Jul 27, 2017
Executives
Thornton Kuntz - SVP, Administration Pete Petit - Chairman & CEO William Taylor - President & COO Debbie Dean - EVP Christopher Cashman - EVP & Chief Commercialization Officer Michael Senken - CFO
Analysts
Mike Matson - Needham & Company Bruce Jackson - Lake Street Capital Markets
Operator
Okay, ladies and gentlemen and welcome to the Second Quarter 2017 MiMedx's Group Inc. Earnings Conference Call.
At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time.
[Operator Instructions] As a reminder today's program is being recorded. I will now like to introduce your host for today's program Thornton Kuntz, SVP of Administration, please go ahead.
Thornton Kuntz
Thank you, operator and good morning everyone. Before we began please be reminded that our comments today may include forward looking statements.
These statements are subject to risks and uncertainty and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings which are available on our website www.mimedx.com.
We do not undertake to update or revise and forward-looking statement except as maybe required by the company's disclosure obligations in filings with the Securities Exchange Commission under federal securities laws. During the call, we will discuss non-GAAP financial measures when talking about the company's performance.
you can find a reconciliation of these measures to GAAP financial measures in our press release and on our website. Finally, MiMedx is not responsible for the accuracy of our earnings teleconference transcripts provided by third parties.
We only authorize and archived webcast as stated on our website. With that, I will turn the call over to Pete Petit, MiMedx's Chairman CEO.
Pete Petit
Thank you, Thorn. Good morning.
We appreciate you joining us for our second quarter update. I have with me today Bill Taylor, our President and Chief Operating Officer; Mike Senken our Chief Financial Officer, Debbie Dean, our Executive Vice President; and Chris Cashman, our other Executive Vice President and Chief Commercialization Officer.
There are other corporate executives in the room with us. First, I'd like to simply comment on the fact that we had an outstanding quarter and most importantly, we expect this trend to continue.
I wish to congratulate all of our executives, management, staff for their hard work and expertise which allows the progress to continue. Our press release certainly gives the second quarter highlights, just a couple of course is, our revenues are $76.4 million, and exceeded our guidance of $73.5 or $75 million.
Our second quarter revenue grew 33% over our second quarter revenue of 2016. Our net income of $8.3 million is 309% increase over second quarter a year ago.
We had positive net cash flow from operations of $13.5 million compared to $7.3 million in the second quarter a year ago. And like to sink in a comment on the fact that our day sales outstanding accounts receivable dropped to $72 million a year or so, we commented to you that we'll be bringing that number down considerably, and we as always fulfill our commitment.
I hope all our shareholders received the copy of our 2017 business report. We took the time to explain our corporate assets and our format clearly demonstrates the strength we have built over the last six years.
I still do not think that the strength and advantages of this asset base is full appreciated. A discussion around our transition to our former company needs to be taken very seriously.
The asset base we have built clinically will be better appreciated in months ahead as we continue to announce new product initiatives at Food and Drug Administration. And we continue with our record of significant clinical student and scientific publications.
Of course, our manufacturing capabilities have been expanded dramatically and we continue to implement programs and increase our gross problem alignments [ph]. Our regulatory staff and acumen has improved rapidly and they are not explaining the efforts on international opportunities.
Our sales organization and its management have become more efficient effective as we can prove the management systems and informatics. I've made changes in some of those positions.
Our sales force will remember project trend 75 direct employees by the end of this year. Our work-in-progress have become much deeper and much more effective.
As I mentioned, we noticed a significant drop in our accounts receivable down to 72 days, that's a result of number of staff additions we've made in our accounting area, a new process and procedures related to the roll out of our sales organization plays in that function. In summary, our executives has managed rapidly growing health care companies previously and certainly up to this point we've been able to keep our progress, our procedures and staff at points where we have very capably managed MiMedx and the opportunities we have.
To summarize all those comments, I believe the company is poised for a new decade of new product innovations from [indiscernible] through the FDA IND BLA process and that will result in continuing record growth and increases in profitability and cash flow. Actually, there are very, very biopharma companies that have over $300 million revenue base, it's still growing at near 30%, with 89% gross profit margins and adjusted EBITDA margins that will eventually exceed 30%.
Just take a look, examine and you are not going to find me alone. In short, the executives who management believe MiMedx has a very, very bright future.
Let me briefly touch on a subject that has been brought up by shareholders last five years at least. As I have said many times, it's not an issue, we short sell for sale, however when those short sells are result of collaborative efforts by institutions and individuals including naked short selling, then laws are violated.
We have been diligently collecting data and information over the last several years. I believe I can simply say to you that there could be some resolutions, this long ordeal and it's caused a great deal clearly in our shares.
As an example, the Securities and Exchange Commission announced on May 24, that they are investigations into two individuals that they feel a large health hedge fund will be accused of insider trading and stock manipulations with two health care companies, namely the [indiscernible] Healthcare Partners and [indiscernible]. These individuals happen to be the persons that represented [indiscernible] MiMedx since 2012.
The SEC.gov section enforcement, go in there, pull up the information and then draw your own conclusions. I'm sure there are still some questions related to the allegations made by certain terminated sales employees and their target.
