Business Overview and History
Xtant Medical Holdings, Inc. (NYSE:XTNT) is a global medical technology company focused on surgical solutions for the treatment of spinal disorders. Founded in 2006 and headquartered in Belgrade, Montana, Xtant has established a strong foothold in the orthobiologics and spinal implant markets, offering a comprehensive portfolio of products designed to facilitate spinal fusion in complex spine, deformity, and degenerative procedures.
Xtant Medical was founded with the mission of honoring the gift of donation so that patients can live as full and complete a life as possible. In its early years, the company faced challenges as it worked to establish itself in the competitive orthobiologics and spinal implant market. Xtant relied on independent commissioned sales agents and stocking distributors in the United States to promote and sell its products. The company also maintained a national accounts program to enable its agents to gain access to integrated delivery network hospitals and group purchasing organizations.
Over time, Xtant expanded its sales channel and product offerings. By the end of fiscal year 2022, the company had grown to a $58 million revenue business. However, Xtant continued to face supply chain disruptions and other operational challenges that impacted its ability to meet customer demand for some of its fastest-growing products.
In 2023, Xtant took significant steps to address these challenges and strengthen its market position. The company acquired the Coflex and CoFix product lines from Surgalign SPV, Inc., which enhanced its spine portfolio with a differentiated and minimally invasive motion-preserving stabilization implant. Later that year, Xtant acquired certain assets and liabilities of Surgalign Holdings, Inc.'s hardware and biologics business, further expanding its product offerings in spinal implants and biologics.
Additionally, Xtant acquired the nanOss production operations from RTI Surgical, Inc., a strategic move to bring more of its biologics manufacturing in-house. This acquisition aimed to reduce the company's reliance on outside manufacturers and gain greater control over its supply chain, addressing previous challenges in meeting customer demand.
Through these strategic acquisitions and a focus on operational improvements, Xtant has positioned itself for future growth and profitability. The company has significantly expanded its product lines, enhanced its distribution network, and taken steps to control its supply chain.
Financial Performance and Liquidity
Xtant has faced various challenges in recent years, including supply chain disruptions and the impact of the COVID-19 pandemic on its business. Despite these obstacles, the company has demonstrated resilience and a commitment to improving its financial position.
For the fiscal year ended December 31, 2023, Xtant reported total revenue of $91.3 million, a significant increase from the $57.97 million reported in 2022. This growth was primarily driven by the contributions from the Surgalign acquisitions, as well as the company's continued focus on new product introductions and distribution expansion. The company reported a net income of $660,000 for the year.
In the most recent quarter (Q3 2024), Xtant reported revenue of $27.94 million, representing a 12% year-over-year growth. However, the company experienced a net loss of $5.02 million for the quarter. The decrease in net income compared to the prior year quarter was primarily due to delays in the launch of new products OsteoVive Plus and Cortera, which negatively impacted revenue growth and profitability.
Xtant operates in two main product segments: Orthobiologics and Spinal Implant. The Orthobiologics segment, which includes regenerative medicine products and technologies, represented 59% of total revenue for the three months ended September 30, 2024, and 56% for the nine months ended September 30, 2024. Revenue in this segment grew 6% year-over-year for the three-month period and 11% for the nine-month period. The Spinal Implant segment accounted for 41% of total revenue for the three months ended September 30, 2024, and 44% for the nine months ended September 30, 2024. Revenue in this segment increased 21% year-over-year for the three-month period and 91% for the nine-month period, benefiting from the addition of the Surgalign hardware and biologics business acquired in 2023.
Gross profit margin was 58.4% for the three months ended September 30, 2024, down slightly from 61.3% in the prior year period, due to reduced production throughput that was partially offset by increased scale. For the nine months ended September 30, 2024, gross margin increased to 60.9% from 60.7% in the same period of 2023, as the benefits of greater scale offset the impact of reduced production throughput.
As of September 30, 2024, Xtant had $6.6 million in cash, as well as $3.8 million available under its $17 million revolving credit facilities. The company's debt-to-equity ratio stood at 0.72, with a current ratio of 2.12 and a quick ratio of 0.88. These liquidity metrics indicate a manageable financial position, although the company continues to focus on improving its cash flow and profitability.
