Q4 2022 Xtant Medical Holdings Inc Earnings Call

Greetings and welcome to the X temp medical fourth quarter and full year 2022 financial results Conference call. At this time, all participants are in a listen only mode.

Once you require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Matt Steinberg of <unk> partners. Please go ahead.

Thank you operator, and welcome to extra Medical's fourth quarter and full year 2022 financial results call. Joining me today is Sean Browne, President and Chief Executive Officer, and Scott meals, Chief Financial Officer, today's call is being webcast and will be posted on the company's website for playback.

During the course of this call management may make certain forward looking statements regarding future events and the company's expected future performance.

These forward looking statements reflect <unk> current perspective on existing trends and information and can be identified by such words as expect plan will may anticipate believe in other words with similar meaning.

Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the risk factors section of the company's annual report on Form 10-K filed with the SEC on March 7th 2023, and subsequent SEC reports and press releases.

<unk> results may differ materially the company's financial results press release and today's discussion include certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations, which appear in the tables of our press release.

Otherwise available on our website.

Our form 8-K filed with our financial results press release provides a detailed narrative that describes our use of such measures.

For the benefit of those of you who want who may be listening to the replay.

This call was held and recorded on Tuesday March seven at approximately nine a M Eastern standard time.

<unk> disclaims any obligation to update its forward looking statements, except as required by applicable law now I'd like to turn the call over to Sean Browne.

Thank you, Matt I'm excited to share with you today, the significant progress made by X that medical in recent months, we achieved several major milestones centered around our four key growth initiatives that strengthened our long term business prospects, notably we announced last week the acquisition of co flex product line from surge line. This is X tens first.

Acquisitions since 2015 and is critical to our success as it not only adds scale to our business, but also enhances our margin profile I'll discuss this acquisition more shortly but first turning to our fourth quarter performance. We closed 2022 on a positive note generating fourth quarter revenue growth of nearly 10% driven by.

The continued strength of our biologics business, which continued to realize robust demand led by our new products Biologics grew by 14% in Q4, and 12% year over year legacy hardware sales declined by 16% for the year, but only down 7% for the fourth quarter showing that our new focus on the ASC markets.

We're starting to make an impact.

One of our biggest challenges in the biologic shop man for our business throughout fiscal year 2022 was our ability to produce enough product to keep up with demand more pointedly, we had to walk away from a significant amount of business in fiscal year 'twenty two because we did not have enough labor to build the product we need it.

To meet this demand one of the most impactful things we have done was hiring mark schallenberger to be our chief operations Officer, Mark is an industry veteran that brings a ton of experience to our company. Additionally, we focused on ramping up our production workforce. We started this process earlier in 'twenty to 'twenty, two but given the length of the Onboarding time to recruit and train our prostate team.

It's been a gradual progression to reach our targeted capacity levels supported by these efforts we are starting to see improvements in our supply chain concur.

Concurrent with these efforts we are laser focused on managing our costs prudently, while enhancing our operational efficiencies Marc will drive greater efficiencies for our operations, including the modernization of our production optimization of our processes and the diversification and development of new product lives.

Now that our newly implemented enterprise resource planning or ERP system has been activated and under remarks leadership, we were confident that our business is poised to achieve our key growth and operational objectives, we look forward to Mark's contributions.

Now before discussing about Colfax adds to our business in more detail I'd like to remind you of our four key growth pillars, one new product introductions to distribution network expansion three adjacent market penetration and for strategic acquisitions, adding conflicts to our business touches on all.

These items.

Making it a solid fit with our leading spine brand offering specifically this transaction is highly complementary to our spinal fixation business, while enhancing our offering and the ASC and outpatient markets.

We purchased the worldwide and intellectual property rights co blacks and Colfax for $17 million with approximately $14 million in annual revenues conflicts adds nearly 25% and annual revenue checks that it is an attractive gross margin profile, making it immediately accretive to our business and positioning us to become a cash flow.

Positive in the near future.

Over it bolsters, an already impressive non acute care offering for our spinal fixation business, coupled with our less invasive Axel and her spinous device in our silex Si fusion product line, the co flex and co fixed products complete our offering in the fast growing segment of ASC and outpatient procedures.

It's a complex product line, we were adding two devices with this acquisition first the complex inner laminar stabilization device, a posteriorly nonpolitical supplemental fixation device that is the only FDA PMA approved implants with level, one clinical evidence for the treatment of moderate to severe lumbar spinal stenosis.

Or otherwise known as L. S S.

Second we added co fix a supplemental fixation device that is minimally invasive system intended for use on all levels of lumbar spine.

Most important about how flex is that it addresses a serious medical need L. S. Asses, the narrowing of the spinal canal, which puts pressure on the nerves and causes pain. This can lead to pain during physical activity and just everyday living overall. Moreover, this is a motion preservation system versus a spinal fusion.

Spinal fusion patients fluid normal Moshe is greatly diminished after most spinal fusions and only a few years that same patient has to then have more levels of the spine fused or what's known as adjacent level fusion with the cold flex device a patient goodbye many years of healthy living with most of their normal range of motion and preserve.

