Xtant Clinical Holdings, Inc. (NYSE:XTNT) Q1 2023 Income Convention Name Might 4, 2023 9:00 AM ET
Corporate Members
Matt Steinberg – IR
Sean Browne – CEO
Scott Neils – CFO
Convention Name Members
Chase Knickerbocker – Craig-Hallum
Kyle Rose – Canaccord Genuity
Operator
Greetings. You are welcome Xtant Clinical’s Q1 2023 monetary effects name. [Operator Instructions]. As a reminder, this convention is being recorded. I might now like to show the convention over in your host, Matt Steinberg of Lazar FINN Companions. Please pass forward.
Matt Steinberg
Thanks, operator, and welcome to Xtant Clinical’s first-quarter 2023 monetary effects name. Becoming a member of meme as of late is Sean Browne, President and Leader Government Officer; and Scott Neils, Leader Monetary Officer.
As of late’s name is being webcasted and might be posted at the corporate’s web site for playback. All the way through the process this name, control might be certain forward-looking statements referring to long run occasions and the corporate’s anticipated long run efficiency. Those forward-looking statements mirror expense, present point of view on current traits, and data, and will also be recognized by means of such phrases as be expecting, plan, will, might, watch for, consider, will have to, intend, and different phrases with identical that means.
Such forward-looking statements don’t seem to be promises of long run efficiency and contain dangers and uncertainties, together with the ones famous within the chance elements segment within the corporate’s annual record on Shape 10-Okay filed with the SEC on March 7, 2023, and in next SEC experiences and press releases. Precise effects might range materially.
The corporate’s monetary effects press unlock and as of late’s dialogue come with sure non-GAAP monetary measures. Please seek advice from the non-GAAP to GAAP reconciliations which seem within the tables of our press unlock another way to be had on our web site. Observe that our Shape 8-Okay filed with our monetary effects’ press unlock supplies an in depth narrative that describes our use of such measures.
For the good thing about the ones of you who is also being attentive to the replay, this name was once held and recorded on Thursday, Might 4, at roughly 9:00 AM Jap Sunlight Time. The corporate declines any legal responsibility to replace its forward-looking statements aside from as required by means of acceptable regulation.
Now I would like to show the decision over to Sean Browne.
Sean Browne
Thanks, Matt, and excellent morning, everybody. We are very pleased with the numerous development made by means of Xtant Clinical within the first quarter. All the way through the quarter, we accomplished a number of milestones highlighted by means of forged income enlargement of 38%, which integrated robust natural enlargement of 29% in addition to 9% enlargement from the primary gross sales generated by means of our not too long ago got Coflex and Cofix product strains. Importantly, all marketplace channels of unbiased brokers, OEM, DTH, and the ASC marketplace noticed important enlargement, which demonstrates that the ongoing execution in opposition to our strategic enlargement pillars has us smartly located for long-term sustainable enlargement.
As a reminder, our 4 key enlargement pillars are excited by one, new product introductions; two, distribution community enlargement; 3, adjoining marketplace penetration; and 4, focused strategic acquisitions. Now I will be able to percentage an outline our first-quarter trade efficiency, beginning with an replace at the Coflex acquisition and integration.
As introduced in March, our acquisition of Coflex was once our first since 2015. This transaction is very complementary to our backbone providing and it positions us to turn out to be money float certain within the close to long run. Additionally, it strengthened an already spectacular non-acute care providing for our spinal fixation trade with the addition of 2 new merchandise, the Coflex Interlaminar Stabilization software and the Cofix supplemental fixation software.
Significantly, those new product strains deliver transformative remedy choices to a big and rising affected person inhabitants. This deal was once a right away contributor to our most sensible line, as evidenced by means of the 55% year-over-year income enlargement to our spinal fixation trade. Moreover, it progressed our margin profile and higher positions us to succeed in profitability within the close to long run.
Integration of Coflex has been step by step — progressing easily. And shopping forward, we plan to stay diligent in our solution to each tuck-in and transformational acquisitions because the 12 months progresses.