First out of turn resigned, his representation of those particular individuals, second, after a thorough investigation each particular individual were terminated for cause because they had violations or contractual commitments to MiMedx. They retaliated by filing countersuits with acquisition that were unfounded.
These lawsuits are going routinely in our favor and we expect to see retribution from these individuals as these cases proceed. There is nothing for these individuals to blow whistles about.
The trumped-up acquisitions, they are determined to damage the company. Its unfortunate people of this nature can make charges of that nature to the public and damage publicly traded companies as they do however.
We are working through these matters in a very programmed and diligent manner and they will be behind it. We are also getting close to learning of our first patent lawsuit.
In our opinion that will be a game changer in terms of the competitive environment. Small companies have taken advantage of our flatten situation because we did not have a definitive judgment from any of the lawsuits.
However, we expect that to change in the very near future once we obtain a favorable legal decision, we'll appeal the move more rapidly against all organizations that are violating our patents. This process has taken us well over three years.
Once we have a judgment from the court, we can ask for a judge to relief after filing suits and hope to bring quicker closure against the other violators of our patents; therefore management views this as a very positive advantage that should soon unfold. We have some very positive events will take place in the months ahead relative to our clinical studies.
I am going to Debbie Dean give you the specifics, however we will be publishing very shortly our large multi-center [indiscernible]. We've indicated studies should facilitate our EpiFix product line being given additional commercial coverage across US by numerous health plans.
While EpiFix is routinely used by diabetic foot ulcers because did not have a large new trial of this nature, numerous commercial health did not grant us the new coverage. That has the potential to open up an additional $100 million in Wound Care business for EpiFix.
You will hear Debbie describe our series of IND BLA applications that we'll be filing with the FDA in the months ahead. We have substantial data already on these particular clinical indications and we expect these products to move rapidly just as we have with our [indiscernible] IND BLA.
We also have a large diabetic foot ulcer multicenter now being published in the months ahead. One other recent significant issues is exploration of our contract with AVkare.
Over the years of that contract, MiMedx developed approximately $150 million in revenues with AVkare was distributed in our products with approximately 160 different federal hospitals and facilities during that period of time. In many cases AVkare had inventory in those facilities and our physicians facilitate their patient care.
As we completed the majority of our audits and credits for AVkare we came out only approximately $50,000 in differences, therefore I think it was credit to the AVkare and MiMedx staff that over this five-year period, this is the only discretions that we have found so far between their systems and our systems and our audits. Looking forward in our federal business, now that the federal government is purchasing all product directly from us, we will have more gross profit because we no longer have a middle man distributor for those sales.
Also, our sales force we focus now solely on new revenue opportunities in these federal facilities and we will be not be attempting to manage the AVkare transition to close out the contract as they did in our second quarter which was kept them quite busy. In summary, I think you can count this as a substantial amount of good news that we are forthcoming in the months ahead, as it's happened in the last 26 quarters, we expect to continue to see rapid increases in our revenues and ever faster increases in our profitability.
As is often said about bigger markets, "they climb the wall over", that's exactly what could be said about MiMedx. Of course, the wall [indiscernible] by institutions and individuals taking short positions on our stock.
They will continue to requisition the company in that fashion. Personally, I cannot be more optimistic about the company's prospects.
While we cannot talk about all the very matters that will be disclosed in the months ahead, I can assure you that will continue after the better product line and the growth opportunities should be coming. Okay, Bill.
William Taylor
Thanks Pete. As you've heard, our second quarter 2017 was an excellent quarter for MiMedx with a very strong year-over-year and sequential quarter revenue growth.
It was also very strong operationally as we increased our gross margins and completed our final quarter in our contract with AVkare. The sale performance from our team to achieve such strong sales even with the administrative effort put forward to finalize the work under that contract.
So, I'd like to thank the entire MiMedx team for their hard work and focus which led to such a great quarter and prepared the foundation for very strong back half of the year. Now regarding our field sales force, we continue to grow in every quarter.
The opportunities for our products continue to expand and we expect further growth over the next several years. at present, we're including offers accepted the people have not yet started were about 350 total sales personnel.
We project to be 375 or more by the end of this year. We are hiring in Wound Cares, surgical and pain management.
Our detailed planning with the help of our informatics group continues to be focused on multiple quarters in advance which helps us in our predictability as well as our continued growth. So, we really are focusing a lot of time on our informatics growth.
So, as you will recall, our sales expansion focus over the past several years has been to expand our customer base and to go direct to customers through a combination of our own sales force and sales agents and generally away from distributors. We have maintained our long-term distributor rates but have strategically decided to focus our energy on direct sale revenue adding additional distributors.
Because of this focused effort over the past four years we expanded our customer base by several fold and reduced our dependence on distributors to the point often the sales and distributors are no longer material nor have they been for quite some time. Now let me talk a little bit about product mix.
As you know, we launched a number of new products last year; AmnioFill and AmnioCord are two of these products. We classified both of these in our SSO category.
It's important to note that it's our sales reps who have traditionally considered -- who we have traditionally considered 'wound Care' have access to these products and are helping to expand these sales rapidly. So very large percentage of AmnioFill is actually used in the inpatient surgeries for his wounds.
