Q1 2025 Xtant Medical Holdings Inc Earnings Call
Speaker Change: Good afternoon everyone and welcome to the X-Tant Medical First Quarter 2025 Financial Results.
Speaker Change: At this time, all participants are in a listen only mode and the floor will be open for questions following the presentation. If anyone should require operator assistance during this conference, please press star zero on your phone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Brett Maas of Hayden Investor Relations. Brett, the floor is yours. Thank you very much.
Brett Maas: Thank you, operator. Joining me today is Sean Browne, President and Chief Executive Officer and Scott Neils, Chief Financial Officer.
Brett Maas: Today's call is being webcast and be posted on the company's website for playback. During the course of this call, management may make certain force-looking statements regarding future events that the company's expected future performance.
Brett Maas: These four-legged statements reflect Xtant's current perspective on existing trends and information that can be identified such words as expect, plan, will, may, anticipate, believe, should, intends in other words to a similar meaning.
Brett Maas: which four leading statements are not guarantees a future performance and involve risks and uncertainties, including those noted in the risk factor section of the Cummings Annual Report on Form 10K followed the SEC and in subsequent SEC reports and press releases.
X results made different materially.
Brett Maas: The company's financial results press release and today's discussion includes certain non-GAAP financial measures. Please refer to the non-GAAP to gap reconciliation which appear in our press release and are otherwise available on our website. Note that our form 8K followed our financial results press release provides the detailed narrative that describes our use of such measures.
Speaker Change: For the brief, I'm sorry, for the benefit of those who may be listening for the replay, this call was held in record on May 12th at approximately 4.30 p.m. Eastern time. It can be declined any obligation to update its four links, statements, except as required by applicable law. Now I'd like to share the call for Sean Browne, Sean the floor is yours.
Speaker Change: I am pleased to share that accident medical delivered outstanding results for the first quarter 2025, we achieved strong top and bottom line performance across every key financial metric starting with our top line revenue growth of 18%, reaching $32 9 million in total revenue. This robust performance coupled with our cost cutting efforts over the last two.
Speaker Change: Six months resulted in strong adjusted EBITDA and positive net income.
Speaker Change: From a shareholder perspective, we reached a significant milestone with the termination of a very restrictive investor rights agreement with the Army Mad disagreement has long been a constraint and that's for removal marks a new chapter Frac stat. We are encouraged by the continued investment in our business by a new major investor Naphtha Halle and appreciate their belief in our current business strategy.
Speaker Change: <unk>, which we believe will be beneficial to all shareholders in the long term and somebody who may noticed we filed a form S. One resale registration statement. This afternoon registering the resale of the shares sold by or revert to a group of investors led by naphtha Halle, which we agreed to do to facilitate this.
Speaker Change: Transaction now that no new shares are being issued by accident pursuant to this registration again I want to emphasize that no new shares are being issued by X date pursuant to this registration so getting back to the business and from a strategic perspective, we have reached a major inflection point the full vertical integration of our previously.
Speaker Change: Outsource biologics products this endeavor, which we have been driving towards for the last 18 months is now complete.
Speaker Change: All major biologics product categories sold by X out are now manufactured in house with this achievement. We believe <unk> is now the most diversified vertically integrated biologics company in the market. In addition, we have rejuvenated our core game mineralized bone offerings with the launch of two new innovative products.
Speaker Change: Trivium and fiber ex trivium is a groundbreaking new D. B M offering with three synergistic elements designed to deliver exceptional performance and structure handling and biological activity.
These new D. B M products alongside our three demand provides surgeons with a comprehensive range of bone grafting solutions.
Speaker Change: Product launches are expected to help offset the impact of product rash lashed product rationalization. Following our search a lot of acquisition and drive renewed growth.
Speaker Change: Another noteworthy development. This quarter was the receipt of royalties tied to licensing or simply Max Q code to a distributor in the chronic wound care space. Additionally, see enough extend at the local coverage determination for since skin substitutes did December 31, 2025, which opens the door for.
Speaker Change: Royalty income and cash generation during the second half of 2025 however.
Speaker Change: However, we remain realistic given the ongoing changes to CMS policy and other governmental cost savings initiatives, which we factored into our guidance for the year lastly to support our growing production needs. We added additional processing capacity. This past past month at our Belgrade facility. This addition will enable.
Speaker Change: Substantial future increases in our production capacity as needed coupled with our R&D investments, we have a strong pipeline of new ortho biologics and biologics beyond spine positioning I stand as a broader more versatile regenerative biologics company for the future.
Speaker Change: Looking ahead to 'twenty 'twenty, five and 'twenty 'twenty five we remain focused on a path toward self sustainability, emphasizing profitability and cash generation with new products launched targeted growth opportunities and recent cost cutting initiatives. We are on a path to a sustainably cash flow position.
