Q2 2023 Xtant Medical Holdings Inc Earnings Call
Greetings and welcome to the excellent medical second quarter 2023 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference call is being recorded.
Now I'd like to turn the conference over to Matt Steinberg with <unk> partners. Please go ahead.
Thank you operator, and welcome to <unk> Medical's second quarter 2023 financial results call. Joining me today is Sean Brown, President and Chief Executive Officer, and Scott <unk> 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 fees.
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 should intend and 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 on the company's annual report on Form 10-K filed with the SEC on March seven 2023, and then subsequent FCC reports and press releases.
Actual 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 and are otherwise available on our website.
Note that 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 may be listening to the replay. This call was held and recorded on Tuesday August 1st approximately 19, <unk> eastern daylight time.
<unk> declines 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 and good morning, everyone on today's call. There were a number of key company updates that I'd like to highlight most notable we delivered revenue growth of 32% year over year, driven by our core biologics and fixation business is guided by our mission of honoring the gift of donation so that our patients can live is all but complete.
A life as possible and following our four key growth initiatives. We are pleased with the progress that ex Tac continues to make on our long term business strategy. I'd also highlight that we closed the second quarter with adjusted EBITA. This milestone was achieved faster than our internal expectation underscoring the continued execution.
Our strategy I am thrilled with the performance of our team.
Thank them for their incredible efforts that made this possible ahead of schedule.
Last Friday, we announced that extend was the winning bidder for surge aligns domestic and international biologics and spinal fixation, but needless to say we are thrilled that this opportunity to expand our footprint with new contracts and distributors.
We're working on next steps and we'll update you on status and closing the financial guidance that we are providing today excludes any impact of this transaction.
When we close this transaction, we plan to update our financial guidance.
Breaking out this quarters performance I want to first provide a reminder of our four key growth pillars, and they're focused on one new product introductions to distribution network expansion three adjacent market penetration and for strategic acquisitions.
We are pleased that we continued to generate solid demand for our biologics products, we are driving growth across all channels of our business and we are seeing positive contributions from our newly acquired called Flex and Orlando stabilization device integration to co flex business continues to progress smoothly. It's important to note that we are aggressively reviving this business.
Which was previously in decline it will take time to properly transition this business to growth, but we are well on our way to restoring this highly profitable product organically.
Organically, our Osteo factor and Osteo by plus products have sustained strong demand since their initial product launches. Our current portfolio addresses the entire $2 4 billion U S. Ortho biologics market and we will remain opportunistic moving forward on future product launches and acquisitions that position us to take.
Greater market share.
Now turning to our distribution network. The addition of our new co flex distributors combined with our 24, new distributors against the stated plan of 10, each quarter has us well positioned to increase our distributor revenue by at least 10% annually. Our distribution network now stands at more than 450 total going forward, we will continue targeting New York.
Expansion opportunities in underserved markets across the U S.
Jason market strategy is performing well and we further penetrate the foot and ankle trauma and orthopedic implant markets.
Oh, Yeah, I'm front, we delivered on several sales with our recently expanded capacity. We also saw success from the ambulatory surgical center market, which continues to grow nicely and supports a promising trends with our fixation business.
To view, our ASC market expansion as an important part of our growth strategy.
Looking ahead, we remain diligent in our approach to both tuck in and transformational acquisitions as the year progresses. Our primary focus will be on the assets that bring the three CS capabilities capacity and cash flows with both our co flags and surgical ideal as we feel we have hit on all three seats.
In recent quarters the focus of our operations has been successfully met key process improvement initiatives designed to increase your production capacity inefficiencies I'm pleased to share that we have made significant strides in achieving this goal.
I noted earlier, our increased capacity enabled us to fulfill OEM orders without our adjacent markets. All those gains for the past two quarters have come from having full labor capacity at our Belgrade plant.
Last year, our growth was hampered by having less than 60% labor capacity for most of the year.