Call for for our biologic merchandise was once powerful all over the primary quarter, enabling us to enlarge organically, the place we noticed 33% enlargement in our biologics merchandise over the similar length remaining 12 months. Now we have an important and strong product pipeline that we really feel will toughen the power of our trade and permit us to take marketplace percentage within the $2.4 billion US orthobiologics marketplace. We’re fascinated about the traction generated thus far and look ahead to the ongoing enlargement of those product strains.
Turning to our distribution community, as a part of the Coflex transaction, we sped up our footprint enlargement with addition of kind of 150 present new vendors and an important choice of new physicians and surgeons to our community. Unrelated to the purchase, we secured 17 new vendors within the first quarter on the right track with our objective of including 10 plus vendors according to quarter. Pushed by means of our enlargement technique, we can proceed concentrated on enlargement alternatives in areas of the rustic the place we do not need better presence as of late.
The 3rd pillar, the adjoining marketplace pillar of our enlargement technique continues to trace smartly. This quarter, we accomplished good fortune in additional penetrating the foot and ankle trauma and orthopedic implant marketplace. For the primary quarter, we have been in a position to make the most of a couple of onetime OEM gross sales that can possibly no longer be habitual. Alternatively, that’s the nature of OEM trade, and we’re happy to have the capability to maintain those new orders. That is crucial a part of our enlargement technique because it permits us to temporarily enlarge the overall addressable marketplace for our merchandise.
From an operational perspective, our focal point has been on making sure we will be able to set up prices and scale for profitability. Supported by means of our proactive efforts, we’re understanding enhancements and increasing our capability whilst higher managing our provide chain. We proceed to regulate our price prudently as we steadily goal spaces to reinforce our operational potency likewise, as we’re making strides against the modernization of our manufacturing, optimization of our processes, and diversification and building of recent product strains.
Now I would like to supply an replace at the Board. Previous as of late, we introduced that Jonn Beeson has been appointed to our Board as an unbiased member. Mr. Beeson as a spouse on the Jones Day regulation company and steadily represents purchasers on complicated strategic transactional and company governance issues. And it’s urged on transactions with an combination worth of over $225 billion.
Along with M&A, he additionally focuses on a mess of different trade building, company securities, and governance subjects. We look ahead to profiting from Jonn’s distinctive insights, years of capital marketplace enjoy, and management talents. Similtaneously, we’re saying as of late that Michael Eggenberg and Matthew Rizzo, each from OrbiMed Advisors have stepped down from the corporate’s Board.
Since becoming a member of the Board in 2018, Michael and Matthew and the crew from OrbiMed have supplied monetary backing and steering that has been instrumental within the turnaround of Xtant. OrbiMed’s go out from the Board displays OrbiMed’s self assurance within the power of our trade presently. It additionally underscores the good fortune of our control crew and the conclusion that Xtant is now poised to take your next step in our evolution.
With the addition of Jonn Beeson to the Board, Xtant now has a majority of unbiased administrators making Xtant extra horny to long-term institutional and retail traders. On behalf of Xtant, we thank Michael and Matthew for the years of carrier and contributions in addition to the OrbiMed group for toughen all over the previous a number of years.
Because the 12 months progresses, we plan to proceed to appear and increasing the Board with further unbiased participants. In additional [indiscernible] initiative, the Xtant Board not too long ago shaped a brand new unbiased nominating and company governance committee now chaired by means of Jonn Beeson to lend a hand the Board in figuring out new unbiased administrators to counterpoint our current Board.
In the end, as of late, we offered annual income steering for 2023. We watch for producing revenues within the vary of $73 million to $75 million for complete 12 months 2023, representing an annual enlargement of roughly 26% to 29% in comparison to 2022. We’re doing this to supply better readability and transparency of our near-term enlargement projections whilst demonstrating the numerous development executing on our enlargement pillars.
With the purchase of Coflex, bettering extra margin profile and the management of our skilled control crew and board, we’re assured that the entire items are in position to power long-term sustainable enlargement.
Now I would like to show the decision over to Scott, who will speak about our first-quarter 2023 monetary effects.
