Earnings call transcript: Xtant Medical Q4 2024 misses EPS, stock drops

Xtant Medical Holdings Inc (XTNT) reported its Q4 2024 earnings, revealing a slight miss on earnings per share (EPS) with a recorded -$0.02 against a forecast of -$0.01. The company’s revenue reached $31.51 million, slightly below the expected $31.8 million. Following the announcement, Xtant’s stock fell by 8.79% in after-hours trading to $0.44. According to InvestingPro analysis, the stock appears undervalued at current levels, with analysts maintaining a Strong Buy consensus and price targets ranging from $1.50 to $3.00.

Key Takeaways

• Xtant Medical’s Q4 2024 EPS of -$0.02 missed forecasts by $0.01.
• Revenue for the quarter was $31.51 million, a 12% increase year-over-year.
• Stock declined by 8.79% in after-hours trading, reflecting investor concerns.
• Positive adjusted EBITDA of $438,000 marks operational improvement.
• New product launches and innovations planned for 2025.

Company Performance

Xtant Medical’s performance in Q4 2024 highlights both progress and challenges. The company achieved a 12% year-over-year increase in revenue, reaching $31.51 million. However, the decline in gross margin from 61% to 50.8% and a net loss of $3.2 million underscore ongoing profitability challenges. Despite these hurdles, the company reported a positive adjusted EBITDA of $438,000, an improvement from the previous year’s negative figure.

Financial Highlights

• Revenue: $31.51 million, up 12% year-over-year.
• EPS: -$0.02, missing the forecast of -$0.01.
• Gross margin: 50.8%, down from 61% in 2023.
• Adjusted EBITDA: $438,000, improved from -$695,000 in 2023.

Earnings vs. Forecast

Xtant Medical’s Q4 2024 EPS of -$0.02 fell short of the forecasted -$0.01, marking a $0.01 miss. Revenue also came in slightly below expectations at $31.51 million versus the anticipated $31.8 million. This earnings miss, though minor, contributed to the negative investor sentiment reflected in the stock’s after-hours decline.

Market Reaction

Following the earnings release, Xtant Medical’s stock dropped by 8.79% in after-hours trading to $0.44. This decline reflects investor concerns over the earnings miss and the company’s profitability trajectory. The stock’s current position is significant as it nears its 52-week low.

Outlook & Guidance

Looking ahead, Xtant Medical projects 2025 revenue between $126 million and $130 million, indicating an 8-11% growth. The company aims for mid-double-digit growth in its biologics segment and expects hardware revenue to remain consistent or slightly decline. Xtant is focusing on achieving cash flow positivity by the end of 2025 and does not foresee the need for additional capital raising.

Executive Commentary

CEO Sean Brown emphasized the company’s shift towards profitability, stating, "Our corporate direction moving forward has been prioritizing profitability ahead of revenue growth." Brown also highlighted the company’s focus on self-sustainability, expressing optimism for 2025.

Risks and Challenges

• Declining gross margins may pressure profitability.
• Hardware sales decline and international supply chain issues could impact growth.
• Achieving cash flow positivity by year-end is a critical target.
• Market saturation and competitive pressures in the medical sector.
• Potential economic uncertainties affecting healthcare spending.

Q&A

During the earnings call, analysts inquired about the balance between white-label and branded products, which is expected to be evenly split. Questions also focused on potential benefits from changes in Local Coverage Determination (LCD) and the company’s strategy for sustainable growth and operational efficiency.

Full transcript - Xtant Medical Holdings Inc (XTNT) Q4 2024:

Conference Operator: Good day, everyone, and welcome to the Xtant Medical Fourth Quarter and Year End twenty twenty four Earnings. At this time, all participants have been placed on a listen only mode. If you have any questions or comments during the presentation, you may press star one on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brett Moss with Hayden IR. Sir, the floor is yours.

Brett Moss, Investor Relations Representative, Hayden IR: Thank you, operator. Joining me today is Sean Brown, President and Chief Executive Officer and Scott Neals, 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 as such words by 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 risks and uncertainties, including those noted in the Risk Factors section of the company’s annual report on Form 10 K filed this afternoon with the SEC 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 and GAAP reconciliations which appear in our press release and are otherwise available on our website. Note that our Form eight ks filed with the financial results press release provides a detailed narrative that describes our use of such measures.

For the benefit of those who may be listening to the replay of this call, it was held on record on March 6 at approximately 04:30PM Eastern Time. The company declines any obligation to update its forward looking statements except as required by applicable law. Now, I’d like to turn the call over to Sean Brown. Sean, the floor is yours.

