Q1 2024 Xtant Medical Holdings Inc Earnings Call

Okay.

Greetings.

Operator: Welcome to the Xtant Medical Holdings, Inc. first quarter 2024 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. Please note this conference is being recorded. I will now turn the conference over to your host, Brett Moss. You may begin.

Welcome to the extent Medical Holdings, Inc. First quarter 2020 for a 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. Please note. This conference is being recorded I will now turn the conference over.

To your host Brett Maas, you may begin.

Brett Moss: Thank you, Operator, and welcome to Xtant Medical's first quarter 2024 financial results call. Joining me today is Sean Browne, President and Chief Executive Officer, and Scott Neils, Chief Financial Officer.

Thank you operator, and welcome to accident Medicals first quarter 2024 financial results call. Joining me today is Sean Brown, President and Chief Executive Officer, Scott Nielsen Chief Financial Officer, today's call is being webcast will be posted on the company's website for playback during the course of the call management may make certain forward looking.

Brett Moss: Today's call is being webcast and will be posted on the company's website for playback. During the course of the call, management may make certain forward-looking statements regarding future events and the company's expected future performance. These forward-looking statements reflect Xtant's current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends, and other words with similar meanings. 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 April 1, 2024, and in However, actual results may differ materially.

Thats regarding future events and the company's expected future performance. These forward looking statements reflect <unk> current perspective on existing trends and information can be identified by such words as expect plan will may anticipate believe should intends 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 of the company's annual report on Form 10-K filed with the SEC on April one 2024 and in the subsequent SEC reports and press release 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 our press release and are otherwise available on our website.

Not 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 maybe listening to replay. This call was held and recorded on May 15th at approximately 430 P. M. Eastern time company declines any obligation to update forward looking statements, except as required by applicable law now I would like to turn the call over to Sean Browne, John the floor is yours.

Brett Moss: The company's financial results press release discussed today includes certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations which appear in our press release and are otherwise available on our website. Note that our Form 8K, followed by 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 May 15th at approximately 4.30 p.m. Eastern Time. The company does not assume 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. Sean, the floor is yours.

Sean E. Browne: Thank you, Brett. And good afternoon, everyone.

Sean E. Browne: Thank you Brad and good afternoon, everyone I am pleased to announce another strong quarter for the X 10 team with 55% growth over the prior year and preparing our 2020 for outlook for the beginning of the year. We recognized the first two quarters would be difficult due to a couple of significant supply chain challenges.

Sean E. Browne: I am pleased to announce another strong quarter for the Xtant team with 55% growth over the prior year. However, in preparing our 2024 outlook for the beginning of the year, we recognized the first two quarters would be difficult due to a couple of significant supply chain challenges. However, after completing our first quarter, we are confident about our progress toward addressing these challenges and, consequently, are raising revenue guidance from $112 million to $116 million to a new range of $116 million to $120 million.

Brad: However, after completing our first quarter, we are confident about our progress toward addressing these challenges and consequently are raising revenue guidance from $112 million to $112 million to a 116 billion to a new range of 116 million to $120 million. Moreover, we are quite pleased with the growth of this.

Sean E. Browne: Moreover, we are quite pleased with the growth of the surge line assets we acquired in 2023. Keep in mind, these product lines declined 37% over a period of six consecutive quarters prior to becoming part of Xtant Medical. Our first priority was to stem the losses and then start investing and building where it makes sense. Our collective team has done a terrific job of getting the flywheel moving on this business.

Brad: Serge light assets, we acquired in 2023 keep in mind. These product lines declined 37% over a period of six consecutive quarters prior to becoming part of <unk> medical.

Speaker Change: Our first priority was to stem the losses, and then start investing in building, where it makes sense. Our collective team has done a terrific job of getting the flywheel moving on this business more specifically the surge line products have helped us transition some of our customers off the old ex that hardware lives that were at risk which was in may.

Sean E. Browne: More specifically, the surge line products have helped us transition some of our customers off the old Xtant hardware lines that were at risk, which was a main theme in our investment thesis for that acquisition. With the surge line business, we saw an affordable way to dramatically improve our growth platform with new IDN contracts, new distributors, an international distribution network, and a nice updated adult regenerative spine fixation business that could help us replace our aging X spine system.

Speaker Change: <unk> team and our investment thesis for that acquisition with the surge line business, we saw an affordable way to dramatically improve our growth platform with new IDM contracts, new distributors and international distribution network and a nice updated adult degenerative spine fixation business that could help us replace our.

Speaker Change: Aging X spine systems. Moreover, we also saw a significant opportunity and pulling through our best in class Biologics.

Sean E. Browne: Moreover, we also saw a significant opportunity in pulling through our best-in-class biologics. From an organic growth perspective, we define revenue growth as revenue growth, excluding contributions from products acquired during the previous 365 days for which there are no comparable sales. First quarter revenue was flat over the prior year quarter.

Speaker Change: From a organic growth perspective, we define as revenue growth excluding contributions from products acquired during the previous 365 days porch, where there were no comparable sales first quarter revenue was flat over prior year quarter and as I mentioned in the last two quarterly conference calls.

Sean E. Browne: And, as I mentioned in the last two quarterly conference calls, we anticipated low organic growth in the first half of this year. However, as our supply chain challenges abate and we introduce new products to the market, we anticipate delivering organic growth during the second half of 2024, reaching double digits. Let me reiterate that we will reach double-digit organic growth in the second half of 2024. There are three key areas that have affected our growth thus far, and we are actively addressing each of them to ensure a robust and sustainable growth trajectory for Xtant. The first are stem cells.

