Xtant Medical Holdings, Inc.

Welcome to the Extant Medical Holdings, Inc. Third Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Brett Moss, Investor Relations. Please go ahead, sir.

Thank you, Operator. Joining me today is Sean Brown, President and Chief Executive Officer, and Scott Niels, 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 Exodus' current perspective on existing trends and information and can be identified in such words as expect, plan, will, may, anticipate, believe, should, intends, and other words with similar meaning. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. including those noted in the risk factors section of the company's annual report on Form 10-K, followed the SEC on April 1st, 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. 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 provide a detailed narrative that describes our use of such measures. For the benefit of those of you who may be listening to a replay, this call was held and recorded on November 12th at approximately 4.30 p.m. Eastern time. The company declines any obligation to update its forward-looking statements except as required by law. Now I'd like to turn the call over to Sean Brown. Sean, the floor is yours.

Thank you, Brett, and good afternoon, everyone. I am pleased to announce a solid growth for the third quarter with 12% growth for the quarter and 36% growth year-to-date. We are on pace to achieve our full-year revenue guidance of $116 to $120 million, which we reaffirmed today. This range represents total annual revenue growth of approximately 27% to 31% compared to the full year of 2023. Despite solid year-over-year growth for the quarter, sales were softer than we expected due to slight delays in our launch of two new products, OsteoVibe Plus, our new stem cell product, experienced validation delays, and Cortera, Our new pedicle screw system was met with supplier issues. We have since overcome these challenges, and both product lines were released in late September and are well received by our distributors and surgeons. We are bullish on these products and believe they will help us finish strong for fiscal year 2024. From a profitability perspective, our adjusted EBITDA results for Q3, which Scott will cover in a moment, reflect the effect of these product delays I just discussed. Year-to-date, we remain profitable on an adjusted EBITDA basis with $435,000. In addition, we anticipate being adjusted EBITDA positive in Q4 of 2024 as we continue to focus on profitability and self-sustainability. Our operating expenses were lower in the third quarter compared to the three immediate preceding quarters as we continue to rationalize expenses and become more efficient. Another important development in October, we signed a licensing agreement with a significant player in the advanced wound care market. The deal includes licensing one of our three Q codes and the corresponding SimpliMax dual-layer amniotic membrane. We received a $1.5 million upfront payment for this in October, and the terms of this agreement provide for full licensing and royalty revenues, aggregating a minimum of $3.75 million in 2025. This incremental revenue will bear little to no incremental costs and will therefore carry high margins that will fall directly to our bottom line. As a historical backdrop, and this is taking a step back, but to put into context where our business has been and where we are going. Remember, at the end of fiscal year 2022, so no less than two years ago, we were only a $58 million revenue business. By the end of this year, we expect to have doubled in size with 2024 revenues between $116 and $120 million. The acquisitions we made last year have greatly assisted us in first getting greater scale and scale is extremely important when it comes to the continued growth of our GPO and IDN agreements, and without access to hospitals, our business will not grow. Secondarily, the Surgiline acquisition has revitalized our XTAN hardware line. For instance, our COFLEX interlaminar stabilization device is a one-of-its-kind motion preservation alternative that perfectly complements our ASC-focused offerings. That ASC offering includes our Silex SI fusion device and Axel, our inner spinous process device. X-Stand's cervical offering is second to none with a full 360-degree complement of products, which includes our anterior server line system, our posterior streamline system, and a complete line of inner body devices. With the release of Cortera, we now have a best-in-class pedicle screw system to complete our hardware offering. From a biologics perspective, our number one priority for fiscal year 2024 was to bring all manufacturing in-house. The strategic rationale for that was twofold. First, we've been on the wrong end of supply disruptions with some of our fastest growing products. In the past three years, we believe this accounted for approximately $10 to $15 million in lost revenue. By manufacturing our products in-house, we control our supply chain, the production, and the availability of our products to sell. Secondly, and more importantly, we are substantially more profitable when making and selling our X10 branded products. The gross margins for our distributed stem cell, growth factor, amnio, and synthetic products range from mid-40s to 60% gross product margins. When we make these products in-house, our product margins increase substantially from the mid-80% to the low 90% margins. Moreover, strategically, X10 