Sean Brown, President and Chief Executive Officer, Xtant Medical: Thank you, Brett, and good afternoon, everyone. I am pleased to announce record fourth quarter revenue of $31,500,000 and for the full year $117,300,000 This is our first full quarter with consistent year over year comparison Surge Align business incorporated into our revenue, which amounts to a 12% growth quarter over quarter and a 28% year over year growth. And from a profitability perspective, we again delivered positive adjusted EBITDA of $438,000 in the fourth quarter. This accomplishment was achieved despite an inventory write off of $1,500,000 related to the Surgeonline acquisition as Scott will explain later. In summary, 2024 was a challenging year on many fronts with the integration of the various surgeon line businesses and the ambitious challenge of vertically integrating Xtance Biologics offering.

I’m thrilled to say that as a team, we have come out leaner and better prepared to create a self sustaining, growing and profitable company. Operationally, we continue to look at opportunities to leverage the Xtant and Surgeline platforms to improve efficiency. Through this work, we were able to penetrate or able to generate cash flows from operations in Q4 of over $500,000 for the first time since 2022. Since August and through the current first quarter of twenty twenty five, we have reduced our operating expenses by approximately $5,000,000 A portion of this cost savings was achieved through headcount reductions of more than 13%, most of which was tied to the closing of the Greenville facility and other acquisition related integration activities. Recall, we acquired our Greenville facility when we acquired the Nanos production operations from RTI Surgical in October of twenty twenty three.

We recently moved the production of our Nanos products to our Belgrade facility. As we continue to vertically integrate our biologics business, we believe we will realize additional operating efficiencies tied to greater throughput and improved processes. From a hardware perspective, we continue to rationalize old and redundant lines. This is a good example of where we have chosen to give up some top line revenue due to the capital required to maintain a hardware line. Furthermore, as we bring more lines into our main distribution facility in Belgrade, we believe there will be additional savings compared to using a third party logistics company in 2024 that is not as efficient as our own operations.

From a commercial perspective, our biologics business grew 21% for the quarter, while our hardware took a 10% bid. Two main drivers for the growth in biologics were, first and foremost, our new stem cell offering branded as OsteoVide Plus, which has done very well for us out of the gate. The second driver was our new Amdion product line. Conversely, our hardware drop off was tied to two significant issues. First, to a very strong previous year comparison that included several rationalized Surgeline fixation lines.

These were lines that Surgeline had discontinued prior to our acquisition. And secondly, our international business continued to fight through EU supply chain issues that impacted their sales again in this quarter. From a new product development perspective, we anticipate four new biologics products scheduled to launch this year. The primary release will be our own Growth Factor product, which we are excited about because it will complete the targeted vertical integration of our current offering. Two of our new products will be upgraded DBM based products that should drive higher revenue and gross profit.

The last of these new product lines will expand our surgical wound care offering. Our surgeons currently use all of these products and our independent agent partners have requested them for quite some time. This year, we expect to pick up a solid growth in our OEM business. These OEM opportunities serve two purposes. First, is a great channel for us to leverage manufacturing capacity to grow profitably.

Second, it serves as a means for Xtant to learn more about adjacent markets such as foot and ankle, trauma, surgical, wound care and other relevant markets that we can serve now with our current expanded offerings of products, which many of these serve these adjacent markets. With that as a backdrop, in January of twenty twenty five, we licensed another Q code for our single layer Amneon product. This brought us an upfront licensing fee of $1,500,000 and production minimums for an OEM partner. However, most of these minimums will not continue if the local coverage determination or LCD for skin substitute takes effect as planned on April 13. Looking ahead to 2025, we are continuing our pursuit of achieving self sustainability.

Our corporate direction moving forward has been prioritizing profitability ahead of revenue growth. We plan to leverage our cost cutting measures to return our business to sustainable cash flowing business. In fiscal year twenty twenty five, we expect mid double digit revenue growth in biologics and to stay consistent to modestly down revenue year over year in hardware. From a hardware perspective, we continue to look at rationalizing lines to optimize both our offering and our management of cash. From a profitability perspective, our goal is to be sustainably cash flowing by the end of the year.

From a guidance perspective for full year 2025, we expect revenue in the range of $126,000,000 to $130,000,000 which is an 8% to 11% growth, which together with our anticipated cost savings, we project that we will not need to raise additional capital. With that, I will turn the call over to Scott for a more detailed review of our financial results.

