Xtant Medical Holdings, Inc. (XTNT) is a global medical technology company that has carved out a formidable position in the orthobiologics and spinal implant markets. With a steadfast commitment to innovation and a focus on delivering surgical solutions for the treatment of spinal disorders, Xtant has emerged as a key player in the industry.

Business Overview

Xtant Medical Holdings, Inc. is a global medical technology company that develops, manufactures, and markets regenerative medicine products and medical devices for domestic and international markets. The company'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 Medical has an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of its products. The company also maintains a national accounts program to enable its agents to gain access to integrated delivery network hospitals and through group purchasing organizations. Xtant Medical promotes and sells its products internationally through direct sales representatives and stocking distribution partners in Europe, Canada, Mexico, South America, Australia, and certain Pacific region countries.

In recent years, Xtant has embarked on an ambitious strategy to drive growth and profitability. The company has focused on four key initiatives: introducing new products, expanding its distribution network, penetrating adjacent markets, and leveraging its growth platform through strategic acquisitions.

Acquisitions and Integrations

Xtant's growth strategy has been bolstered by a series of strategic acquisitions. In 2023, the company made several significant moves:

1. Acquisition of Surgalign SPV, Inc.: In February 2023, Xtant acquired Surgalign SPV, Inc., a wholly owned subsidiary of Surgalign Holdings, Inc. The acquisition included certain intellectual property, contractual rights, and other assets related to the design, manufacture, sale, and distribution of the Coflex and CoFix products in the United States.

2. Acquisition of Surgalign Holdings, Inc.'s Hardware and Biologics Business: In August 2023, Xtant acquired the assets of Surgalign Holdings, Inc. and its subsidiaries used in Surgalign Holdings' hardware and biologics business, including specified inventory, intellectual property, and other related assets.

3. Acquisition of nanOss Production Operations: In October 2023, Xtant acquired the nanOss production operations from RTI Surgical, Inc., including certain equipment and inventory used in RTI's synthetic bone graft business, as well as the lease for the nanOss production facility in Greenville, North Carolina.

These strategic acquisitions have strengthened Xtant's product portfolio, expanded its commercial footprint, and provided opportunities for synergies and operational efficiencies.

Financial Performance

Xtant's financial performance has been a mixed bag in recent years. While the company has reported impressive revenue growth, it has also grappled with profitability challenges.

For the full year 2024, Xtant reported revenue of $117.3 million, representing a 28% increase compared to the previous year. This growth was primarily driven by the contribution of additional sales resulting from the acquisition of the Surgalign Holdings' hardware and biologics business.

However, the company's profitability has been impacted by various factors. In 2024, Xtant reported a net loss of $16.4 million, or $0.12 per share, compared to net income of $660,000, or $0.01 per share, in 2023. The net loss in 2024 was partly due to a $1.5 million inventory write-off related to the Surgalign acquisition, as well as increased operating expenses associated with the integration of the acquired businesses.

Xtant's gross margin for the full year 2024 was 58.2%, compared to 60.8% in the previous year. The decrease in gross margin was primarily attributed to product mix changes and reduced production throughput.

In the most recent quarter, Xtant reported revenue of $31.5 million, representing a 12% increase compared to the prior year quarter. The company reported a net loss of $3.2 million for the quarter. Operating cash flow for the quarter was $0.7 million, while free cash flow was slightly negative at -$0.01 million.

Liquidity and Capital Structure

As of December 31, 2024, Xtant had $6.2 million in cash, cash equivalents, and restricted cash, and $4.2 million available under its revolving credit facilities. The company's net accounts receivable was $20.7 million, and its inventory stood at $38.6 million.

Xtant's capital structure includes a term loan and a revolving credit facility, both of which were amended and restated in March 2024. The term loan has a maturity date of March 1, 2029, and the revolving credit facility has a commitment amount of $17 million, also maturing in March 2029.

