determined quarterly based on the applicable Term SOFR.
The following table sets forth annualized impacts on the Company’s interest income or expense that a 100 basis point change in the relevant interest rate would have on each of the Company’s material interest-bearing financial instruments as of December 31, 2025 (in thousands):
Money market accounts Market interest rates 100 basis points decrease $ (1,507)
Term Loan Facility Term SOFR 100 basis points increase (180)
49
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Consolidated Balance Sheets – As of December 31, 2025 and 2024 F- 4
Notes to Consolidated Financial Statements F- 8
F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of MiMedx Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MiMedx Group, Inc. and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Net Sales - Revenue Recognition — Refer to Note 2 in the financial statements
Critical Audit Matter Description
The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order and the product ordered is shipped to the customer. Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation, or application of the Company’s product to the end user. The Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.
We identified the timing of revenue recognition for ship and bill and consignment sales at or near year end as a critical audit matter because of the judgments involved in evaluating that the performance obligations are fulfilled. This required a higher degree of audit effort and auditor judgment when performing audit procedures and evaluating the results of these procedures.
F-2
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of revenue recognition transactions included the following, among others:
•We tested the effectiveness of controls over the recognition of ship and bill and consignment sales at or near year end.
•We created data visualizations using a detail of all revenue transactions and evaluated trends in the transactional revenue data with emphasis on activity at or near year end.
•We evaluated and tested corollary relationships between revenue and related accounts.
•We evaluated the appropriateness and consistency of the methods and assumptions utilized by management to estimate consignment revenue.
•We tested a sample of consignment revenue transactions accrued as of year-end and evaluated whether the transactions were recorded in the correct period.
•We tested a sample of ship and bill revenue transactions close to period end by agreeing the amounts recognized to source documents and evaluating whether the transaction was recorded in the correct period.
•We tested a sample of sale refunds issued after year end by agreeing to documents supporting the authorization for the issuance of the refund and evaluating if the refund was recorded in the correct period.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 25, 2026
We have served as the Company's auditor since 2021.
F-3
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
ASSETS
Current assets:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long term debt $ 1,500 $ 1,000
Stockholders’ equity
Total liabilities and stockholders’ equity $ 342,653 $ 263,915
See notes to the consolidated financial statements.
F-4
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Year Ended December 31,
Operating expenses:
Investigation, restatement and related — (8,698) 5,176
Impairment of intangible assets — 446 —
Other income (expense), net
Income (loss) from discontinued operations, net of tax — 421 (9,211)
Basic net income (loss) per common share:
Discontinued operations — — (0.08)
Basic net income per common share: $ 0.33 $ 0.29 $ 0.40
Diluted net income (loss) per common share:
Discontinued operations — — (0.06)
Diluted net income (loss) per common share: $ 0.32 $ 0.28 $ 0.37
See notes to the consolidated financial statements.
F-5
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31,
Cash flows from operating activities:
Shares received in settlement of litigation — (9,300) —
Loss on extinguishment of debt — 1,401 —
Increase (decrease) in cash resulting from changes in:
Cash flows from investing activities:
Cash paid for acquisitions (3,764) (7,862) —
Net cash flows used in investing activities (6,886) (9,583) (2,155)
Cash flows from financing activities:
Cash paid for Profit Share Payment (Note 14) (1,294) (80) —
Proceeds from Citizens Revolving Credit Facility — 30,000 —
Proceeds from Citizens Term Loan — 19,783 —
Prepayment premium on previous term loan — (500) —
Deferred financing cost — (1,101) —
Repayment of previous term loan — (50,000) —
Repayment of Citizens Revolving Credit Facility — (30,000) —
Principal payments on Citizens Term Loan Facility (1,000) (1,000) —
Proceeds from exercise of stock options — 1,397 997
Repurchase of Series B Preferred Shares — — (9,515)
Net cash flows used in financing activities (5,412) (34,199) (8,570)
See notes to the consolidated financial statements.
F-6
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Common Stock AdditionalPaid-in Treasury Stock Accumulated
Shares Amount Capital Shares Amount Deficit Total
Share-based compensation expense — — 17,178 — — — 17,178
Restricted stock shares canceled/forfeited — — 378 90,367 (378) — —
Repurchase of Series B Preferred Stock — — (4,935) — — — (4,935)
Share-based compensation expense — — 16,933 — — — 16,933
Share-based compensation expense — — 16,396 — — — 16,396
See notes to the consolidated financial statements.
F-7
MIMEDX GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.Nature of Business
MiMedx Group, Inc. (together with its subsidiaries, except where the context otherwise requires, “MIMEDX,” or the “Company”) is a pioneer and leader focused on helping humans heal. With nearly two decades of experience helping clinicians manage chronic and other hard-to-heal wounds, MIMEDX provides a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. The Company’s vision is to be the leading global provider of healing solutions through relentless innovation to restore quality of life. All of the Company’s products sold in the United States are regulated by the United States Food and Drug Administration (“FDA”).
The Company’s product portfolio and product development focuses on Wound and Surgical markets.
The Company’s business is focused primarily on the United States of America but the Company also has a growing commercial presence in several international locations, including Japan.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Reclassifications
Certain prior period amounts in the consolidated financial statements and accompanying notes have been deemed immaterial and reclassified to conform to the current period’s presentation.
Use of Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported consolidated statements of operations during the reporting period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, estimates of impairment for goodwill and intangible assets, estimates of useful lives for intangible assets, estimates of loss for contingent liabilities, estimate of allowance for credit losses, estimates of fair value of share-based payment awards, estimates of the probable level of achievement of performance conditions associated with the vesting of share-based payment awards, estimates of returns and allowances, estimate of fair value of the remaining Profit Share Payments (as defined below), determination of fair value of hybrid instruments valued under the Fair Value Option, and valuation of deferred tax assets.