Scott Neals, Chief Financial Officer, Xtant Medical: Thank you, Sean, and good morning, everyone or good afternoon rather. Total revenue for the fourth quarter of twenty twenty four was $31,500,000 compared to $28,100,000 for the same period in 2023. The 12% increase is attributed primarily to 21% or $3,200,000 year over year growth in our Biologics product family, exclusive of the impact of $1,500,000 of licensing revenue during the fourth quarter of twenty twenty four. This increase was partially offset by a 10% or $1,300,000 year over year reduction in spinal implant sales. Gross margin for the fourth quarter of twenty twenty four was 50.8% compared to 61% for the same period in 2023.

Throughout the course of 2024, we worked to verify the existence of inventory associated with our acquisition of Surgeonline Holdings’ hardware and biologics business. These procedures were completed during the fourth quarter, resulting in a $1,500,000 inventory charge, which adversely affected gross margin by six eighty basis points compared to the same period a year ago. Additionally, gross margin was adversely affected by five seventy basis points during the fourth quarter of twenty twenty four compared to the same period in 2023 where reduced yields and throughput as the amnio and stem cell production was optimal. Fourth quarter twenty twenty four operating expenses were $17,900,000 compared to $21,000,000 in the same period a year ago. As a percentage of total revenue, operating expenses were 56.8% compared to 74.5% in the same period a year ago.

Sequentially, operating expenses declined $2,200,000 and declined as a percentage of revenue compared to Q3 twenty twenty four by 15.5 points. General and administrative expenses were $5,700,000 for the three months ended 12/31/2024, compared to $8,900,000 for the same period in 2023. This decrease is primarily attributable to $2,100,000 of reduction to various compensation plans as well as reductions in professional fees totaling $1,000,000 Sales and marketing expenses were $11,700,000 for the three months ended 12/31/2024, compared to $11,600,000 for the same quarter last year. This increase is primarily due to higher commission expenses, $700,000 related to increased sales, partially offset by reductions in salaries and wages totaling $500,000 Research and development expenses were $522,000 for the three months ended 12/31/2024, an increase from $492,000 in the fourth quarter of twenty twenty three. Net loss in the fourth quarter of twenty twenty four was $3,200,000 or $0.02 per share compared to a net loss of $4,300,000 or $0.03 per share in the comparable 2023 period.

Adjusted EBITDA for the fourth quarter of twenty twenty four was $438,000 compared to an adjusted EBITDA loss of $695,000 for the same period in 2023. Beginning in the fourth quarter of twenty twenty four, we are no longer including the phasing of the bargain purchase gain on our sell through of inventory acquired as part of our purchase of Surgeonline Holdings’ Hardware and Biologics business and our calculation of adjusted EBITDA and prior periods have been recast to conform to the current calculation. The related effect on adjusted EBITDA was a reduction of $1,400,000 in the fourth quarter of twenty twenty three to arrive at the recast amount. Turning now to our full year financial results. Total revenue for 2024 was $117,300,000 compared to $91,300,000 for 2023, an increase of 28%.

This increase is primarily attributable to the additional sales from our acquisition in the Surgeonline Holdings hardware and biologics business, higher independent agent sales and $1,500,000 of upfront licensing revenue related to our SimplyMax product and associated trademarks. Gross margin for 2024 was 58.2% compared to 60.8 for 2023. Of this decrease, two twenty basis points were due to product mix and 200 basis points were due to reduced production throughput. 2024 operating expenses were $80,300,000 or 68.5% of total revenue compared to $65,600,000 or 71.9% of total revenue in 2023. General and administrative expenses were $28,700,000 for the year ended 12/31/2024 compared to $25,900,000 for 2023.

This increase is primarily attributable to an increase in stock based compensation, severance expense, additional hardware and software expense and additional amortization expense, which were partially offset by reductions in various compensation plans. Sales and marketing expenses were $49,200,000 for 2024 compared to $38,400,000 for 2023. This increase is primarily due to higher commission expenses related to increased sales as well as higher professional service fees. Research and development expenses were $2,400,000 for the year ended 12/31/2024, an increase from $1,300,000 from the prior year. This increase is primarily due to additional personnel added with our acquisitions.

Net loss in 2024 was $16,400,000 or $0.12 per share compared to net income of $660,000 or $0.01 per share in 2023. Note that 2023 net income included an $11,700,000 gain on bargain purchase related to our acquisition of the Surgeonline Hardware and Biologics business. Adjusted EBITDA for 2024 was a loss of $2,300,000 compared to a loss of $1,400,000 for 2023. As previously noted, we are no longer including the phasing on the bargain purchase gain on our sell through of inventory as acquired as part of our purchase of Surgeonline Holdings’ Hardware and Biologics business and our calculation of adjusted EBITDA. The related effect on adjusted EBITDA was a reduction of $2,300,000 in 2023 to arrive at the recast amount.