The company's debt-to-equity ratio stands at 0.82, indicating a moderate level of leverage. Xtant's current ratio is 2.35, suggesting a solid ability to meet short-term obligations, while its quick ratio of 1.00 indicates adequate liquidity without relying on inventory sales.

Guidance and Outlook

For the full year 2025, Xtant has provided guidance for revenue in the range of $126 million to $130 million, representing growth of 8% to 11% compared to 2024. The company expects this growth to be driven primarily by its biologics segment, with mid-double-digit revenue growth anticipated, while its hardware segment is expected to remain consistent or moderately decline year-over-year.

Xtant's focus for 2025 is on achieving sustainable profitability and cash flow. The company has implemented cost-cutting measures, including headcount reductions and facility consolidation, which are expected to result in significant cost savings and improved operating leverage. Management has stated that with the anticipated cost savings, they project they will not need to raise additional capital. Xtant's goal is to be sustainably cash-flowing by the end of 2025.

Product Segments

Xtant Medical Holdings, Inc. operates in two main product segments: Orthobiologics and Spinal Implant.

Orthobiologics Segment:

Xtant's orthobiologics products are derived from human tissue and are designed to help patients' bodies heal themselves. This segment includes a variety of bone graft substitutes that are used to promote bone fusion in spinal, dental, extremity, and trauma procedures. For the three months ended September 30, 2024, orthobiologics products accounted for 59% of Xtant's total revenue, generating $16.58 million. Over the nine-month period, orthobiologics revenue grew to $48.12 million, or 56% of total revenue. The company's orthobiologics product portfolio includes AlloPure, OsteoSpark, and NanOss, among others. These products leverage Xtant's expertise in regenerative medicine to offer surgeons effective bone healing solutions.

Spinal Implant Segment: Xtant's spinal implant segment includes hardware devices used to treat spinal disease and deformity. This includes products like pedicle screws, rods, and interbody devices that are used in spinal fusion and deformity correction procedures. For the three months ended September 30, 2024, spinal implant products generated $11.36 million in revenue, representing 41% of total revenue. Over the nine-month period, spinal implant revenue grew to $37.63 million, or 44% of total revenue. Key products in this segment include the Coflex and CoFix systems, which were acquired as part of the Surgalign SPV acquisition in February 2023. These minimally invasive motion preservation implants expand Xtant's portfolio of advanced spinal solutions.

Risks and Challenges

Xtant faces several risks and challenges that investors should be aware of. The company's reliance on independent sales agents and distributors, as well as its exposure to fluctuations in foreign currency exchange rates, could impact its financial performance. Additionally, the company's ability to successfully integrate and realize the anticipated benefits from its recent acquisitions will be crucial to its long-term success.

The regulatory environment in the medical device and biologics industries can also present challenges, as Xtant must navigate complex approval processes and comply with various regulations. Any delays or setbacks in this area could adversely affect the company's operations and financial results.

Furthermore, Xtant Medical has faced integration challenges following its recent acquisitions. In 2024, the company identified material weaknesses in its internal controls over financial reporting related to the completeness and accuracy of information utilized in determining the fair value of acquired inventory, as well as procedures to confirm the existence of acquired consigned inventory. Xtant Medical has been working to remediate these material weaknesses, including by adding additional accounting personnel and subjecting its acquired consigned inventory to ongoing field audits.

Conclusion

Xtant Medical Holdings, Inc. (XTNT) is a company in transition, navigating the integration of its recent acquisitions while striving to achieve sustainable profitability and growth. The company's focus on innovation, strategic acquisitions, and cost optimization measures suggest a path forward, but investors should closely monitor the company's ability to execute on its plans and address the inherent risks in the medical technology industry. With a diverse product portfolio and a global reach, Xtant has the potential to capitalize on the growing demand for advanced orthobiologics and spinal implant solutions, but successful integration and operational excellence will be crucial to its long-term success.