Q2 2024 Xtant Medical Holdings Inc Earnings Call

August 9, 2024

Speaker Change: Welcome to the Xtant Medical Holdings, Inc. 2nd quarter 2024 conference call.

Operator: Second Quarter, 2024 Conference Call. At this time, all participants are in a listen-only mode.

Operator: Second quarter, 2024 conference call. At this time, all participants are in a listening only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Brett Maas.

Speaker Change: At this time, all participants are in a listen-only mode.

Operator: Later, we will conduct a question-and-answer session.

Speaker Change: Later we will conduct a question and answer session. I would now like to turn the call over to your host Brett Moss, IR. You may begin sir.

Brett Maas: I would now like to turn the call over to your host, Brett Maas. I are. You may begin, sir.

Brett Maas: Thank you, Operator. Joining me today is Sean Browne, President and Chief Executive Officer, and Scott Neils, 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 Xtant's current perspective on existing trends and information that can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends, or other words with similar meaning.

Brett Maas: Thank you, Operator. Of course, with this call, management may make certain forward-looking statements regarding future events and the company's expected future performance. These forward-looking statements reflect Extant's current perspective on existing trends and information that could be identified by such words as expect, plan, will, may, anticipate, believe, should, intend, in other words, with similar meaning.

Speaker Change: Thank you, Operator. Joining me today is Sean Browne, President and Chief Executive Officer, and Scott Neils, 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.

Speaker Change: These four living statements reflect Xtant's current perspective on existing trends and information that can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend, and other words with similar meaning.

Brett Maas: Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the risk factor section of the company's end report on Form 10-K, filed with the SEC on April 1, 2024, and in subsequent SEC reports and press releases. Actual results may differ materially. The company's financial results press release in today's discussion includes certain non-GAAP financial measures. These refer to the non-gap to gap reconciliation which appear in our press release, and are otherwise available on our website. Note that our Form 8-K, followed by our financial results press release, provides a detailed narrative that describes the use of such measures.

Brett Maas: 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 subsequent SEC reports and press releases. However, actual results may differ materially.

Speaker Change: Such forward-looking statements do not guarantee the 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 subsequent SEC reports and press releases.

Brett Maas: 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 8-K filed with our financial results press release provides a detailed narrative that describes the use of such measures. For the benefit of those who may be listening to the replay of this call, this call was held and recorded on August 9 at approximately 9 a.m. Eastern Time. The company does not accept any obligation to update its forward-looking statements except as required by its applicable law.

Speaker Change: Actual results may differ materially.

Speaker Change: The company's financial results press release and today's discussion includes certain non-GAAP financial measures.

Speaker Change: 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 with our financial results press release provides a detailed narrative that describes the use of such measures.

Brett Maas: In the benefit of those, you may be listening to the replay of this call. This call was held and recorded on August 9, and approximately 9 a.m. Eastern time.

Speaker Change: For the benefit of those who may be listening to the replay of this call, this call was held and recorded on August 9th at approximately 9 a.m. Eastern Time. The company declines any obligation to update its forward-linking statements except as required by its applicable law. Now I'd like to turn the call over to Sean Browne. Sean, the floor is yours. Thank you, Scott.

Brett Maas: It's coming to clients, any obligation updated forward-looking statements, except as required by a applicable law.

Brett Maas: Now I'd like to turn the call over to Sean Brown. Sean, the floor is yours.

Sean Brown: Now that's in the call of our Sean Brown. Sean, the floor is yours.

Sean Brown: Thank you, Brett, and good morning, everyone. I'm pleased to announce another strong quarter for the extent, with 48% growth over a prior year. We are solidly on pace to achieve our full year revenue guidance of 116 to 120 million, which we are reaffirming today. This range represents total annual revenue growth of approximately 27% to 31%, compared to the full year 2023. From an organic growth perspective, which we define as revenue growth, excluding contributions from products acquired during the previous 365 days, for which there were no comparable sales. Second quarter revenue was flat compared to the prior year, mostly due to the planned surge line cannibalization of our X spine hardware and significant OEM sales during Q2 2023.

Sean Browne: Thank you, Brett. And good morning, everyone.

Sean Browne: Thank you, Brett, and good morning, everyone. I'm pleased to announce another strong quarter for the Xtant team. With 48% growth over prior year, we are solidly on pace to achieve our full year revenue guidance of $116 to $120 million, which we are reaffirming today.

Sean Browne: I'm pleased to announce another strong quarter for the Xtant team. With 48% growth over the prior year, we are solidly on pace to achieve our full year revenue guidance of 116 to 120 million, which we are reaffirming today. This range represents total annual revenue growth of approximately 27% to 31% compared to the full year 2023. From an organic growth perspective, which we define as revenue growth excluding contributions from products acquired during the previous 365 days for which there were no comparable sales, second quarter revenue was flat compared to the prior year, mostly due to the planned Surgiline cannibalization of our XSpine hardware and significant OEM sales during Q2 2023.

Sean Browne: This range represents total annual revenue growth of approximately 27%

Sean Browne: to 31% compared to the full year 2023.

Sean Browne: From an organic growth perspective, which we define as revenue growth excluding contributions from products acquired during the previous 365 days for which there were no comparable sales,

Sean Browne: As our supply chain challenges abate, and we introduce new products to the market, we continue to expect our organic growth to accelerate during the second half of 2024 and reach double digits. From a profitability perspective, adjusted EBITDA for the second quarter was $0.5 million, marking our fifth consecutive quarter of positive adjusted EBITDA. In the second quarter, we expanded our gross margin by 50 basis points compared to the prior year period and reduced our operating expenses as a percentage of revenue compared to Q1 2024.

Sean Browne: Second quarter revenue was flat compared to the prior year, mostly due to the planned Surgeline cannibalization of our X-Spine hardware and significant OEM sales during Q2 2023.

Sean Brown: As our supply chain challenges abate, and we introduce new products to the market, we continue to expect our organic growth to accelerate during the second half of 2024 and reach double digits. From a profitability perspective, adjusted EBITDA for the second quarter was 0.5 million and marking our fifth consecutive quarter of positive adjusted EBITDA. In the second quarter, we expanded our growth margin by 50 basis points compared to the prior year period and reduced our operating expenses as a percentage of revenue compared to Q1 2024. Our production is becoming more efficient, and we continue to scale.

Sean Browne: As our supply chain challenges abate and we introduce new products to the market, we continue to expect our organic growth to accelerate during the second half of 2024 and reach double digits.

Sean Browne: From a profitability perspective, adjusted EBITDA for the second quarter was $0.5 million.

Sean Browne: and marking our fifth consecutive quarter of positive adjusted EBITDA. In the second quarter, we expanded our gross margin by 50 basis points compared to the prior year period, and reduced our operating expenses as a percentage of revenue compared to Q1 2024.

Sean Browne: Our production is becoming more efficient, and we continue to scale. We anticipate further improvements in adjusted EBITDA in Q3 2024 and beyond. As I have discussed in previous calls, we expected the first half of this year to be challenging due to numerous supply chain issues. So we are pleased to have such a strong second quarter.

Sean Browne: Our production is becoming more efficient and we continue to scale. We anticipate further improvements and adjusted EBITDA in Q3 2024 and beyond.

Sean Brown: We anticipate further improvements in adjusted EBITDA in Q3 2024 and beyond. As I have discussed in previous calls, we expect the first after this year to be challenging due to numerous supply chain issues, so we are pleased to have such a strong second quarter. We have worked through most of these issues that have impacted some of our fastest growing products. Additionally, we are closer to producing our own stem cells, which we expect will provide an uptick to both revenue and operating profit.

Sean Browne: As I have discussed in previous calls, we expect the first, we expected the first half of this year to be challenging.

Sean Browne: Due to numerous supply chain issues, so we are pleased to have such a strong second quarter.

Sean Browne: We have worked through most of these issues that have impacted some of our fastest growing products. Additionally, we are closer to producing our own stem cells, which we expect will provide an uptick in both revenue and operating profit. I want to give a quick update on our acquisitions from last year. The acquired SurgeLine product lines are performing very well and strategically helping us replace specific aging Xtant hardware lines. This cannibalization was intended and is a big part of the strategic rationale behind the deal.

Sean Brown: I want to give a quick update on our acquisitions from last year. The acquired Surgeonline product lines are performing very well and strategically helping us replace specific aging XTAN hardware lines. This cannibalization was intended and a big part of the strategic rationale behind the deal. I am particularly pleased by how the top 20 distributors have grown 16.5% in revenue from when we acquired Surgeonline in the third quarter of 2023. The NANOS, IT, and production acquisition will play a significant role in our future growth in new products, addressing new verticals within our biologics business. As we develop those new product lines, I will give more details about the product specifics, target markets, and our go-to-market strategy.

Sean Browne: I want to give a quick update on our acquisitions from last year. The acquired SurgicalLine product lines are performing very well and strategically helping us replace specific aging Xtant hardware lines.

Sean Browne: This cannibalization was intended and a big part of the strategic rationale behind the deal. I am particularly pleased by how the top 20 distributors have grown 16.5% in revenue from when we acquired SurgeLine in the third quarter of 2023.

Sean Browne: I am particularly pleased by how the top 20 distributors have grown 16.5% in revenue since when we acquired SurgeLine in the third quarter of 2023. The Nanos IP and production acquisition will play a significant role in our future growth and new products addressing new verticals within our biologics business. As we develop those new product lines, I will give more details about the product specifics, target markets, and our go-to-market strategy. Overall, we are pleased with our progress in integrating each of these acquisitions, and we continue to rationalize related expenses and product lines.

Sean Browne: The Nanos IP and production acquisition will play a significant role in our future growth in new products addressing new verticals within our biologics business. As we develop those new product lines, I will give more details about the product specifics, target markets, and our go-to-market strategy.

Sean Brown: Overall, we are pleased with our progress in integrating each of these acquisitions, and we continue to rationalize related expenses and product lines.

Sean Browne: Overall, we are pleased with our progress in integrating each of these acquisitions, and we continue to rationalize related expenses and product lines.

Sean Brown: As a reminder, we have built our platform with four key pillars that we believe will drive sustainable long-term growth. One, due to product introductions, two, distribution network expansion, three adjacent market penetration, and four strategic acquisitions. Starting with new products, like every healthy, robust organization, we are continually innovating with a deep pipeline of new products. During the course of our turnaround, we expanded our biologics product offering from two categories to five, which helped enhance our growth profile. Moreover, we are the only orthobiologics company that offers a complete line of orthobiologics, which include allograft, TBM, synthetics, viable bone matrix stem cells, and growth factor.