As of 12/31/2024, we had $6,200,000 of cash, cash equivalents and restricted cash. Net accounts receivable was $20,700,000 inventory was $38,600,000 and we had $4,200,000 available under revolving credit facilities as of the end of twenty twenty four. Operator, you may now open the line for questions.

Conference Operator: Certainly. Everyone at this time will be conducting a question and answer session. Your first question is coming from Chase Knickerbocker from Craig Hallum. Your line is live.

Chase Knickerbocker, Analyst, Craig Hallum: Good afternoon. Thanks for taking the questions. Congrats on the quarter here. I guess just to start on Biologics, if we think about kind of sequential growth there, sounds like it was largely driven by the VBM launch. And is the majority of that white label?

Or was there any pull through on your internally developed product in Q4 through your distribution channel?

Sean Brown, President and Chief Executive Officer, Xtant Medical: Yes. So primarily white label, we are finishing off the last bits of our so like literally like the December, we finished off the last of the distributor products. So we saw a little bit of pickup on the our own label product, but it was mostly the white label.

Chase Knickerbocker, Analyst, Craig Hallum: And as we enter the year, is that a pretty meaningful portion of that kind of mid teens growth that you’re kind of accounting for? And is there a way for us to think about it from a standpoint of kind of expanding those current relationships on the white label side? Are you ramping kind of new ones? Just kind of walk us through how that’s kind of work for VBM and your ultimate expectations for it in twenty

Sean Brown, President and Chief Executive Officer, Xtant Medical: Four months ago, I would have told you that a big part of the growth is going to be mostly on the white label side, not mostly, but a good chunk of it was on the white label side. Our funnels right now look very, very good for our Xtant branded product. So what I’d tell you is that the VBM product is going to be a big part of our growth this year. And as I look at it today, it’s probably going to be about a 50%, fifty % split.

Chase Knickerbocker, Analyst, Craig Hallum: As far as white label and the next 10 brands? Yes. Yes. Yes. And then on the growth sector side, kind of any expectations on when we could have that launched?

And is that a pretty material contributor to 2020 to 2025?

Sean Brown, President and Chief Executive Officer, Xtant Medical: Yes. So, two things to that. So, first of all, the product is to be finished this quarter. So we’re excited about the product being done, but we still have another three months or so of our current product line that we’ll be working through. And so from there, what we are looking at is a couple of things.

There’s with our current product line, there’s some limitations to where we can sell it. So we’re hoping that we can now start being able to open up this product line a lot more. So as to the second half of this year, we should certainly see a pickup from a margin perspective. And then secondarily, we hope to see at least the revenue begin to climb after we basically we’ve got to take out the last line and make sure that we keep that business, but then also grow it from there.

Chase Knickerbocker, Analyst, Craig Hallum: And Scott, sorry if I missed it, but what were the exact impacts to gross margin in Q4 from those inventory write offs?

Scott Neals, Chief Financial Officer, Xtant Medical: The one related to our inventory cleanup or the inventory charge related to the surge line inventory was just under 700 basis points. It’s actually six eighty. And then the difference in throughput was about five seventy basis points.

Chase Knickerbocker, Analyst, Craig Hallum: Got it. And is there if we think about 25, I mean any color you can give towards gross margins, we should see some improvement I would imagine as BBM starts to sell through the direct channel in a bigger sense as well. Any thoughts on gross margin for 2025?

Scott Neals, Chief Financial Officer, Xtant Medical: Right. We finished the year for the full year at 58.2%. And I think as we walk through the course of 2025, by the time we get to Q4 of twenty twenty five, I think we pick up four or five points at, as we see the impact of EBM and some of the other new product introductions will be going out.

Chase Knickerbocker, Analyst, Craig Hallum: Great. Thanks guys.

Conference Operator: Thank you. Your next question is coming from Ryan Zimmerman from BTIG. Your line is live.

Izzy, Analyst, BTIG: Hi, Sean. Hi, Scott. This is Izzy on for Ryan. Thank you for taking the questions.

Scott Neals, Chief Financial Officer, Xtant Medical: Hello, Izzy. How are you?

Izzy, Analyst, BTIG: Good. Thank you. Just to start with 2025 guidance, I was hoping if you could speak to some of your assumptions around pacing and what would get you to the low and high end of the guide?

Sean Brown, President and Chief Executive Officer, Xtant Medical: Scott, you want me to jump in or you want to jump in on this?

