Xtant Medical Holdings, Inc. (XTNT) is a global medical technology company focused on the design, development, and commercialization of a comprehensive portfolio of orthobiologics and spinal implant systems. Xtant has demonstrated strong financial performance, reporting annual revenue of $91.3 million and a net income of $660,000 in its most recent fiscal year. However, Xtant has faced some challenges, with annual operating cash flow of -$9.5 million and annual free cash flow of -$11.0 million.

Business

Xtant Medical develops, manufactures, and markets regenerative medicine products and medical devices for domestic and international markets. Xtant's products serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants, and instrumentation for the treatment of spinal disease. Xtant promotes its products in the United States through independent distributors and stocking agents, supported by direct employees, and internationally through direct sales representatives and stocking distribution partners.

Xtant has focused on four key growth initiatives: (1) introducing new products, (2) expanding its distribution network, (3) penetrating adjacent markets, and (4) leveraging its growth platform with technology and strategic acquisitions. In furtherance of these initiatives, Xtant made three significant acquisitions in 2023:

1. On February 28, 2023, Xtant acquired Surgalign SPV, Inc., which held certain assets related to the Coflex and CoFix products in the United States, for $17.0 million in cash. 2. On August 10, 2023, Xtant acquired certain assets of Surgalign Holdings, Inc., including inventory, intellectual property, and international subsidiaries, for $5.0 million in cash. 3. On October 23, 2023, Xtant acquired the nanOss production operations from RTI Surgical, Inc. for $2.0 million in cash, plus a low single-digit royalty on future sales.

These acquisitions have strengthened Xtant's growing orthobiologics and spinal fusion device portfolio, expanded its commercial footprint, and provided access to new contracts and distributors.

Financials

In the first quarter of 2024, Xtant reported revenue of $27.9 million, a 55% increase compared to the same period in the prior year. This growth was primarily driven by the contribution of additional sales from the acquired Surgalign assets. Gross profit margin improved to 62.1% in the first quarter of 2024, up from 58.7% in the same period of 2023, due to greater scale and production efficiencies, partially offset by higher product costs.

Operating expenses increased to $20.8 million in the first quarter of 2024, compared to $12.1 million in the same period of 2023. This increase was primarily attributable to additional employee compensation, legal and accounting expenses, and amortization of intangible assets associated with the Coflex and CoFix product lines. Xtant reported a net loss of $4.4 million, or $0.03 per share, in the first quarter of 2024, compared to a net loss of $2.1 million, or $0.02 per share, in the same period of the prior year.

Xtant's adjusted EBITDA for the first quarter of 2024 was $0.1 million, compared to an adjusted EBITDA loss of $0.3 million in the same period of 2023. As of March 31, 2024, Xtant had $4.5 million in cash and cash equivalents, $21.5 million in net accounts receivable, and $38.7 million in inventory. Additionally, Xtant had $6.7 million available under its revolving credit facility and recently closed on an additional $5.0 million of term debt to provide for additional working capital.

Geographic and Segment Performance

Xtant generates the majority of its revenue from the United States, which accounted for $25.1 million, or 90%, of total revenue in the first quarter of 2024. Xtant's international sales, primarily in Canada, Mexico, South America, Australia, and certain Pacific region countries, contributed $2.7 million, or 10%, of total revenue during the same period.

In terms of product segments, orthobiologics accounted for $15.4 million, or 55%, of total revenue in the first quarter of 2024, while spinal implants contributed $12.5 million, or 45%, of total revenue. The increase in spinal implant revenue was primarily driven by the contribution of the Coflex and CoFix product lines acquired from Surgalign.

Outlook

Xtant has increased its full-year 2024 revenue guidance to a range of $116 million to $120 million, representing annual growth of approximately 27% to 32% compared to 2023. Xtant expects its organic growth to accelerate in the second half of 2024, driven by a normalized supply environment in its stem cell business and the revitalization of the Surgalign supply chain.

Management is focused on becoming operationally self-sustaining by controlling Xtant's supply chain and reducing reliance on external production. This strategy is expected to improve Xtant's margin profile and allow the company to be a larger and more diverse producer of biologics. Xtant believes these actions will help it achieve positive operating cash flow during the fourth quarter of 2024.

Risks and Challenges

Xtant faces several risks and challenges, including: - Potential supply chain disruptions and shortages, as evidenced by the recent stem cell supply issues - Integration and execution risks associated with its recent acquisitions - Competitive pressures in the orthobiologics and spinal implant markets - Regulatory and reimbursement changes that could impact Xtant's products - Reliance on independent sales agents and distributors for a significant portion of its revenue - Potential product liability claims and litigation

Xtant is actively addressing these challenges and implementing measures to mitigate the risks, such as investing in its supply chain, integrating acquired assets, and diversifying its distribution network.

Conclusion

Xtant Medical Holdings, Inc. is executing on its growth initiatives and has demonstrated strong financial performance, with 55% revenue growth in the first quarter of 2024 compared to the same period in the prior year. Xtant's recent acquisitions have strengthened its product portfolio and expanded its commercial footprint, positioning it for continued growth. While Xtant faces some risks and challenges, the management team is taking proactive steps to address these issues and drive sustainable revenue and profitability. With its increased guidance and focus on operational self-sustainability, Xtant appears well-positioned to capitalize on the opportunities in the orthobiologics and spinal implant markets.