Segment Reporting
The application of GAAP requires the use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker (“CODM”) organizes segments within the Company for which separate financial information is available regarding resource allocation and assessing performance. The Company has concluded that its Chief Executive Officer (“CEO”) is its CODM. The Company reassesses the existence of operating segments when facts and circumstances suggest that there may have been a change in the way that the Company is managed. The Company assessed that the CODM assesses performance and resources as one reportable segment. Refer to Note 16, Segment Information, for further discussion.
Cash and Cash Equivalents
Cash and cash equivalents include cash held at various banks. The Company considers all highly-liquid investments purchased with an original maturity of three months or less at the date of purchase and funds held in money market accounts to be cash equivalents.
F-8
Market Concentrations and Credit Risk
The Company places its cash and cash equivalents on deposit with U.S.-based financial institutions. The U.S. Federal Deposit Insurance Corporation (“FDIC”) provides insurance coverage for deposits up to $250,000 for substantially all depository accounts. As of December 31, 2025 and 2024, the Company had cash and cash equivalents of $165.9 million and $103.7 million, respectively, in excess of the insured amounts in three depository institutions.
Accounts Receivable
Accounts receivable represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables.
Accounts receivable is presented net of the Company’s allowance for credit losses. The allowance for credit losses is calculated based on the Company’s current expectations for credit losses, which is generally informed by historical collection patterns. The Company’s policy to reserve for potential bad debts based on the age of the individual receivable and the character of the customer, as well as customer-specific qualitative factors, such as bankruptcy proceedings. The Company manages credit risk by routinely performing credit checks on customers prior to sales. Individual receivables are written off after all reasonable efforts to collect the funds have been made. Actual write-offs may differ from the amounts reserved.
Inventory
Inventory is valued at the lower of cost or net realizable value. Costs of inventory sold are recognized using the first–in, first-out (“FIFO”) method. Inventory manufactured by the Company is tracked through raw material, work-in-process, and finished goods stages as the product progresses through various production steps and stocking locations. Labor and overhead costs are absorbed through the various production processes up to when the work order closes. Inventory purchased from third-party manufacturers is included in finished goods inventory.
Historical yields and normal capacities are utilized in the calculation of production overhead rates. Inventory is written down to the lower of cost or net realizable value to reflect slow-moving inventory as well as inventory no longer needed due to diminished demand or regulatory action.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-line method over their estimated useful lives, principally three to seven years. Leasehold improvements are depreciated on a straight-line method over the shorter of the estimated useful lives and the remaining lease term.
Intangible Assets, Net
Intangible assets are assets which lack physical substance and (a) grant the Company with a legal right or (b) are capable of being separated and sold. Intangible assets acquired outside of a business combination are capitalized based on the cost to acquire the assets, allocated pro rata based on the fair value of the individual assets acquired. Any contingent consideration issued in connection with an acquisition of assets is capitalized at the time at which all contingencies regarding its payment are resolved. The Company amortizes the capitalized cost of finite-lived intangible assets over a period generally reflective of the anticipated contributions to cash flow generation. Amortization of intangible assets is recorded as part of cost of sales or operating expenses in the consolidated statements of operations depending on the nature of the underlying intangible asset and the manner that it supports the Company’s operations.
Impairment of Long-lived Assets
The Company evaluates the recoverability of its long-lived assets (property, equipment, right of use, and intangible assets with finite lives) whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related assets may be less than their carrying amounts. When a situation arises which results in a conclusion that it is more likely than not that an asset is not recoverable, the Company estimates cash flows expected to be derived from the continuing use and eventual disposition of the asset. If the sum of those undiscounted cash flows does not exceed the net book value of the asset, the Company estimates the fair value of the asset. Impairment loss is recorded to the extent that the net book value exceeds the fair value of the asset.
F-9
Impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate discount rate (as applicable), asset groupings, and other assumptions and estimates. The Company uses estimates that are consistent with its business plans and a market participant view of the assets being evaluated. Actual results may differ from these estimates.
Goodwill and Indefinite-lived Intangible Assets
The Company assesses goodwill for impairment at least annually on October 1 and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that goodwill is impaired. In performing the goodwill impairment test, the Company first assesses qualitative factors to determine the existence of impairment. If the qualitative factors indicate that the carrying value of a reporting unit exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative test.
In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value. The Company determines the fair value of reporting units using the income and market approaches, as applicable. Under the income approach, the fair value of a reporting unit is the present value of its future cash flows as viewed from the lens of a hypothetical market participant in an orderly transaction. These future cash flows are derived from expectations of revenue, expenses, tax deductions and credits, working capital flows, capital expenditures, and other projected sources and uses of cash, as applicable. Value indications are developed by discounting expected cash flows to their present value using a discount rate commensurate with the risks associated with the reporting unit subject to testing. Under the market approach, the Company uses market multiples derived from various comparable companies based on measures salient to investors in those companies.
Impairment loss is recorded to the extent the carrying value of a reporting unit exceeds the fair value. No impairment loss is recognized if the fair value of the reporting unit exceeds the carrying value.
Leases
The Company determines if a contract is, or contains, a lease at inception. Leases provide the Company with the right to control an underlying asset for a contractual term, subject to certain renewal and other rights, in exchange for a series of stipulated cash flows. Right of use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.
Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company calculates the present value of lease payments by discounting the lease payments using the Company’s incremental borrowing rate for a collateralized or secured borrowing over a term equivalent to that of the lease. Lease payments that vary according to an index or rate are measured using the index or rate at lease inception. The lease term and applicable payments include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. This determination is reassessed as new information arises and is accounted for prospectively. As an accounting policy election, the Company does not capitalize leases having initial terms of 12 months or fewer. The Company has made an accounting policy election not to separate lease components from non-lease components in the event that the agreement contains both.