Speaker Change: Anticipated low organic growth in the first half of this year, however, as our supply chain challenges abate and we introduced new products to the market, we anticipate delivering organic growth during the second half of 'twenty 'twenty four reaching double digits. Let me reiterate that we will reach double digit organic growth in the second.

Speaker Change: Half of 2024.

Speaker Change: There are three key areas that are affected our growth thus far and we are actively addressing each of them to ensure a robust and sustainable growth trajectory for <unk>. The first or stem cells. This product line has been an extremely short supply since August of last year happily as of April we were back up to a strong inventory levels and are building this business back up.

Sean E. Browne: This product line has been in extremely short supply since August of last year. Thankfully, as of April, we are back up to strong inventory levels and are building this business back up again. Second, OEM sales. We had strong OEM sales in the first half of last year due to one of our competitors' supply challenges. This year, as we roll out new product lines like our amniotic membrane allografts, this will primarily be an OEM product line that we expect will do well in the second half of fiscal year 2024. Third, the cannibalization of our old X-spine hardware products by Surgiline-acquired products dampens our core organic growth rate.

Speaker Change: Yes.

Speaker Change: Second OEM sales, we had strong OEM sales in the first half of last year due to one of our competitor supply challenges. This year as we rollout new product lines like our amniotic membrane allografts. This will primarily be in OEM product line that we will expect will do well in the second half of fiscal year 2024.

Speaker Change: Third the cannibalization of our old X spine hardware products by surge line acquired products Dampens, our core organic growth rate. However, as I mentioned before this was part of our broader plan to upgrade our surgeons to the newer more improved search aligned product lines.

Sean E. Browne: However, as I mentioned before, this was part of our broader plan to upgrade our surgeons to the newer, more improved Surgiline product line. From a profitability perspective, we are adjusted even positive and despite investments to rebuild the surge line infrastructure to support our future growth. So from an operating expense perspective, we expect to see operating expenses decline as a percentage of revenue, and combined with improvements to gross margin, will drive growth and adjusted EBITDA in Q3 and beyond.

Speaker Change: From a profitability perspective, we were adjusted EBITDA positive and despite investments to rebuild the surge line infrastructure to support our future growth.

Speaker Change: So from an operating expense perspective, we expect to see operating expenses declined as a percentage of revenue and combined with improvements to gross margin will drive growth in adjusted EBITDA in Q3 and beyond.

Sean E. Browne: At this time, I'll now provide an overview of how we are building a platform that will give us sustainable long-term growth. As a reminder, our four key growth pillars are focused on one, new product introductions, two, distribution network expansion and greater contract access, three, adjacent market penetration, and four, strategic acquisition. Starting with new products, like every healthy, robust organization, we continually innovate with a deep pipeline of new products. During the course of our turnaround, we expanded our biologics product offering from two product categories to five, which enhanced our growth profile.

Speaker Change: At this time I will now provide an overview of how we build a platform that will give us sustainable long term growth as a reminder, our four key growth pillars are focused on one new product introductions to distribution network expansion in greater contract access three adjacent market penetration and for <unk>.

Speaker Change: Strategic acquisitions.

Speaker Change: Starting with new products like every healthy robust organization, we continually innovate with a deep pipeline of new products. During the course of our turnaround we expanded our biologics product offering from two product categories to five which has enhanced our growth profile. Moreover, we're the only biologics company that offers a complete line of ortho buyer.

Sean E. Browne: Moreover, we're the only biologics company that offers a complete line of orthobiologics, which include allograft, DVM, synthetics, viable bone matrix, otherwise known as stem cells, and growth facts. This past month, Xtant released a sixth new category, amniotic membrane allografts for surgical applications and advanced wound care.

Speaker Change: <unk>, which include allograft, DBM synthetics viable bone matrix, otherwise known as stem cells and growth factor.

Speaker Change: This past month, <unk> released a six new category amniotic membrane allografts for surgical applications in advanced wound care.

Sean E. Browne: Xtant previously sold a distributed product that someone else made that focused on the surgical repair side of our business. This is currently a small product line for us, but with our far superior products, we believe we can profitably grow this Xtant branded product line, as well as provide a fantastic solution as an OEM producer. Fiscal year 2024 is our year of self sustainability.

Speaker Change: We had previously sold a distributor product that someone else made that focus on the surgical repair side of our business. This is currently a small product line for us, but with our far superior products. We believe we can profitably grow this extend branded product line as well as provide a fantastic solution as an OEM producer.

Sean E. Browne: The second half of this year, we plan to roll out products that we produce to our own standards in a much more profitable way than relying on products from others, where we do not control the supply chain. Additionally, on the hardware side, we have several exciting new opportunities. Through the CoFlex acquisition, we are reviving a fantastic motion preservation interlaminar stabilization device.

Speaker Change: Fiscal year 2024 is our year of self sustainability. The second half of this year, we plan to roll out of products that we produce to our own standards and a much more profitable way that relying on products from others, where we do not control the supply chain. Additionally.

Speaker Change: Additionally, on the hardware side, we have several exciting new opportunities through the co flex acquisition, we are reviving a fantastic motion preservation inter laminar stabilization device. This is a PMA based product that is very good reimbursement in the ASC and outpatient settings and also on the hardware.