<unk> and 2020 one the number of patients diagnosed with all access was approximately $2 4 million and represents the largest single growing patient demographic in spine.

In total the yellows test market is expected to reach $5 $6 billion. This year growing at eight 4% annually is the number one reason patient over the age of 65 will have lumbar surgery.

Next is uniquely designed to treat this condition is increasing in popularity for the following reasons first co flex is clinically proven as is the first and only lumbar spine device with level. One evidence from two prospective randomized trials against two different control groups in two different countries is widely adopted with over 200.

Implementations and its clinically validated with more than 90 peer reviewed publications.

And it's simple to integrate for surgeons training is quick and easy the complex devices, a single piece sterile pack titanium implant that requires minimal instrumentation with only one small tray.

Face patient feedback has been extremely positive with many experiencing pain relief and they're lagging back and improve physical function.

As part of the transaction, we are adding a team of 14 experienced sales reps and support staff from surge line, which will enable a seamless transition and ensure we can hit the ground running. Additionally, we've expanded our footprint with more new distributors and a significant number of new physicians slash surgeons added to our network.

In summary, the co flex acquisition is a major milestone achievement for accident, where a larger and more diverse with an improved margin profile with a new product line that brings transformative treatment options to a large and growing patient population importantly, now position to extend out a path to achieve profitability in the near future.

Our organization is hitting on each of our pillars that supports our growth objectives, enabling us to achieve scale faster and work towards profitability. This acquisition combined with the strong demand environment for our new biologic products and actions taken to enhance our operating efficiencies are all a testament to our early success in a broader goal of maximizing shareholder value.

Now I'd like to turn the call over to Scott, who will discuss our fourth quarter and full year 2022 financial results.

Thank you Sharon and good morning, everyone.

Total revenue for the fourth quarter of 2022 was $15 $3 million compared to $14 million for the fourth quarter of 2021.

Full year 2022, total revenue was $58 million compared to $55 $3 million for 2021, an increase of 5%.

This is attributed primarily to revenue from new products introduced during 2021.

Gross margin for the fourth quarter of 2022 was 54, 4% compared to 55, 1% for the same period in 2021.

Gross margin for the full year 2022 was 55, 4% compared to 58, 8% for the same period in 2021.

The decreases are primarily due to higher production cost with increased charges for excess and obsolete inventory also contributing to a full year decline.

Fourth quarter 2022, operating expenses were $10 million compared to $9 $6 million in same period a year ago.

For the full year 2022, operating expenses were $38 9 million compared to $36 $3 million for 2021 as a percentage of total revenue operating expenses were 65, 7% and 67, 1% for the three and 12 month periods ended December 31st 2000 <unk>.

42, respectively compared to 68, 8% 65, 8% for the three and 12 month periods ended December 31 2021, respectively.

General and administrative expenses were $4 million and $15 $5 million to the three and 12 months ended December 31, 2022, representing a decrease of 4% and an increase of 7% respectively over the prior year periods.

The decrease for the quarterly comparison resulted from reduced severance expense, while the increase for the annual comparison was primarily attributable to additional expenses related to various compensation plans product registrations and costs related to ERP system upgrades, partially offset by legal settlement expenses during the prior year.

Sales and marketing expenses were $5 $8 million and $22 $5 million for the three and 12 months ended December 31, 2022, respectively, an increase of 10% for the three month period, and an increase of 7% for the 12 month period year over year increase.

Included additional independent agent Commission expense, resulting from higher sales and a greater mix of independent agent sales and additional expenses associated with trade shows and related travel.

Net loss in the fourth quarter of 2022 was $2 $2 million or <unk> <unk> per share compared to a loss of $2 $3 million or <unk> per share in the comparable 2021 period.

Net loss for the full year, 2022 was $8 $5 million or <unk> <unk> per share compared to $4 $8 million or six cents per share in 2021.

Adjusted EBITDA for the fourth quarter of 2022 was a point $8 million loss compared to a loss of point $9 million for the same period in 2021.

For the full year 2022, adjusted EBITDA was a loss of $3 million compared to adjusted EBITDA of $3 million for the year ended December 31 2021.

As of December 31, 2022, we had $23 million of cash and cash equivalents $10.9 million and net accounts receivable.

The $17 $3 million of inventory and $4 $6 million available under our revolver.

Now I'll turn the call back to Sean for closing remarks.

Thank you Scott and.

In closing, we exited 2022 on a positive note with solid revenue growth supported by strong demand for our leading spine products and started 20 twenty-three on that exciting note with the acquisition of the co flex product line.

Adding co flex provides us with the assets talent and network, we need to add scale and grow profitably. Our enterprises now 25% larger and we are on a path to achieve profitability in the near term looking forward. We plan to continue to be active in acquiring other businesses that align with our strategy, but we will remain diligent in our approach.

Finally later this afternoon I will be presenting at the Canaccord Musculoskeletal conference at 630 P. M. Eastern time or 330 P. M Pacific time, a live webcast to my presentation will be available on the Investor Relations section of our website at Www Dot accident medical Dotcom, we hope many of you can tune in.

And thank you for joining us today and for your continued support and I will now I'll turn it back over to the operator.

Thank you.

Concludes our call all parties may now disconnect.

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