Modifications to existing leases are recognized on the modification date. In such cases, the lease liability is remeasured based on the estimated present value of lease payments from the modification date. The difference between the lease liability immediately before and immediately after lease modification is reflected as an equal and offsetting adjustment to the associated ROU asset.
Operating lease right of use assets and the related liabilities are included in other assets, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets. Lease expense associated with operating leases is recognized, straight-line, over the lease term. The Company does not recognize interest expense from operating lease liabilities. The Company did not have any finance lease assets or liabilities as of December 31, 2025 or 2024.
Treasury Stock
Except for shares retired by the Company upon repurchase, shares repurchased by the Company are recorded as treasury stock at the cost to acquire such shares. Subsequent issuances of shares held in treasury are assumed to be released on a FIFO basis. During 2025 and 2024, all shares repurchased were retired.
F-10
Contingencies
The Company is or has been subject to various patent challenges, product liability claims, government investigations, former employee matters, and other legal proceedings. See Note 14, Commitments and Contingencies, for discussion of material matters. Legal fees and other expenses related to litigation are expensed as incurred and included in selling, general and administrative expenses or, prior to 2025, investigation, restatement and related expenses in the consolidated statements of operations, depending on the nature of the matter. The Company records an accrual for settlement costs and other contingencies in the consolidated financial statements when the Company determines that a loss is both probable and reasonably estimable. Subsequent revisions to the Company’s accrual are made as new information emerges and are accounted for prospectively. The Company discloses all ongoing legal matters for which a loss is reasonably possible, regardless of whether an estimate can be reasonably determined.
Due to the fact that legal proceedings and other contingencies are inherently unpredictable, the Company’s estimates of the probability and amount of any such liabilities involve significant judgment regarding future events. The actual costs of resolving a claim may be substantially different from the amount of reserve the Company recorded. The Company records a receivable from its insurance carriers only when the resolution of any dispute has been reached and realization of the amounts equal to the potential claim for recovery is considered probable. Any recovery of an amount in excess of the related recorded contingent loss will be recognized only when all contingencies relating to recovery have been resolved.
Revenue Recognition
The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order. Upon approval of the sales order, the Company ships product to the customer and invoices them for the product sold. Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation or application of the Company’s product to the end user.
The Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.
Revenue is recognized based on the consideration the Company expects to receive from the sale. This consists of the gross selling price of the product, less any discounts, rebates or other amounts paid to customers, fees paid to Group Purchasing Organizations (“GPOs”), and returns (collectively, “deductions” or “sales deductions”). Gross selling price is a standard set by the Company for all customers unless a contract governing the sale provides for a specified price. Sales deductions are specified in individual contracts with customers. The Company estimates the total sales deductions which a specific customer will achieve over the relevant term and applies the reduction to sales as they are made throughout the period.
Sales deductions owed to customers and other parties are accrued and recorded in accrued expenses on the consolidated balance sheets.
The Company acts as the principal in all of its customer arrangements and records revenue on a gross basis. Shipping is considered immaterial in the context of the overall customer arrangement, and damages or loss of goods in transit are rare. Therefore, shipping is not deemed a separately recognized performance obligation and the Company has elected to treat shipping costs as activities to fulfill the promise to transfer the product.
The Company maintains a returns policy that allows its customers to return product that is damaged or non-conforming, ordered in error, or due to a recall. The estimate of the provision for returns is based upon historical return activity, including discrete events which could cause or have historically caused changes in return patterns.
The Company’s payment terms for customers are typically 30 to 60 days from receipt of title of the goods.
Cost of Sales
Cost of sales includes all costs directly related to bringing the Company’s products to their final selling destination. Amounts include direct and indirect costs to manufacture products including raw materials, personnel costs and direct overhead expenses necessary to convert collected tissues into finished goods, costs to acquire product from third-party manufacturers, product testing costs, quality assurance costs, facility costs associated with the Company’s manufacturing and warehouse facilities, including depreciation, amortization of certain intangible assets, freight charges, costs to operate equipment and other shipping and handling costs for products shipped to customers.
F-11
The Company obtains raw material in the form of human placenta donations from participating mothers who give birth via scheduled Caesarean section.
Research and Development Costs
Research and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. These expenses generally represent costs associated with the Company’s clinical trials as well as costs associated with new product development and pilot production. These costs are expensed as incurred.
Advertising Expense
Advertising expense consists primarily of print media promotional materials. Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 2025, 2024, and 2023 was $0.5 million, $0.6 million, and $0.6 million respectively.
Income Taxes
Income tax provision, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in the United States and numerous states.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. The Company evaluates the realizability of its deferred tax assets quarterly.
In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, results of recent operations, and changes in tax laws. In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company uses to manage the underlying business. In evaluating the objective evidence that historical results provide, management considers three years of cumulative income exclusive of items that will not recur, such as discontinued operations. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the tax provision expense (benefit) in the period that includes the enactment date.
The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations both for U.S. federal income tax purposes and across numerous state jurisdictions. Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company records unrecognized tax benefits within other current liabilities on the consolidated balance sheets and adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from management’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to the deferred tax asset or income tax expense in the period in which new information is available.
The Company records uncertain tax positions on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations. Accrued interest and penalties, if any, are included within the other liabilities line in the consolidated balance sheets and recorded as a component of income tax expense.
F-12
Share-based Compensation
The Company grants share-based awards to employees and members of the Company’s Board of Directors (the “Board”). Awards to employees and the Board are generally made annually. Grants are issued outside of the annual cadence for certain new hires, promotions, and other events.
The Company has two share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options and restricted stock awards. The Company has three types of awards to employees and directors that are outstanding as of December 31, 2025: restricted stock units (“RSUs”), performance stock units (“PSUs”), and stock options.
The amount of expense to be recognized is determined by the fair value of the award using inputs available as of the grant date. The basis of fair value for RSUs and PSUs is the closing stock price on the date of the grant. The fair value of stock options is determined based on an appropriate option pricing model using inputs available as of the grant date, generally using a Black-Scholes model. In each case, the fair value is adjusted for the presence of a market condition using an appropriate pricing model.