Sean E. Browne: This is a PMA-based product that has very good reimbursement in the AFC and outpatient setting. Also, on the hardware side, we are finishing the development and the soft rollout of the Quartera posterior fixation system that was started by Surgiline, and we are now in the process of completing that rollout, which we anticipate will be fully completed by Q4 of this year. The next pillar focuses on expanding our distribution network and contract access. Our platform offers access to more than 450 IDNs and GPOs that cover approximately 90 percent of all beds in the U.S. In addition, our distribution network now includes more than 650 distributors.

Aside we are finishing the development and the soft rollout of the court Tara posteriorly fixation system that was started by search a lot and we are now in the process of completing that rollout, which we anticipate will be fully completed by Q4 of this year.

Speaker Change: The next pillar focuses on expanding our distribution network and contract access our platform offers access to more than 450 ideas and GPO to cover approximately 90% of all beds in the U S. In addition, our distribution network now includes more than 650 distributors.

Sean E. Browne: In years past, we focused on continuing to expand the total number of distributors by at least 10 new agents per quarter. Today, we plan to look for opportunistic distributor ads, but our primary focus will be to get greater penetration into the distributors we have today. What we have found is that the more product lines and distributor cells of our products, the stickier they become as a distributor for Xtant Medical. Now, turning to our third pillar, leveraging adjacent markets. One goal for Xtant in the longer term is to build products that serve other verticals beyond spine and orthopedics.

Speaker Change: In years past, we focused on continuing to expand the total number of distributors by at least 10, new agents per quarter. Today, we plan to look for opportunistic distributor ads, but our primary focus will be to get greater penetration into the distributors we have today.

Speaker Change: What we've found is that the more product lines and distributor sales of our products. The stickier they become as a distributor for <unk> medical.

Speaker Change: Now turning to our third pillar leveraging adjacent markets. One goal for <unk> is the longer term is to build products that serve other verticals beyond spine and orthopedics.

Sean E. Browne: Through our OEM manufacturing, we serve different verticals and learn about the dynamics of those specific markets with an eye on potentially expanding into places where we can have a significant impact. We have gained traction within the foot and ankle trauma and reconstructive joint orthopedic markets. With the addition of our amniotic tissue products, we can now serve both the surgical repair and advanced chronic wound care markets.

Speaker Change: Through our OEM manufacturing, we serve different verticals and learned about the dynamics of the specific markets with an eye on potentially expanding into places where we can have a significant impact.

Speaker Change: We have gained traction within the foot and ankle trauma and reconstructive join orthopedic markets with the addition of our amniotic tissue products. We can now serve both the surgical repair and advanced chronic wound care markets are.

Sean E. Browne: Our final pillar focuses on achieving growth through targeted acquisition. By leveraging our growth platform of over 450 IDN agreements and 650 distributors who are selling our products nationwide, we are targeting companies that are either undercapitalized or are sub-scaled. More specifically, similar to acquisitions in 2023, we are targeting companies that either help complete our offering or provide us additional scale. For instance, think about taking a company or a technology that may have access to, say, 50 or 100 IDN agreements and maybe only 75 to 100 distributors, taking their innovative technologies and getting them onto our contracts and giving them access to our nationwide distribution network. We believe we can help those companies reach more of their potential, similar to what we did with the COFLEX and Surgeline acquisitions. Our focus on acquisition targets is based on three key characteristics. First, the capabilities.

Speaker Change: Our final pillar focuses on achieving growth through targeted acquisitions.

Speaker Change: Leveraging our growth platform of over four or 50 idea and agreements and 650 distributors, who are selling our products nationally. We are targeting companies that are either under capitalized or are sub scale more specifically similar to acquisitions. In 2023, we are targeting companies either help complete our offering or provide us additional.

<unk> scale, Brexit thinking about taking a company or a technology that may have access to say 50, or 100 idea and a great man and maybe only 75 to 100 distributors take their innovative technologies and get them onto our contracts give them access to our nationwide distribution network. We believe we can help those company.

Speaker Change: These meet more of their potential similar to what we've done with the co flax and surge of line acquisitions.

Speaker Change: Our focus on acquisition targets is based on three key characteristics burst capabilities, we're looking at companies or technologies that give us greater capabilities, particularly in regenerative biologics. Additionally, we will look at businesses that help complete X stance offering in spine fixation and motion preservation offerings.

Sean E. Browne: We're looking at companies or technologies that give us greater capabilities, particularly in regenerative biologics. Additionally, we will look at businesses that help complete Xtant's offering in spine fixation and motion preservation. Second, capacity targets that can expand our longer-term biologics production demand. And then third, cash flow businesses that are profitable or can become profitable through cost or margin synergies.

Speaker Change: Second capacity targets that can expand our longer term biologics production demand and then third cash flow businesses that are profitable or can become profitable through cost or margin synergies.

Sean E. Browne: We believe that making sound, targeted, and strategic acquisitions that fit within our stringent criteria will take us one step closer to achieving our long-term goals. We believe our unique platform and robust distribution network will allow future companies that we acquire to take advantage of being part of a fast-growing company. Furthermore, we believe it will allow the entrepreneurs and other owners of those companies to win when they are purchased and then potentially win even bigger over time as Xtant continues to grow.

Speaker Change: We believe that making sound targeted and strategic acquisitions that fit within our stringent criteria will take us one step closer to achieving our long term goals. We believe our unique platform and robust distribution network will allow future companies that we acquire to take advantage of being part of a fast growing company. Furthermore, we believe it will allow.