Speaker Change: For fiscal year 'twenty 'twenty five we anticipate mid double digit revenue growth in our biologics product family. While hardware revenue is expected to remain flat to modestly down year over year.
Speaker Change: Hardware, we continue to rationalize our product lines to streamline our offerings and optimized cash management today.
Speaker Change: Today, we are increasing our full year 2025 guidance for total for total revenue in the range of 127 million to $131 million, representing 8% to 11% growth combined with our targeted cost savings, we do not anticipate the need to raise additional capital at this time.
Scott Neils: With that I will turn the call over to Scott for a more detailed review of our financial results.
Speaker Change: Okay.
Speaker Change: Thank you, Sean and good afternoon, everyone total.
Speaker Change: Total revenue for the first quarter of 2025 was $32 $9 million compared to $27 $9 million for the same period in 2020 for.
Speaker Change: The 18% increase is attributed primarily to year over year growth in our biologics product family exclusively the impact of $3 $6 million of licensing revenue. During the first quarter of 2025. This increase was partially offset by a 10% or $1 $2 million year over year decline in spinal implant sales.
I'll note here that we received a one and a half million dollars upfront payment during Q1 in connection with the manufacturing license agreement for Assembly there as product. This amount will be recognized over the course of the contract two year term, we recognized approximately $100000. During the quarter ended may 30, or March 31, 2025 and anticipated.
Speaker Change: Recognizing a total of approximately $700000 during 2025, which is reflected in our revised revenue guidance for 2025.
Speaker Change: Gross margin for the first quarter of 2025 was 61, 5% compared to 62, 1% for the same period in 2024 and increase in charges related to the disposal of inventory and provision for excess and obsolete inventory adversely affected gross margin by 400 basis points in the first quarter of 2025 compare.
Speaker Change: For the same period in 2024.
Speaker Change: Effect was partially offset by reductions in product costs associated with the vertical integration of our biologics products, resulting in a 390 basis point improvement in the first quarter of 2025 compared to the same period in 2024.
Speaker Change: First quarter 2025, operating expenses were $19 $2 million compared to $28 million in the same period, a year ago as a percentage of total revenue operating expenses were 58 through 58, 3% compared to 74, 5% in the same period a year ago Jenny.
General and administrative expenses were seven and a half million dollars for the three months ended March 31, 2025 compared to $7.8 million for the same period in 2020 for this decrease is primarily attributable to point $4 million of reductions in professional fees.
Speaker Change: Sales and marketing expenses were $11 $2 million for the three months ended March 31, 2025, compared to $12 $5 million for the same quarter last year. This decrease is primarily due to reduced commission expense a point $8 million, resulting in a shift from sales mix and point $7 million in reduced compensation.
Speaker Change: Station expense related to head count, partially offset by additional professional fees of <unk> $4 million.
Speaker Change: Research and development expenses were $443000 for the three months ended March 31, 2025, a decrease from $527000 in the first quarter of 2024.
Speaker Change: Net income in the first quarter of 2025 was $58000 or zero cents per share compared to a net loss of $4.4 million or three cents per share in the comparable 2024 period.
Speaker Change: Adjusted EBITDA for the first quarter of 'twenty 'twenty four or for the first quarter of 2025 was $3 million compared to an adjusted EBITDA loss of $1 million for the same period in 2024.
Speaker Change: As we noted during last quarter's earnings call beginning in the fourth quarter of 2024, we're no longer include in.
Speaker Change: The phasing of bargain purchase gain on our sell through of inventory acquired as part of our purchase surge of Lion holdings hardware and biologics business and our calculation of adjusted EBITDA. Prior periods have been recast to conform to the current calculation the related effect on adjusted EBITDA was a reduction of $1 million in the first quarter of 2020.
Speaker Change: For to arrive at the recast them out.
Speaker Change: As of March 31, 2025, we had $5 $4 million of cash cash equivalents and restricted cash.
Speaker Change: Net accounts receivable was $23 $5 million inventory was $38.8 million and we had $5 $7 million available under our revolving credit facilities as of the end of the quarter.
Speaker Change: Operator, you May now open the line for questions.
Speaker Change: Thank you very much we are now opening the floor for questions. If you would like to ask a question.
Speaker Change: You can decide by pressing star one on your signing key patent now a confirmation tone will indicate that youll nine isn't Nicky you May press star two if you would like to remove your question from Nicky.
Speaker Change: Anyone using speaker equipment, it might be necessary to pick up your handset fissile Epi stickies. Please wait a moment, whilst we poll for questions.
Speaker Change: Thank you. Your first question is coming from Chase Knickerbocker of Craig Hallum Chase Your line is life.