AmnioCord is used in foot and ankle surgery, the call points of which are many times over that of Wound Care. So, our portfolio has expanded to such there is significant overlap between our Wound Care and SSO product classifications.
This overlap is not easily differentiated and a clear category like wound and SSO, so don't focus on that mix too tightly. Now regarding our clinical studies, we've entered a very exciting period of time for our company, markedly in surgeons in the urology colon and rectal specialty areas recently presented data at conferences showing the use of AmnioFill improved outcomes and reduced complications.
Chris will speak to that specifically in his comments. Regarding EpiFix we will complete our multi center new study and we have completed the study and are in the process of getting them published as Pete mentioned.
Debbie will give you more information but the preliminary results are incredibly strong with results far stronger than any advanced [indiscernible] to date in this indication. On the [indiscernible] study, our multi center view studies are in completion as well and as a reminder, both of these studies follow the FDA's guidance on BLA or PMA wound studies, so they are very solid protocols of large multi-center populations and should further solidify our leadership position in this sector.
Our IND clinical trial efforts have expanded as well. We have already submitted our Phase 3 [indiscernible] trial to the FDA and we are awaiting the response.
We expect to submit two more IND studies for AmnioFix injectables in the next four to five days or so. So, you can see our clinical and regulatory teams continue to be quite active.
And just as a brief overview of our clinical activities, we have in excess of 30 clinical trials that are in process with 25 of them within the clinicaltrials.gov at the moment. These studies encompass some 150 clinicians, 100 sites and over 1,600 patients in 25 different clinical uses of our technologies.
So, with that, I'm going to hand the call over to Debbie Dean now to give more details on these clinical trials.
Debbie Dean
Thanks, Bill. MiMedx continues to invest in research illustrating the clinical and economic impact of our various products.
They are currently approximately 30 clinical trials underway or under development and we will be completing several large multi-center clinical trials this summer and preparing them formal publication. Research investigation includes clinical work across MiMedx's broad product portfolio with investigations including EpiFix, EpiBurn, EpiCord, AmnioFix, AmnioFix injectable, OrthoFlo and AmnioFill.
The first of these studies includes the recently completed large multi-center venous blood ulcer trough [ph] performed at 15 slides which included 109 patients. In the United States, the estimated payer burden associated with the treatment of the over use is nearly 15 billion in 2014 and this number is only expected to rise.
This landmark study has been submitted to a prestigious journal for publication and we anticipate that it will find its way to general circulation in the medical literature in the next couple of months. We are pleased with the results of this clinical trial, especially with the broad inclusion criteria, including diabetes.
Our hiring level of standard care was used in this trial compared with five VOU trials. And an average wound size of 7.6 square centimeters or another FDA approved skin substitute trial was only 1.3 square centimeters.
Additionally, we followed ICH E6(R1) guidelines from good clinical practice and SEA's guidance for industry chronic subcutaneous, ulcer and burn wounds, clinical trial designs that is the standard for FDA and top tier research organizations around the world. In our Phase 2b AmnioFix injectable IND trial, we have also recently fulfilled our enrollment with pharmas across 14 sites with 147 patients for [indiscernible] which is an extremely common condition.
The first patients in this trial had an immune compatible blood work completed at enrollment three months and 12 months. There are requirements for additional blood drop was removed by FDA because the results showed no additional need for testing.
We have had discussion with the FDA throughout this trial on progress while the results were still blinded, we believe the interim results from this study will reassure the FDA that this trial too will be a success. As such, we have submitted the IND applications for the next Phase 3 trial, which incorporates feedback from our FDA pre-meeting and is undergoing FDA review.
If approved, we could begin side initiation business for the safe IND trial for this indication in preparation for a final BLA license in the third quarter. Additionally, we have already completed our GMP compliance work to produce Phase 3 products for this trial.
Our positive experience with both the sheet and micronized forms of the item product now also reassure us that we can move to expand our clinical research endeavors for additional indications. For [Technical Difficulty] use of this material in the field suggested important solutions to meet the clinical problem that will benefit from regenerative potential of our PURION process.
We intend shortly to file an IND request for our Phase 3 clinical trial involving the treatment of achilles tendonitis using MiMedx dHACM. This condition is frequently proceeded by trauma and has been difficult to resolve quickly.
Our clinical experience has demonstrated that achilles tendonitis resolves nicely with AmnioFix injectable when other therapies have provided only supportive care. Similarly, we intend to follow Phase 2b IND request for our use of micronized AmnioFix injectable in the treatment of late stage osteoarthritis where pain releases is splitting our unresolved with lesser therapy.
We believe that the addition of the dHACM injections will provide improved pain release without the more extensive use of the prescription opioids. The risk and repeated steroid injections or the uncertain ecstasy of polyuronic acid.
As you can see, there are a number of biopharmaceutical trials that are underway and in development for our unique clinical platform products. I will now turn the call over to Chris Cashman.
Christopher Cashman
Thanks, Debbie and good morning. We are pleased with the sales progress we made in the second quarter.
We grew revenues 33% year-over-year overall and revenues were strong in both of our market focuses of Wound Care and SSO. Just as we expected, the implementation of our new sales management since 2016 has grown to become a major asset and facilitator of our strong revenue growth and we are reaping the benefit of this disciplined approach.