is now positioned to grow more profitably as an OEM supplier for companies in the spine market and other adjacent markets. For instance, our new Amnio line, which we expect to sell about a million dollars of our Extant brand this year, is a great addition for us as a surgical barrier for spine procedures. With our new offering, we can now serve more spine customers with a better product and substantially better margins. Additionally, we now have OEM customers in the wound care, foot and ankle, and sports medicine markets, We're now buying this from Extant and this year will exceed over $2 million in just OEM amnio sales. Similarly, our new stem cell product line has created a terrific OEM opportunity in not only spine, but also in the trauma and foot and ankle markets. The beautiful part about OEM deals are that they do not carry any sales and marketing expenses, thereby carrying 60 to 70% contribution margins. Now, shifting over to operational leverage, One important concern that our shareholders have voiced, and I would like to address directly as our operational leverage, I would like to assure all of you that we continue to find ways to reduce our expense base as we complete the integration of the surge line businesses and keenly focus now on profitability. As previously mentioned, for the last three quarters, our quarterly operating expenses have decreased over the immediately preceding quarter, and we continue to look for opportunities to cut costs and leverage are substantially increased scale. Rounding out fiscal year 2024. So fiscal year 2024 is shaping up largely as we expected, with the second half performing better than the first half as we implemented actions and improvements to address supply chain challenges and gain greater control over the production of our products. We've worked through most of the challenges that have impacted our fastest-growing products, and in May, we raised our original revenue guidance if you remember, was $112 to $116 million when it became clear that many of the issues affecting our surge line hardware line and our distributed non-manufactured stem cells had been resolved. We remain on track to deliver the revenue guidance that we established back in May of $116 to $120 million with what we believe will be a breakout fourth quarter with all of our hard work finally paying off with increased revenues. Now, moving to our new product pipelines. Like every healthy, robust organization, we continually innovate with a deep pipeline of new products. During our turnaround, we expanded our biologics product offering from two product categories to five, which helped enhance our growth profile. Moreover, we are one of the few orthobiologics companies that offers the complete line of orthobiologics, which includes allograft, demineralized bone matrix, synthetics, viable bone matrix, or stem cells as we call them, and growth factor. Over the next two quarters, we will be the only orthobiologist company that is vertically integrated, where we make our own products and sell them under our own brand. Along with our amnio products, I also mentioned that we have completed the production of our own viable bone matrix, better known as stem cells. This has been our fastest growing product line for Extant over the last three years. However, our growth of this product has been constrained due to outside vendors that we relied upon with this fly chain. With now a far superior product available, with a significantly improved cost profile, we believe we will be able to profitably grow our XTAMP brand in the stem cell market significantly. Moreover, there continues to be a supply shortage of stem cells, and we believe we can become a major OEM provider for other orthopedic companies with this product line. In fiscal year 2025, we expect our osteovive plus viable bone matrix will be our largest product line. Lastly, I briefly mentioned earlier the release of our Cortera pedicle screw system. This new system is a next-generation posterior system that has feature-rich screw designs with a comparatively low profile and newly designed locking mechanisms. We released Cortera at NAS and we received rave reviews from prospective surgeons. We expect this rollout will help drive nice growth for Xcent in Q4 and beyond. These are just a few of the exciting new products that are coming down the pipe. In short, we have a fantastic product pipeline of short to midterm winnable opportunities for clinically validated, commercially proven products that serve large and growing markets. These future products will take advantage of our existing operational and quality infrastructure. Most importantly, they will not require significant investments in new product development, are overly big lifts in clinical evidence or regulatory clearances. Moving forward, we are focused on becoming operationally self-sustaining by controlling our supply chain and less reliant on production outsider control. We believe this self-reliance will allow us to be a larger and more diverse producer of biologics. Moreover, producing our own products should dramatically improve our margin profile, coupled with an expanded product line that brings additional transformative treatment options to a large and growing patient population. Most importantly, we believe these actions will help us to get to positive adjusted EBIT during the fourth quarter of 2024. Now, I'd like to turn the call over to Scott, who will discuss our third quarter 2024 financial results.