Scott Neils
Thanks, Sean. Excellent morning, everybody. General income for the primary quarter of 2023 was once $17.9 million in comparison to $13 million for a similar length in 2022. The robust 38% annual building up is attributed basically to larger unbiased agent gross sales and gross sales from the not too long ago got Coflex and Cofix product strains.
Gross margin for the primary quarter of 2023 was once 58.7%, in comparison to 58.3% for a similar length in 2022. The rise was once basically on account of the contribution of Coflex and Cofix merchandise, partly offset by means of upper manufacturing prices.
First Quarter 2023 working bills have been $12.1 million in comparison to $9.4 million in the similar length a 12 months in the past. And a proportion of overall income, working bills have been 68% in comparison to 72% in the similar length a 12 months in the past.
Common and administrative bills have been $4.9 million for the 3 months ended March 31, 2023, in comparison to $4 million in the similar length in 2022. This building up is basically on account of further worker repayment expense and bills associated with Coflex acquisition, partly offset by means of prices associated with our endeavor useful resource making plans machine upgrades remaining 12 months.
Gross sales and advertising and marketing bills have been $7.1 million for the 3 months ended March 31, 2023, in comparison to $5.2 million for a similar length of 2022. This building up is basically because of further gross sales commissions from upper revenues and greater salaries and wages from the Coflex acquisition.
Internet loss within the first quarter of 2023 was once $2.1 million or $0.02 according to percentage in comparison to a web lack of $2.2 million or $0.03 according to percentage within the related 2022 length. Adjusted EBITDA for the primary quarter of 2023 was once a lack of $0.3 million in comparison to an adjusted EBITDA lack of $0.9 million for a similar length in 2022.
As of March 31, 2023, we had $5.4 million of money and money equivalents, $11.9 million of web accounts receivable, $18.5 million of stock, and $5 million to be had below our revolving credit score facility. Operator, it’s possible you’ll now open the road for questions.
Query-and-Resolution Consultation
Operator
[Operator Instructions]. Our first query as of late comes from Chase Knickerbocker of Craig-Hallum Capital Staff.
Chase Knickerbocker
Excellent morning, guys. Thank you for taking the questions and congrats on a actually great quarter right here.
Sean Browne
Thank you, Chase.
Chase Knickerbocker
Yeah, yeah, so first, simply beginning at the quarter itself, on {hardware}. We modeled an natural decline there aside from Coflex contribution, section grew 16% organically in my style, so great outperformance there. What dynamics have been at play? Used to be it a process quantity restoration with implanting physicians? How will have to we be modeling this at the pass ahead? Is it a minimum of a flat natural enlargement trade in long run quarters?
Sean Browne
Scott, I will take that. Chase, once I take into accounts what took place this previous quarter, to begin with, let’s communicate in regards to the {hardware} and the way it carried out. I feel there may be a few issues at play right here. One is that we have got, as I feel I have discussed in different conferences, our focal point inside the {hardware} global has actually modified against actually going after that ASC and outpatient markets. We occur to have a actually terrific providing for that. And so once I take into accounts the place that trade is as of late in comparison to the place it was once, it is a 12 months or two years in the past, we are surely located in a significantly better means, particularly as you take into accounts the demographics of ways the arena is switching increasingly against or those procedures are going over there.
In order I take into accounts shifting ahead and the way you might be modeling it or a minimum of find out how to be occupied with modeling it, it’s one thing that I do not consider goes to be a drag on us. Now it isn’t going to essentially be the similar roughly enlargement that we are going to see in our biologics personal stretch. However I do assume that now we have a minimum of shored up what was once one thing that was once a declining trade.
And now with Coflex, we’ve got much more to discuss. And so we actually have a pleasant providing for that out of affected person — out of sanatorium surgeon.
Chase Knickerbocker
No, nevertheless it is sensible. Yeah, then on ortho biologics, 33% natural enlargement there, a miles better quantity, actually nice to peer. Perhaps lend a hand me perceive the shifting items, how a lot of the income there within the quarter was once that OEM contribution? How a lot DTH after which as opposed to distributor?