The processes, accountability and reporting continue to make a positive impact on our sales activity. So too are the corresponding informatics and organizational structure investments made at the same time in 2016 delivering results as planned.
We finished the quarter with over 340 personnel in the sales organization and today are approaching 350. Our internal search and hiring team alongside our sale management have done an excellent job of maintaining the pace of new hires.
The debt and experience of the sales organization continued to improve, aided by our internal training department and the sales force alignments provide greater specialization for our product line focuses. We are very positive that we will continue to deliver robust revenue growth.
The second quarter produced a very strong show with revenues exceeding the upper end of the guidance by $1.4 million. We were very pleased by the growth in SSO as it achieved 42% growth over the prior year's quarter and 27% sequential quarter-over-quarter growth.
We attribute this to our improved focus and planning taking hold for this SSO group. Revenue contributions from our new product introductions of AmnioCord, AmnioFill and OrthoFlo in 2016 and additionally we continue the adoption of hospital members accessing our market leading GPO and IDN contracts.
We continue to educate and train on the new products and they are performing in line with our forecast and expectations. Wound grew 30% in second quarter over prior year's quarter.
Our wound business is robust and we are very positive on the growth of our wound revenues that we'll see in the second half of 2017. We did have some headwinds in the second quarter as health care wind down activates for many of our sales representatives were a distraction.
We are through that now with determination of the distribution agreement effective with the end of the second quarter and we expect to have some upside to our revenues in the second half of this year. Both AmnioCord and AmnioFill recall were synonymously well in surgical procedures and enhanced wound healing applications.
Both our wound and SSO sales personnel sell these products. AmnioFill is being used by doctors to fill [indiscernible] that serious surgical wounds, pressure ulcers in the hospital setting and other muscle skeleton conditions.
Additionally, there has been excellent interest in the office based wound setting. AmnioCord often gets used in wound procedures as well when the wound presents with a deeper and more chronic condition as in foot and ankle procedures for example.
Of course, these products lines are reported in SSO, even though the applications are for wound healing and sold by our wound team. We are pleased with the progress and how it is going to be adopted by our whole sales organization.
As you've heard many times our 3 million chronic non-healing wounds each year in 150,000 patients receive a skin dermal substitute. Currently the medicine's focus is in wound care clinics and has been the 1.4 diabetic foot ulcers and venous leg ulcers.
The commercial portion of our insurance coverage has been predominately for DF use. However, with the expected release of topline data that Debbie spoke to and the publication of new multi-center VLU clinical data, which the interim local deals a significant improvement of healing in 12 and 16 weeks meaningfully improving on [indiscernible] that was 24 weeks.
EpiFix was an opportunity to expand in the approximately 500,000 total BOU patients per year. With expanded positive, venous leg ulcer payment policy, we believe there is $75 million to $150 million in potential wounds that can be addressed.
And this opportunity doesn't even contemplate the approximately 1 million of cubic pressure ulcers that could benefit from our products as well. So, in summary, there are plenty of wounds left to address.
I now will like to make a few comments on our medical and professional education focus. As the recognized regenerative marketing leader, evidence based medicine programs are expected from MiMedx, both education events and a steady stream of clinical study experience are critical to the continued revenue growth and adoption of our products in the marketplace.
The wound patient opportunity is still significantly underpenetrated even with the success of EpiFix. The SSO specialties as evidenced by this past revenue performance are gaining continued acceptance in understanding of the AmnioFix line and new product introductions and they are placing a regenerative surgical healing.
Expanded utilization will come with broader educational events. MiMedx conducted in 2/2, the first two of several physician medical education forms planned for the year to further increase awareness of MiMedx's spread in the SSO markets.
First, we held the reconstructive surgery physician form in Phoenix and focused on the clinical and scientific attributes of Placental based tissue grafts for plastic and reconstructive surgery. And second, we support the physician medical education form in Atlanta focused on non-surgical approaches, the muscular skeletal conditions in May with attendees from around the country and discuss the potential for AmnioFix and OrthoFlo as non-surgical regenerative solutions.
These forms provide the attending physicians with a wealth of clinical and scientific information on procedural techniques, clinical roles and expected outcomes from physician colleagues who are well respected and well published. In addition, they provide value insights to MiMedx on the surgical and non-invasive therapy trends emerging in this newly forged regenerative medicine market.
We developed and delivered impactful programs that helped the physicians understand better the full benefits of our placental based tissue grafts. We also had new data presented at two prestigious national conferences adding to our growing body of evidence in the surgical space.
At the American Neurological Association meeting in Boston, three independent groups presented data which corroborated the finds from the original study published by Dr. Patel on the benefits of AmnioFix in nerve sparing robotically assisted laparoscopic prostatectomy.
They each strengthen the patient study base and experience and reports on early aspects of the original study by Patel on outcomes including return to urinary continents and potency as well as new findings had also showed benefits of AmnioFix in patients younger than 55 years old with partial nerve sparing procedures. The new data included an 89-patient level one RCT, a 362-patient retrospective study and a 241-patient retrospective study with the propensities for matching analysis.