Speaker Change: The entrepreneurs and other owners of those companies to win when they are purchased and then potentially when even bigger over time as accent continues to grow.

Sean E. Browne: Xtant is committed to driving long-term sustainable revenue growth and maximizing shareholder value. To better support the fast pace of our growth initiatives, we are pleased to increase our long-term debt with MidCap Financial to $22 million from $17 million. Moreover, access to more capital positions us well to further execute our strategy and capture greater market share, with an eye on achieving positive operating cash flow during the fourth quarter of 2024. Finally, we increased our full-year 2024 revenue outlook to a new range of $116 million to $120 million.

Speaker Change: <unk> is committed to driving long term sustainable revenue growth and maximizing shareholder value to better support the fast pace of our growth initiatives. We were pleased to increase our long term debt with midcap financial.

Speaker Change: $92 million from $17 million. Moreover, access to more capital positions us well to further execute our strategy and capture greater market share with an eye on achieving positive operating cash flow during fourth quarter of 2024.

Speaker Change: Finally, we increased our full year 2020 for revenue outlook to a new range of 160 million to $120 million. This increased guidance range represents annual growth of approximately 27% to 32% compared to full year 2023.

Sean E. Browne: This increased guidance range represents annual growth of approximately 27% to 32% compared to full year 2023. Within that, we anticipate our organic growth will accelerate beginning in the second quarter of 2024 and continuing into the second half of 2024. We expect this to be driven by a normalized supply environment in our stem cell business that was adversely affected by the temporary market shortage in the second half of 2023 and the first quarter of 2024, as well as by revitalizing the surge line supply chain.

Speaker Change: Within that we anticipate our organic growth will accelerate beginning in the second quarter of 2024 and continuing into the second half of 2024. We expect this will be driven by a normalized supply environment in our stem cell business. It was adversely affected by the temporary market shortage in the second half of 2023 and the first quarter of 2024.

Speaker Change: And by revitalizing the surge align supply chain moves.

Sean E. Browne: Moving forward, we are focused on becoming operationally self-sustaining by controlling our supply chain and becoming less reliant on production outside of control. We believe this self-reliance will allow us to be a larger and more diverse producer of biologics. Moreover, producing our own products should dramatically improve our margin profile, coupled with an expanded product line that brings additional transformative treatment options to a large and growing patient population. Most importantly, we believe these actions will help us get to positive operating cash flow during the fourth quarter of 2024. Now, I'd like to turn the call over to Scott, who will discuss our first quarter 2024 financial results. Thank you, Sean.

Speaker Change: Moving forward, we're focused on becoming operationally self sustaining by controlling our supply chain and becoming less reliant on production outside our control. We believe this self reliance will allow us to be a larger and more diverse producer of biologics. Moreover, producing our own products should dramatically improve our margin profile, coupled with an expanded product.

Line that brings additional transformative treatment options to a large and growing patient population. Most importantly, we believe these actions will help us get to positive operating cash flow during the fourth quarter of 2024.

Scott: Now I'd like to turn the call over to Scott, who will discuss our first quarter 2024 financial results.

Scott C. Neils: Thank you, Sean, and good afternoon, everyone. Total revenue for the first quarter of 2024 was $27.9 million, compared to $17.9 million for the same period in 2023. Our 55% increase is attributed primarily to product sales from the recently acquired SurgeLine hardware and biologics business. Gross margin for the first quarter of 2024 was 62.1% compared to 58.7% for the same period in 2023. The increase is primarily attributable to greater scale and production efficiency, partially offset by higher product costs from which we expect to start seeing relief as we expand the sale of internally produced biologics. First quarter 2024 operating expenses were $20.8 million compared to $12.1 million in the same period a year ago. As a percentage of total revenue, operating expenses were 75% compared to 68% in the same period a year ago.

Scott: Thank you Sean and good afternoon, everyone total revenue for the first quarter of 2024, it was $27 $9 million compared to $17 $9 million for the same period in 2023 or 55% increase is attributed primarily to product sales from the recently acquired surge line hardware and biologics business.

Scott C. Neils: General and administrative expenses were $7.8 million for the three months ending March 31, 2024, compared to $4.9 million for the same period in 2023. This increase is primarily attributable to additional employee compensation expenses, additional legal and accounting expenses, and amortization of intangible assets associated with the COFLEX and COFIX products. Sales and marketing expenses were $12.5 million for the three months ended March 31, 2024, compared to $7.1 million for the same period in 2023.

Scott: Yeah.

Scott: Gross margin for the first quarter of 2024 was 62, 1% compared to 58, 7% for the same period in 2023. The increase was primarily attributable to greater scale and production efficiencies, partially offset by higher product costs from which we expect to start seeing relief as we expand the sale of internally produced by <unk>.

Scott: <unk>.

Scott C. Neils: This increase is primarily due to additional independent agent commissions, additional compensation expense associated with additional headcount to drive continued growth in new products, and consultant expenses. Research and development expenses were half a million dollars for the three months ended March 31, 2024, an increase from $2 million in the same period of 2023. This increase is primarily due to increased headcount related to our increased focus on new product introduction, which Sean highlighted earlier is one of our pillars for growth.

Scott: First quarter 2024, operating expenses were $28 million compared to $12 $1 million in the same period, a year ago as a percentage of total revenue operating expenses were 75% compared to 68% in the same period a year ago.