Sean Browne
Yeah. So general distributor was once a large motive force for that, however all segments grew. And I am actually more than happy with how the whole lot did. And yeah, so a large a part of it was once our, as I discussed, our unbiased brokers. A large number of it comes again to the truth that now we have [indiscernible] stock at this time. So shall we in truth get started serving to those guys which are looking ahead to product, in order that’s one. However then two, the OEM alternatives. There have been a number of — no longer a number of, there have been a few very large ones, however now we have been in a position to restore that.
And in order that was once a trade that, we — once more, there was once a few orders that have been one-time offers that have been considerable. However that once more, as I discussed in my feedback, it is the nature of OEM. So yeah, so all segments grew. DTH and ASC are nonetheless small, rather talking, but if we take into accounts the motive force for us. this quarter was once, once more, the unbiased brokers and the ones increasing. Once more, going again to our 4 pillars, the growth of our distribution community, having extra vendors available in the market promoting your product is helping particularly in spaces the place we aren’t as of late. And in order that unbiased agent is a huge a part of the expansion as of late.
Chase Knickerbocker
Yeah, then main into how we are occupied with the information. With an extra $2 million or so of income into Q2 with a complete quarter of Coflex contribution, that will point out that your natural trade comes down a little bit sequentially with , which dollars you standard seasonality and with some further provide in biologics, I suppose how will have to I take into accounts that? It sort of feels like coming off 33% roughly natural enlargement quarter there and an bettering setting that are meant to proceed to accomplish beautiful smartly.
Sean Browne
Yeah, in order I might have a look at it in a few techniques. And I do know that is — as we pop out with this actually nice quarter, I additionally need to warning on a few issues. To begin with, Coflex, general, we are — this can be a trade that we are within the means of digesting, such things as implementation. implementation has long past nice. It is virtually whole a couple of dangling issues inside the regulatory and high quality facet. However nonetheless, this can be a trade that over the past 4 years has long past down. And so our process now could be to restore it after which in the end develop.
So at the one hand, the contribution possibly a minimum of from the Coflex facet will not be as nice. Secondarily, once we take into accounts simply the seasonality of items in addition to, you realize, I nonetheless concern about capability constraints. And so once I take into accounts our broader quantity, the $73 million to $75 million, that is nonetheless a 26% to 29% enlargement 12 months over 12 months. So the ones are some nonetheless — some beautiful heady numbers for trade. Relatively frankly, it is been low- to mid-digits over the previous few years.
Chase Knickerbocker
Needless to say agree there. Yeah, then on Coflex, what do you want to do as a crew to go back that product to enlargement or be sure it is stabilized this 12 months to be located to possibly be a modest grower in ’24. I suppose what steps do you want to take?
Sean Browne
Positive, you realize, in equity to the surge line people, to begin with, once they were given that product line, you take into accounts the entire issues that happened at RTI, proper? They spun out the OEM trade, spun out Surgalign, they even purchased HOLO. There was once so much going round in that trade. And rather frankly, Coflex simply were given misplaced. And so from our point of view, the primary issues first, which is already going down is solely giving it the focal point. That is our number one product at this time. So that is one thing that we are actually placing numerous consideration and placing focal point into the ones spaces that make extra sense, which is within the compensation pipe, rather frankly, And compensation over that point has in truth were given actually beautiful excellent within the outpatient beach of factor.
And so our jobs are actually easy blocking off and tackling and giving focal point that wishes from gross sales and advertising and marketing facet. After which actually the compensation component of creating positive the tale is tight. We get the protection that we’d like. And rather frankly, that is the starting steps of rising.
So once I take into accounts it, it is roughly a three-stage factor, proper? It is digest this acquisition; two, get started reviving what needs to be achieved in means of the fundamental issues that all of us knew or now we have all grown up round and means of find out how to put focal point round a product line and the way you get it rising once more; after which phase 3 is actually getting it rising and actually begin to faucet into the ones multitude of alternatives.
It’s an out of this world product, and it’s going to be incumbent upon us to make certain that we revive the ones previous relationships as a result of numerous other folks have used this up to now. And so I do assume that there is a actual alternative, however now we have were given to verify our group and our tale is tight as we transfer down that trail.