This is a large cohort of new patients. At the American Society of Colon and Rectal Surgeons meeting in Seattle, two posts [ph] were presented by Dr.
Choat from Fayetteville, Georgia and Dr. Menard, from Kenner Louisiana.
Both retrospective dataset showed a reduction in the [indiscernible] of four and compared to the use of AmnioFix around the anastomoses after bowel reception. From 4% down to 1.2% and 5% down to 1.35% respectively.
Additional data showing anastomotic leap reduction was also accepted by the American College of Surgeons meeting in October. And finally, we have spoken often about the fact that we are barely scratching the surface and making EpiFix available more than 3 million non-healing chronic wounds each year.
In order to exhibit the expansionary reach MiMedx Wound group has just one quarter, listen to the following list of conferences and meeting attended. We attended two large national wound conferences, the 30th Annual SAWC, which is the largest North American Wound Care conference, with 1,500 attendees and also the 49th Annual [indiscernible] which has 1,200 attendees.
We attended the European Wound Management Association conference in Amsterdam, that's the largest European Wound Care conference with over 5,500 attendees. Additionally, we attended two regenerative medicine meetings with 500 attendees or more to better interfere the OD Association meetings in 17 regional wound care pediatry, plastic surgery, burn, and vesicular conferences around the U.S.
and Puerto Rico. Additionally, end of note, we conducted approximately 125 local and regional speaker educational programs with approximately 1,900 medical professional attendees.
I hope this overview provides an insight as for the exposure that the MiMedx products get over an entire quarter and how we generate so many opportunities for our expanding salesforce as we further educate providers. Now I'll turn it over to Mike Senken.
Michael Senken
Thanks, Chris and good morning. The company recorded revenues for the second quarter of approximately $76.4 million which represents an increase of 33% or $19.1 million over prior year's second quarter revenue of $57.3 million.
Wound care revenue was $54.7 million, and SSO revenue was $21.7 million with growth driven by addition to our sales team, as well as new product introductions somewhat offset by the time dedicated to completing the transition of the remaining VA facilities through the MiMedx FSS schedule and the wind down of the remaining AVKare inventory. Stability Biologics revenue for the quarter was $2.3 million.
We believe that the positive momentum we saw in Q2, we are well on-track to hit our annual growth target in wound care and SSO. Tailwinds for the second half of the year includes a completed wind down of the AVKare inventory, with both of the various clinical trial, as well as continued momentum in sales of our new products; AmnioFill, OrthoFlow, EpiCord and AmnioCord.
Revenue for the six months ended June 30, 2017 was $149 million which represents an increase of 35% as compared to prior year. Year-to-date wound care revenue is $109.6 million and SSO revenue is $39.4 million.
GAAP gross margins for the quarter were 88.7% as compared to 87.1% in the second quarter of 2016. The 160 basis point improvement was driven by higher sales volume, processing yield and efficiency improvement and lower onetime cost related to the Stability Biologics acquisition.
On a year-to-date basis, GAAP gross margin was 88.3% as compared to 86.1% in 2016. 2016 year-to-date gross margins were impacted by $1.3 million in one-time acquisition-related costs.
On an adjusted basis, gross margins have improved 110 basis points. Included in the press releases is the reconciliation of GAAP gross margins to address the gross margin.
R&D expenses for the quarter were approximately $4.7 million or 6.2% of quarterly revenue as compared to $3.2 million in the second quarter of 2016. On a year-to-date basis R&D spending is up $3.3 million of the prior year.
The increase is driven primarily by increased investments in clinical trial; the increases in-line with our overall strategy as we migrate towards becoming a biopharma company. Selling, general and administrative expense was approximately $55.3 million for the quarter or 72.4% of quarterly revenue which represents a 220 basis points improvement in leverage versus prior year driven by greater sales efficiency.
The year-over-year increase in SG&A absolute dollar spending was due to the continued build out of our direct sales force in both wound care and surgical market, increased commissioned on higher sales volume, increased share based cost, live [ph] cost and bonus accruals. On a year-to-date basis SG&A expense came in at 72.7% of revenue as compared to 75.4% in 2016.
The company reported positive adjusted EBITDA of $14.2 million or 18.5% revenue of revenue at the quarter ended June 30, 2017 as compared to $10.1 million or 17.6% of revenue in the second quarter of 2016. For the six months ended June 30, 2017, adjusted EBITDA was $26.6 million or 17.8% of revenue as compared to 17.3% in 2016.
Improvement resulted by improving sales leverage somewhat offset by increased spending in R&D related to clinical trials. Included on press release is a reconciliation of adjusted EBITDA to reported net income.
GAAP operating income in the second quarter was approximately $7.2 million or 9.4% of quarterly revenue as compared to $3.6 million or 6.2% of revenue in the prior year. Adjusting for one-time charges related to the acquisition, operating income was 9.5% in Q2 2017 as compared to 7.5% in 2016.
On a year-to-date basis, GAAP operating income was $13.4 million as compared to $5 million in 2016. Included in the press release is a reconciliation of GAAP to adjusted operating income.
The company booked a tax credit of $1 million as compared to $1.5 million in tax expense in the prior year. The tax credit is due to large compensation-related discrete income tax benefit driven by the exercise in employee stock options.