For awards with service-based vesting conditions only, the Company recognizes the grant date fair value as share-based compensation expense on a straight-line basis through the vesting date of the last tranche of the award. For awards which are subject to a condition other than a service condition, the Company recognizes stock-based compensation expense using the graded-vesting method, treating each tranche as if it were a separately-granted award and recognizing expense through the vesting date of each individual tranche. In each case, the Company recognizes share-based compensation expense to the extent that vesting is “probable.” The Company recognizes the cumulative effect of changes in the probable outcome of an award in the period in which the changes occur.
The resolution of a market condition is not subsequently considered in expense recognition. Consequently, the Company could recognize expense for awards that do not ultimately vest.
Basic and Diluted Net Income per Common Share
Basic net income per common share is calculated as net income from continuing operations available to common stockholders divided by weighted average common shares outstanding for the applicable period. Net income from continuing operations available to common stockholders is calculated by adjusting net income for dividends on the Company’s historical Series B Convertible Preferred Stock (“Series B Preferred Stock”), which fully converted during 2023. This amount is divided by the weighted average common shares outstanding during the period.
Weighted average common shares outstanding is calculated as shares of the Company outstanding adjusted for the portion of the period for which they are outstanding. Unvested non-option share awards are excluded from the calculation of weighted average common shares outstanding until they have vested. Unexercised stock options are excluded from the calculation of weighted average common shares outstanding until they are exercised.
Diluted net income per common share adjusts basic net income per common share for convertible securities, options, equity incentive awards, and other share-based payment awards which have yet to vest and vest only upon the satisfaction of a service condition. Equity incentive awards and options that are subject to a performance or market condition are included only if the performance or market condition would be satisfied if the end of the applicable period were the end of the performance period. In any case, these adjustments are reflected in the calculation of diluted net income per common share to the extent that they reduce basic net income from continuing operations per common share.
Basic and diluted net income (loss) per common share from discontinued operations is evaluated using the same denominator as basic and diluted net income per common share from continuing operations even if the dilutive adjustments are antidilutive to the calculation of the former.
The Company used the if-converted method to calculate the dilutive effect of the historical Series B Preferred Stock. The if-converted method assumes that convertible securities are converted at the later of the issuance date and the beginning of the period. If the hypothetical conversion of convertible securities, and the consequential avoidance of any accumulated preferred dividends, would decrease basic net income from continuing operations per common share, these effects are incorporated in the calculation of diluted net income from continuing operations per common share, adjusted for the portion of the period the securities were outstanding.
The Company uses the treasury stock method to calculate the dilutive effect of options, non-option share awards, and certain other share-based payments. The treasury stock method assumes that the proceeds from exercise are used to repurchase
F-13
common shares at the weighted average market price during the period, increasing the denominator for the net effect of shares issued upon exercise less hypothetical shares repurchased.
Fair Value of Financial Instruments and Fair Value Measurements
The respective carrying value of certain on-balance sheet financial instruments approximated their fair values due to the short-term nature and type of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, notes receivable, and certain other financial assets and liabilities.
The Company measures certain non-financial assets at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets, and non-amortizing intangible assets for impairment, allocating value to assets in an acquired asset group, and accounting for business combinations. The Company uses the fair value measurement framework to value these assets and reports these fair values in the periods in which they are recorded or written down.
Financial instruments measured at fair value are recorded in accordance with the fair value measurement framework. The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:
•Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;
•Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data;
•Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.
The determination of fair value and the assessment of a measurement’s placement within the hierarchy require judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various valuation methodologies which incorporate unobservable inputs, management estimates, and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist it in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of its financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
Recently Adopted Accounting Pronouncements
Accounting Standards Update 2023-09 - Income Taxes
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Improvement to Income Tax Disclosures (Topic 740)”, which requires additional disclosures for income tax rate reconciliations, income taxes paid, and certain other tax disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Adoption is required for annual periods beginning after December 15, 2024. The Company adopted this standard prospectively during the year ended December 31, 2025. Refer to Note 12, Income Taxes.
Recently Issued Accounting Pronouncements Not Yet Adopted
Accounting Standards Update 2024-04 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40),” which requires disaggregated disclosure of certain income statement expenses within the footnotes to the financial statements. ASU 2024-03 is intended to address requests from investors for more detailed information about the types of expenses in commonly presented expense captions such as cost of sales, selling, general and administrative expenses, and research and development. Adoption is required for annual periods beginning after December 15, 2026 and interim periods within annual periods beginning after December 15, 2027. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
F-14
All other ASUs issued and not yet effective as of December 31, 2025, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s current and future financial position and results of operations.
3. Accounts Receivable, Net
Accounts receivable, net, consists of the following (in thousands):
December 31,
Allowance for credit losses (8,703) (3,132)
Activity related to the Company’s allowance for credit losses for the year ended December 31, 2025 and 2024 was as follows (in thousands):
Allowance for credit losses
Credit loss expense 595
Write-offs (607)
Credit loss expense 6,515
Write-offs (944)
Credit loss expense for the year ended December 31, 2025 reflects credit quality concerns resulting from changes in Medicare reimbursement for skin substitutes, which went into effect on January 1, 2026.
4. Inventory
Inventory consists of the following (in thousands):
December 31,
F-15
5. Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
December 31,
Furniture and office equipment 2,008 1,951
Construction in progress 612 686
Property and equipment, net of accumulated depreciation $ 4,713 $ 5,944
Depreciation expense for each of the years ended December 31, 2025, 2024, and 2023 was recorded in certain captions of the consolidated statements of operations for those periods in the amounts shown in the table below (in thousands):
Year Ended December 31,
Selling, general, and administrative expense 570 544 795
6. Leases
The Company has leases for corporate offices and manufacturing facilities. None of the Company’s leases require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.
