Bradley Bowers

Bradley Bowers asked for clarification on the pro forma cost profile, specifically regarding the inclusion and mitigation of stranded costs, and the company's current stance on tuck-in M&A as a medium-term growth driver given the focus on divestitures and capital deployment.

Answer

John Deren, EVP and CFO, explained that $90 million in stranded costs are currently in the P&L, which the company intends to fully mitigate through TSA/MSA arrangements and restructuring programs. Lawrence Keusch, VP of Investor Relations and Strategy Development, added that the 2025 adjusted income statement already includes these stranded costs. John Deren also stated that while tuck-in M&A may be considered, no significant M&A is expected in 2026 as the focus is on BIOTRONIK integration and completing divestitures.

Bradley Bowers inquired about the pro forma cost profile, specifically the amount and nature of stranded costs, and the company's M&A strategy given its historical acquisitive nature, particularly for the medium term.

Answer

John Deren, Executive Vice President and Chief Financial Officer, confirmed $90 million in stranded costs are included in the P&L, which are necessary overheads not directly attributable to discontinued operations. Lawrence Keusch, Vice President of Investor Relations and Strategy Development, added that the 2025 adjusted income statement also reflects these stranded costs. John Deren stated that no significant M&A is expected in 2026, as the focus is on integrating the BIOTRONIK acquisition and completing the divestitures.

Bradley Bowers asked about the customer base's understanding and adjustment to the new reimbursement rules, specifically concerning the 'hangover' from old ordering patterns and the mechanical impact on the business. He also inquired about MiMedx's product pipeline strategy, including the expected frequency of new product launches and the approach to generating and publishing clinical data for both wound and surgical segments.

Answer

CEO Joe Capper described significant customer adjustments, including changes in product sizes, increased audits, and general nervousness, leading to a 'ton of noise' as the market seeks normalcy. Regarding the pipeline, Mr. Capper stated MiMedx expects to launch a couple of amniotic products annually, supported by robust clinical data. He emphasized that MiMedx's vertical integration and ability to invest in R&D position it uniquely to compete effectively in the evolving market, unlike many competitors.

Bradley Bowers asked about the customer base's understanding and adjustment to the new Medicare reimbursement rules, specifically regarding 'hangover' effects from old ordering patterns, changes in product sizing, and the impact of increased audits and callbacks. He also inquired about the expected pace of new product launches and the strategy for supporting them with clinical data across both wound and surgical pipelines.

Answer

CEO Joe Capper described a period of significant adjustment, with customers changing product sizes, increased audits, and general nervousness due to uncertainty about new guidelines and LCDs. He characterized the situation as 'a ton of noise' but expressed confidence in eventually returning to normalcy. Regarding the pipeline, Capper stated MiMedx expects to launch a couple of amniotic products annually, each supported by robust clinical data, emphasizing that few manufacturers can afford such investment at lower price points, positioning MiMedx to thrive post-transition.

Bradley Bowers, on behalf of Anthony Petrone at Mizuho Securities, asked about the expected business dynamics upon the finalization of the LCDs, including potential stockpiling, and inquired about the path to reducing wasteful spending in the skin substitute market.

Answer

CFO Doug Rice confirmed that MiMedx is prepared from an inventory standpoint and has contingency plans for the LCD rollout, though some unknowns remain regarding reimbursement for certain wound types. CEO Joe Capper emphasized that reform is overdue to address what he termed 'wild overspend' in the market, and he believes regulators are motivated to implement the changes to root out fraud, waste, and abuse, making further delays unlikely.

Speaking for Anthony Petrone, Bradley Bowers questioned the R&D spending trajectory and potential study delays, the drivers behind the long-term adjusted EBITDA margin outlook of over 20%, and the sales force's experience with the new HELIOGEN product launch.

Answer

CEO Joseph Capper acknowledged a slight delay in the EPIEFFECT RCT, with spending expected to shift into Q4 and Q1 2025. CFO Douglas Rice added that R&D could increase by 0.5 to 1.5 percentage points of revenue by the end of next year. Regarding margins, both executives explained the business is built to scale, which will drive operating leverage. CEO Capper also noted that HELIOGEN is opening new doors and receiving positive physician feedback, with the main task being to navigate hospital value analysis committees.

Bradley Bowers inquired about the ASP outlook, specifically the $2,200 per test projection, and its implications for gross margin. He asked for expectations on gross margin progression, considering a potential lift to 70%+ for the genomic side, and if there were any offsets to consider alongside ASP increases.

Answer

CEO Eric Lefkofsky acknowledged that increased ASP would lead to higher gross margins. However, he noted Tempus's approach to balance ASP increases and decreasing sequencing costs by reassessing panel sizes to generate more data, which benefits patients and doctors. He emphasized that Tempus, with its dual diagnostics and data businesses, is less reliant on maximizing gross profit solely from diagnostics compared to peers, but still anticipates some gross profit increases with rising ASPs.

Bradley Bowers from Mizuho Securities USA LLC inquired about the gross margin implications of Tempus AI's ASP outlook, specifically the potential for a significant lift towards $2,200 per test. He asked about the expected progression of gross margin and whether it would be a one-to-one correlation with ASP increases or if there were offsetting factors.

Answer

Eric Lefkofsky, CEO of Tempus AI, acknowledged that an increase in ASP would naturally lead to an increase in gross margin. However, he explained that Tempus historically reassesses how much to increase panel sizes to generate more data as ASPs rise or sequencing costs decrease, which benefits patients and doctors. Lefkofsky noted that Tempus, with its dual diagnostics and data businesses, is less reliant on maximizing gross profit solely within the diagnostics product line compared to some peers. He confirmed anticipation of some gross profit increases with rising ASPs but emphasized balancing this with bringing the broadest possible panels to market due to downstream implications.

Bradley Bowers, on for Anthony Petrone at Mizuho Securities, asked for an update on PARAGARD's market share and volume dynamics, particularly with its declining volumes. He also inquired about tailwinds for gross margin and whether future operating margin leverage would come from gross margin improvements or SG&A control.

Answer

President and CEO Al White stated that PARAGARD volumes continue to decline, reflecting pressure on the entire IUD market, but this has been offset by pricing. He expects a similar dynamic next year. Regarding margins, he noted that a mix shift toward MyDay and tariff impacts would pressure gross margins. CFO Brian Andrews added that disciplined cost management and efficiency initiatives would drive SG&A leverage to more than offset these headwinds, resulting in operating margin expansion.