We anticipate an annualized effective tax rate of approximately 35% for the full year and a cash tax rate of approximately 29% for the full year. The company reported GAAP net income for the second quarter of approximately $8.1 million or $0.08 per basic and $0.07 per diluted common share as compared to GAAP net income of $2 million or $0.02 per basic and diluted common share in the second quarter of 2016.
On a non-GAAP adjusted basis, second quarter net income was $8.2 million or $0.07 per diluted common share when adjusting for the non-recurring items as compared to $5.1 million or $0.05 per diluted common share in the second quarter of 2016. Year-to-date adjusted net income was $15.7 million or $0.14 per diluted common share as compared to a year-to-date adjusted net income of $10.1 million or $0.09 per share in 2016.
Please refer to the table in our press release for reconciliation of GAAP net income to adjusted net income. Turning now to the balance sheet; the company reported approximately $132.5 million in total current assets including $47.5 million in cash, $50.7 million in accounts receivable, $15 million in inventory, and $9.2 million in prepaid expenses and other current assets.
Day sales outstanding for the quarter were 72 days as compared to 83 days at the end of the prior quarter. The positive result was driven by upgrade and continue admissions to our collection staff as well as improved business processes.
Current liabilities were $51.5 million as compared to $50.7 million at December 31, 2016 with the increase in line with the growth of the business. Turning now to the statement of cash flow; the company reported positive cash flow from operating activities of approximately $13.5 million for the quarter driven mainly by improvement in working capital management.
The company recorded capital expenditures in the quarter of $1.8 million including additional lyophilization and laser-cutting equipment in support of higher anticipated production rate. Positive cash flows from financing activities were $4.9 million including $7.3 million in employee stock option exercises, somewhat offset by $2.1 million in company stock repurchased under the stock repurchase program bringing total cash return to shareholders through the board authorized repurchase program since inception to $71 million as of June 30, 2017.
Please also note, that the board recently approved an additional $14 million bringing the total authorization to $100 million. And finally, we added a total of 49 employed from the quarter bringing our total headcount to 754.
And finally turning now to our guidance, MiMedx estimates third quarter revenue to be in the range of $79 million to $80 million, and raising full year revenue guidance to be in the range of $309 million to $311 million as compared to previous guidance of $303.5 million to $307 million. The company is also raising GAAP, fully diluted EPS to $0.22 to $0.24 per share from the $0.18 to $0.20 per share in our prior guidance and the company is maintaining its full year 2017 fully diluted adjusted EPS guidance estimated to be in the range of $0.31 to $0.32.
The VPS numbers are based upon an assumption of approximately $116.6 million fully diluted shares. With that I would like to turn the call back over to Pete.
Pete Petit
Thank you, Mike. We'll open the call now for questions.
Operator
[Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum Capital. Your question, please.
Unidentified Analyst
This is Charlie on for Matt, thanks for taking our questions and congrats on the great quarter. First off, DSOs, obviously a great improvement quarter-over-quarter; is this kind of a normalized range or are things going to get better from here?
And also is AVKare contributing to that? Obviously, it ended at 6:30 I would think so but what can we expect?
Michael Senken
Okay, sure. This is Mike.
First of all, our target DSOs are 75%, we've stated that publicly. And you know, we hope to stay within that range and we feel good about the way forward, especially when you consider we -- as several of the comments have been made, we've purposely moved away from selling through distributors which tends to drag out your DSOs.
As far as the AVKare impact, there was an impact of that but quite frankly, there were many other impacts this drove down the DSO. It was part of the impact but certainly not the full impact.
Unidentified Analyst
Okay, that makes sense. And then I guess related to the AVKare relationship, in December it took $1.8 million allowance; is that final?
Because is there potential for that to be reversed; where we have that?
Pete Petit
All right; when we book that adjustment as of year-end, it was our intention for that to be final. Because there is a 90-day run out period here, we'll see how much if any of that gets reversed.
But as far as any financial exposures going forward, whether it's a hit to revenue or hit to expense, all of those financial exposures are fully covered.
Unidentified Analyst
Okay, all right. And then just related to the new products, it sounds like everything is going well for EPIcord, AmnioFill and OrthoFlo.
Is there any of the three that stand out as a star or how material are they to driving revenue growth at this point?
William Taylor
This is Bill. Actually we've got highlights with really all of the products.
We've gotten some really good wins with them all. We're not in a point where we're going to be breaking those revenues out or anything yet; but we've got some great traction with Emmie [ph], so great traction inflow other floor.
And so further, you know, I think maybe down the road it will give you a little bit more color but they all are getting some good momentum. And as I mentioned, some of that such as AmnioFill, if not a clean bucket to say it's SSO because a lot of our wound care reps are still in that product which is great for them because they've never expand the bag and their portfolio given more solutions to the positions that they've worked with but we're were quite pleased with the progress of those.
Also just to refresh your memory, EPICord does have a reversal codes for Medicare, they fall under our same few codes EPIfix, and there is a large number of the health plans that are covering it as they are covering EPIfix [ph], so we're getting some really good movement on EPIcord as well. So overall, we're very satisfied with the progress for new products.