Chase Knickerbocker
And along with your increasing distribution community, I imply that are meant to no doubt lend a hand in reviving the product. I imply, any preliminary indication on move hanging your core merchandise into the vendors that came visiting within the Coflex acquisition and vice versa, you realize, hanging Coflex within the bag as a few of your core vendors possibly annoying your biologics or core merchandise?
Sean Browne
Sure, two issues once I solution this. The primary a part of it’s, I might say, with the ability to promote biologics into the present Coflex vendors, we simply introduced 150 of them that simply got here on. That is a bit bit harder as a result of we in truth have a queue of different vendors that we’re brokers or I will have to say that our — we at the moment are simply getting out of the woods of our capability demanding situations, if you are going to. So I will be sure to deal with the ones guys first. So first issues first, deal with the ones guys.
However in our core crew of 300 plus vendors that shouldn’t have Coflex, by means of all manner now we have quite a few stock and quite a few alternative there. So there may be in truth an excellent quantity of alternative that I feel goes to happen over the years to get the ones vendors wearing this and getting their surgeons to make use of it. And so I might let you know that as we enlarge our capability, which I feel now we have mentioned up to now, the place we see that we are going to have considerably extra capability paintings with as we have a look at the 3rd quarter, the ones are issues that as I glance to because the issues the place we will be able to start to get started operating extra and take a look at to be ahead leaning into the ones new vendors on our biologics.
Chase Knickerbocker
Yeah, no doubt an exhilarating alternative. Ultimate one for you, Sean, and I have were given one for Scott. I do know now we have slightly gotten Coflex on board right here, but when we have a look at {the marketplace}, there is a lot on the market. Stroll us via what you might be considering at the subsequent small tuck-in acquisition shall we see, what is the precedence? As you stated, capability constraints you might be simply coming off of, is it an ortho biologics manufacturing capability similar acquisition to deal with a few of the ones constraints? Or is it product focal point including some features or further choices inside biologics?
Sean Browne
Yeah. So there may be not anything — smartly, we all the time have a complete funnel of recent alternatives, proper? And numerous it comes right down to timing, analysis, the entire different items to that, however I feel you might be hitting on each . I feel that as a company, we completely need to to find the place imaginable identical offers like now we have with Coflex, product strains that rather frankly have been forgotten or no longer forgotten, simply could not be given the focal point at a larger group, we will take that. And the ones are issues that from an integration point of view and from the implementation and from, rather frankly, what it manner in your income and income will also be accretive moderately temporarily. So love, love, love, love the ones offers, and we will search the ones anywhere imaginable.
Whilst you speak about some capability increasing alternatives that still deliver us probably into another biologics, I see the ones audio system, once more, the dimensions of our trade, the ones are a bit extra transformational. And so completely, the ones are issues which are additionally at the docket. It is only a topic of, once more, discovering the suitable have compatibility and discovering what’s the proper worth and the entire items that pass at the side of that. So with out being too cagey, proper, I were given it, it is actually an issue of prioritization and the deal that comes ahead.
Chase Knickerbocker
Were given it, all of it is sensible. Then remaining one for you, Scott. Gross margins have been up well. Only one month of Coflex get advantages, you will have to be up well once more with a complete quarter. The place does all the trade roughly secure out right here over the following, shall we say, a few quarters in the course of the finish of the 12 months from a gross margin point of view?
Scott Neils
I feel we noticed coming in about mid-57. I feel as we development in the course of the 12 months, I feel we will begin to make our means into the 60s, the low- to mid-60s at the gross margin entrance.
Chase Knickerbocker
Useful. All proper, thank you, guys, for taking the questions. Great quarter once more, thank you.
Sean Browne
Nice. Thank you, Chase.
Operator
Our subsequent query as of late comes from Kyle Rose of Canaccord.
Sean Browne
Hiya, Kyle. How are you, Kyle?
Kyle Rose
Excellent morning, everybody. Simply two fast questions for me. One, you mentioned Coflex opening up in non-acute sector. Simply questioning how it’s good to take into accounts that during longer-term, and also you touched on it in previous questions, any adjustments to the other form of vendors you want for that marketplace? After which I will simply ask the second one query now, are you able to remind us the brand new product cadence that you’ve covered up now for biologics? Thanks.