Supplemental balance sheet information related to the Company’s leases, including the financial statement caption in which the amounts are presented, is as follows (amounts in thousands, except lease term and discount rate):
Operating Leases
December 31,
Assets
Liabilities
Other current liabilities $ 1,320 $ 1,307
Weighted-average remaining lease term (years) 3.4 4.3
Weighted-average discount rate 6.9 % 6.9 %
The Company had no finance lease obligations or associated right of use assets outstanding as of December 31, 2025.
Information related to lease costs are as follows (amounts in thousands):
F-16
Year Ended December 31,
Amortization of finance lease ROU assets — 51 47
Interest expense on finance lease liabilities — 2 7
Maturities of lease liabilities are as follows (amounts in thousands):
Year Ending December 31, Operating Leases
Thereafter —
Total lease payments 5,080
Less: imputed interest (515)
Lease liability $ 4,565
Asset Retirement Obligations
Certain lease agreements require the Company to return designated areas of leased space to its original condition upon termination of the lease agreement, for which the Company records an asset retirement obligation and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. In subsequent periods, the asset retirement obligation is accreted for the change in its present value and the capitalized asset is depreciated, both over the term of the associated lease agreement. Asset retirement obligations of $1.3 million and $1.2 million are included in other liabilities in the consolidated balance sheets as of both December 31, 2025 and 2024, respectively.
7. Intangible Assets, Net
Intangible assets, net, are summarized as follows (in thousands):
Amortized intangible assets
Unamortized intangible assets
Amortization expense and impairment expense for the years ended December 31, 2025, 2024, and 2023, is summarized in the table below (amounts in thousands):
F-17
Year ended December 31,
Amortization of intangible assets
Total amortization of intangible assets $ 12,617 $ 3,762 $ 762
There was no impairment of intangible assets during the years ended December 31, 2025 and 2023. The impairment of intangible assets in the amount of $0.4 million in 2024 related to patents which were abandoned.
Expected future amortization of intangible assets as of December 31, 2025, is as follows (in thousands):
Estimated
Amortization
Year Ending December 31, Expense
Total amortization expense $ 13,117
8. Accrued Expenses
Accrued expenses consist of the following (in thousands):
December 31,
9. Long Term Debt, Net
Citizens Credit Agreement
On January 19, 2024 (the “Closing Date”), the Company entered into a Credit Agreement (the “Citizens Credit Agreement”) with certain lenders party thereto, and Citizens Bank, N.A. as administrative agent (the “Agent”). The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $95.0 million consisting of: (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a $10.0 million letter of credit sublimit and a $10.0 million swingline loan sublimit, and (ii) a $20.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). All obligations are required to be paid in full on January 19, 2029 (the “Maturity Date”).
F-18
At the Company’s option, borrowings under the Citizens Credit Agreement (other than any swingline loan) will bear interest at a rate per annum equal to (i) the Alternate Base Rate, as defined therein, or (ii) a Term Secured Overnight Financing Rates (“SOFR”), as defined therein, in each case plus an applicable margin ranging from 1.25% and 2.50% with respect to Alternate Base Rate borrowings and 2.25% and 3.50% for Term SOFR borrowings, plus a fallback provision of 0.1%. Swingline loans will bear interest at a rate per annum equal to one-month Term SOFR plus the applicable margin. The Term Loan Facility carried an interest rate of 6.1% as of December 31, 2025. The applicable margin is determined based on the Company’s consolidated total net leverage ratio.
The Company is required to pay a quarterly commitment fee on any unused portion of the Revolving Credit Facility, letter of credit fees, and other customary fees to the Agent and the Lenders. The Company must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. The Company may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. The Company must also comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants. As of December 31, 2025, the Company is in compliance with all financial covenants under the Citizens Credit Agreement.
The balance of the Term Loan Facility as of December 31, 2025 and 2024 was as follows (amounts in thousands):
Deferred financing costs — (6) — (33)
Original issue discount — (27) — (137)
Interest expense related to the Term Loan Facility was $1.6 million and $1.9 million for the years ended December 31, 2025 and 2024, respectively. The Company previously maintained a separate term loan facility, which was terminated in January 2024 in connection with the Debt Refinancing Transactions and the execution of the Citizens Credit Agreement. Interest expense related to the prior term loan facility was $6.6 million for the year ended December 31, 2023. All such amounts are reflected within interest income (expense), net on the consolidated statements of operations. Interest income (expense), net for the year ended December 31, 2023 reflects the impact of the prior term loan facility.
Interest expense related to the Revolving Credit Facility included in interest income (expense), net in the consolidated statements of operations. Interest Expense related to the Revolving Credit Facility was $0.4 million and $0.4 million for the year ended December 31, 2025 and 2024, respectively.
Scheduled principal payments due on the Term Loan Facility, by year, as of December 31, 2025 through maturity are as follows (in thousands):
Year ending December 31, Principal
As of December 31, 2025, the fair value of the Term Loan Facility was $17.1 million. This valuation was calculated based on a series of Level 2 and Level 3 inputs, including a discount rate based on the credit risk spread of debt instruments of similar risk character in reference to U.S. Treasury instruments with similar maturities, with an incremental risk premium for risk factors specific to the Company. Fair value was calculated by discounting the remaining cash flows associated with the Term Loan Facility to December 31, 2025 using this discount rate.
F-19
10. Net Income Per Common Share
Net income per common share is calculated using two methods: basic and diluted.
