Xtant Medical Holdings, Inc.

Good afternoon everyone and welcome to the Extant Medicals First Quarter 2025 Financial Results. 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 Marth of Hayden Investor Relations. Brett, the floor is yours.

Thank you, operator. Joining me today is Sean Brown, 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 of the company's expected future performance. These forward-looking statements reflect Extant's current perspective on existing trends and information that can be identified such words as expect, plan, will, may, anticipate, believe, should, intend, and other words to a similar meaning. 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 annual report on Form 10-K followed by the SEC and 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 reconciliation which appear in our press release and are otherwise available on our website. Note that our Form 8-K followed by financial results press release provides a detailed narrative that describes our use of such measures. For the benefit of those who may be listening for the replay, this call was held and recorded on May 12 at approximately 4.30 p.m. Eastern time. The company declines any obligation to update its forward-looking statements except as required by applicable law. Now I'd like to turn the call over to Sean Brown. Sean, the floor is yours.

Thank you, Brett, and good afternoon, everyone. I'm pleased to share that XM Medical delivered outstanding results for the first quarter of 2025. We achieved strong top and bottom line performance across every key financial metric, starting with our top line revenue growth of 18 percent reaching 32.9 million in total revenue. This robust performance coupled with our cost-cutting efforts over the last six months resulted in strong adjusted EBITDA and positive net income. From a shareholder perspective, we reached a significant milestone with the termination of a very restrictive investor rights agreement with Orvymed. This agreement has long been a constraint and its removal marks a new chapter for XTant. We are encouraged by the continued investment in our business by our new major investor in Nantahalla and appreciate their belief in our current business strategy which we believe will be beneficial to all shareholders in the long term. As some of you may notice, we filed a Form S1 resale registration statement this afternoon registering the resale of the shares sold by Orvymed to a group of investors led by Nantahalla, which we agreed to do to facilitate this transaction. Note that no new shares are being issued by XTant pursuant to this registration. Again, I want to emphasize that no new shares are being issued by XTant 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 outsourced Biologics products. This endeavor, which we have been driving towards for the last 18 months, is now complete. All major Biologics product categories sold by XTant are now manufactured in-house. With this achievement, we believe XTant is now the most diversified, vertically integrated Biologics company in the market. In addition, we have rejuvenated our core demineralized bone offerings with the launch of two new innovative products, Trivium and FiberX. Trivium is a groundbreaking new DBM offering with three synergistic elements designed to deliver exceptional performance in structure, handling, and biological activity. These new products alongside our three demin provide surgeons with a comprehensive range of bone grafting solutions. These new products launches are expected to help offset the impact of product rationalization following our Surge Line acquisition and drive renewed growth. Another noteworthy development this quarter was the receipt of royalties tied to licensing our Simply Max Q code to a distributor in the chronic wound care space. Additionally, CMS has extended the local coverage determination for skin substitutes to December 31, 2025, which opens the door for additional royalty income and cash generation during the second half of 2025. However, we remain realistic given the ongoing changes to CMS policy and other governmental cost savings initiatives, which we factor into our guidance for the year. Lastly, to support our growing production needs, we added additional processing capacity this past month at our Belgrade facility. This addition will enable substantial future increases in our production capacity as needed. Coupled with our R&D investments, we have a strong pipeline of new orthobiologics and biologics beyond spine. Positioning X-Stand as a broader, more versatile, regenerative biologics company for the future. Looking ahead to 2025, in 2025 we remain focused on our path towards 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-flowing position. For fiscal year 2025, we anticipate -double-digit revenue growth in our biologics product family while hardware revenue is expected to remain flat to modestly down year over year. In hardware, we continue to rationalize our product lines to streamline our offerings and optimize cash management. Today, we are increasing our full year 2025 guidance 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. With that, I will turn the call over to Scott for a more detailed review of our financial results.