Sean Browne: As a reminder, we have built our platform with four key pillars that we believe will drive sustainable long-term growth. One, new product introductions, two, distribution network expansion, three, adjacent market penetration, and four, strategic acquisition. Starting with new products, like every healthy, robust organization, we are continually innovating with a deep pipeline of new products. During the course of our turnaround, we expanded our biologics product offering from two categories to five, which helped enhance our growth profile.

Sean Browne: As a reminder, we have built our platform with four key pillars that we believe will drive sustainable long-term growth. One, new product introductions. Two, distribution network expansion. Three, adjacent market penetration. And four, strategic acquisitions.

Sean Browne: Starting with new products, like every healthy, robust organization, we are continually innovating with deep pipeline of new products. During the course of our turnaround, we expanded our biologics product offering from two categories to five.

Sean Browne: Moreover, we are the only orthobiologics company that offers a complete line of orthobiologics, which include allograft, DBM, synthetics, viable bone matrix stem cells, and growth factor. During the second quarter, we released a sixth new category, amniotic membrane allografts for surgical applications and advanced wound care, and we are already booking sales.

Sean Browne: which helped enhance our growth profile. Moreover, we are the only orthobiologics company that offers a complete line of orthobiologics, which include allograft, DBM, synthetics, viable bone matrix stem cells, and growth factor.

Sean Brown: During the second quarter, we released a sixth new category, amniotic membrane allegrafts for surgical applications and advanced wound care, and we are already booking sales. Extam previously sold a distributed product at another company 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 our Extam branded product line as well as provide a fantastic solution as an OEM producer.

Sean Browne: During the second quarter, we released a sixth new category, amniotic membrane allografts for surgical applications and advanced wound care, and we are already booking sales.

Sean Browne: Xtant previously sold a distributed product that another company 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 our Xtant branded product line, as well as provide a fantastic solution as an OEM producer. Fiscal year 2024 is our year of self sustainability. In 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.

Sean Browne: Xtant previously sold a distributed product that another company made that focused on the surgical repair side of our business.

Sean Browne: This is currently a small product line for us, but with our far superior products, we believe we can profitably grow our Xtant branded product line, as well as provide a fantastic solution as an OEM producer.

Sean Brown: The fiscal year 2024 is our year of self-sustainability. In 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. Also, on the hardware side, we are finishing development and software all out of the Cortera posterior fixation system started by Surge Line. We are now in the process of completing that roll out, which we anticipate will be fully completed by Q4 of this year.

Sean Browne: Fiscal year 2024 is our year of self-sustainability. In 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.

Sean Browne: Also, on the hardware side, we are finishing the development and soft rollout of the Quartera posterior fixation system started by SurgeLine. We are now in the process of completing that rollout, which we anticipate will be fully completed by Q4 of this year.

Speaker Change: Also, on the hardware side, we are finishing the development and soft rollout of the Quartera posterior fixation system started by SurgeLine. We are now in the process of completing that rollout, which we anticipate will be fully completed by Q4 of this year.

Sean Brown: The next pillar focuses on expanding our distribution network and contract access. Our platform offers more to more than 450 IDNs and GPOs that cover approximately 90% of all the best in the US. In addition, our distribution network now includes more than 650 distributors. 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 distribution editions, but our primary focus will be increasing penetration into the distributors we already have. We have found that the more product lines that distributor sells of our products, the stickier they become as a distributor for AppStamp Medical.

Sean Browne: The next pillar focuses on expanding our distribution network and contract access. Our platform offers more to more than 450 IDNs and GPOs that cover approximately 90% of all the beds in the U.S. In addition, our distribution network now includes more than 650 distributors.

Speaker Change: The next pillar focuses on expanding our distribution network and contract access. Our platform offers more to more than 450 IDNs and GPOs that cover approximately 90% of all the beds in the U.S.

Speaker Change: In addition, our distribution network now includes more than 650 distributors.

Sean 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 distribution additions, but our primary focus will be increasing penetration into the distributors we already have. We have found that the more product lines that distributors sell of our products, the stickier they become as a distributor for Xtant Medical. Now, with that said, we still added 15 new distributors this past quarter.

Speaker Change: In years past, we focused on continuing to expand the total number of distributors by at least 10 new agents per quarter.

Speaker Change: Today, we plan to look for opportunistic distribution additions, but our primary focus will be increasing penetration into the distributors we already have.

Speaker Change: We have found that the more product lines that distributors sells of our products, the stickier they become as a distributor for Xtant Medical. Now, with that said...

Sean Brown: Now, with that said, we still added 15 new distributors this past quarter. So, we are getting better penetration with our bigger distributors, while also adding new high potential distributors.

Sean Browne: So, we are getting better penetration with our bigger distributors while also adding new high-potential distributors. Now, turning to our third pillar, leveraging adjacent markets. One goal for Xtant in the long term is to build products that serve other verticals beyond spine and orthopedics.

Speaker Change: We still added 15 new distributors this past quarter, so we are getting better penetration with our bigger distributors while also adding new high potential distributors.

Sean Brown: Now, turning to our third pillar, leveraging adjacent markets, one goal for Xtant in the long term is to build products that serve other verticals beyond spine and orthopedics. Through our OEM manufacturing, we serve different verticals and learn about the dynamics of those specific markets, with an ion potentially expanding in places where we can have a significant impact. We have gained traction within the sports medicine, 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: Now, turning to our third pillar, leveraging adjacent markets, one goal for Xtant in the long term is to build products that serve other verticals beyond spine and orthopedics.

Sean Browne: Through our OEM manufacturing, we serve different verticals and learn about the dynamics of those specific markets with an eye on potentially expanding in places where we can have a significant impact. We have gained traction within the sports medicine, 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 learn about the dynamics of those specific markets where then I am potentially expanding in places where we can have a significant impact.

Speaker Change: We have gained traction within the sports medicine, 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.

Sean Brown: Our final pillar focuses on achieving growth through targeted acquisitions. By leveraging our growth platform for over 450 IDN agreements and 650 distributors, selling our products nationally, we are targeting either undercapitalized or sub-scale companies. More specifically, similar to our acquisitions in 2023, we are targeting companies that either help complete our offering or provide us with additional scale. Our focus on acquisition targets is based on three characteristics: first, capabilities. We're looking at companies or technologies that give us greater capabilities, particularly in regenerative biologics. Additionally, we look at businesses that help complete extant spine fixation and motion preservation offerings.

Sean Browne: Our final pillar focuses on achieving growth through targeted acquisitions. By leveraging our growth platform for over 450 IDN agreements and 650 distributors selling our products nationally, we're targeting either under capitalized or subscale companies. More specifically, similar to our acquisitions in 2023, we are targeting companies that either help complete our offering or provide us with additional scale. Our focus on acquisition targets is based on three characteristics. First, capabilities. We're looking at companies or technologies that give us greater capabilities, particularly in regenerative biology. Additionally, we look at businesses that help complete Xtant's spine fixation and motion preservation. Second, capacity.

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

Speaker Change: By leveraging our growth platform of over 450 IDN agreements and 650 distributors,

Speaker Change: Selling our products nationally. We are targeting either undercapitalized or subscale companies

Speaker Change: More specifically, similar to our acquisitions in 2023, we are targeting companies that either help complete our offering or provide us with additional scale.

Speaker Change: Our focus on acquisition targets is based on three characteristics. First, capabilities. We're looking at companies or technologies that give us greater capabilities, particularly in regenerative biologics.

Speaker Change: Additionally, we look at businesses that help complete Xtant's spine fixation and motion preservation offerings.

Sean Brown: Second, capacity. Targets that can expand our long-term biologics production demand. And the third, cash flow, businesses that are profitable or can become profitable through cost or margin synergies. We believe that making sound, target in the 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 we acquire to be 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 Extant continues to grow.

Sean Browne: Targets that can expand our long-term biologics production demand, and then third, cash flow. Businesses that are profitable or can become profitable through cost or margin synergy. We believe that making sound, targeted, and strategic acquisitions that fit within our strategic or 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 we acquire to be part of a fast-growing company.

Speaker Change: Second, capacity.

Speaker Change: Targets that can expand are long-term biologics production demand. And the third, cash flow. Businesses that are profitable or can become profitable through cost or margin synergies.

Speaker Change: We believe that making sound, targeted, and strategic acquisitions that fit within our strategic or 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 we acquire to be part of a fast-growing company.

Sean Browne: Furthermore, we believe it will allow the entrepreneurs and other owners of these companies to win when they are purchased and then potentially win even bigger over time as Xtant continues to grow. Moving forward, we are 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.

Speaker Change: 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.

Sean Brown: Moving forward, we are 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 transformation or transformative treatment options to a large and growing patient population.

Speaker Change: Moving forward, we are 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.

Speaker Change: Moreover, producing our own products should dramatically improve our margin profile.

Speaker Change: coupled with an expanded product line that brings additional transformation or transformative treatment options to a large and growing patient population.

Sean Brown: Most importantly, we believe these actions will help us get to positive operating cash flow during the fourth quarter of 2024.

Sean Browne: Moreover, producing our own products should dramatically improve our margin profile, coupled with an expanded product line that brings additional transformational or 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.

Speaker Change: 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. We'll discuss our first quarter of 2024 financial results.

Scott Neils: Now, I would like to turn the call over to Scott. We will discuss our first quarter of 2024 financial results.

Scott Neils: Thank you, Sean.

Scott Neils: Thank you, Sean. Good morning to everyone on the call.

Scott Neils: Good morning, everyone. On the call. Total revenue for the second quarter of 2024 was $29.9 million, compared to $20.2 million for the same period in 2023. 48% increase has attributed primarily to product sales from the recently acquired and Surge line hardware and biological business. Gross margin for the second quarter of 2024 was 62.1% compared to 61.6% for the same period in 2023. The increase has primarily attributable to greater scale and improved production efficiency, which is partially offset by increased charges for excess and obsolete inventory, non-absorb costs, and sales. 2nd quarter, 2024, operating expenses were $21.5 million, 13.9 million dollars in the same period a year ago.

Scott: Thank you, Sean. Good morning to everyone on the call.