Scott: General and administrative expenses were $7 $8 million for the three months ended March 31, 2024, compared to $4 $9 million in the same period in 2023.

Scott: This increase is primarily attributable to additional employee compensation expense additional legal and accounting expenses and amortization of intangible assets associated with the co flex and co fixed product lines.

Scott: Sales and marketing expenses were $12 $5 million for the three months ended March 31, 2024, compared to $7 $1 million for the same period in 2023.

Scott: This increase was primarily due to additional independent agent commissions additional compensation expense associated with additional head count to drive continued growth in new products and consultant expenses.

Scott: Research and development expenses were $5 million for the three months ended March 31, 2024, an increase from <unk> $2 million in the same period of 2023.

Scott: This increase was primarily due to increased head count related to our increased focus on new product introduction with Sean highlighted earlier, one of our pillars for growth.

Scott C. Neils: The net loss in the first quarter of 2024 was $4.4 million, or $0.03 per share, compared to a net loss of $2.1 million, or $0.02 per share, in the comparable 2023 period. Adjusted EBITDA for the first quarter of 2024 was $0.1 million, compared to an adjusted EBITDA loss of $0.3 million for the same period in 2023. As of March 31st, 2024, we had $4.5 million of cash, cash equivalents, and restricted cash, $21.5 million of net accounts receivable, $38.7 million of inventory, and $6.7 million available under a revolving credit facility. In addition, on May 14th, we closed on an additional $5 million of term debt under a term debt facility with MidCap to provide for additional working capital. Operator, you may now open the line for questions.

Net loss in the first quarter of 2024 was $4 $4 million or <unk> <unk> per share compared to a net loss of $2 $1 million or <unk> <unk> per share in the comparable 2023 period.

Adjusted EBITDA for the first quarter of 2024 was point $1 million compared to an adjusted EBITDA loss of $3 million for the same period in 2023.

Scott: As of March 31, 2024, we had $4 $5 million of cash cash equivalents and restricted cash.

Scott: The $1 $5 million and net accounts receivable.

Scott: $38 $7 million of inventory and $6 $7 million available under our revolving credit facility. In addition on May 14th we closed on an additional $5 million of term debt under our term debt facility with midcap, which provide for additional working capital.

Speaker Change: Operator, you May now open the line for questions.

Speaker Change: Thank you.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Once again, please press star one if you have a question or a comment. Okay, our first question comes from Ryan Zimmerman with BTIG. Please proceed.

Speaker Change: At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys one woman.

Speaker Change: Please while we poll for questions. Once again, please press star one if you have a question or a comment.

Speaker Change: Okay and our first question comes from Ryan Zimmerman with <unk> T. I G. Please proceed.

Ryan Benjamin Zimmerman: Hey guys, thanks for taking the questions. Nice, nice quarter to start the year here. So I want to start with guidance a little bit, Sean. You guys beat, you know, consensus by a little less than a million bucks, or excuse me, a little more than a million bucks. My apologies.

Ryan Benjamin Zimmerman: Hey, guys.

Ryan Benjamin Zimmerman: Thanks for taking the questions nice nice quarter start the year here, so wanted to start with guidance a little bit Sean.

Speaker Change: You guys be.

Speaker Change: Consensus by a little less than a million bucks or excuse me, a little more than a million Bucks and I apologize.

Ryan Benjamin Zimmerman: You took up guidance, four million, you know, on both the low end and the top end. So just talk to us a little bit about kind of, one, you know, what's driving that. Two, if you could comment a little bit on pacing dynamics through the quarters, kind of what you expect from a seasonal perspective. And then really, you know, the other last part of that question is just what's driving it? Is it orthobiologics within SurgeLine? Is it hardware or software? I think most of the assets you picked up with SurgeLine were more hardware-related. So just, you know, a little more color there would be helpful as well. And then have a try

Speaker Change: You took up guidance.

Speaker Change: $4 million on both the low end and the top end. So just talk to us a little bit of a kind of one whats driving that too. If you can comment a little bit on pacing dynamics through the quarters.

Speaker Change: Kind of what you expect from a seasonal perspective, and then really the other last part of that question is just what's driving it is it ortho biologics within surge line is it hardware.

Speaker Change: Most of the assets you picked up the stars align where more hardware related. So just you know a little more color there would be helpful. As well and then I have one follow up sure.

Sean E. Browne: Sure, okay, just to start off with why we bumped up our guidance so much. Part of our starting out relatively low.

Speaker Change: Sure. Okay, just to start off with why we bumped our guidance so much.

Speaker Change: Part of our starting out.

Speaker Change: Assembly low.

Sean E. Browne: We're concerned about both this first quarter and the second quarter coming up with respect to just The Supply Chain Challenges. There are a number of things that I've outlined here, but we now feel really good. The first quarter came out a little bit better than we expected. Again, you saw from the guidance that you had set as well as the Craig Allen folks. When I look at Q2 and beyond, I start to see that we've got our new Amnio products that are starting to come out, and the SurgeLine products that we have really been excited about their growth are going nicely. You're right, it's mostly been on the hardware side where they've been helping us, but also the opportunities that the hardware products open up for our Xtant Biologics product.

Speaker Change: Because we can we're concerned about both this first quarter and the second quarter coming up with respect to.

Speaker Change: Just.

Speaker Change: The supply chain challenges, there's a number of things that I've outlined here.

