Xtant Medical Holdings, Inc.
Q1 2022 Earnings Call Transcript

Published: 8 May 2022

[Operator:]

Greetings and welcome to the Xtant Medical First Quarter 2022 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Matt Steinberg of FINN Partners. Please go ahead.

[Matt Steinberg:]

Thank you, operator, and welcome to Xtant Medical’s first quarter 2022 financial results call. Joining me today is Sean Browne, President and Chief Executive Officer; and Scott Neils, Interim 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, and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends, and other words with similar meaning. Such forward-looking statements are not guarantees of future performance and involve risk and uncertainties including those noted in the Risk Factor section of the company’s Annual Report on Form 10-K filed with the SEC on March 8, 2022, and in subsequent SEC reports and press releases. Actual results may differ materially. The company’s financial results press release, and today’s discussion include certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations, which appear in the tables of 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 our use of such measures. For the benefit of those of you who may be listening to the replay, this call was held and recorded on Thursday, May 5, at approximately 9

[Sean Browne:]

Thank you, Matt, and good morning, everyone. After delivering annual revenue growth in 2021, I am pleased that we achieved year-over-year revenue growth during the first quarter of 2022 with total revenue increasing by 3%, and biologics revenue growing by an impressive 13%. I will provide more details shortly but the primary drivers for this growth were the combined contributions of the new products we introduced in 2021, along with a higher private label and original equipment manufacturer or OEM sales. Now, first, I’d like to provide some perspective on the macro environment before jumping into our business. The first quarter of 2022 saw continued oscillation in the resumption of spine and other elective surgical procedures. The year started with the spread of the Omicron variant, which led to a surge of COVID cases and hospitalizations, causing hospitals and other medical facilities to once again cancel or defer electric surgical procedures. As we transitioned into February, we saw a reversal of that trend with elective surgical procedures beginning to steadily climb and improve throughout the month and into March. Now in the second quarter, we continue to closely monitor hospital trends to identify potential areas of concern, while simultaneously focusing on the aspects of our business that we have control over, including those items related to our four key growth initiatives. Initiative number one, new product introductions; number two, distribution network expansion; three, adjacent market penetration; and four, strategic acquisitions that will leverage our growth platform. So, let’s starting out with our first initiative, new product introductions. Last year, we rolled out six new products and we’ve seen strong momentum building for each of those products. This momentum was led by our OsteoFactor product, which had its best revenue generating month-to-date in March. While we are focusing on maximizing the value of these new product offerings, we have two new products that we intend to roll out in the intermediate term with additional products and development to be rolled out over the longer term. We have what we believe to be a vital and robust product pipeline that we feel will support our growth and enable us to access large market opportunities. Our second pillar of growth is the expansion of our distribution network, which all starts with gaining contractual access with group purchasing organizations and integrated delivery networks. At present, we are contracted with major national GPOs and over 385 IDNs. We have a large and growing contractual portfolio that provides Xtant access to hospitals, distributors, and surgeons. For our distribution partners, we have set a goal of increasing existing distributor revenue by 10% annually and adding an average of 10 plus new distributors per quarter. For 2022, we are off to a great start with 60 new distributors added in the first quarter. Ultimately, we intend to build out our distribution network in areas of the country where we are currently underserved in order to establish a solid national network. At present, we see excellent opportunity to expand our distributor network across the East Coast and in the Midwest. Our third pillar of growth is to access the 625 million non-spine orthobiologics markets. Those are markets such as oral maxillofacial, foot and ankle trauma, total joint and oncology. The adjacent market penetration aspect of our strategy continues to gain traction. Revenue generated from non-spine markets now represent about 21% of our biologics product revenue, which is up from about 18% a year ago. This is an important part of our growth strategy, as it allows us to quickly expand the total addressable market for our biologics products. Additionally, expansion in private label and OEM product opportunities has proven to be a solid contributor to top line, and it’s helped to further diversify our revenue. Our last growth pillar is leveraging our growth platform to find technologies that we can acquire. We feel this strategy can provide a path to accelerated growth, but it is a strategy that takes time to execute. We will remain diligent in our approach to acquisitions. In summary, as a market leader in demineralized bone matrix biologics with strong IDN and GPO contract access, large and scalable distribution network, and adjacent market expansion opportunities, we feel that we are well positioned for fiscal year 2022. As market related constraints attributed to COVID gradually diminish, we anticipate a ramp in elective surgical procedures, which combined with a clean balance sheet should allow us to accelerate our organic growth. Okay, before turning the call over to Scott Neils, who will discuss our first quarter 2022 financial results, I’d like to recognize his recent appointment as our CFO on a non-interim basis, effective June 1. Since January, Scott has done a great job for us as interim-CFO and I’m pleased that our Board has recognized his strong capabilities and awarded him the CFO title on a non-interim basis. Congratulations, Scott.

[Scott Neils:]

Thank you, Sean, and good morning everyone. Total revenue for the first quarter of 2022 was $13 million, compared to $12.5 million in the same quarter of the prior year. This 3% increase in revenue is attributed primarily to introductions of new products and greater private label and OEM sales. Gross margin for the first quarter of 2022 was 58.3% compared to 65% for the same period in 2021. This decrease was attributed to sell through product subject higher production costs, and favorable products sales mix and greater inventory reserve expense. We continue to expect higher product costs will adversely affect our gross margin in future periods. First quarter 2022 operating expenses were $9.4 million, compared to $8.1 million in the same period a year ago. As a percentage of total revenue, operating expenses were 72.5% compared to 64.6% in the same period a year ago. General and administrative expenses were $4 million for the three months ended March 31, 2022, compared to $3 million for the same period in 2021. This increase primarily attributable to increased expense related licenses and fees, additional bad debt expense, and cost-related enterprise resource planning system upgrades. Sales and marketing expenses were $5.2 million for three months ended March 31, 2022, compared to $4.9 million for the same period of 2021. This increase is due primarily to increased commissions expenses, due to higher revenues, greater salaries, and wages. Net loss in the first quarter of 2022 was $2.2 million or $0.03 per share, compared to a loss of $29,000 for $0.00 per share the comparable 2021 period. Adjusted EBITDA for the first quarter of 2022 was a loss of $0.9 million compared to adjusted EBITDA of $0.8 million for the same period in 2021. As of March 31, 2022, we had $16.8 million of cash and cash equivalents, $7.5 million of net accounts receivable, $17.3 million of inventory, and $3.5 million available under our revolving credit facility. Now I’ll turn the call back to Sean for closing remarks.

[Sean Browne:]

Thank you, Scott. As stated before, 2022 is off to a solid start. We have achieved 13% growth in our biologics revenue during the first quarter. We have made inroads within the $2.4 billion orthobiologics market. We are building a strong distribution footprint in order to maximize our sales coverage. We have developed a pipeline of new and exciting products, and we have taken advantage of the opportunities presented in our adjacent markets. With each successive month in the first quarter better than the previous, we are encouraged with a promising trend across our markets. There remains much work to be done, both commercially and operationally, but we look forward to addressing each challenge, as it is presented. In closing, I’d like to re emphasize our mission of honoring the gift of donation by allowing our patients to live as full and complete a life as possible. Our valuable employees live by these words each and every day in order to bring our solutions to patients in need. I personally like to thank them for their continued commitment to our mission. Thank you for joining us today and for your continued support. I will now turn it back over to the operator.

[Operator:]

Thank you. This concludes our call. All parties may now disconnect.

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