So needless to say we are thrilled to have the people in place to help us drive our mission.
Earlier in July I'm happy to say, we opened up roughly 50% of new clean room space in our plant. This project was important to our organization on two fronts. One the entire organization focused on getting these critical plant additions completed on time and significantly under budget.
Two organizational focus and having a very clear concept of what is most important focus got that one main goal the kind of operational discipline that makes for a great company.
And looking back at what our management team has started we have the challenge of turning around a business that we had to fix many broken processes today as the business is now growing and prospering building in this kind of operational discipline will be the cornerstone of our company that will thrive for years to come.
Consequently, we are in a much better at managing our supply chain and processes today than we were even a year ago. As a result, we are capable of selling and delivering products on a greater scale.
That said given the robust demand of our life changing products that work is not done we continue to explore various strategies to increase our capacity to support our growth initiatives.
Finally in today's press release, we raised our 'twenty twenty-three full year annual revenue growth range to approximately 29% to 33% up from our previous range of 26%, 29% year over year.
Expectations do not include potential contribution from a surge of life transaction, if and when it closes.
Strong revenue results for the first six months of 2023 underscore our confidence in achieving this annual growth goal.
Now I'd like to turn the call over to Scott, who will discuss our second quarter 2023 financial results.
Thank you Sean and good morning, everyone total revenue for the second quarter were 2023 was $22 million compared to $15.3 million for the same period in 2020 Q. It's.
This robust 32% annual increase is attributed primarily to greater independent agent sales and contributions from the recently acquired co flex and co fixed product lines gross margin for the second quarter of 2023 was 61, 6% compared to 54.8% for the same period in 2022.
The increase was primarily attributable to the contribution of teleflex and cold fixed products, partially offset by higher production costs.
<unk> quarter 2023, operating expenses were $13 $9 million compared to $9.7 million in the same period a year ago.
As a percentage of total revenue operating expenses were 68% compared to 63% the same period a year ago.
General and administrative expenses were $5 million for three months ended June 30th 2023.
$3 million to $3.8 million for the same period in 2022.
Increase was primarily attributable to the additional expenses related to coal flex acquisition.
Sales and marketing expenses were $8 $7 million with Green months ended June 30 of 2023 compared to $5.6 million for the same period 'twenty 'twenty. Two this increase is primarily due to additional sales commissions from higher revenues and increased salaries and wages from the Coke Luxe acquisition.
Net loss in the second quarter of 'twenty twenty-three was $2.2 million or two cents per share compared to a net loss of $1.7 million or two cents per share in the comparable 2022 period.
Adjusted EBITDA for the second quarter of 2023 was point $1 million compared to an adjusted EBIT loss of point $4 million for the same period in 2022.
As of June 30th 'twenty, 'twenty, three we had $4.4 million of cash cash equivalents and restricted cash of $13 $7 million net accounts receivable $24 million of inventory and $3 million available under our revolving credit facility.
Subsequent to the end of the quarter extend closed a private placement with credit investors or gross proceeds of $15 million.
<unk> expects to use the net proceeds from the private placement for working capital and other general corporate purposes.
Operator, you May now open the line for questions.
Thank you at this time, we will be conducting a question and answer session.
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One moment please.
And our first question comes from the line of Chase Knickerbocker with Craig Hallum Capital Group. Please proceed with your question.
Good morning, John Scott Congrats on another good quarter here great how.
How are you.
Hi, Thanks, I wanted to start by peeling back the onion.
A little bit here and hardware.
You know what what's the cold box contribution approximately and you know what dynamics are you seeing there, particularly around you any improvements you may be trying to drive and reimbursement story, there and Ive got 19% organic growth in legacy hardware, just kind of rough numbers in my model, what's driving the strength there and I guess do you expect that to continue.
So I'll unpack that little by little So first things first when you look at the fixation business overall, we're really thrilled about where that is especially given where we had bad.
So when we look at that fixation just year over a year prior year variance year over year on the base business.