Thank you, Sean. Good afternoon, everyone. Total revenue for the first quarter of 2025 was $32.9 million compared to $27.9 million for the same period in 2024. The 18% increase is attributed primarily to -over-year growth in our biologics product family, exclusive of 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 -over-year decline in spinal implant sales. I'll note here that we received a $1.5 million upfront payment during Q1 in connection with the manufacturing license agreement for our SimplyGraph product. This amount will be recognized over the course of the contract's two-year term. We recognized approximately $100,000 during the quarter ended March 31, 2025, and anticipate recognizing a total of approximately $700,000 during 2025, which is reflected in revised revenue guidance for 2025. Gross margin for the first quarter of 2025 was .5% compared to .1% for the same period in 2024. An 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 compared to the same period in 2024. This 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. First quarter 2025 operating expenses were $19.2 million compared to $20.8 million in the same period a year ago. As a percentage of total revenue operating expenses were .3% compared to .5% in the same period a year ago. General and administrative expenses were $7.5 million for the three months ended March 31, 2025 compared to $7.8 million for the same period in 2024. This decrease is primarily attributable to $0.4 million of reductions in professional fees. 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 a $0.8 million resulting in a shift from sales mix and $0.7 million in reduced compensation expense related to headcount, partially offset by additional professional fees of $0.4 million. Research and development expenses were $443,000 for the three months ended March 31, 2025, a decrease from $527,000 in the first quarter of 2024. Net income in the first quarter of 2025 was $58,000 or 0 cents per share compared to a net loss of $4.4 million or 3 cents per share in the comparable 2024 period. Adjusted EBITDA for the first quarter of 2024 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. As we noted during last quarter's earnings call, beginning in the fourth quarter of 2024, we are no longer including the phasing of bargain purchase gain on our sell through of inventory acquired as part of our purchase of Cerjoline Holdings Hardware and Biologics business in our calculation of adjusted EBITDA. Prior periods have been recast conform to the current calculation. The related effect on adjusted EBITDA was a reduction of $1 million in the first quarter of 2024 to arrive at the recast amount. As of March 31, 2025, we had $5.4 million of cash, cash equivalents, and restricted cash. Net accounts receivable was $23.5 million. Inventory was $38.8 million. And we had $5.7 million available under our evolving credit facilities as of the end of the quarter. Operator, you may now open the line for questions.

Thank you very much. We are now opening the floor for questions. If you would like to ask a question, you can do so by pressing star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Chase Nickerbocker of Craig Hallen. Chase, your line is live.

Good afternoon, guys. Thanks for taking the questions.

Hey,

Chase. How are you? Hey, Sean. Just first from us, if we take a look at your guidance, can you let us know what you assume for incremental minimum payments, royalties, etc. from those two amnio deals? What are you assuming for the rest of the year as far as those payments go?

Yeah. Scott, I'm going to throw that over to you. Scott, why don't you field that one?

Sure. I guess 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.

Does that mean that your guidance just assumes that revenue recognition from that upfront payment?

The upfront payment, we had originally assumed based off of the original April LCD date that we would be able to recognize that in full during Q1. However, with the extension of that, that's being spaced out over two years now. So we cut that number in half, that million five, to the tune of about 700,000 flowing through during 2025.

Got it. But with the LCD getting pushed, there's no reason to not assume that those minimums will be realized this year.

What we're trying to do here, at least, is... And this is also guidance from our board, is that we're very concerned about

what

may happen from a government perspective. So I guess we could put it out there and see what we think will happen, but we're afraid that we're going to have to pull that back then, not long after that. So what we're trying to do is be as realistic as possible with respect to what those royalties may mean for us.

Got it. And then just on the biologic side of the business, can you walk us through the different drivers for growth in the quarter? What portion of growth was driven by VBM, Amnio, legacy portfolio?

Sure. So the big drivers for us still are... Well, Amnio is a nice driver for us because of 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 we still work today. Also, VBM was also very good for us. That is one that will continue to grow over the course of the year. That was primarily driven, actually, by extant product, not as much OEM, but we do see some growth in that that will hopefully... No, hopefully, that will offset some of the product rationalization that we're going to continue to see on the hardware side. So the idea of us carrying four different vertical screw systems, we're just not going to do that, right? So we're really working hard at trying to sunset a couple of those big, expensive, -eating-up type systems and push our customers over, our surgeons over to our new Corterra line, for instance. So we see that there's going to be some bumps along the way, but from a net business and a net cash perspective, we're going to be at a better spot with really focusing on Corterra and maybe one other system. So that's essentially what's happening on the biologic side and the hardware side, I guess.

And how should we think about growth factor for the year here? I mean, is that going to be something where it's internal extant distribution? Will there be any white label there? And then, I mean, what's the kind of ramp to being fairly full kind of production, full supply?