Chase Knickerbocker: Good afternoon, guys. Thanks for taking the questions.
Speaker Change: Hey, Jay how are you.
Speaker Change: Sean I, just just first from US if we took a look at your guidance can you, let us know what you assume for.
Speaker Change: Incremental you know minimum payments royalties et cetera from those two amnio deals what are you assuming for the rest of the year as far as those payments go.
Scott Neils: Yeah, we've got what I might throw that over to you Scott what you why you feel that one.
Speaker Change: Sure.
Speaker Change: In the spirit of being Conservative we haven't included anything in way of additional minimums under the royalty agreement and then we've assumed full manufacturing under the manufacturing license agreement for the remainder of 2025.
Speaker Change: And so does that mean that your guidance just assumes that revenue recognition from that upfront payment.
Speaker Change: The upfront payment we had originally assumed based off of the original April L. C. D day, its that we would be able to recognize that in full during Q1. However was the extension of that that's being spaced out over two years now as we cut that number in half that million five.
Speaker Change: To the tune of about 700000 flowing through during 2025.
Speaker Change: Yeah.
Speaker Change: Got it but with the LCD getting pushed Theres no reason to.
Speaker Change: Not assume that those minimums will be realized this year.
Speaker Change: Yes.
Speaker Change: What we've tried to or at least it yeah.
Speaker Change: And then also guidance for my Board is that where we're very concerned about what may happen from a government perspective, So I guess I could have put it out there in the past what we think will happen, but were afraid that we're going to have to pull that back then not long after that.
Speaker Change: So what we're trying to do is be realistic as possible with respect to what what those royalties may mean for us.
Speaker Change: Got it and then just on the biologics side of the business.
Speaker Change: Can you walk us through the different drivers for growth in the quarter I'm, you know what kind of what portion of growth was driven by.
Speaker Change: <unk> V. B M. You know Emil you know kind of legacy portfolio.
Speaker Change: Sure. So the big drivers for us are still our emails that I've driver for us because of the you know the fact that it went to April 13th So that was a big one because we do have a couple of OEM deals that are out there that that we still work today.
Speaker Change: Also V. B M was also very good for US are that is one that that will continue to grow over the course of the year that was primarily driven actually by extent a product that is much OEM, but we do see some growth in that that will hopefully not hopefully that will offset some of the product rationalization that we're going to continue.
Speaker Change: You see on the hardware side. So you know the idea of us carrying four different pedicle screw systems. You know, we're just not going to do that right. So so we're we're really working hard at trying to sunset a couple of those those like big expensive cash generate cash eating up type systems and push her customers over our.
Speaker Change: Surgeons over to our new Cartera line for instance, and so so we see that there's going to be some bumps along the way but from in that business at a net cash perspective, we're going to get a better spot with really focusing on cartera and maybe one other system. So so that's that's essentially what's happening on the biologic side and the hardware side.
Speaker Change: Yes.
Speaker Change: And and how should we think about growth factor for the year here.
Speaker Change: Is that going to be something where it's you know internal extant distribution will there be any white label. There and then I mean, what's the kind of ramp to being fairly you know full kind of production full supply.
Speaker Change: Sure. So you know our focus right now with the growth factor product is keep what we have right. Because this is a very it's a it's a beautiful product that we just created and it's one that we are really excited about and and and we're gonna be replacing it with a product that we used to buy from someone else and so job one let's make sure we don't lose any business, but then.
Speaker Change: Job, two where do we have and in our funnel looks really good you know moving forward, but again, we want to be cautious by listen we got we got roughly six and a half million dollars of growth factor business today that we want to make sure that we don't lose and then let's grow from there and so so that's that's a sense of what our plan is with growth factor.
Scott Neils: Got it and just last for me Scott.
Scott Neils: How should we be thinking about you know EBITDA and in cash flow you know through the rest of the year.
Scott Neils: And what what do you guys kind of you know assume from a from a working capital perspective, and seeing that kind of receivable increase in Q1 as far as one youll kind of realize that and cash flow.
Scott Neils: Yeah, the cash flow will come in Q2, I think we'll have you know cash flow from operations in Q2 will be a little tighter on cash flows from operations in Q3, and then I think we'll build to a healthy cash flow from operations in Q4.
Scott Neils: We will see a fairly steady revenue growth during the remainder of the year.
Scott Neils: Actually I would expect that.
Scott Neils: Revenue during the course of Q2 exclusive of any royalty revenues coming in will probably be more in line with Q1, and then we'll probably continue to grow that to high single digits for the rest of the year quarter over quarter.
Scott Neils: Yeah.
Speaker Change: Very helpful. Thanks, guys.
Scott Neils: Thank you very much.