Scott Neils: Total revenue for the second quarter of 2024 was $29.9 million compared to $20.2 million for the same period in 2023. The 48% increase is attributed primarily to product sales from the recently acquired SurgeLine hardware and biologics. Gross margin for the second quarter of 2024 was 62.1% compared to 61.6% for the same period in 2023. The increase is primarily attributable to greater scale and improved production efficiency, which is partially offset by increased charges for excess and obsolete inventory, non-absorbed costs, and sales.

Scott: Total revenue for the second quarter of 2024 was $29.9 million, compared to $20.2 million for the same period in 2023. A 48% increase is attributed primarily to product sales from the recently acquired SurgeLine Hardware & Biologics business.

Scott: Gross margin for the second quarter of 2024 was 62.1% compared to 61.6% for the same period in 2023.

Scott: The increase is primarily attributable to greater scale and improved production efficiency, which is partially offset by increased charges for excess and obsolete inventory, non-absorbed costs, and sales mix.

Scott Neils: Second quarter 2024 operating expenses were $21.5 million dollars compared to $13.9 million dollars in the same period a year ago. As a percentage of total revenue, operating expenses were 71.9% compared to 68.5% in the same period a year ago. These increases were primarily attributable to additional commission expense resulting from revenue growth, additional compensation expense related to additional headcount, and additional stock-based compensation. However, sequentially, operating expenses declined 260 basis points from Q1 of 2024.

Scott: Second quarter 2024 operating expenses were $21.5 million compared to $13.9 million in the same period a year ago. As a percentage of total revenue, operating expenses were 71.9% compared to 68.5% in the same period a year ago.

Scott Neils: As a percentage of total revenue, operating expenses were $7.1.9% compared to $68.5% in the same period a year ago. These increases were primarily attributable to the additional commission expense resulting from revenue growth. Additional compensation expense related to additional headcount and additional stat-based compensation. Sequentially, operating expenses declined 260 basis points from Q1 of 2024. General and administrative expenses were $7.7 million dollars for the three months ended June 30 of 2024, compared to $5 million dollars for the same period in 2023. This increase is primarily attributable to increases in compensation expense, stat-based compensation, professional service fees, and hardware and software expenses.

Scott: These increases were primarily attributable to additional commission expense resulting from revenue growth, additional compensation expense related to additional headcount, and additional stock-based compensation. Sequentially, operating expenses declined 260 basis points from Q1 of 2024.

Scott Neils: General and administrative expenses were $7.7 million for the three months ended June 30, 2024, compared to $5 million for the same period in 2023. This increase is primarily attributable to increases in compensation expense, stock-based compensation, professional service fees, and hardware and software expenses. Sales and marketing expenses were $13.2 million for three months ending June 30, 2024, compared to $8.7 million for the same period in 2023. This increase is primarily due to higher commission expenses related to increased sales and additional compensation expenses associated with additional headcount.

Scott: General and administrative expenses were $7.7 million for the three months ended June 30, 2024, compared to $5 million for the same period in 2023.

Scott: This increase is primarily attributable to increases in compensation expense, stock-based compensation, professional service fees, and hardware and software expenses.

Scott Neils: Sales and marketing expenses were $13.2 million dollars for the three months ending June 30 of 2024, compared to $8.7 million dollars from the same period in 2023. This increase is primarily due to higher commission expenses related to increased sales and additional compensation expenses associated with additional headcount. Research and development expenses were $0.6 million dollars for the three months ending June 30 of 2024 and increased from $0.2 million dollars for the same period in 2023. The increase is primarily due to increased headcount related to additional focus on new product introduction. Net loss in the second quarter of 2024 was $3.9 million dollars for three cents per share compared to in net loss with $2.2 million dollars for two cents per share in the comparable 2023 period.

Scott: Sales and marketing expenses were $13.2 million for the three months ending June 30, 2024 compared to $8.7 million for the same period in 2023. This increase is primarily due to higher commission expenses related to increased sales and additional compensation expenses associated with additional headcount.

Scott Neils: Research and development expenses were $0.6 million for the three months ending June 30, 2024, an increase from $0.2 million for the same period in 2023. The increase is primarily due to increased headcount related to our additional focus on new product introduction.

Scott: Research and development expenses were 0.6 million dollars for the three months ending June 30th, 2024, an increase from 0.2 million dollars for the same period in 2023. The increase is primarily due to increased headcount related to our additional focus on new product introduction.

Scott Neils: Net loss in the second quarter of 2024 was $3.9 million, or $0.03 per share, compared to a net loss of $2.2 million, or $0.02 per share, in the comparable 2023 period. Net loss in the second quarter of 2024 with a sequential improvement of $0.5 million from $4.4 million in Q1 of 2024. Adjusted EBITDA for the second quarter of 2024 was $0.5 million, compared to $0.1 million for the same period in 2023.

Scott: Net loss in the second quarter of 2024 was $3.9 million, or $0.03 per share, compared to a net loss of $2.2 million, or $0.02 per share, in the comparable 2023 period.

Scott Neils: Net loss in the second quarter of 2024 was a sequential improvement of $0.5 million dollars from $4.4 million in Q1 of 2024. Adjust the EBITDA for the second quarter of 2024 was $0.5 million dollars compared to $0.1 million dollars for the same period in 2023. As is June 30, 2024, we had $5.4 million dollars of cash, cash equivalent, some restricted cash. Net accounts receivable was $21.2 million dollars, inventory of $40.5 million dollars, and $5.1 million dollars was available under a evolving credit facility.

Scott: Net loss in the second quarter of 2024 was a sequential improvement of $0.5 million from $4.4 million in Q1 of 2024.

Scott: Adjusted EBITDA for the second quarter of 2024 was $0.5 million, compared to $0.1 million for the same period in 2023.

Scott Neils: As of June 30, 2024, we had $5.4 million of cash, cash equivalents, and restricted cash. Net accounts receivable was $21.2 million. Inventory $40.5 million, and $5.1 million available under a revolving credit facility. In addition, on August 7, 2024, we entered into an agreement for a $5 million pipeline with an existing institutional investor to provide additional working capital as we transition towards positive operating cash. Operator, you may now open the line for questions.

Scott: As of June 30, 2024, we had $5.4 million of cash, cash equivalents, and restricted cash. Net accounts receivable was $21.2 million. Inventory $40.5 million.

Scott: and $5.1 million available under a revolving credit facility.

Scott Neils: In addition, on August 7, 2024, we entered into an agreement for a $5 million dollar pipe within an existing institutional investor to provide additional working capital as we transition towards positive operating cash flows.

Scott: In addition, on August 7, 2024, we entered into an agreement for a $5 million pipe with an existing institutional investor to provide additional working capital as we transition towards positive operating cash flows.

Operator: Operator, you may now open the line for questions. At this time, we will conduct the question-and-answer session. If you would like to ask a question, please press star one on your phone now, and you'll be placed into the queue in the order received. Once again, to ask a question, please press star one on your phone now.

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

Operator: At this time, we will conduct the question and answer session. If you would like to ask a question, please press star one on your phone now and you'll be placed into the queue in the order received. Once again, to ask a question, please press star one on your phone. And our first question comes from Ryan Zimmerman of VTIG. Please ask your question. Good morning.

Speaker Change: At this time, we will conduct the question and answer session. If you would like to ask a question, please press star one on your phone now, and you'll be placed into the queue in the order received.

Speaker Change: Once again, to ask a question, please press star 1 on your phone now.

Ryan Zimmerman: And our first question comes from Ryan Zimmerman of BTIG. Please ask your question.

Speaker Change: And our first question comes from Ryan Zimmerman of BTIG.

Ryan Zimmerman: Good morning. Okay. Yeah, I can hear you great.

Ryan Zimmerman: Good morning, can you guys hear me okay?

Speaker Change: Please ask your question. Good morning.

Unknown Executive: Yeah, I can hear you great. How are you today? Awesome.

Ryan Zimmerman: Good morning. Can you guys hear me okay?

Ryan Zimmerman: How are you today? Awesome. I'm good.

Ryan Zimmerman: Awesome. I'm good. I'm good.

Ryan Zimmerman: Yeah, I can hear you great. How are you today? Awesome. I'm good. I'm good. Thanks for taking our questions and appreciate and congrats on all the progress this quarter.

Ryan Zimmerman: Thanks for taking our questions.

Ryan Zimmerman: Thank you. Thank you very much. Okay, yes, sure.

Ryan Zimmerman: Maybe we could start, Sean, with just a little color around kind of the mix of the revenue this quarter, kind of, you know, between orthobiologics and spinal implants.

Ryan Zimmerman: You know, how you see that playing out over the balance of the year, it seems like a lot of the...

Speaker Change: the surge line hardware, you know, help in the quarter, but just appreciate any color there. Then I have a follow up on guidance.

Ryan Zimmerman: Thanks for taking our questions and appreciate and congratulate you on all the progress this quarter. Maybe we could start, Sean, with just a little color around kind of the mix of revenue this quarter, kind of, you know, between orthobiologics and spinal implants. And, you know, how you see that playing out over the balance of the year. It seems like a lot of the SurgeLine hardware, you know, helped in the quarter, but just appreciate any color there. Then I have a follow-up on guidance. Okay, yeah, sure.

Sean Browne: Okay, yeah, sure. So when I think about it now, I'll take it from a high-level perspective. And Scott, if you want to add any color, which is the specifics of the percentages of each, but from a high level perspective, yes, the SurgeLine hardware has been a real nice helper. And it is, as I mentioned, this is something that we're really trying to take over some of our older XSpine hardware. You know, the SurgeLine product line was a very good product line. And so it's one that's helping us replace it. So that whole cannibalization was something that we wanted to build in.

Sean Brown: So, when I think about it now, I'll take it from a high-level perspective. And Scott, if you want to add any color, which is the specifics of the percentages of each, but from a high-level perspective, yes, the surge line hardware has been a real nice helper. And it is, as I mentioned, this is something that we're really to take over some of our older X spine hardware, you know, the Surge line product line, which is a very good product line. And so it's one that's helping us replace. So, so that that whole cannibalization was something that we wanted to build in.

Speaker Change: Okay, yeah, sure. So when I think about it, now, I'll take it from a high level perspective. And Scott, if you want to add any color, which is the specifics of

Speaker Change: the percentages of each. But from a high level perspective, yes, the SurgeLine hardware has been a real nice

Speaker Change: And it is, as I mentioned, this is something that we're really

Scott: to take over some of our older X-Spine.