Sure. So our focus right now with the growth factor product is keep what we have, right? Because this is a very – it's a beautiful product that we just created, and it's one that we are really excited about, and we're going to 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 job two, where do we have – and our funnel looks really good moving forward. But again, we want to be cautious by – listen, we got roughly $6.5 million 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 that's essentially what our plan is with growth factor.

Got it. And just last from me, Scott, how should we be thinking about EBITDA and cash flow through the rest of the year? And what do you guys kind of assume from a working capital perspective? I'd seen that kind of receivable increase in Q1 as far as when you'll kind of realize that in cash flow.

Yeah, the cash flow will come in Q2. I think we'll have – 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. I think we'll see a fairly steady revenue growth during the remainder of the year. Actually, I would expect that 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 at high single digits for the rest of the year, quarter over quarter.

Very helpful. Thanks, guys.

Thank you very much. And your next question is coming from Ryan Zimmerman of BTIG. Ryan, your line is live.

Thank you. Good afternoon, Sean and Scott. Hey, Ryan. Thanks for the question. Hey. So I think you guys are managing your expenses pretty well. I'm curious, Scott, your sales and marketing came in a little lighter than I think we expected. How do you foresee that? I mean, just in the context of what you just said on 2Q, kind of how do you foresee that kind of through the rest of the year? And just broadly, your commentary on expenses, I think, would be helpful. And I think last quarter you also said, or at least we thought, margins, gross margins, were coming around 62 to 63. I just want to see if that still holds.

Yeah, maybe starting with expenses first. I think starting with sales and marketing since you led with that, I think we'll see that coming back up in Q2 and beyond just because, you know, we're not assuming any 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 an expense level and probably more consistent with Q3 of last year. So that'll be relatively steady for the remainder of the year. And then I do think we're on track for gross margins of, say, 63 percent by the end of the year as we roll out new products and increase revenue.

That's helpful. Well, and, you know, appreciating that you guys got the production in-house now, I'm just wondering if number one, if there's any upside from margins as you kind of work through some of that in-house production, you know, where do you see opportunity, I guess, given that you now are completely vertically integrated?

Scott, I'll jump in here first and then I'll let you dive in there. So two big things that we're going to see margin improvement by bringing things in-house. First and foremost, you know, we're going to run through the inventory that we have of the product that we've purchased, especially on the growth factor side of things. Secondarily, also in Fibrex, because Fibrex is a product line that we've already been buying, but that is one now that we bring in-house again is going to be substantially better margins. So those are two big things that are going to take place. 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. Another big reason why you'll start to see our margin also begin to climb. So if you think about our DVM business today, DVM makes up still 60% of our Biologics business. So the old OsteoSelect, OsteoSponge, 3Dimin, and even when you think about the Fibrex that we were buying, those are product lines that we were essentially making and or selling in the low 50s to mid 50% range. This new, like for instance Trivium, is one that is an absolutely wonderful product in a million ways. 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 demineralized bone. As a matter of fact, it's really an interesting story, the fact that when you do a CBM donor or a viable bone matrix donor, you will have fallout. Certain donors won't clear whatever classifications or things that we need to do when we go through 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 here. So we were able to basically reprocess this tissue, sterilize it, bring all the wonderful elements of really a CBM donor along with other elements of the tissue that's been donated and how we process it. And so it's a much, much higher priced product. And it's very, very effective. And so if we can even start shifting some of that 60% towards Trivium, that too will also help improve our margins, not only in 2025, but in 2026 and beyond. Scott, there's more you want to add to that? Yeah,

the only thing I'll add to that is as we get into Q3 and Q4, we'll also have brought in-house our distribution of legacy or SurgeAlign product. So we'll move out of our third-party logistics provider and do that service internally, create an additional margin benefit. Thank you. Thank you.

Thank you very much. While we have reached the end of our question and answer session, I will now hand back over to Sean for any closing remarks.

Great. Thank you, Operator. Extant's mission is to honor the gift of donations so that our patients can live as full and complete a life as possible. I'd like to thank our hardworking Extant team members who live by this mission daily. I would also like to thank the many donor families who, in their most difficult hour, decide to do the most selfless thing imaginable and allow their loved one's tissue to be used to help dramatically improve the lives of those in need. And then lastly, I'd like to thank all of you listening who have invested in our mission and have supported our vision over time. Thank you and have a good day.

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.