Basic Net Income Per Common Share
The following table provides a reconciliation of net income from continuing operations and calculation of basic net income per common share for each of the years ended December 31, 2025, 2024, and 2023 (in thousands, except share and per share amounts):
Year ended December 31,
Income (loss) from discontinued operations, net of tax — 421 (9,211)
Adjustments to reconcile to net income available to common stockholders:
Accumulated dividend on previously converted Series B Preferred Stock — — 6,753
Preferred share repurchase in excess of book value — — 4,890
Total adjustments — — 11,643
Basic net income (loss) per common share:
Discontinued operations — — (0.08)
Basic net income per common share $ 0.33 $ 0.29 $ 0.40
Diluted Net Income Per Common Share
The following table sets forth the computation of diluted net income per common share (in thousands, except share and per-share amounts):
F-20
Year ended December 31,
Adjustments:
Dividends on previously converted Series B Preferred Stock — — 6,466
Preferred share repurchase in excess of book value — — 5,177
Less: antidilutive adjustments — — (5,177)
Total adjustments — — 6,466
Numerator
Income (loss) from discontinued operations, net of tax — 421 (9,211)
Adjustments:
Potential common shares (a)
Previously converted Series B Preferred Stock — — 27,457,905
Restricted stock awards — — 22,136
Employee stock purchase plan — — 254
Diluted net income (loss) per common share:
Diluted net income per common share $ 0.32 $ 0.28 $ 0.37
(a)Weighted average common shares outstanding for the calculation of diluted net loss per common share does not include the following adjustments for potential common shares below because their effects were determined to be anti-dilutive for the periods presented:
Year Ended December 31,
Repurchase of Series B Preferred Stock — — 1,219,348
11. Equity
Stock-Based Compensation Awards
The Company has two share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options and restricted stock awards: the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan Amended and Restated through March 2, 2023 (the “2016 Plan”), which was approved by shareholders on May 18, 2016, and the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (the “Prior Incentive Plan”). During the years ended December 31, 2025, 2024, and 2023 the Company used only the 2016 Plan to make grants.
The 2016 Plan permits the grant of equity awards to the Company’s employees, directors, consultants and advisors for up to 21,350,000 shares of the Company’s common stock plus (i) the number of shares of the Company’s common stock that remain available for issuance under the Prior Incentive Plan, and (ii) the number of shares that are represented by outstanding awards that later become available because of the expiration or forfeiture of the award without the issuance of the underlying shares. Awards granted under the 2016 Plan are subject to a vesting schedule as set forth in each individual agreement.
F-21
A summary of share-based compensation expense recognized for each of the years ended December 31, 2025, 2024, and 2023 is as follows (in thousands):
Year Ended December 31,
Total share-based compensation, net of tax benefit $ 12,297 $ 12,700 $ 12,719
Stock Options
The Company grants stock options to certain of its employees. Each stock option granted reflects the right to purchase one share of stock for a stipulated price. Except for the CEO Performance Option (as defined and explained below), all of the Company’s stock options outstanding as of December 31, 2025 vest exclusively based on continued service to the Company through each relevant vesting date. All stock options outstanding vest in four equal annual tranches.
A summary of stock option activity for the year ended December 31, 2025 is presented below:
Exercised — —
With the exception of the CEO Performance Option (as defined and explained below), all options granted during the years ended December 31, 2025, 2024 and 2023 were valued using a Black-Scholes model. The below table reflects the material inputs used to value the options granted during those periods (exclusive of the CEO Performance Option).
Year ended December 31,
Stock price on grant date $ 8.30 $ 8.63 $ 6.44
Risk-free interest rate 4.0 % 4.2 % 4.3 %
Expected volatility (annualized) 64 % 66 % 77 %
Dividend yield — % — % — %
Weighted average grant date fair value $ 4.62 $ 4.93 $ 4.10
There were no options exercised during the year ended December 31, 2025. The intrinsic values of the options exercised during the years ended December 31, 2024 and 2023 were $0.2 million and $0.2 million, respectively. Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2024 and 2023 was $1.4 million and $1.0 million, respectively. The actual tax benefit for the tax deductions from option exercise of the share-based payment
F-22
arrangements totaled $0.1 million and $0.2 million, respectively, for the years ended December 31, 2024 and 2023. The Company has a policy of using its available repurchased treasury stock, if any, to satisfy option exercises prior to the issuance of new shares of common stock. There was $2.9 million unrecognized compensation expense related to unvested stock options at December 31, 2025, which is expected to be recognized over 2.41 years.
Restricted Stock Units
The Company grants RSUs to certain employees and to its Board of Directors. RSUs reflect contracts reflecting the right to receive one share of Common Stock on a specified date, provided the recipient continues to provide service to the Company through that date. RSUs generally vest over a one- to three-year period. Prior to 2024, the Company’s RSUs granted to its employees granted in three equal tranches on the first three anniversary dates of the date of grant. Beginning in 2024, RSUs granted to employees generally vest in a single tranche on the third anniversary date of the date of grant. Awards granted to the Company’s Board of Directors vest in a single tranche generally on the first anniversary date of the date of grant.
Historically, the Company also granted Restricted Stock Awards (“RSAs”) to employees. RSAs conferred one share of common stock to the recipient which was returnable if the associated vesting conditions were not satisfied. The RSAs had similar vesting conditions to RSUs. The last of the Company’s RSAs vested during the year ended December 31, 2023. The Company did not grant any RSAs during the year ended December 31, 2025, nor does it have any unvested RSAs outstanding as of December 31, 2025.
A summary of RSU activity for the year ended December 31, 2025 is presented below:
Number ofShares Weighted-Average Grant Date Fair Value
The total fair value of RSUs and RSAs vested during the years ended December 31, 2025, 2024 and 2023, was $6.4 million $10.9 million, and $10.3 million, respectively.
As of December 31, 2025, there was $16.7 million of unrecognized stock-based compensation expense related to RSUs which is expected to be recognized over 1.85 years.