Scott Neils: Unknown Executive, Scott Neils

Sean Browne: And so as we think about what's going to happen in the second half of this year, you're going to see two things that will take place. You're going to see an increase of our own self-produced things, like I said, our amnio, some of our stem cell stuff that'll be coming out in the second half this year. All that will help drive more of our biologic sales. But concurrently, we have a nice Cortera product line that's going to be really rolled out in full.

Sean Brown: And so, so as we think about what's going to happen in the second half of this year, you're going to see two things that will take place: you're going to see an increase of our own self-produced things, like I said, our amniose, some of our stem cell stuff that'll be coming out the second half this year. All that will help drive more of our biologic sales, but concurrently, we have a nice Cortera product line that's going to be really rolled out in full. The MIS portion of this, we have the open already with us today, but the MIS portion will be rolled out during NASA.

Speaker Change: And so as we think about what's going to happen in the second half of this year, you're going to see two things that will take place. You're going to see an increase of our own

Speaker Change: self-produced things like I said our amnio some of our stem cell stuff they'll be coming out the second half this year all that will help drive more of our biologic sales but concurrently we have a nice Corterra product line that's going to be really rolled out in full

Sean Browne: The MIS portion of this, we have the open already with us today, but the MIS portion will be rolled out during NAS. And so we feel that in the fourth quarter, we'll really start to see a nice uptick when it comes to the hardware side of things. So overall, I think we have a nice balance of growth. But I think, yeah, just over the course of time, I also think that our biologics business, based on the strength of where that is, will start to become even more prominent.

Speaker Change: The MIS portion of this, we have the open already with us today, but the MIS portion will be rolled out during NAS, and so we feel that in the fourth quarter, we'll really start to see a nice uptick when it comes to the hardware side of things. So, so overall, I think we got a nice balance of growth.

Ryan Zimmerman: And so we feel that in the fourth quarter, we'll really start to see a nice uptick when it comes to the hardware side of things. So, so overall, I think we have a nice balance of growth, but I think yet, just over the course of time, I just also think that our biologic business based on the strength of where that is. We'll start to become even more prominent.

Speaker Change: But I think, yeah, just over the course of time, I just also think that our biologics business, based on the strength of where that is, will start to become even more prominent.

Ryan Zimmerman: Okay, that's very helpful. And then, you know, with the guidance, you beat that a little bit, but, you know, obviously not flowing that through to the guidance, very much reiterating guidance. And just help us think through the pacing for the balance of the year and how to think about third quarter versus fourth quarter. It seems like, you know, traditionally, you'll get a nice seasonal step up in the fourth quarter. Just want to make sure we're clear on that. Sure.

Sean Brown: Okay, that's very helpful. And then, you know, with the guidance, you know, you beat by a little bit, but, you know, obviously not slowing that through to the guidance, very much reiterating guides. And just help us make through the pacing for the balance of the year, and how to think about third quarter versus fourth quarter. And it seems like, you know, traditionally, you'll get nice seasonal stuff up in the fourth quarter. Just want to make sure we're clear on that. Sure. So we will see an uptick in the third quarter from certainly the second quarter, which is something that typically you wouldn't see, but we do feel good about what's happening within the business overall, especially the ramp up that's starting to take place with our stem cell business where we really just, you know, about early second quarter.

Speaker Change: Okay.

Speaker Change: That's very helpful. And then, you know, with the guidance, you know, you beat that a little bit, but, you know, obviously not flowing that through to the guidance, very much reiterating guidance.

Speaker Change: and just help us think through the pacing for the balance of the year and how to think about third quarter versus fourth quarter. It seems like traditionally you'll get a nice seasonal step up in the fourth quarter. I just want to make sure we're clear on that.

Sean Browne: Sure. So we will see an uptick in the third quarter from certainly the second quarter, which is something that typically you wouldn't see, but we do feel good about what's happening within the business overall, especially the ramp up that's starting to take place for their stem cell business, where we really just, you know, about early the second quarter, we finally got fully stocked on that we haven't been fully stocked in probably two years.

Speaker Change: Sure. So we will see an uptick in the third quarter from certainly the second quarter, which is something that typically you wouldn't see, but we do feel good about what's happening within

Operator: Second Quarter, 2024 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

Speaker Change: The business overall, especially the ramp up that's starting to take place with our stem cell business, where we really just, you know, about early second quarter,

Brett Maas: I would now like to turn the call over to your host, Brett Maas. I are. You may begin, sir. Thank you, operator. Of course, with this call, management may make certain forward-looking statements regarding future events and the company's expected future performance. These forward-looking statements reflect extant's current perspective on existing trends and information that could be identified by such words as expect, plan, will, may, anticipate, believe, should intend in other words, with similar meaning.

Ryan Zimmerman: We finally got fully stocked in that. We haven't been fully stocked in probably two years. And so, you know, that has taken a little longer than we expected, but we are starting to see it really start to take off here in the third, and we expect also in the fourth quarter. So we do think that, you know, as we think about the pacing. Third quarter should be improved. Fourth quarter should be strong. Okay, just want to be clear that third quarter is higher than second quarter, and maybe not as much of a step up in fourth quarter relative to third, but still kind of continuing sequentially to grow.

Speaker Change: We finally got fully stocked in that. We hadn't been fully stocked in probably two years.

Sean Browne: And so, you know, that has taken a lot longer than we expected. But we are starting to see it really start to take off here in the third and we expect also in the fourth quarter. So we do think that, you know, as we think about the pacing, third quarter should be improved. Fourth quarter should be strong.

Speaker Change: And so, you know, that has taken a little longer than we expected, but we are starting to see it really start to take off here in the third and we expect also in the fourth quarter.

Speaker Change: So we do think that, you know, as we think about the pacing, third quarter should be improved, fourth quarter should be strong.

Ryan Zimmerman: Okay, just want to be clear that the third quarter was higher than the second quarter, and maybe not as much of a step up in the fourth quarter relative to the third, but still kind of continuing sequentially to grow. Yes. Very helpful. And then just last one for me.

Speaker Change: Okay, just just want to be clear that third quarter higher than second quarter and maybe not as much of a step up in fourth quarter relative to third, but still kind of continuing sequentially to grow.

Brett Maas: Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the risk factor section of the company's end report on Form 10-K, followed the SEC on April 1, 2024, and in subsequent SEC reports and press releases, actual results may differ materially. The company's financial results press release in today's discussion includes certain non-gap financial measures. These refer to the non-gap to gap reconciliation which appear in our press release, and are otherwise available on our website.

Ryan Zimmerman: Yes. Okay.

Ryan Zimmerman: Very helpful.

Scott Neils: You know, maybe for Scott, just looking at the gross margins. They've helped study this first half of the year. Talk to me about kind of where you think those margins will go, particularly as you bring those stem cells back in house. You add the amniotics, I would assume both carry, you know, pretty good margins. So just talk to me about kind of where you see that transition.

Speaker Change: Yes.

Scott Neils: And then just last one for me, you know, maybe for Scott, just looking at the gross margins. They've helped steady this first half of the year. Talk to me about kind of where you think those margins will go, particularly as you bring those stem cells back in house. You add the antibiotics. I would assume both carry, you know, pretty good margin. So just talk to me about kind of where you see that transition. Sure, you know, going back to Q1, I think what we sort of laid out at the progression on that was an expectation that those would remain relatively constant in Q2 and Q3, with an uptick, you know, a fairly significant uptick occurring in Q4 as we started really leaning into internally produced them.

Speaker Change: Okay.

Speaker Change: Very helpful. And then just last one for me, you know,

Scott Neils: maybe for Scott, just looking at the gross margins they've helped study this first half of the year. Talk to me about kind of where you think those margins will go, particularly as you bring those stem cells back in-house, you add the amniotics, I would assume both carry, you know, pretty good margin. So just talk to me about kind of where you see that that transitioning.

Brett Maas: Note that our Form 8-K, followed our financial results press release, provides a detailed narrative that describes the use of such measures. In the benefit of those, you may be listening to the replay of this call. This call was held and recorded on August 9, and approximately 9 a.m. Eastern time. It's coming to clients, any obligation updated forward-looking statements, except as required by a applicable law.

Scott Neils: Sure, you know, going back to Q1, I think what we sort of laid out as the progression on that was an expectation that those would remain relatively constant in Q2 and Q3, with an uptick, you know, a fairly significant uptick occurring in Q4, as we started really leaning into internally produced stem cell. I think the one change I would, you know, come back on this go around would be that I look back at our inventory and our stem cell in terms of sourced stem cells, and I think we'll continue selling through that for the remainder of Q4, so I don't think we'll see as dramatic of an uptick in gross margins in Q4, although I do expect to see some, but I think we'll fully realize that in Q1 of 2025, but I think it'll be more consistent in Q3 and Q4, as we round out the year. Thank you, Scott.

Speaker Change: Sure, you know going back to Q1, I think what we sort of laid out as the progression on that was

Speaker Change: an expectation that those would remain relatively constant in Q2 and Q3 with an uptick, you know, a fairly significant uptick occurring in Q4 as we started really leaning into internally produced stem cell. I think the one change I would

Sean Brown: Now that's in the call of our Sean Brown.

Sean Brown: Sean the floor is yours.

Sean Brown: Thank you, Brett, and good morning everyone. I'm pleased to announce another strong quarter for the extent with 48% growth over a prior year. We are solidly on pace to achieve our full year revenue guidance of 116 to 120 million, which we are reaffirming today. This range represents total annual revenue growth of approximately 27% to 31%, compared to the full year 2023. From an organic growth perspective, which we define as revenue growth, excluding contributions from products acquired during the previous 365 days, for which there were no comparable sales.

Scott Neils: So I think the one change I would, you know, come back on this go around would be that I look back at our inventory and our stem cell in terms of source stem cells. And I think we'll continue selling through that for the remainder of Q4. So I don't think we'll see as dramatic an uptick in gross margins in Q4. Although I do expect to see some, but I think we'll fully realize that in Q1 of 2025. But I think it'll be more consistent in Q3 and Q4 as we round out the year.

Speaker Change: You know, come back on this go around would be that.

Speaker Change: I.

Speaker Change: I look back at our inventory and our stem cell in terms of sourced stem cells.

Speaker Change: And I think we'll continue selling through that for the remainder of Q4, so I don't think we'll see as dramatic.