Speaker Change: Our next question is coming from Ryan gentlemen of B T. I G. Ryan Your line is nice.
Shawn: Thank you good afternoon, Shawn and Scott Hey, Ryan for the question.
Speaker Change: Hey, so.
Speaker Change: You guys are.
Speaker Change: Managing your expenses pretty well I'm curious.
Scott Neils: Scott you know your sales and marketing came in a little lighter than I think we expected.
Scott Neils: How do you foresee that I've been just in the context of what you just said on <unk> kind of how do you foresee that kind of through the rest of the year end and just broadly your commentary on expenses I think it would be helpful. And I think last quarter. You also said you know or at least we thought margins gross margins will come in around 62 to 60.
Scott Neils: Three I just wanted to see if that still holds.
Scott Neils: Yeah, maybe just starting with the expenses first I think.
Scott Neils: Starting with sales and marketing since you led with that I think we'll see that coming back up.
Scott Neils: In Q2 and beyond just because you know we're not assuming any.
Scott Neils: Commission free royalty revenue coming in for the remainder of the year. So you'll see that at a level more comparable to Q4 of last year and then looking at G&A I think that'll run you know at and expense now and probably more consistent with Q3 of last year, so that'll be relatively steady for the remainder of the year.
Scott Neils: And then I do think we're on track for gross margins of say, 63% by the end of the year as we roll out new products and increased revenue.
Speaker Change: That's helpful and I.
Speaker Change: Appreciating that you guys got the production in house and now.
I'm just wondering if.
Speaker Change: Number one.
Speaker Change: Got it.
Speaker Change:
Speaker Change: If there's any upside from margins as you kind of work through some of that in house production.
Speaker Change: Where do you see opportunity I guess given that you now are completely vertically integrated.
Speaker Change: Scott I'll jump in here first thing I'll, let you dive in there.
Speaker Change: So two big things that we're gonna see margin improvement by bringing things in house are first and foremost you know we're going to run through the inventory that we have of the the product that we've purchased especially on the the growth factor side of things.
Speaker Change: Secondarily also on fiber X because <unk> is a product line that we've already we've been buying but that is one now that we bring in house again is going to be substantially better margins.
Speaker Change: So those are two big things there that would take place. So that's part of the reason why you'll start to see more of a ramp over the course of the year as our margins start to climb.
Speaker Change: Another big reason why you'll start to see our margin and also begin to climb said if you think about our D. V. M business today D V. It makes up still 60% of our biologics business. So the old Osteo select osteo sponge three to men.
Speaker Change: And even when you think about the <unk> that we were buying those are product lines that we were essentially making <unk> selling in the low fifties to mid 50% range. This new like for instance, trivium is one that is a absolutely wonderful.
Speaker Change: Wonderful product a million ways. It's it's a product that also has a much higher price point. It brings almost all of the growth factors that can be brought together from the human tissue possible for a D. Mineralized bone matter of fact, it was a it's a it's really an interesting story is the fact that you know what.
Speaker Change: When you do a C b M donor or a viable bone matrix telenor, you'll have fallout certain donors won't clear whatever classifications of the things that we need to do when we go through our our our testing of things and so what we were doing instead of discarding that tissue, we're actually finding a new way to repurpose it and that's essentially what we got.
Speaker Change: Out here and so we were able to read them basically reprocessed. This tissue sterilize. It bring all the wonderful elements of of a really a C. B M donor along with other elements of the of the tissue. That's been that's been donated and how we process it and so it's a much much higher price.
Speaker Change: <unk>.
Speaker Change: And it's very very effective and so so if we can even start shifting some of that 60% towards trivium.
Speaker Change: That too will also help improve our margins not only in 2025, but 26 and beyond.
Scott Neils: Scott do you want to add to that bad for that yeah. The only thing I'll add to that is as we get into Q3 and Q4 will also have brought in house our distribution of legacy at boarder surge of line product will move out of our third party logistics provider and do that service internally create an additional margin benefit.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Okay.
Schoen: Thank you very much well we have reached the end of our question and answer session I will now hand back over to schoen for any closing remarks.
Speaker Change: Great. Thank you operator and extend its mission is to honor the gift of donation so that our patients can live as full and complete a life as possible I'd like to thank our hard working extent team members, who live by this mission Daily I would also like the fact that many donor families who are their most difficult hour decided to do the most selfless thing imaginable and allow their loved one.
Schoen: <unk> tissue to be used to help dramatically improve the lives of those in need.
Schoen: And then lastly, I'd like to thank all of you listening who have invested in our mission that supported our vision over time. Thank you.
Schoen: You and have a good day.
Speaker Change: Thank you very much. This does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful rest of the day. We thank you for your participation.