Xtant generates the majority of its revenue in the United States, with international sales accounting for approximately 9% of total revenue in Q3 2024.
Operational Initiatives and Future Outlook
To address the challenges faced in recent years, Xtant has implemented several key initiatives aimed at improving its operational performance and driving long-term growth.
One of Xtant's primary focuses has been to bring its biologics manufacturing in-house, reducing the company's reliance on third-party suppliers and gaining greater control over its supply chain. This strategic move is expected to enhance Xtant's margins and minimize the impact of supply chain disruptions, which have previously affected its ability to meet customer demand.
Additionally, Xtant has been actively expanding its distribution network, both domestically and internationally, to increase the accessibility of its products to a broader customer base. The company has secured contracts with major group purchasing organizations (GPOs) and independent delivery networks (IDNs), providing it with greater access to hospitals and healthcare systems.
Xtant has also been investing in the development and introduction of new products, such as the Cortera Posterior Fixation System, its viable bone matrix (OsteoVive Plus), and amniotic membrane allografts. These offerings are designed to address the evolving needs of the market and provide surgeons with innovative solutions for complex spinal procedures.
Looking ahead, Xtant is focused on becoming operationally self-sustaining by further optimizing its supply chain and manufacturing capabilities. The company has reaffirmed its full-year 2024 revenue guidance of $116 million to $120 million, representing total annual revenue growth of approximately 27% to 31% compared to the full year of 2023. Xtant expects to achieve positive adjusted EBITDA in Q4 2024, a significant milestone in its journey towards profitability and long-term sustainability.
For fiscal year 2025, Xtant anticipates that its OsteoVive PlusPlus viable bone matrix will become its largest product line. The company has provided early considerations for 2025, stating that it will look for revenue growth approaching double digits, gross margin improvement of 3-4 points, and continued improvement in operating leverage.
The orthobiologics market is expected to grow at a CAGR of 8-10% over the next 5 years, driven by an aging population and increasing demand for minimally invasive spinal procedures. This market trend aligns well with Xtant's strategic focus and product offerings.
Risks and Challenges
Despite Xtant's progress, the company continues to face various risks and challenges that could impact its future performance.
One of the primary concerns is the ongoing supply chain disruptions and the potential for future supply chain challenges. While Xtant's efforts to bring biologics manufacturing in-house are expected to mitigate this risk, the company remains exposed to potential issues with its spinal implant supply chain.
Additionally, the highly competitive nature of the orthopedic device industry poses a constant challenge for Xtant. The company must continually innovate and differentiate its products to maintain its competitive edge and market share.
Regulatory changes and evolving reimbursement policies in the healthcare industry also present risks for Xtant. The company must navigate the complex regulatory landscape and ensure its products remain compliant with the latest standards and requirements.
Xtant's ability to successfully integrate and optimize the acquired Surgalign businesses will also be a critical factor in its future success. The integration process can be complex and time-consuming, and any delays or challenges could impact the company's financial performance and operational efficiency.
Conclusion
Xtant Medical has demonstrated resilience and a commitment to navigating the challenges facing the orthopedic device industry. Through strategic acquisitions, a focus on operational improvements, and a pipeline of innovative products, the company is positioning itself for long-term growth and profitability.
Despite the obstacles encountered, Xtant's revenue growth, efforts to enhance its supply chain and manufacturing capabilities, and its strengthened liquidity position suggest a promising outlook. As the company continues to execute on its key initiatives, investors will closely monitor Xtant's ability to achieve positive adjusted EBITDA and further solidify its position as a leading player in the spinal solutions market.
With a reaffirmed revenue guidance for 2024 and early considerations for 2025 that include approaching double-digit growth and improved profitability, Xtant appears to be on a trajectory towards sustainable growth and improved financial performance. However, the company's success will depend on its ability to navigate the competitive landscape, successfully launch new products, and capitalize on the growing demand for orthobiologics and spinal implant solutions.