Speaker Change: of an uptick in gross margins in Q4, although I do expect to see some, but I think we'll fully realize that in Q1 of 2025. I think it'll be more consistent in Q3 and Q4 as we round out the year.

Scott Neils: Thank you, Scott. Yes, Scott.

Sean Brown: Second quarter revenue was flat compared to the prior year, mostly due to the planned surge line cannibalization of our X spine hardware and significant OEM sales during Q2 2023. As our supply chain challenges abate, and we introduce new products to the market, we continue to expect our organic growth to accelerate during the second half of 2024 and reach double digits. From a profitability perspective, adjusted EBITDA for the second quarter was 0.5 million and marking our fifth consecutive quarter of positive adjusted EBITDA.

Chase Knickerbocker: Our next question comes from Chase Knickerbocker. Let's crank out on the Capitol. The line is open.

Operator: Our next question comes from Chase Knickerbocker of Craig Hallam Capital.

Speaker Change: i

Speaker Change: Our next question comes from Chase Knickerbocker of Craig Hallam Capital.

Chase Knickerbocker: Good morning, guys. How are you?

Chase Knickerbocker: Good morning, guys. Thanks for taking the questions. Great. Congrats on the good progress here. Great.

Speaker Change: The line is open.

Chase Knickerbocker: Good morning guys, how are you?

Chase Knickerbocker: Thanks for taking the questions and congratulations on the good progress here. Maybe just starting, Sean, on the amniotic side, kind of give us an update as you've kind of launched that product now, kind of how you see the bigger opportunity for Xtant being kind of, you know, your direct distribution or kind of those OEM agreements, you know, particularly maybe into wound care. It's a dynamic market, but I'd love to get your updated thoughts on kind of what the largest opportunity is for Xtant.

Chase Knickerbocker: Doing well, all of you guys. Thanks for taking the questions and congrats on the good progress here.

Chase Knickerbocker: Maybe just starting, Sean, on the amniotic side, kind of give us an update as you've kind of launched that product now, kind of how you see, you know, the bigger opportunity for X-Tant being kind of, you know, your direct distribution or kind of those OEM agreements, you know, particularly maybe in the wound care, so dynamic market. But I'd love to get you, just get your updated thoughts there on kind of what the largest opportunity is for X-Tant. Yeah, no question about the largest opportunity for us will be what we do on the OEM side. And quite frankly, with the agreements that we already have in place, we can't make enough of it, quite frankly.

Chase Knickerbocker: Maybe just starting, Sean, on the amniotic side, kind of give us an update as you've kind of launched that product now, kind of how you see

Speaker Change: You know, the bigger opportunity for Extant being kind of, you know, your direct distribution, or kind of those OEM agreements, you know, particularly maybe in Bloomcare, so dynamic market, but I'd love to get you to just get your updated thoughts there on kind of what the largest opportunity is for Extant.

Sean Brown: In the second quarter, we expanded our growth margin by 50 basis points compared to the prior year period and reduced our operating expenses as a percentage of revenue compared to Q1 2024. Our production is becoming more efficient and we continue to scale. We anticipate further improvements in adjusted EBITDA in Q3 2024 and beyond.

Sean Browne: Yeah, no question about it. The largest opportunity for us will be what we do on the OEM side. And quite frankly, with the agreements that we already have in place, we can't make enough of it, quite frankly. So the biggest issue we have is sourcing the amniotic tissue itself.

Speaker Change: Yeah, no question about the largest opportunity for us will be what we do on the OEM side. And quite frankly, with the agreements that we already have in place, we can't make enough of it, quite frankly. So the biggest issue we have is, is sourcing

Sean Brown: As I have discussed in previous calls, we expect the first we expected the first after this year to be challenging due to numerous supply chain issues, so we are pleased to have such a strong second quarter. We have worked through most of these issues that have impacted some of our fastest growing products. Additionally, we are closer to producing our own stem cells, which we expect will provide an uptick to both revenue and operating profit.

Sean Brown: So the biggest issue we have is sourcing the amniotic tissue itself. So that's job one. So getting more in, because there is quite a bit of OEM opportunity. And then we do see that, you know, this product line for us already is like a million-dollar product line. And what's interesting about it, it's only like four different doctors who use this. And so it's really used as a protective barrier. And so, as we have gotten it further out to our own sales force, we're finding more and more of our distribution network that sells a little bit here, a little bit there.

Sean Browne: So that's job one, so getting more in because there is quite a bit of OEM opportunity. And then we do see that, you know, this product line for us already is like a million dollar product line. And what's interesting about it, there are only four different doctors who use it.

Speaker Change: the amniotic tissue itself. So, so that's, that's

Speaker Change: Job one, so getting more in. So it's because there is quite a bit of OEM opportunity. And then we do see that, you know, this product line for us already, it's like a million dollar product line. And what's interesting about it, it's only like four different doctors who use this.

Sean Browne: And so it's really used as a protective barrier. And so as we've gotten it further out to our own Salesforce, we're finding more and more of our distribution network that sells a little bit here, a little bit there. And here we have a really great product, and we can afford much, much better margins than we have in the past, or at least I should say, much better commission than we have in the past.

Speaker Change: And so it's really used as a protective barrier. And so as we have gotten further out to our own Salesforce,

Speaker Change: We're finding more and more of our distribution network that sells a little bit here, a little bit there, and here we have a really great product.

Sean Brown: And here we have a really great product. And we can afford much, much better margins than we have in the past, or at least I should say much better commissions than we have in the past. And so this may be a product line that will surprise us, and we'll see what it is. But we know right away as a million dollar product line, where we're making, say, 50% margins, we're now making close to 90% margins on that same product line. So it has a nice drop through. And on the OEM side, it's a terrific, you know, contribution margin drop through.

Speaker Change: and we can afford much, much better margins than we have in the past, or at least I should say, much better commissions than we have in the past. And so this may be a product line that will surprise us and we'll see what it is. But we know right away as a million dollar product line where we're making, say, 50% margins.

Sean Brown: I am particularly pleased by how the top 20 distributors have grown 16.5% in revenue from when we acquired Surgeonline in the third quarter of 2023. The NANOS, IT, and production acquisition will play a significant role in our future growth in new products, addressing new verticals within our biologics business. As we develop those new product lines, I will give more details about the product specifics, target markets, and our go-to-market strategy.

Sean Browne: And so this may be a product line that will surprise us, and we'll see what it is, but we know right away it is a million dollar product line where we're making, say, a 50% margin. We're now making close to 90% margins on that same product line, so it has a nice drop through. And on the OEM side, it's a terrific contribution margin drop through. So maybe not so much on the gross margin side, but definitely on the contribution side.

Sean Brown: Overall, we are pleased with our progress in integrating each of these acquisitions and we continue to rationalize related expenses and product lines.

Speaker Change: We're now making, you know, close to 90% margins on that same product line. So it has a nice drop-through. And on the OEM side, it's a terrific, you know, contribution margin drop-through. So maybe not so much on the gross margin side, but definitely on the contribution side.

Sean Brown: So maybe not so much on the gross margin side, but definitely on the contribution side. Got it.

Chase Knickerbocker: Got it. And kind of maybe talk about what you're doing on the supply side to source more placentas. I know, kind of take some time to kind of build those relationships, maybe just speak to kind of how you're trying to increase production there.

Speaker Change: i

Sean Brown: And to kind of maybe talk about what you're doing on the supply side, to source more placentas, I know kind of take some wild to kind of build those relationships, maybe just speak to kind of higher trying to up production there. Well, the good news is that our relatively new COO, Mark Schellenberger, had come from that side. He'd worked with a competitor a couple of years back that had grown very, very fast in this, in this annual world. And so Mark certainly has relationships; it's now just getting more, getting more of those agreements signed. And so we get more coming through, but it's, you know, one of the other things too about Mark. Mark has just been impeccable.

Speaker Change: Got it. And to kind of maybe talk about what you're doing on the supply side to source more placentas. I know it kind of takes some while to kind of build those relationships. Maybe just speak to kind of how you're trying to up production there.

Sean Brown: As a reminder, we have built our platform with four key pillars that we believe will drive sustainable long-term growth. One, due product introductions, two, distribution network expansion, three adjacent market penetration and four strategic acquisitions. Starting with new products, like every healthy robust organization, we are continually innovating with deep pipeline of new products. During the course of our turnaround, we expanded our biologics product offering from two categories to five, which helped enhance our growth profile.

Sean Browne: Well, the good news is that our relatively new COO, Mark Schallenberger, comes from that side. He worked with a competitor a couple of years ago that had grown very, very fast in this annual world.

Speaker Change: Well, the good news is that our relatively new COO, Mark Schallenberger, had come from that side. He'd worked with a competitor.

Speaker Change: A couple years back that had grown very, very fast in this in this annual world.

Sean Browne: And so Mark certainly has relationships. It's now just getting more of those agreements signed. And so we get more coming through. One of the other things, too, about Mark. Mark has just an impeccable reputation within that world. And that matters, because there are some guys out there that don't necessarily have such terrific reputations. And so I think through that, we will be able to get more and more of those placenta donors in. And so, yes, that is literally right now our most limiting factor.

Speaker Change: And so Mark certainly has relationships. It's now just getting more, getting more of those agreements signed. And so we get more coming through, but, but it's you know, one of the other things too about Mark, Mark has just an impeccable reputation within that world.

Sean Brown: Moreover, we are the only orthobiologics company that offers a complete line of orthobiologics, which include allegraft, TBM, synthetics, viable bone matrix stem cells, and growth factor. During the second quarter, we released a sixth new category, amniotic membrane allegrafts for surgical applications and advanced wound care, and we are already booking sales. Extam previously sold a distributed product at another company 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 our Extam branded product line as well as provide a fantastic solution as an OEM producer.

Sean Brown: Reputation within that world. And that matters because there's some guys don't know that aren't necessarily so, so such terrific reputations. And so I think through that, we will be able to get more and more of those placenta donors in. And so, yeah, so that's that literally right now is our most limiting factor.

Speaker Change: And that matters, because there's some guys out there that aren't necessarily...