It was prior yourself like 7% or at least have the fixation business. When you throw into called Flex business, which was another 14% of our overall revenue that that it was a very nice very good very good quarter for us when you look at the reimbursement story and this is actually something that you know when you think about co flex and complex Oh.
All of the business.
This is one that is about a reimbursement story and so we are getting our guy is very very focused on the Medicare and Medicare advantage markets and.
Those are two extraordinary opportunities for us that that's.
It just that how long could more than make this a huge winner for us. So that's something at least from Iraq. We have the guys are our new sales team really I'm focused.
Focused and and going after that market as much as possible and so so we're very very bullish about what that even just that alone never mind any kind of commercial pickups that we get along the way but.
But that that is that really kind of a starting point. So I hope I answered kind of the questions you were looking for there.
No yeah that all makes sense.
In ortho biologics and what was the impact of those OEM orders and how do you kind of strike a balance between supporting those OEM orders and also fully shipping to that independent distributor channel are you kind of caught up in demand in that independent distributor channel now or I guess, how should we think about kind of how you make the decision to channels.
Yeah happily we're caught up which is which is not where we were a year ago. So so as we mentioned the excess capacity both in labor and now we're really excited about with actually the plant expansion that we had so so right now when you think about the OEM business is about eight 6% of our overall revenue.
So you know again like anything you always want to promote your own brand and so right now the fact that our our extend brand continues to be about 91% of what we do we want to keep that Colin right. So that's that's always a good thing certainly it looks like higher margins, but one thing I will say is that our OEM business that's out about the same from an.
Income perspective, so so it shot at it it doesn't help the gross margins when you look at it however from a bottom line perspective, it's still a very nice business and so so yeah. So we're we're we have not had to make those big decisions between that business. I mean, there are some there are some product lines for instance, when we talk about party.
Party is one of the things that has a high OEM demand, we can fill up our whole our old facility with just OEM demand on that however, that's not an optimal use of the donor. So we wanted to make sure that where we're controlling how much of that we're gonna. It's gonna go out the door and so so again, if you think and you go back to our mission and that's the thing about our busy.
Which is why the bus that only the most mission driven organization all over me, but it's also one that is most kind of grow it or at least has the same goal that our shareholders have said if we're doing the right thing by the Gallagher and we're doing the right thing honoring that gift, we're going to be producing the best possible products and so certainly our our party.
Product is one that's outstanding is that it's a <unk>.
Five 10-K product, we really like it. However, we think that there is better uses of that telenor for a higher end use products and so so we'll we'll always keep an eye on making sure we're not making too much of that but but.
But for the most part our OEM business yourself that up that's we enjoy them and you know if there's anything that we we are we put any kind of control on it it will be on the party side.
Got it and then maybe staying there capacity expansion. It's good to hear that those clean rooms are our belt you had said, 50% how much of that is online now and I guess is it kind of staffed up already and then you know if thats coming on line in second half talk me through why you know that ortho biologics growth rate would not incur.
In the second half you know relative to the first half that kind of increase.
You know capacity is is gonna be Matt you know pretty quickly if its either that OEM demand.
Independent channel as well.
Yes, Okay. Good question I'll break that down or unpack that first and foremost the not all of the clean rooms are online we're still ramping up some of the training that has to take place but.
Some of it is so so that's what it's.
About a third of it is right now there's still another two thirds that we would have that but still it's more than half of what we need with respect to the demand that we've got coming in.
And that's the immediate demands right. We're not talking about you know what we do with cross selling even a co fox distributors never buy it will take place with their searchlight district yourself. So we expect that the rest of that will be on the up and running here in the next month. So so we should have we should have the capacity to be able to manage the demand that comes from that.
So I hope and then to get to your question about how would we look at moving forward and I think that's part of the reason why we raised our guidance from 73 to 75 million to $75 million to $77 million is that we do see that we will have an increase.
We believe that our our biologics business is looking really strong right now.