Performance Stock Units
The Company grants PSUs to certain employees, primarily its Executive Leadership Team. Like RSUs, PSUs reflect the right to receive one share of Common Stock. However, in addition to providing continued service to the Company, PSUs contain additional vesting conditions which are based on the achievement of specified performance. As of December 31, 2025, all performance conditions associated with PSUs are specified net sales targets of varying levels. In each case, the PSU agreements allow for vesting in excess of the number of shares granted. In all cases, except for the CEO Performance PSUs (as defined and explained below), achievement of performance conditions alone can expand the award by up to 150%. Certain of these PSUs are subject to Total Shareholder Return provisions which can limit or expand the number of shares conferred upon the recipient.
PSUs also require the recipient to provide continuous service through a specified date or event.
F-23
A summary of PSU activity for the year ended December 31, 2025 is presented below:
PSU
Number ofShares Weighted-Average Grant Date Fair Value
The total fair value of PSUs vested during the year ended December 31, 2025 was $0.6 million. No PSUs vested during the years ended December 31, 2024 and 2023.
As of December 31, 2025, there was $2.7 million of unrecognized stock-based compensation expense related to unvested PSUs, which is expected to be recognized over 1.17 years.
These amounts reflect the level of vesting determined to be “probable” for all unvested PSU awards as of December 31, 2025. Any subsequent adjustments to expense would be reflected as a cumulative catch-up adjustment in the period of the re-evaluation. If all unvested PSUs were determined to be probable of vesting to their maximum extent, it would result in a cumulative catch-up adjustment of $17.1 million as of December 31, 2025. Conversely, the determination that none of the unvested PSUs are probable of vesting would result in a benefit of $7.6 million.
CEO Performance Grant
On January 27, 2023, the Board of Directors appointed Joseph H. Capper to serve as the Company’s Chief Executive Officer. The Company entered into a Letter Agreement with Mr. Capper that included, among other things, a grant of 3,300,000 PSUs (the “CEO Performance PSUs”) and a non-qualified stock option (the “CEO Performance Option”, collectively with the CEO Performance PSUs, the “CEO Performance Grant”) for 3,600,000 shares of the Company’s common stock. In addition to continued employment with the Company, the occurrence and extent of vesting of each component of the CEO Performance Grant is dependent upon the Company’s operating and share price performance: the CEO Performance PSUs vest on the basis of achieved revenue growth, while the CEO Performance Option vests on the basis of share price appreciation.
CEO Performance PSUs
The CEO Performance PSUs vest in a single tranche on the earlier of the filing date of the Company’s 2026 Annual Report on Form 10-K and March 15, 2027. The occurrence and extent of vesting depends on the Company’s compound annual growth rate (“CAGR”) achieved with respect to its revenue growth between the year ended December 31, 2022 and the year ending December 31, 2026. The PSUs may vest with respect to 50% to 200% of the granted number of PSUs, depending on the extent of CAGR achievement. Failure to achieve the CAGR associated with 50% of achievement would result in no vesting.
Management determined the probable level of vesting using internally-developed forecasts for the relevant period representing the Company’s best estimate for revenue, with a factor applied to calculate the highest level of CAGR evaluated to be probable of occurring based on that estimate. The Company recognized $1.0 million of expense related to the CEO Performance PSUs during year ended December 31, 2025. The cumulative expense recognized related to the CEO Performance PSUs was $5.2 million as of December 31, 2025.
CEO Performance Option
The CEO Performance Option grants Mr. Capper the right to purchase up to 3,600,000 shares of common stock for $3.70 per share. The CEO Performance Option vests based on the satisfaction of service and market conditions. Mr. Capper may vest in 25% of the CEO Performance Option on each of the first four anniversary dates of the date of grant provided that he remains employed by the Company and provided that specified share price goals are achieved at any point between the date of grant and January 31, 2027. There are three separate share price goals associated with the CEO Performance Option. If specified share price goals are met at one level, one-third of the option may vest, at a second level, a further one-third may vest, and at a third
F-24
level, the full amount of the option may vest. Satisfaction of the share price goals is based on the average of the closing price of the Company’s common stock during any 20 consecutive trading days through January 31, 2027 exceeding the stipulated share price goal. The CEO Performance Option expires on February 1, 2030.
The Company estimated the fair value of the awards using a Monte Carlo simulation using the following assumptions:
Assumption
Stock price on grant date $ 3.70
Exercise price $ 3.70
Risk-free interest rate 3.6 %
Expected volatility (annualized) 75 %
Dividend yield — %
Weighted average grant date fair value $ 1.93
The risk-free interest rate was derived based on the U.S. Treasury Yield curve in effect at the date of grant for maturities of similar periods to the contractual term. The expected volatility was estimated principally based on the Company’s historical daily stock price movements for a term similar in length to the contractual term. The dividend yield was based on the Company’s history of dividends on its common stock. The fair value was determined using an expected term which reflects the anticipated holding and post-vesting behavior pattern, calculated for each individual simulation.
The total grant date fair value of the CEO Performance Option was $7.0 million. The fair value associated with each tranche of the award will be recognized, straight-line, over the associated requisite service period for that tranche, subject to acceleration if the market condition is met prior to the end of the derived service period. Failure to meet the market condition for an award does not result in reversal of previously-recognized expense, so long as the service is provided for the duration of the required service period. The Company recognized $1.2 million of expense related to the CEO Performance Option during year ended December 31, 2025.
Employee Stock Purchase Plan
The Company’s ESPP qualifies as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. All regular full-time employees of the Company (including officers) and all other employees who meet the eligibility requirements of the plan may participate in the ESPP.
For the years ended December 31, 2025, 2024 and 2023, the Company recorded $0.6 million, $0.6 million, and $0.5 million, respectively, in stock-based compensation expense related to the ESPP. As of December 31, 2025 and 2024, the Company had cumulative payroll deferrals under the ESPP for future share purchases of $0.1 million and $0.6 million, respectively. This amount is included in accrued compensation in the consolidated balance sheet.
Unrecognized stock compensation as of December 31, 2025 is $0.1 million to be recognized over a weighted average period of 0.08 years.