Speaker Change: So to have such terrific reputations and so I think through that we will be able to get more and more of those placenta donors in and so uh so yeah, so that's that literally right now is our most limiting factor

Scott Neils: Got it, and then Scott kind of answered this partially in his last answer, but on the stem cell side, kind of how should we think about supply that you guys will have available kind of soon after the launch of that product. It sounds like it's going to be kind of a phase out of the sourced product. But kind of maybe just talk to how quick you think you can kind of get inventory there to, you know, meet all of the VBM demand that you have today. And then potentially unlock, you know, demand that your supply constrained from addressing today.

Chase Knickerbocker: Got it. And then Scott kind of answered this partially in his last answer.

Speaker Change: Scott kind of answered this partially in his last answer, but on the stem cell side, kind of how should we think about supply that you guys will have available kind of soon after the launch of that product? It sounds like it's going to be kind of a phase out of the sourced product.

Chase Knickerbocker: But on the stem cell side, how should we think about the supply that you guys will have available kind of soon after the launch of that product? It sounds like it's going to be kind of a phase out of the sourced product. But kind of maybe just talk about how quick you think you can kind of get inventory there to meet all of the VBM demand that you have today and then potentially unlock demand that your supply is constrained from addressing today.

Sean Brown: The fiscal year 2024 is our year of self-sustainability. In 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. Also, on the hardware side, we are finishing development and software all out of the Cortera posterior fixation system started by surge line. We are now in the process of completing that roll out, which we anticipate will be fully completed by Q4 of this year.

Speaker Change: But kind of maybe just talk to how quick you think you can kind of get inventory there to, you know, meet all of the VBM demand that you have today, and then potentially unlock, you know, demand that your supply constrained from addressing today.

Sean Brown: You know, I'll jump in and, Scott, if you want to add some color to this, that'd be great. So two things. Yes, we will absolutely be able to manage our own demand, which again is terrific as you know, we're selling a product that again in the high 80s low 90% margin product versus the 60% margin product that we source today, so that is, you know, absolutely fantastic. Now where we see also some really terrific opportunities is what's taking place on the OEM side. And so we're very, very because we were in this position, we don't want to necessarily bring on anybody that we can't be fully come, you know, to be able to meet all of their needs.

Sean Browne: You know, I'll jump in, and Scott, if you want to add some color to this, that'd be great. So, two things.

Speaker Change: You know, I'll jump in and Scott, if you want to add some color to this, that'd be great. So two things. Yes, we will absolutely be able to manage our own demand, which again, is terrific as you now we're selling a product that again, in the

Sean Browne: Yes, we will absolutely be able to manage our own demand, which again, is terrific, as we are now selling a product that is again, in the High 80s, Low 90% margin range versus the 60% margin product that we sourced today. So that is, you know, absolutely fantastic. Now where we also see some really terrific opportunities is what's taking place on the OEM side. And so we're very, very, because we are in this position, we don't necessarily want to bring on anybody that we can't fully, you know, meet all of their needs.

Speaker Change: High 80s, low 90% margin product versus the 60% margin product that we sourced today. So that is, you know, absolutely fantastic.

Scott Neils: Now, where we see also some really terrific opportunities is what's taking place on the OEM side. And so we're very, very, because we were in this position, we don't want to necessarily bring on anybody that we can't be fully, you know, to be able to meet all of their needs.

Sean Brown: And so today we have three groups that are signed up as we speak that are patiently waiting as we roll out our new product line here. But we're, you know, the volumes that they're projecting for us right now are ones that we can manage, and they're ones that that's on top of person foremost, you know, we have to feed ourselves. And then we're going to take care of the OEM opportunities, but we're not going to overstretch our capabilities. But there is quite a, quite frankly, quite a bit of opportunity that's out there. So as we get better at this and we are able to become more efficient with our production, we will be looking to expand that OEM opportunity to.

Sean Browne: And so today we have three groups that are signed up as we speak, that are patiently waiting as we roll out our new product line here. But we're, you know, the volumes that they're projecting for us right now are ones that we can manage. And they're ones that, first and foremost, you know, we have to feed ourselves, and then we're going to, you know, take care of the OEM opportunities.

Scott Neils: And so today we have three groups that are signed up as we speak.

Scott Neils: They're patiently waiting as we roll out our new product line here, but the volumes that they're projecting for us right now are ones that we can manage, and they're ones that on top of, first and foremost, we have to feed ourselves, and then we're going to take care of the OEM opportunities.

Sean Brown: We have found that the more product lines that distributor sells of our products, the stickier they become as a distributor for AppStamp Medical. Now, with that said, we still add at 15 new distributors this past quarter. So, we are getting better penetration with our bigger distributors, while also adding new high potential distributors.

Scott Neils: But we're not going to overstretch our capabilities.

Sean Browne: But we're not going to overstretch our capabilities. But there is, quite frankly, quite a bit of opportunity that's out there. So as we get better at this, and we are able to become more efficient with our production, we will be looking to expand that OEM opportunity, too.

Scott Neils: But there is, quite frankly, quite a bit of opportunity that's out there. So as we get better at this and we are able to become more efficient with our production, we will be looking to expand that OEM opportunity too.

Sean Brown: Got it. And is it going to take a little bit of time to kind of ramp up that production, or again just kind of how soon after the launch of the product would you expect to be able to. Kind of fulfill your demand and then start to chip away at this OEM opportunities is fairly short, you know, is it a couple quarters, etc. Yeah, great question. And you know, as Scott had mentioned, we have happily we now have as much stem cells as we could solve throughout the year, which is both a good and a bad thing.

Chase Knickerbocker: Got it. And is it going to take a little bit of time to kind of ramp up that production? Or again, just kind of how soon after the launch of the product would you expect to be able to kind of fulfill your demand and then start to chip away at this OEM opportunity? Is it fairly short? You know, is it a couple quarters, etc.

Speaker Change: Got it. And is it going to take a little bit of time to kind of ramp up that production? Or again, just kind of how soon after the launch of the product would you expect to be able to kind of fulfill your demand and then start to chip away at this OEM opportunity? Is it fairly short? You know, is it a couple quarters, etc.?

Sean Browne: Yeah, great question. And, you know, as Scott mentioned, we now have as much stem cells as we could sell throughout the year, which is both a good and a bad thing. You know, so for our own product line, we're going to be good. So right now, our initial focus will be to start fulfilling those OEM opportunities. And so we think that by doing that, and just again, the ramp-up of any kind of production, you know, over the course of literally the next three or four months, we'll be in really terrific shape, you know, come q1 of 2025, when we're actually producing our own products as well.

Sean Brown: Our final pillar focuses on achieving growth through targeted acquisitions. By leveraging our growth platform for over 450 IDN agreements and 650 distributors, selling our products nationally, we are targeting either undercapitalized or sub-scale companies. More specifically, similar to our acquisitions in 2023, we are targeting companies that either help complete our offering or provide us with additional scale. Our focus on acquisition targets is based on three characteristics, first capabilities. We're looking at companies or technologies that give us greater capabilities, particularly in regenerative biologics.

Speaker Change: Yeah, great question. And, you know, as Scott had mentioned,

Speaker Change: We have, happily, we now have as much stem cells as we could sell throughout the year, which is both a good and a bad thing. So for our own product line...

Sean Brown: You know, we so so for our own product line, we're going to be good. So right now our initial focus will be to start fulfilling those OEM. Opportunities. And so we think that by doing that, and just again, the ramp up of any kind of production, you know, over the course of literally the next three or four months, will be in really terrific shape, you know, come really Q1 of 2025 when we're actually producing our own products as well. So, so this this year, what you're going to see from us, and this is a little bit of line, Scott was saying that our margins may not be as high because we won't be selling our gross margins, won't be as high because we won't be selling as much of our own stem cell products, but we will be selling a hell of a lot of stem cell products to OEM guys.

Speaker Change: We're going to be good. So right now, our initial focus will be to start fulfilling those OEM opportunities.

Sean Browne: So this year, what you're going to see from us, and this is a little bit of why Scott was saying that our margins may not be as high, because we won't be selling our gross margins won't be as high, because we won't be selling as much of our own stem cell products. But we will be selling a hell of a lot of stem cell products to OEM guys. And so again, the country, the contribution margin is really nice because there's not a commission title. And so, so that's something, at least from our side, where we don't get it on the gross side; we will get it on the overall profit.

Speaker Change: And so, so we think that by doing that.

Speaker Change: and just, again, the ramp up of any kind of production, you know, over the course of literally the next three or four months.

Sean Brown: Additionally, we look at businesses that help complete extant spine fixation and motion preservation offerings. Second, capacity. Targets that can expand our long-term biologics production demand. And the third, cash flow, businesses that are profitable or can become profitable through cost or margin synergies.

Speaker Change: will be in really terrific shape, you know, come really Q1 of 2025, when we're actually producing our own products as well. So this year, what you're going to see from us, and this is a little bit of why Scott was...

Scott Neils: saying that our margins may not be as high because we won't be selling, our gross margins won't be as high because we won't be selling as much of our own stem cell products, but we will be selling a hell of a lot of stem cell products to OEM guys. And so that again, the contribution margin is really nice because there's not a commission tied to that.

Sean Brown: And so that, again, the contribution margin is really nice because there's not a commission type of that. And so, so that's, that's something at least from our side, where we don't get it on the gross side; we will get it on the overall profit side. Yeah, okay, that makes a lot more sense.

Sean Brown: We believe that making sound, target in the 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 we acquire to be 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 extant continues to grow.

Scott Neils: And so that's something, at least from our side, where we don't get it on the growth side, we will get it on the overall profit side.

Speaker Change: Yeah, okay. That makes a lot more sense.

Sean Brown: And then Ryan touched on it briefly. I just want to put another kind of finer point on it. I respect; I hear you on the organic growth number, but kind of looking at the hardware number here, it seems pretty clear that, you know, kind of that cannibalization that you're talking about is hiding some pretty, you know, good growth that would otherwise probably be organic. So, can you maybe just talk to what kind of in the hardware bucket is really working? And, you know, you're really encouraged by. Yeah, so when you look at X, here's a great example.

Chase Knickerbocker: Yeah, okay, that makes a lot more sense. And then Ryan touched on it briefly. I just want to put another kind of finer point on it. I hear you on the organic growth number, but kind of looking at the hardware number here, it seems pretty clear that, you know, kind of that cannibalization that you're talking about is hiding some pretty good growth that would otherwise probably be organic. So can you maybe just talk about what kind of stuff in the hardware bucket is really working? And, you know, you're really encouraged by?

Speaker Change: And then Ryan touched on it briefly. I just wanted to put another kind of finer point on it.