Speaker Change: But we now feel really good first quarter came out.

Speaker Change: It'll be better than what we expected again you saw from the guidance that you had set as well as.

Speaker Change: The Craig Hallum folks.

Speaker Change: When I look at Q2 and beyond I start to see that we've got our new amnio products are starting to come out the surge line products that we have really been excited about their growth are going nicely.

Speaker Change: You are right, it's mostly been in the hardware side, where they've been helping us but also the opportunities that the hardware products open up for our extent biologics products.

Sean E. Browne: So, all in general, there's just a mix of a lot more. I see a better velocity of growth than we did coming into the beginning of this year. I was really worried about this first half, and so right now, I'm starting to feel pretty good about where we are in this first half, so that in the second half, we should really start to get some really nice contraction. I hope that answered your questions. I don't know if it answered all your questions, what did I miss? No, that's great.

Speaker Change: So all in general there's just a mix of a lot more I see a better velocity of growth that were coming into the beginning of this year I was really worried about this first half and so right now I'm starting to feel pretty good about where we are in this first half so that in the second half we should really start to get some really nice good traction.

Speaker Change: I hope that answered I don't know if I answered all your questions, Yes, what did I Miss that.

Ryan Benjamin Zimmerman: I guess, you know, just part of that, it's just kind of from a pacing perspective, how you think about seasonality, given the results this quarter, you know, how to think about kind of the pace through the rest of the year. And I'll just ask my second question, you know, now it's just around margins. They came in certainly better than I think we were expecting. Great to see, you know; talk to me about one.

[laughter].

Speaker Change: Yeah, just in and part of that is just kind of from a pacing perspective, how you're thinking about seasonality.

Speaker Change: Given given the results this quarter.

Speaker Change: You know, how just thinking about kind of a pace through the rest of the rest of the year and then I'll just ask my second question.

Speaker Change: Now it's just around margins they came in certainly better than I think we were expecting.

Speaker Change: Great to see you know lets.

Speaker Change: Talk to me about one.

Ryan Benjamin Zimmerman: The sustainability of your margin gains, kind of what your expectations are over time for margins, and kind of where you think you can kind of exit maybe this year. Yeah, I'll take the seasonality question. I'll throw it over to Scott, and I might have some color, an added color to that on the margin.

Speaker Change: The sustainability of your margin gains.

Speaker Change: Kind of what your expectations are over time, Florida for margins.

Speaker Change: Kind of where you think you can kind of exit maybe this year.

Sean E. Browne: So when I think about seasonality, certainly in Q2, things typically pick up. In Q3, as you can well imagine, normally our business would flatten out. I think that we're gonna see a little more acceleration even in Q, as we think about Q3, and even more so in Q4, because in Q3 and Q4, there'll be more product lines that we'll be releasing from our end that we're manufacturing. And so I do believe that those products will have a nice pickup, specifically because they really address OEM opportunities. And then I'll throw it back to Scott with respect to how he sees margins and how they are progressing throughout the year.

Speaker Change: Yeah, I'll take the seasonality question I'll throw it over to Scott and I might have a color and added color to that on the margin side. So when I think about seasonality certainly in Q2 things typically pick up Q3, as you can well imagine normally our business would flatten do a Q2.

Speaker Change: I think that we're going to see a little more acceleration even in Q as we think about Q3 and even more so in Q4, because in Q3 and Q4 there'll be more product lines that we'll be releasing from Iran that we're manufacturing.

Speaker Change: I do believe that those those products will have a nice pickup specifically because they really address OEM opportunities and then I'll throw it back to Scott with respect to how he sees margins and progressing throughout the year.

Scott C. Neils: Sure, I guess speaking to gross margins, I see Q2 and Q3 being largely consistent with what we've seen here in Q1. And a big driver of that is, you know, even as we start these new product rollouts, you know, as we start selling into that from the amnio side in Q3, that won't necessarily help our gross margin all that much; where we'll see the benefit from that will be on the contribution margin side, where we'll really start to see a pick-up from a gross margin perspective, I think we'll be in Q And we could see that it increased by as much as two to three points.

Scott: Sure I guess speaking to gross margins I see Q2, and Q3 being largely consistent with what we've seen here in Q1, a big driver of that is even as we start this new product rollouts as.

Scott: As we start selling into that from an amnio side in Q3 that won't necessarily help our gross margin all that much where we'll see the benefit from that would be on the contribution margin side, where we'll really start to see a pick up from a gross margin perspective, I think we'll be in Q4, where we will start selling into that stem cell and we could see.

Scott: That increased by as much as two to three points.

Scott: Within Q4.

Ryan Benjamin Zimmerman: Okay. Very nice. Thank you. Very helpful.

Speaker Change: Okay very nice thank you very helpful.

Operator: Okay, our next question comes from Chase Knickerbocker with Craig Hallam. Please proceed.

Speaker Change: Okay. Our next question comes from Chase Knickerbocker with Craig Hallum. Please proceed.

Chase Richard Knickerbocker: Good afternoon, guys. Thanks for taking the questions. I have two.

Chase Richard Knickerbocker: Good afternoon, guys. Thanks for taking the questions I have two I'm going to ask them both upfront.

Chase Richard Knickerbocker: I'm going to ask them both up front. Maybe on the amnio side, how much of the opportunity should we think of as kind of an OEM versus your distribution network? And then along those same lines, what should we think of as far as immediate impact from the amnio launch? I mean, do you think we could have kind of material revenue as soon as Q3? And then, just last for me, any way to quantify the impact of what the supply chain issues were on orthobiologics from the stem cell side?