Unidentified Analyst
Yes, that's great. Yes, thanks for all the color and again, congrats on a great quarter.
Operator
Thank you. Our next question comes from the line of Mike Matson from Needham & Company.
Your question, please.
Mike Matson
Yes, thanks. So it's great to see the revenue upside relative to consensus and your guidance in the quarter but you know, there wasn't as much upside from an earnings perspective, particularly from an EPS perspective.
So I guess what my question is, are you sort of using this as an opportunity to consciously reinvest some of that upside back into things like R&D and SG&A and hiring more reps versus just like a lot of that fall through to the bottom line?
Pete Petit
Mike, this is Pete. I think in the quarters ahead you will begin to see a more rapid increase in percent, increase in earnings per share and cash flow etcetera as we've seen in the past; we continue to make investments beginning in 2016 where we've made significant investments.
But we're at a point now, R&D will continue to increase a bit but we should see increasing operating profit margins and EPS.
Mike Matson
Okay. And then, Mike, it looks like the share count increased fairly substantially from the first quarter; and if you look back over the longer run, back to 2013, it's up over 20%.
So just wondering what's driving that particularly, both in the short-term and I guess on the longer term as well?
Pete Petit
Yes, I mean what drove that increase in the quarter is really our share price. You know, under the treasury stock method, you make an assumption on how much stock you're going to buyback based upon an exercises in -- and with a higher share price, the number of shares you're buying back and that formulae goes down which drives the overall number up, so it's just a mechanical calculation that drove it that way.
You look at how rapidly the share price grew from the end of March to the end of the quarter, and that really is the primary reason. Again, just to point out, we have increased the -- where the board has increased the overall share repurchase authorization, and we intended to try to counter some other dilution with the share repurchase.
Mike Matson
Okay, thanks. And then I guess this would be for Chris and/or Bill; just curious about you're -- you've hired a tremendous amount of reps over the years, you're continuing to add -- I know you said that 375 target for the year, just -- are you able to continue to find good reps -- reps that have the right kind of background or you're starting to have to kind of go outside of the wound care area and does that have any kind of impact on the productivity or they're kind of sales ramp that these reps have?
Christopher Cashman
Well, it's Chris. We're certainly finding -- I'd say we're improving our ability to find even better more qualified, more experience representatives.
Some come from the wound case space or tangentially associated but some are coming out of the medical and life sciences world, more broadly. So I think the answer is that there is still a very large pool out there.
We look for experience and maturity and certain -- that's actually qualities, and we know that we can train them. Our training program has improved significantly over the last two years which we're very proud of and so is our medical education as I spoke to earlier.
So we don't see a problem or any type of gap in the ability to find good people and train them.
Pete Petit
This is Pete, let me comment on that. We necessarily in our early years of the development focused on individuals that have some wound care experience but with the asset base we've built now in terms of our clinical successes, our scientific successes, publications and our significant increase is good stressed in our training activities and training acumen; we can take individuals from general areas of healthcare and turn them into a pretty effective, efficient wound care sales reps pretty quickly.
So our training program has a great deal to do with that.
Mike Matson
All right, thanks a lot, appreciate it.
Operator
Thank you. Our next question comes from the line of Matthew O'Brien from Piper Jaffray.
Your question, please.
Unidentified Analyst
Good morning, this is JP on for Matt, thanks for taking the questions. My first one was on SSO in the quarter, it was pretty impressive acceleration and that's above where we are kind of modeling on our side, trying to just get a little bit more details about what kind of applications are driving that, is there any sort of new contracts that are really driving that acceleration in that -- and the SSO in the quarter?
Pete Petit
Well, a number of things as you could I've said, we have continued to invest in our SSO organization, we've talked about the process that was going to take some time. It is going to be a little more methodical than what you saw in the wound care side, a growth over the years and mainly because that's VRG based within the operating room; so we're not dealing with insurance but more of a cost in an economic value analysis that's associated in the operating room.
Additionally, we're getting through the back, now we're starting to see more clinical data that is in support of the various applications, we're spending more time and getting more recognition with AmnioFix line with our core areas of urology and colorectal, we're standing in the plastic and reconstructive surgery and that's all taking hold. Our GPO's and IBM's again are market leading, they are very strong, they've got 80% peers on commitment -- full sales force commitment levels and that's very difficult also for competition to be able to kind of get through or have access to.
So all those aspects are in a whole are what's creating the value proposition and we're starting to see the returns on those efforts. And additionally, as both Bill and I spoke to -- the new products now are becoming -- you know, taking hold and beginning to grow as well as we expected; and that also becomes a balance because our whole sales force sells that.
So, both the SSO organization as wound care or both contributing on those new product sales and of course they show up in the SSO area.
Unidentified Analyst
Got it. And then on the VLU opportunity; can you kind of walk us through the process of what way the opportunity be?
You know, what was you have this new data set out? How do you go about -- assuming you to go to reimburse insurance companies and get kind of coverage for that application?
Like when can we really see that contributing to growth in terms of VLU sales?
Pete Petit
Well, how about we daily talk about the reimbursement part and Chris can translate every work and talk about sales in terms of reimbursement.