Ryan Zimmerman: I hear you on the organic growth number, but kind of looking at the hardware number here, it seems pretty clear that

Speaker Change: you know, kind of that cannibalization that you're talking about is hiding some pretty, you know, good growth that would otherwise probably be organic. So can you maybe just talk to what kind of in the hardware bucket is really working? And, you know, you're really encouraged by?

Sean Brown: Moving forward, we are focused on becoming operationally self-sustaining by controlling our supply chain and becoming a 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 transformation or transformative treatment options to a large and growing patient population.

Sean Browne: Yeah, so when you look at X, here's a great example. So when you look at any of our competitors who sell spine fixation, most of them have their, their pedicle screw systems sell anywhere from 40 to as much as 50% of their overall revenue. The old X spine business was less than 13%. So it was a really, really, really dated line.

Sean Brown: So, when you were to look at any of our competitors who sell spine fixation, most of them have their pedical screw systems will sell anywhere from 40 to as much as 50 percent of their overall revenue. The old X spine business was less than 13 percent. So, really, really, really gave the line. So, the pedical screw systems that we've brought over from Surge Line right away has helped us considerably, because that is a, it can be a very impactful product line. Then when you throw in Quartera on top of that and the kind of growth that we're starting to see from that, you know, this past quarter, you know, we had more users at the month of June, which our highest amount of revenue that we've had in that, in that particular product line.

Speaker Change: Yeah, so when you look at X, here's here's a great example. So when you were to look at any of our competitors who sell

Speaker Change: Spine fixation

Speaker Change: most of them have their their pedicle screw systems will sell anywhere from 40 to as much as 50%.

Sean Brown: Most importantly, we believe these actions will help us get to positive operating cash flow during the fourth quarter of 2024.

Speaker Change: of their overall revenue.

Speaker Change: The old X-Spine business was less than 13%, so it was a really, really, really dated line. So the pedicle screw systems that we brought over from Surgiline right away has helped us considerably because that can be a very impactful...

Scott Neils: Now, I would like to turn the call over to Scott. We will discuss our first quarter of 2024 financial results. Thank you, Sean.

Sean Browne: So the pedicle screw systems that we've brought over from Surgeline right away have helped us considerably because that is a, it can be a very impactful product line. Then when you throw in Cortera on top of that and the kind of growth that we're starting to see from that, you know, this past quarter, we had more users. The month of June was our highest amount of revenue that we've had in that particular product line.

Scott Neils: Good morning, everyone. On the call. Total revenue for the second quarter of 2024 was $29.9 million, compared to $20.2 million for the same period in 2023. 48% increase has attributed primarily to product sales from the recently acquired and surge line hardware and biological business. Gross margin for the second quarter of 2024 was 62.1% compared to 61.6% for the same period in 2023. The increase has primarily attributable to greater scale and improved production efficiency which is partially offset by increased charges for excess and obsolete inventory, non-absorb costs and sales.

Speaker Change: product line. Then when you throw in Cortera on top of that and the kind of growth that we're starting to see from that you know this past quarter

Speaker Change: We've had more users. The month of June was our highest amount of revenue that we've had in that particular product line, and it only continues to climb. And so then as we add the MIS part to this,

Sean Brown: And it only continues to climb. And so, then as we add the MIS part to this in September, or late September, you know, we really told that the spine fixation business is going to profitably contribute to our business and to our growth in a nice way.

Sean Browne: And it only continues to climb. And so, as we add the MIS part to this, in September, late September, you know, we really feel that the spine fixation business is going to profitably contribute to our business and to our growth in a nice way.

Speaker Change: In September , late September , you know, we really feel that the spine fixation business is going to profitably contribute to our business and to our growth in a nice way.

Scott Neils: Got it, and then just last one for Scott. Great to hear on the expectation for positive operating cash flows in Q4. Maybe just speak to kind of expectations, you know, kind of from theirs that kind of sustainable cash flow break even how are you thinking about, you know, that as, as we kind of exit the year. I would say that I don't expect that to be the case in Q1 simply because, you know, there's a cop payout in Q1, but I would suspect that thereafter that that would sort of be the expectation as we look at cash flows from operations.

Chase Knickerbocker: Got it. And then just last one for Scott.

Scott Neils: Got it. And then just last one for Scott. Great to hear on the expectation for positive operating cash flows in Q4. Maybe just speak to kind of expectations, you know, kind of from there, is that kind of sustainable cash flow break-even? How are you thinking about, you know, that as we kind of exit the year?

Chase Knickerbocker: Great to hear on the expectation for positive operating cash flows in Q4. Maybe just speak to kind of expectations, you know, kind of from there. Is that kind of sustainable cash flow break even? How are you thinking about that as we kind of exit the year?

Scott Neils: 2nd quarter, 2024, operating expenses were $21.5 million, 13.9 million dollars in the same period a year ago. As a percentage of total revenue, operating expenses were $7.1.9% compared to $68.5% in the same period a year ago. These increases were primarily attributable to the additional commission expense resulting from revenue growth. Additional compensation expense related to additional headcount and additional stat based compensation. Sequentially, operating expenses declined 260 basis points from Q1 of 2024.

Scott Neils: I would say that I don't expect that to be the case in Q1 simply because, you know, there's a comp payout in Q1, but I would suspect that thereafter that would sort of be the expectation as we look at cash flows from operations.

Speaker Change: I would say that I don't expect that to be the case in Q1 simply because, you know, there's a comp payout in Q1, but I would suspect that thereafter that that would sort of be the expectation as we look at cash flow from operations.

Chase Knickerbocker: Great. And congrats again, guys. Thank you. Great. Thank you, Shade.

Chase Knickerbocker: Great. And congrats again, guys. Thank you. Great. Thanks, Chase. As a reminder,

Speaker Change: Great, and congrats again guys. Thank you.

Scott Neils: General and administrative expenses were $7.7 million dollars for the three months ended June 30 of 2024 compared to $5 million dollars for the same period in 2023. This increase is primarily attributable to increases in compensation expense, stat based compensation, professional service fees, and hardware and software expenses. Sales and marketing expenses were $13.2 million dollars for the three months ending June 30 of 2024 compared to $8.7 million dollars from the same period in 2023.

Speaker Change: Great. Thanks, Chase.

Operator: As a reminder, if you would like to ask for a question, please press star one on your touch, and soon move for the questions. I'll throw the call back over to our hosts. Great, thank you, operator. We made great progress in the second quarter and first half of 2024.

Sean Browne: Great. Thank you, operator.

Operator: As a reminder, if you would like to ask a question, please press star one on your touchstone keypad now. Answering no further questions, I'll throw the call back over to our hosts. Good, thank you.

Speaker Change: As a reminder, if you would like to ask a question, please press star one on your touchstone keypad.

Speaker Change: Transcription by CastingWords

Speaker Change: Answering no further questions, I'll throw the call back over to our hosts.

Scott Neils: This increase is primarily due to higher commission expenses related to increased sales and additional compensation expenses associated with additional headcount. Research and development expenses were $0.6 million dollars for the three months ending June 30 of 2024 and increased from $0.2 million dollars for the same period in 2023. The increase is primarily due to increased headcount related to additional focus on new product introduction. Net loss in the second quarter of 2024 was $3.9 million dollars for three cents per share compared to in net loss with $2.2 million dollars for two cents per share in the comparable 2023 period.

Sean Browne: We made great progress in the second quarter and first half of 2024. As we progress through the remainder of the year, we believe there are three key drivers for Xtant to become a self-sustaining company. One, we build our own biologics.

Speaker Change: Great. Thank you, Operator.

Speaker Change: We made great progress in the second quarter and first half of 2024. As we progress through the remainder of the year, we believe there are three key drivers for Xtant to become a self-sustaining company. One, build our own biologics. This is a big quarter for our internal development team.

Sean Brown: As we progressed through the remainder of the year, we believe there are three key drivers for Extent to become a self-sustaining company. One, build our own biologics. This is a big quarter for our internal development team. The more we produce of our own highly profitable biologics, the less we'll rely on other manufacturers' supply chains. We believe this one step alone will help us get to positive operating cash flow in Q4.

Sean Browne: This is a big quarter for our internal development. The more we produce of our own highly profitable biologics, the less we'll rely on other manufacturers for supply. We believe this one step alone will help us get to positive operating cash flow in Q4. Second thing, optimize the integration of the businesses we bought last year. We see great growth opportunities and more opportunities to leverage costs. And then three, continue to drive the four pillars of growth. This formula has worked for Xtant, and we plan to continue to drive growth through these pillars.

Speaker Change: The more we produce of our own highly profitable biologics, the less we'll rely on other manufacturers' supply chains.

Speaker Change: We believe this one step alone will help us get to positive operating cash flow in Q4.

Sean Brown: Second thing, optimize the integration of the businesses we bought last year. We see great growth opportunities and more opportunities to leverage costs. And then three, continue to drive the four pillars of growth. This formula has worked for extent, and we plan to continue to drive growth through these pillars.

Speaker Change: Second thing, optimize the integration of the businesses we bought last year. We see great growth opportunities and more opportunities to leverage costs. And then three, continue to drive the four pillars of growth. This formula has worked for Xtant and we plan to continue to drive growth through these pillars.

Sean Brown: 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.

Sean 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 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.

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

Operator: That concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.

Operator: That concludes today's conference call. Thank you for attending.

Scott Neils: In addition, on August 7, 2024, we entered into an agreement for a $5 million dollar pipe within a existing institutional investor to provide additional working capital as we transition towards positive operating cash flows.

Speaker Change: That concludes today's conference call. Thank you for attending.

Operator: Operator, you may now open the line for questions. At this time, we will conduct the question and answer session. If you would like to ask a question, please press star one on your phone now, and you'll be placed into the two in the order received. Once again, to ask a question, please press star one on your phone now.

Ryan Zimmerman: And our first question comes from Ryan Zimmerman of BTIG. Please ask your question. Good morning. Okay. Yeah, I can hear you great. How are you today? Awesome. I'm good. Thanks for taking our questions. [inaudible] Okay, yes, sure. So, when I think about it now, I'll take it from a high level perspective. And Scott, if you want to add any color, which is the specifics of the percentages of each, but from a high level perspective, yes, the surge line hardware has been a real nice helper.