Chase Richard Knickerbocker: Maybe on the amnio side, how much of the opportunity should we think of as kind of OEM versus your distribution network and then along those same lines what should we think of as far as immediate impact from the Omnia launch I mean do you think we could have kind of material revenue as soon as Q3 and then just last for me anyway to quantify the impact of what the supply.

Chase Richard Knickerbocker: Tennis shoes were on ortho biologics from the stem cell side as far as what could you have done if not for those headwinds.

Sean E. Browne: Okay, let me jump into those. Okay, so first things first, on the amnio side, the amount we make an amnio product, or I say we sell an amnio product today, there's a little bit less than a million dollars, but we buy that from another source. We don't get great prices, and quite frankly, we can't give out a lot of margin. With our own product line, we were actually surprised because this is not why we really built it. We actually built it because there seemed to be such a significant OEM opportunity, especially on the surgical side and particularly on the wound care side. But what we'll see is that we do think that we're going to get a nice little pickup.

Speaker Change: Okay, Let me I'll jump into those okay. So first things first on the MTO side.

Chase Richard Knickerbocker: And we make an amnio product or I should say, we sell light amnio product today, there's a little bit less than $1 billion, but we buy that from another source.

Chase Richard Knickerbocker: We don't get great pricing and quite frankly, we can't give out a lot of margin with our own product line. We were actually surprised because this is not why we really built this we actually built it because there seem to be such a significant OEM opportunity, especially in the surgical side and particularly in the wound care side, but what we will see.

Chase Richard Knickerbocker: We do think that we're going to get a nice little pick up but again, it's not a huge pickup on the our own internal product, but where we do see significant revenue that could be coming in in the second half of this year for those product lines.

Sean E. Browne: But again, it's not a huge pickup on our own internal product. But where we do see significant revenue that could be coming in is in the second half of this year for those product lines. And then the other question that you just asked, it was AMNEO, and then the second question was, "How significant is that?". I'm sorry; I forgot what the second question was to that. It was AMNEO.

Speaker Change: And then the other question that you just asked it was Andy Oh, and then it was Oh, how significant is that what you're I'm, sorry, I forgot what the second question was to that are there.

Chase Richard Knickerbocker: Yeah, just along the lines as far as what the impact was from a dollar perspective and kind of what you could have done. Is there any way to kind of quantify that just as far as it relates to kind of the go forward? Yeah, so when we were at our peak in, say, July of last year, July slash August of last year, we were doing just about $800,000 a month in STEM sales. That dropped off to, I mean, literally dropped off the table to, you know, $200,000 a month because that's about all the resources we could get, all the supplies we could get.

Speaker Change: It's along the lines as far as what the.

Speaker Change: You know impact was from a dollar perspective, and kind of where I would've done is there any way to kind of quantify that just as far as it really is kind of the go forward.

Speaker Change: Yeah. So when we were at our peak and say July of last year July August of last year.

Speaker Change: We were doing just about $800000 a month and in stem cells sales that dropped off too I mean, it literally dropped off the table too.

Speaker Change: On $200000 a month, because that's about all the all the all.

Sean E. Browne: What we see, and the thing about it is that our opportunity, what we looked at, was substantially higher than even the $800,000 because we never could get enough product. Right now, we've been working with one of our suppliers to help us get that product. And so we are set for a while. And it is something that we feel really, really good moving forward with not only the product in hand but then, eventually, our own product line as well.

Speaker Change: All of the the resources he had all the supplies leaky gut.

Speaker Change: What we see in the thing of it is is that our opportunity will be looked at was substantially higher than even the 800000, because we never could get enough product right now we've been working with one of our suppliers to help us get that product.

Speaker Change: So we are set for a while and it is something that we feel really really good moving forward, having not only the product in hand, but then eventually our own product line as well and that would be significantly more profitable and we think a better product to so so overall, we feel very good about what the opportunity sits out and it's a little bit of volume step.

Sean E. Browne: And that'll be significantly more profitable, and we think a better product too. So overall, we feel very good about what the opportunity sets out. And that's a little bit of why I'm stepping forward and, you know, coming out a little bit harder, a little bit higher on our guidance. And so that's part of why I'm feeling good about where we are.

Speaker Change: Forward and coming out a little bit harder a little bit higher on our.

Speaker Change: Our guidance and so that's that's part of why I'm feeling good about where we are.

Chase Richard Knickerbocker: Got it. Thanks for the questions, guys. Thanks, Chase.

Speaker Change: Got it thanks for the questions guys.

Chase: Thanks Chase.

Operator: Once again, if you have a question or a comment, please indicate so by pressing Star 1 on your touchtone phone. Once again, please press Star 1 if you have a question or comment. Okay, we have a follow-up coming from Ryan Zimmerman with BTIG. Please proceed, Ryan.

Speaker Change: Once again, if you have a question or comment please indicate so by pressing star one on your Touchtone phone.

Once again, please press star one if you have a question or comment.

Speaker Change: Okay, we have a follow up coming from let's see here Ryan Zimmerman.

Ryan Benjamin Zimmerman: Men with BTG. Please proceed Ryan.