Debbie Dean
Yes, we have -- it actually cracks obviously because the publications since we have all the numbers around that side, we have the letters and that prep from the payers that is coming, and so they will be reviewing that and we hope in short order adding VLU covers to our already VSU covers that we have. So they have obviously experience with our product line from a VSU perspective and we'll be sharing the value data and once it's troubling us with them and then expect that cutters will follow that which will obviously lead into Chris's part of the discussion.
Christopher Cashman
Yes, I mean as I said earlier, there are 500 million lives that potentially can be picked up, I mean this is $75 million to $150 million opportunity. When you look at the interim results that we share back in March and is in our presentation, all of those – while your study is compared to -- really, the only other RCT study that's been out there for active brands and that thing is almost -- I think 19 years old now.
But they had about 50% to 52% billing at 24 weeks without the [indiscernible] and then in our study we're seeing added 12 weeks and going into 16 weeks. So there is just a significant amount of improvement in here and I think there is going to be a similar study if it continues to pan out, in other way we think that's going to make a big impact in the market.
So if you're earning out from an insurance standpoint, Debbie you can speak to that.
Debbie Dean
Yes, one other point I'd like to point out as I said in my remarks, the average wound factor really is are much larger and you have to remember when you think about that 7.6 in our study, for example, the commercial payer coverage is on a per square centimeter, so there are going to be larger wounds that are going to be treated, that's just kind of the profile [indiscernible]; and so it will be reimbursed on that basis and it will be covered -- you know, I mean the commercial setting as well.
Unidentified Analyst
Okay, but from a timing standpoint they'll get the data before the end of this year; we'll get some insurance cover in the VLU, and then hopefully, back half of next year start really selling into that opportunity. Can you just frame out the timing of all these things?
Pete Petit
I think you're off a little bit here because we've already submitted it for publication, we already have the data, so -- and we believe it's going to be published very quickly. So -- and as Debbie mentioned, we've already taken that data and approached several of these payers, obviously we want to get published, we will send them the publication as well.
So we're hopeful that we're going to start moving the needle on some of these payers later this year and into next year; this is what our goals are. So it should be here a bit faster than what you described.
And from a commercial aspect, we're very engaged with the providers that are taking care of these wounds, whether it's a vascular surgeon or other. And so this is going to be a quick adoption once the positive policy comes into play.
Unidentified Analyst
Got it, thank you.
Operator
Thank you. Our next question comes from the line of Bruce Jackson from Lake Street Capital Markets.
Your question please.
Bruce Jackson
Hi, good morning. Thanks for taking my questions.
First, with regard to the hiring targets for the sales reps, can you remind us where you are on that for the year?
Pete Petit
Well, as of today we're just about 350 individuals Bruce, and we expect to go to 375, maybe a little more throughout the year here. So we're hiring across all three of our areas that we're focusing on now; of course, wound care still makes up a good portion of it but SSO as you see because of the results we're going to continue if that's there and we've just made a decision now to put on direct representatives in the pain management area and capitalized on some new data that would be coming out here shortly in the near-term.
So we're going to continue our robust and hiring, we believe that there is a significant number of procedures that are available to various products that we have and we're going to be positioned to capitalize on that.
Bruce Jackson
Okay, great. And then a lot of progress in terms of the new products, you didn't talk about Epiburn [ph] at all, I was wondering if you're getting any traction on that products?
Pete Petit
We are, Epiburn [ph] has been received very well, we are pleased with it, we came out or should say authors came out with the burn supplement that was back in Q1 and that was also represented and I think Epiburn was probably the majority of discussion at the [indiscernible] burn meeting in Hawaii this past year as well. So we're getting very good traction whenever pleased but we are reaching a lot of patients, it is used for obvious reasons for extremities and face for the astatic results for function but we're also starting to see now doctors that are now expanding, they've got more and more comfortable into the torso, the back and larger areas of the body, so we're very pleased with how that's progressing.
Bruce Jackson
Okay. And then one final question for Mike, you've got that earnout liability payment on the balance sheet; when do you think that's going to go down to zero?
Michael Senken
There are two components to the earnout liability; one is based upon 2016 performance and one is based upon 2017 performance. So we would expect the '16 performance to be reduced in the third quarter and the '17 performance would be same timeframe next year.
Bruce Jackson
Okay, great. Thank you very much.
Operator
Thank you. And this does conclude the question-and-answer session of today's program.
I'd like to hand the program back to Pete Petit for any further remarks.
Pete Petit
Thank you. We appreciate you joining us this morning.
I don't think our comments and updates could be interpreted as anything but very positive, management could not be more positive on our outlook and our future. Of the [indiscernible], you continue to hear from time to time on the short-sell side are generally very minor in nature and if something does come up with that nature we will be certainly quick to dispatch it, move on; there is very little risk associated with those kind of matters for the company.
Again, I cannot emphasize from a business standpoint the progress this company has made and will be making, it's quite exciting to be here at this point in time and the results that we're producing should be recognized for what they are and that's very out of the ordinary and very positive. Thank you very much, we'll be in touch.
Michael Senken
Thanks everyone.
Debbie Dean
Thanks.
Operator
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program, you may now disconnect.
Good day.