Ryan Zimmerman: And it is, as I mentioned, this is something that we're really to take over some of our older X spine hardware, you know, the surge line product line, which is a very good product line. And so it's one that's helping us replace. So, so that that whole cannibalization was something that we wanted to build in. And so, so as we think about what's going to happen in the second half of this year, you're going to see two things that will take place, you're going to see an increase of our own self produced things like I said, our amniose, some of our stem cell stuff that'll be coming out the second half this year.

Ryan Zimmerman: All that will help drive more of our biologic sales, but concurrently, we have a nice Cortera product line that's going to be really rolled out in full. The MIS portion of this, we have the open already with us today, but the MIS portion will be rolled out during NASA. And so we feel that in the fourth quarter, we'll really start to see a nice uptick when it comes to the hardware side of things.

Ryan Zimmerman: So, so overall, I think we have a nice balance of growth, but I think yet, just over the course of time, I just also think that our biologic business based on the strength of where that is. We'll start to become even more prominent.

Ryan Zimmerman: Okay, that's very helpful. And then, you know, with the guidance, you know, you beat by a little bit, but, you know, obviously not slowing that through to the guidance, very much reiterating guides. And just help us make through the pacing for the balance of the year, and how to think about third quarter versus fourth quarter. And it seems like, you know, traditionally, you'll get nice seasonal stuff up in the fourth quarter.

Ryan Zimmerman: Just want to make sure we're clear on that. Sure. So we will see an uptick in the third quarter from certainly the second quarter, which is something that typically you wouldn't see, but we do feel good about what's happening within the business overall, especially the ramp up that's starting to take place with our stem cell business where we really just, you know, about early second quarter. We finally got fully stocked in that.

Ryan Zimmerman: We haven't been fully stocked in probably two years. And so, you know, that has taken a little longer than we expected, but we are starting to see it really start to take off here in the third, and we expect also in the fourth quarter. So we do think that, you know, as we think about the pacing. Third quarter should be improved. Fourth quarter should be strong. Okay, just just want to be clear that third quarter higher than second quarter, and maybe not as much of a step up in fourth quarter relative to third, but still kind of continuing sequentially to grow. Yes. Okay. Very helpful.

Scott Neils: Sure, you know, going back to Q1, I think what we sort of laid out at the progression on that was an expectation that those would remain relatively constant in Q2 and Q3 with an uptick, you know, a fairly significant uptick occurring in Q4 as we started really leaning into internally produced them. So I think the one change I would, you know, come back on this go around would be that I look back at our inventory and our stem cell in terms of source stem cells.

Scott Neils: And I think we'll continue selling through that for the remainder of Q4. So I don't think we'll see as dramatic up and uptick and gross margins in Q4. Although I do expect to see some, but I think we'll fully realize that in Q1 of 2025, but I think it'll be more consistent in Q3 and Q4 as we round out the year. Thank you, Scott. Yes, Scott.

Chase Knickerbocker: Our next question comes from Chase Knickerbocker. Let's crank out on the Capitol. The line is open. Good morning, guys. Thanks for taking the questions. Great. Congrats on the good progress here. Great. Maybe just starting, Sean, on the amniotic side, kind of give us an update as you've kind of launched that product now, kind of how you see, you know, the bigger opportunity for X-Tant being kind of, you know, your direct distribution or kind of those OEM agreements, you know, particularly maybe in the wound care, so dynamic market.

Chase Knickerbocker: But I'd love to get you, just get your updated thoughts there on kind of what the largest opportunity is for X-Tant. Yeah, no question about the largest opportunity for us will be what we do on the OEM side. And quite frankly, with the agreements that we already have in place, we can't make enough of it, quite frankly. So the biggest issue we have is sourcing the amniotic tissue itself. So that's job one.

Chase Knickerbocker: So getting more in, because there is quite a bit of OEM opportunity. And then we do see that, you know, this product line for us already is like a million dollar product line. And what's interesting about it, it's only like four different doctors who use this. And so it's really used as a protective barrier. And so as we have gotten it further out to our own sales force, we're finding more and more of our distribution network that sells a little bit here, a little bit there.

Chase Knickerbocker: And here we have a really great product. And we can afford much, much better margins than we have in the past, or at least I should say much better commissions than we have in the past. And so this may be a product line that will surprise us, and we'll see what it is. But we know right away as a million dollar product line, where we're making say 50% margins, we're now making close to 90% margins on that same product line.

Chase Knickerbocker: So it has a nice drop through. And on the OEM side, it's a terrific, you know, contribution margin drop through. So maybe not so much on the gross margin side, but definitely on the contribution side. Got it. And to kind of maybe talk about what you're doing on the supply side, to source more placentas, I know kind of take some wild to kind of build those relationships, maybe just speak to kind of higher trying to up production there.

Chase Knickerbocker: Well, the good news is that our relatively new COO Mark Schellenberger had come from that side. He'd worked with a competitor a couple of years back that had grown very, very fast in this, in this annual world. And so Mark certainly has relationships, it's now just getting more, getting more of those agreement signed. And so we get more coming through, but it's, you know, one of the other things too about Mark Mark has just been impeccable.

Chase Knickerbocker: Reputation within that world. And that matters because there's some guys don't know that aren't necessarily so, so such terrific reputations. And so I think through that, we will be able to get more and more of those placenta donors in and so, so yeah, so that's that literally right now is our most limiting factor. Got it and then Scott kind of answered this partially in his last answer, but on the stem cell side, kind of how should we think about supply that you guys will have available kind of soon after the launch of that product.

Chase Knickerbocker: It sounds like it's going to be kind of a phase out of the sourced product. But kind of maybe just talk to how quick you think you can kind of get inventory there to, you know, meet all of the VBM demand that you have today. And then potentially unlock, you know, demand that your supply constrained from addressing today. You know, I'll jump in and Scott if you want to add some color to this, that'd be great.

Chase Knickerbocker: So two things. Yes, we will absolutely be able to manage our own demand, which again is is terrific as you know, we're selling a product that again in the high 80s low 90% margin product versus the 60% margin product that we source today, so that is, you know, absolutely fantastic. Now where we see also some really terrific opportunities is what's taking place on the OEM side. And so we're very, very because we were in this position, we don't want to necessarily bring on anybody that we can't be fully come, you know, to be able to meet all of their needs.

Chase Knickerbocker: And so today we have three groups that are signed up as we speak that are patiently waiting as we roll out our new product line here. But we're, you know, the volumes that they're projecting for us right now are ones that we can manage and they're ones that that's on top of person foremost, you know, we have to feed ourselves. And then we're going to take care of the OEM opportunities, but we're not going to overstretch our capabilities.

Chase Knickerbocker: But there is quite a quite frankly quite a bit of opportunity that's out there. So as we get better at this and we are able to become more efficient with our production, we will be looking to expand that that OEM opportunity to. Got it. And is it going to take a little bit of time to kind of ramp up that production or again just kind of how soon after the launch of the product would you expect to be able to.

Chase Knickerbocker: Kind of fulfill your demand and then start to chip away at this OEM opportunities is fairly short, you know, is it a couple quarters, etc. Yeah, great question. And you know, as Scott had mentioned, we have happily we now have as much stem cells as we could solve throughout the year, which is both a good and a bad thing. You know, we so so for our own product line, we're going to be good.

Chase Knickerbocker: So right now our initial focus will be to start fulfilling those OEM, opportunities. And so we think that by doing that, and just again, the ramp up of any kind of production, you know, over the course of literally the next three or four months, will be in really terrific shape, you know, come really Q1 of 2025 when we're actually producing our own products as well. So, so this this year, what you're going to see from us, and this is a little bit of line, Scott was saying that our margins may not be as high because we won't be selling our gross margins, won't be as high because we won't be selling as much of our own stem cell products, but we will be selling a hell of a lot of stem cell products to OEM guys.

Chase Knickerbocker: And so that, again, the, the contribution margin is really nice because there's not a commission type of that. And so, so that's, that's something at least from our side, where we don't get it on the gross side, we will get it on the overall profit side. Yeah, okay, that makes a lot more sense. And then Ryan touched on it briefly. I just want to put another kind of finer point on it.

Chase Knickerbocker: I respect, I hear you on the organic growth number, but kind of looking at the hardware number here, it seems pretty clear that, you know, kind of that cannibalization that you're talking about is hiding some pretty, you know, good growth that would otherwise probably be organic. So, can you maybe just talk to what kind of in the hardware bucket is really working? And, you know, you're really encouraged by. Yeah, so when you look at X, here's, here's a great example.

Chase Knickerbocker: So, when you were to look at any of our competitors who sell spine fixation, most of them have their, their pedical screw systems will sell anywhere from 40 to as much as 50 percent of their overall revenue. The old X spine business was less than 13 percent. So, really, really, really gave the line. So, the, the pedical screw systems that we've brought over from, from surge line right away has helped us considerably, because that is a, it can be a very impactful product line.

Chase Knickerbocker: Then when you throw in Quartera on top of that and the kind of growth that we're starting to see from that, you know, this past quarter, you know, we, we had more users at the month of June, which our highest amount of revenue that we've had in that, in that particular product line. And it only continues to climb. And so, then as we add the MIS part to this in September, or late September, you know, we really told that, that the spine fixation business is going to profitably contribute to our business and to our growth in a nice way.

Scott Neils: I would say that I don't expect that to be the case in Q1 simply because, you know, there's a cop payout in Q1, but I would suspect that thereafter that that would sort of be the expectation as we look at cash flows from operations. Great. And congrats again, guys. Thank you. Great. Thank you, Shade. As a reminder, if you would like to ask for question, please press star one on your touch and soon move for the questions, I'll throw the call back over to our hosts.

Sean Brown: Great, thank you operator. We made great progress in the second quarter and first half of 2024. As we progressed through the remainder of the year, we believe there are three key drivers for extent to become a self-sustaining company. One, build our own biologics. This is a big quarter for our internal development team. The more we produce of our own highly profitable biologics, the less we'll rely on other manufacturers' supply chains. We believe this one step alone will help us get to positive operating cash flow in Q4.

Sean Brown: Second thing, optimize the integration of the businesses we bought last year. We see great growth opportunities and more opportunities to leverage costs. And then three, continue to drive the four pillars of growth. This formula has worked for extent and we plan to continue to drive growth through these pillars.

Sean Brown: 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.

Operator: That concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.

Q2 2024 Xtant Medical Holdings Inc Earnings Call

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