Share Withholding for Employee Taxes
Repurchases of shares of Common Stock in connection with the satisfaction of employee tax withholding obligations upon vesting of restricted stock and exercise of stock options for the years ended December 31, 2025, 2024, and 2023 were 396,323, 354,263, and 0, respectively, for an aggregate purchase price of $3.1 million, $2.6 million, and $0.0 million, respectively.
Series B Preferred Stock
Repurchase
In October 2023, the Company repurchased 5,000 shares of the Company’s Series B Preferred Stock for $9.5 million (the “Repurchase”) pursuant to a Securities Purchase Agreement with certain entities managed by or affiliated with Hayfin Capital Management LLP (the “Hayfin Shareholders”). In connection with the Repurchase, the Hayfin Shareholders entered into customary lock-up provisions requiring them to retain the balance of their equity positions for a period of at least one year. Management assessed whether the consideration paid could have reflected a non pro-rata distribution and reached the conclusion that it was not.
Mandatory Conversion
F-25
In December 2023, the remaining 95,000 outstanding shares of the Company’s Series B Preferred Stock, together with accrued dividends, were mandatorily converted into shares of the Company’s Common Stock in accordance with the Series B Preferred Stock terms set forth in the Company’s Articles of Incorporation. As a result of this conversion, the Company issued 29,761,650 shares of Common Stock to the holders of the Series B Preferred Stock. The conversion of the shares ended the dividend accrual associated with the Series B Preferred Stock.
As a result of their conversion in December 2023, there were no shares of Series B Preferred Stock outstanding at any point during the years ended December 31, 2025 and 2024.
12. Income Taxes
Income Tax Provision Expense (Benefit)
Current and deferred income tax expense (benefit) is as follows (in thousands):
Year Ended December 31,
Current:
Foreign 23 — —
Deferred:
Summary of Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
F-26
December 31,
Deferred Tax Assets:
Capitalized research and development expenditures 2,100 9,970
Research and development and other tax credits 998 6,752
Sales return and allowances 601 494
Deferred Tax Liabilities:
Other liabilities (158) (12)
Less: Valuation allowance (304) (505)
Net Deferred Tax Assets after Valuation Allowance $ 19,596 $ 28,306
Certain income and expense items are not reported in tax returns and financial statements in the same year. The tax effects of such temporary differences are reported as deferred income tax assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. The Company establishes a valuation allowance for deferred tax assets for which realization is not more likely than not. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. A valuation allowance of $0.3 million and $0.5 million was recorded against the deferred tax asset balance as of December 31, 2025 and 2024, respectively. In the event that the weight of the evidence changes in the future, any increase or decrease in the valuation allowance would result in a income tax expense or benefit, respectively.
The Company has no federal income tax net operating loss (“NOL”) carryforward at December 31, 2025. At December 31, 2025, the Company had income tax net operating loss carryforwards for state purposes of $42.0 million.. At December 31, 2024, the Company had NOL carryforwards for federal and state purposes of $0.7 million and $64.2 million, respectively. A portion of the Company’s NOLs and tax credits are subject to annual limitations due to ownership change limitations provided by Internal Revenue Code Section 382. If not utilized, the state tax NOL carryforwards will expire between 2028 and 2038. As of December 31, 2025, the Company recorded a deferred tax asset for state NOL carryforwards of $2.6 million. There was no deferred tax asset for federal NOL carryforwards as of December 31, 2025. As of December 31, 2024, the Company recorded a deferred tax asset for federal and state NOL carryforwards of $0.1 million and $3.6 million, respectively.
F-27
Effective Tax Rate Reconciliation
The following table provides a tabular rate reconciliation of the federal statutory income tax rate of 21% to the Company’s effective income tax rate for the year ended December 31, 2025, pursuant to the disclosure requirements of ASU 2023-09 (amounts in thousands, except percentages):
Year Ended December 31,
Domestic federal
Tax credits
Research and development tax credits (422) (0.6) %
Nontaxable or nondeductible items
Nondeductible compensation 2,213 3.3 %
Equity compensation (577) (0.9) %
Domestic state income taxes, net of federal effect 2,432 3.7 %
Foreign tax effects 23 — %
Changes in unrecognized tax benefits 31 0.1 %
California, Minnesota, Illinois, Florida and Texas comprise the majority of the Company’s state tax income tax expense.
The reconciliation of the federal statutory income tax rate of 21% to the effective rate is as follows:
Federal statutory rate 21.0 % 21.0 %
State taxes, net of federal benefit 4.1 % (21.8) %
Deferred tax adjustments 0.9 % 1.3 %
Nondeductible compensation 1.1 % 1.8 %
Meals and entertainment 0.6 % 1.2 %
Uncertain tax positions — % 0.4 %
Valuation allowance — % (123.5) %
Share-based compensation (1.0) % 2.8 %
Tax credits (0.7) % (3.2) %
The effective tax rate for the year ended December 31, 2023 was favorably impacted by the reversal of a valuation allowance. During that period, the Company concluded that it was no longer in a cumulative three-year loss on a continuing operations basis, after excluding the effects of permanent book-tax differences. The absence of such negative evidence, combined with the Company’s expectation for future taxable income generation, led to a change in the Company’s assessment of the realizability of its deferred tax assets.
Income Taxes Paid
The following table summarizes income taxes paid net of tax refunds for the year ended December 31, 2025, pursuant to the requirements prescribed by ASU 2023-09 (amounts in thousands):
F-28
Year Ended December 31,
In 2025, the individual jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid were California and Minnesota.
Unrecognized Tax Benefits
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands) included in the consolidated balance sheets:
Unrecognized tax benefits - January 1 $ 831 $ 807 $ 645
Increases - tax positions in current period 48 53 124
Increases - tax positions in prior period — — 38
Decreases in prior year positions (17) (29) —
Unrecognized tax benefits - December 31 $ 862 $ 831 $ 807