Got it thanks.
Six months now since the <unk>.
Since the <unk> acquisition, you know those distributors that you brought on then that we're selling less kind of talk through any success. You've had you know growing your wallet share there, particularly obviously with biologics.
It's six months enough of a kind of time period to kind of know how quickly you can kind of grow that wallet share. After you acquire those distributors essentially.
Yeah actually it's really since if you remember we got that in March so it's really weird for months now so but July so we're getting a good indication you know the first things first with this group and this is you know again priority number one two and three and it goes back to that organizational discipline organizational focus we need to make sure that that's first of all this.
Sales team that we have that we inherited there were 10 territories in which five we're opening when we got it two people stepped out and so we relate to fill a seven different spots and.
And so so getting the sales team right on that first and foremost second making sure our core flex distributors. There there understand really the full value proposition I guess, if there was one fairly significant opportunity I would say on the public side is that that the.
The distributors didn't understand the reimbursement story at all and so at least catch as catch can and so that's one of the things that I will say that we're very very disciplined in how we're focusing on where the best opportunities lie in and because of that we're starting to get some more traction and so so then as we start thinking about how do we go.
And how do we get more out of that I really wanted to make sure that first and foremost we get those guys focused on what they have in front of them and then the more we get an opportunity to get them going where they need to go is that that will start introducing more of our other products because quite frankly, we got plenty to work with with our base <unk> business.
They are both the biologics and fixation opportunities, but those complex distributors are there were probably a few months still away from being able to start to cross sell to that because quite frankly, I really Wanna get first things first with that.
Any more questions or I.
Deadline here I hope I didn't get turned off.
I think I cut out there for a second John I got your back Okay. Good good Okay, and then just last one for me.
One more in I'm, sorry July and you know what liabilities would you be assuming there if that deal does close and you know what was there any hollow revenue at third line or we should be thinking kind of a substantial amount of the revenue that was that third line is what your tenant youre acquiring those assets that would you know substantial amount of revenue there.
Yeah. So we were having we have nothing to do with how low it all so everything we're gonna get it is all from the base instrument business now overall [laughter] I'm also I don't want to Jinx. It deal in any way. So we're holding off all questions on the surge line until that closes that closes actually I should say the judge.
Sprinkle Holy water, if you will on that on the eighth.
August and then we will we will then be closing hopefully soon after and what I'd like to do at that point in time, it's really start you know.
Answering in and potentially even having a call at that time with respect to what that will mean for us because it is it is certainly very material and and that will also mean that will be changing our guidance based on based on that acquisition. So I, if I may hold off on all that.
The dust settle because I'd hate to get in front of that if it. If in fact, you know something we went out to go a SKU.
Yeah totally fair.
Thanks, and congrats again on a good quarter.
Thanks, Jay I appreciate it.
And at this time, we have no more questions I'll turn the call back over to Sean Browne.
Thank you operator, and before closing I'd like to really reiterate a few key points.
First our second quarter revenue growth of 32% year over year demonstrates the encouraging returns on our four key growth pillars. Two we achieved these results through a diligent approach of increasing our capacity, thereby fulfilling the high order demand of our biologics and fixation products three we're financially strong as illustrated by our second quarter Pos.
The adjusted EBITDA that we achieved faster than we originally planned and our latest infusion of cash through the fundraising. We did earlier in the box has us with a really strong balance sheet right now.
Strategically we are leaning forward exploring other roll up and bolt on acquisitions and five the increase of our annual revenue guidance to 75 million to 77 million further illustrates our confidence in our business and strategy.
With the strong demand and growth across our major product lines and we look forward to building upon this momentum and our broader goal of maximizing shareholder value.
Finally, our mission of honoring the gift of donation by allowing our patients to lay this fall and complete a life as possible is only made possible by our valuable employees. We thank them for their continued work and dedication.
Thank you for joining us today and for your support.
Yeah.
Thank you that concludes our call all parties may now disconnect.
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