Sean Browne
Positive. K. So how are we occupied with Coflex and the way then — let me simply repeat the query, how we are occupied with Coflex shifting ahead and the way that is helping us within the ambulatory surgical procedure middle marketplace / outpatient marketplace? Is that actually your query, Kyle?
Kyle Rose
Yeah. After which simply the full technique [multiple speakers] other name issues.
Sean Browne
Yeah. So whilst you take into accounts Coflex general and the truth that it is actually what we are going after are the ones — it is a actually powerful marketplace and skilled 60,000 plus laminectomies and the 260,000 plus single-level fusions. And so what we need to be offering actually is a brilliant product that many, if no longer maximum of the ones procedures are shifting out of doors of the sanatorium. And so we have a look at Coflex as this nice alternative that no longer most effective is a awesome product, the truth that’s a awesome scientific consequence and that it preserves all choices. So in case you are any individual who is about to get a laminectomy, why would not you get a laminectomy with our Coflex software, which once more interlaminar offers you a complete vary of movement, offers you the entire issues that you want, and expectantly, remains off fusion for rather a while.
But when fusion is for your long run, you may have been giving your self an excellent choice of years so that you could return to that, if that may be a resolution. The problem with going to fusion instantly and in reality that, as you realize, you get started having to have the following point fusions achieved. And so from our facet, once we have a look at it and the place that is located and the way we will be able to pass after it, I feel it is a nice alternative.
Moreover, the compensation within the ambulatory surgical procedure middle global has in truth long past up actually well. So whilst you examine it to the opposite procedures comparable to laminectomy, this can be a very, very successful process, if you are going to. And clinically, arguably, this can be a nice, nice, nice resolution for any surgeon who has a affected person, and rather frankly needs to stave off any form of infusion for rather a while. And in order that’s roughly how we are located. That is how we are shopping at it.
After which whilst you have a look at what we are rolling out with admire to our pipeline of recent merchandise, no doubt at the biologic facet, so two issues. One of the vital issues that now we have had a problem with on our facet is the availability of our OsteoVive Plus. We can’t make sufficient of it. We will be able to’t get sufficient of it out the door. In order that’s nonetheless a product line that has an excellent quantity of room left to develop. And so we are nonetheless excited by OsteoVive Plus in addition to OsteoFactor, which OsteoFactor issue once more is our enlargement issue product, which once more, we will be able to’t promote sufficient of it. And it is going very, really well.
And if there are additions, and once more, you were given to watch out if you end up rolling out merchandise, you do not want to take any steam out of one thing that is operating actually smartly. We can have some additions, as an example, the OsteoVive Plus facet. We additionally could have — there may be a number of different merchandise which are queued up. It is a topic of once we come to a decision to in truth unlock them as a result of once more, we need to be sure we are getting as a lot out of those and giving all of our vendors and surgeons the chance to develop with those merchandise so far as they may be able to. In order that’s inside the pipeline at this time, and that is the reason the place our focal point is. But when — yeah, there may be no doubt extra to come back over the process the following couple of years, however that is the place we’re as of late.
Kyle Rose
Thanks.
Operator
There aren’t any further questions presently. I would like to show the decision again to Sean Browne for ultimate remarks.
Sean Browne
Nice. Thanks. We’re off to a really perfect get started in 2023, highlighted by means of a strong natural enlargement, led by means of persevered call for for our main biologics merchandise and preliminary contributions from our not too long ago got Coflex and Cofix product strains. With our strategic enlargement pillars starting to materialize within the type of robust revenues and environment friendly operations, we’re poised to proceed development in this upward trajectory as we scale the trade.
Additionally, the initiation of annual income steering for 2023 additional illustrates our self assurance in our trade and technique. After which in spite of everything, the good fortune of our challenge of honoring the reward of donation by means of permitting our sufferers to reside as complete and whole a lifestyles as imaginable is most effective made imaginable by means of our precious staff. I wish to thank them for his or her persevered determination to bringing our life-changing answers to sufferers in want. Thanks for becoming a member of us as of late and on your persevered toughen.
Operator
This concludes as of late’s convention. You might disconnect your strains presently and thanks on your participation.