Ryan Benjamin Zimmerman: Thanks, I couldn't get enough guys. I want to ask one more question, just on the amniotic products a little bit. I mean, your 650 distributors that you have now, I appreciate you're going to go deeper into those. I mean, amniotics are a little bit of a different call point than, say, Spine. How do you think about the distribution sales force today? you know, their ability to kind of pick up amniotics, your need to pick up maybe new distributors, or, you know, those that are maybe focused outside of spine? Just if you could talk a little bit about that, Sean, and kind of how you balance that, you know, dynamic of having this new product category outside of, you know, maybe course. Yeah, um, just first.

Ryan Benjamin Zimmerman: Thanks, I couldn't get enough because I wanted to ask one more question just just just on the the amniotic products a little bit I mean.

Speaker Change: Your 650 distributors that you have now you know I appreciate you're going to go deeper into those I mean being and Amdocs are a little bit of a different call point than say spine. How do you think about the distribution salesforce today.

Sean: Their ability to kind of pick up amniotic your need to pick up maybe new distributors or those that are maybe focused outside of spine. Just if you could talk a little bit above that Sean and kind of how you balance that dynamic of having this new product category you know outside of maybe a correspondence.

Ryan Benjamin Zimmerman: Yeah, just first things first, we are only going to be selling this within, and again, if other distributors want to carry it, by all means, we've got it, right? So we have an open distribution model.

Sean: Yeah, just first things first we are only going be selling this within again, if other distributors want to carry this by all means we got it right. So we havent opened distribution model, but this when we built these products. It was really built for the OEM side of things and Oh by the way. We have this million dollar product line that we knew that we could solve it out and have our own.

Sean E. Browne: But when we built these products, they were really built for the OEM side of things. And, oh, by the way, we had this million dollar product line that we knew that we could, you know, sub it out and have our own products, right, for basically twice the margins. And so that, in and of itself, A, pick up there, but then B, as we've gone down the path and we rolled this out, I was surprised to see the number of our distributors say, Oh, yeah, I saw a little bit here and there. I sell, you know, 100,000 here, 50,000 there.

Sean: Products right for basically twice the margins.

Sean: And so so that in of itself a pick up there, but that would be as we've gone down the path and we rolled this out it was surprised to see the number of our distributors said Oh, yeah, I saw a little bit here or there I sell you know 100000 here or 50000, there and so so it turns out that our network actually does a fair amount in this market as it is all <unk>.

Sean E. Browne: And so, it turns out that our network actually does a fair amount in this market as it is all primarily on the surgical side, right on the surgical repair side. And then when we were building this product line, we were really building it as an OEM supplier through, you know, both the wound care and the surgical repair side. And so we have deep, actual expertise within our company of guys that have contacts in this OEM market.

Sean: Primarily on the surgical side right in the surgical repair side and then when we were building this product line and we were really building it as an OEM supplier.

Through both the wound care and surgical repair side and so we have deep actually expertise within our company of guys that have contacts in this OEM market and so we actually were really excited because we have quite a bit of demand that's starting to build up and so so it is something that that we when we.

Sean E. Browne: And so we're actually really excited because we have quite a bit of demand that's starting to build up. And so, so it is something that when we built this, it was really more of an OEM product. But as we're looking at it now, it turns out there may be more there as our own branded product. So, so more to follow on that, but, but it's actually been a nice add to what we're doing more so than we expected.

Sean: He built this was really more of an OEM product.

Sean: But what it is we're looking at it now it turns out there is there may be more the era as our own extant branded product. So so more to follow on that but it's actually been a nice add to what we're doing.

Sean: More so than what we expected.

Sean: Thanks, Sean.

Operator: Okay, we have no further questions in the queue. I'd like to turn the floor back to management for any closing remarks.

Speaker Change: Okay. We have no further questions in the queue I'd like to turn the floor back to management for any closing remarks.

Sean E. Browne: achieved in our Q1. Our overall revenue growth of 55% is a testament to the outstanding work our team has done in turning around and growing the acquired Surgeon Line business. As the year progresses, we expect to continue to grow organically, so by the end of fiscal year 2024, we anticipate double-digit organic revenue growth. Inorganically, we continue to be very active in looking for companies that provide capabilities, capacity, and cash flow. Driven by Xtant taking over the supply chain for both internally produced products and improved vendor management of the acquired SurgeLine products, we see solid growth in the first half of the year with increasing velocity as we produce more of our own goods in the second half of the year.

Speaker Change: Great. Thank you operator overall I'm very pleased with the progress we've achieved in our Q1, our overall revenue growth of 55% is a testament to the outstanding work. Our team has done in turning around and growing the acquired certain line business as the year progresses, we expect to continue to grow organically. So by the end of fiscal year 2024.

We anticipate double digit organic revenue growth Inorganically, we continue to be very active and looking for companies that provide capabilities capacity and cash flows.

Speaker Change: Given by <unk>, taking over the supply chain for both internally produced products and improved vendor management of the acquired search online products, we see solid growth in the first half of the year with increasing velocity as we produce more of our own goods in the second half of the year and.

Sean E. Browne: In closing, I want to reiterate our mission of honoring the gift of donation by allowing our patients to live as full and complete a life as possible. I appreciate the dedication of our valuable employees. Without them, our success and achievements would not be possible. Thank you for joining us today and for your continued support.

Speaker Change: In closing I want to really reiterate our mission honoring the gift of donation by allowing our patients to live as full and complete a life as possible I appreciate the dedication of our valuable employees without them, our success and achievements would not be possible.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Speaker Change: For joining us today and for your continued support.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.