Scott Neals, Chief Financial Officer, Xtant Medical: Yes. Maybe I’ll set the stage for it. And if you want to add any color to it, feel free to jump in, Sean. But I think from a phasing perspective on top line, I think we look for seasonality that directionally is consistent with what we saw in 2024. That said, I don’t expect to see as dramatic an increase in sales transitioning from Q1 to Q2, really only because of the impact of somewhat of what we’ll see on the Amneal licensing side here in Q1.

As we move down into OpEx, having covered gross margin with Chase, turning to the OpEx front, I think we pick up maybe a point on the G and A side during the course of the year. I think we pick up significant leverage in sales and marketing. We’re probably picking up four to five points as a percentage of revenue on that side of things. And then I think R and D, we look to stay largely flat during the course of the year. Does that give you some good color, Izzy?

Izzy, Analyst, BTIG: Yes, that’s helpful. Thank you. And is there anything that would allow for any outperformance in 2025 that we should keep in mind?

Sean Brown, President and Chief Executive Officer, Xtant Medical: Sure. Well, one of the big ones is if the LCD gets pushed in any way. Additionally, to that point, if you think about the way the LCD for the wound care side is set up, it really only covers diabetic foot ulcers and V and S leg ulcers. And so that’s when I listen to the gentleman from Organogenesis as well as MiMedx, that makes them about 57% of that total market. So some of that OEM revenue that we have or at least licensing revenue could certainly pick up in that realm.

There’s other things too that from one of the things that I want to make sure of that we can when we bring on an OEM player for any of our products that we can reliably supply them, we’ve been on the wrong side of that ourselves. So as we create more capacity within our plant, which is some of the things we’re working on as we speak, we think that there’s quite frankly, we’ve got plenty of demand. It’s a matter of getting the donors, having the clean rooms and all the things available so that we can produce what we need to produce to really knock this number out. So I feel good about the top line side of the thing. It’s just a matter of making sure that we can we don’t outkick our coverage, so to speak.

Izzy, Analyst, BTIG: Understood. And I heard your comments around that guidance isn’t going to require any additional capital. Curious if you guys are holding back spend in any other areas that would potentially allow for growth if you had it on hand?

Sean Brown, President and Chief Executive Officer, Xtant Medical: That’s a great question. Like anything, I mean, I’ll tell you back in the .com days, right, you had enough money, you could just keep buying or buying business basically. So yes, there’s certainly a way to buy business, no question about it. But what we are trying to build is really something sustainable. And so to that end, we wouldn’t be doing anything that would be that detrimental to our growth engine.

It’s just that there are certain things like for instance, hardware is a great example. We have certain product lines that are pretty old for us, where we might have say 10 doctors out there that are using 10 different sets of say a pedicle screw line, an old pedicle screw line. If we wanted to upgrade those lines and bring them up to say, if we had to buy brand new ones, we have to buy 20 new sets altogether, even though we only have 10 sets being used. And so yes, we could be buying stuff like that on the come, but it’s just and hardware is one of those things where there’s a lot of you could put a lot of money into hardware and before you know it, you have outstripped all of your profitability through CapEx. And so that’s just something we want to keep an eye on.

Izzy, Analyst, BTIG: Got it. And then last one for me. I was just curious how quickly we should start seeing some of the cost savings move into the P and L? Thanks for taking the questions.

Sean Brown, President and Chief Executive Officer, Xtant Medical: Great. Scott, I’ll turn it over to you. Well, I can tell you right now, we’re already immediately starting to see some of it already in the fourth quarter, but you’ll see a significant amount here in the first quarter. Scott, I’ll let you add to that.

Scott Neals, Chief Financial Officer, Xtant Medical: Right. I think that’s exactly right. We’ve put the wheels motion on those. To the extent we’ve needed to reduce headcount, we’ve done so and we’ve put the spend reductions in place where necessary. So those are locked and loaded heading into 2025.

Izzy, Analyst, BTIG: Thanks for taking the questions.

Sean Brown, President and Chief Executive Officer, Xtant Medical: Great. Thanks, Izzy.

Conference Operator: Thank you. That concludes our Q and A session. I’ll now hand the conference back to President and Chief Executive Officer, Sean Brown for closing remarks. Please go ahead.

Sean Brown, President and Chief Executive Officer, Xtant Medical: Thank you, operator. First, I’d like to thank our hardworking Xtant team members and their dedication to our mission of honoring the gift of donations so that our patients can live as full and complete a life as possible. And then, secondly, I’d like to thank all of you who have joined us today. We greatly appreciate your support and we’re really excited about our self sustaining year of 2025.

Conference Operator: Thank you. Everyone, this concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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