Xtant Medical Holdings, Inc. ($XTNT)

Good morning, everyone, and welcome to the Xtant Medical Fourth Quarter and Full Year 2025 Financial Results. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Kevin Gardner of LifeSci Advisors. Kevin, please go ahead.

Thank you, operator, and welcome to Xtant Medical's Fourth Quarter and Full Year 2025 Financial Results Call. Joining me today are Sean Browne, President and Chief Executive Officer; and Scott Neils, 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 by such words as 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 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 to GAAP reconciliations, which appear in our press release and are otherwise available on our website. Note that the Form 8-Ks that we filed with our financial results press releases provide detailed narratives that describe our use of such measures. For the benefit of those who may be listening to a replay, this call was held and recorded on March 31, 2026, at approximately 8:30 a.m. 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 Browne, CEO. Sean?

Thank you, Kevin, and good morning, everyone. Thank you for joining our fourth quarter update call. As has been our practice, I will begin with a few prepared remarks about our operations, and then Scott will provide a deeper dive into the financials. We will then open the call to your questions. Okay. We again turned in solid financial performance during the fourth quarter. Highlighted by $32.4 million of revenue, representing growth of 3% over the fourth quarter of 2024. Now I want I would note that the companion Spine transaction closed in early December roughly a month ahead of our original assumption, which cost us about $2 million of revenue in the quarter. Scott will provide the details, but I want to flag it upfront. So the headline number is properly contextualized. Importantly, we again generated positive cash flow, adjusted EBITDA and net income, a continuation of the favorable trends we have seen over the past several quarters. Before covering the quarter in more detail, I want to briefly recap our recent sale of our noncore complex interim restabilization assets and the international Paradigm Spine entities to companion span, which closed in early December. The final purchase price was approximately $21.4 million, and I'm pleased to report that the transaction is now fully closed and settled we use those proceeds to reduce our borrowings and strengthen our cash position, and we do not anticipate any need to raise additional outside capital in the foreseeable future. More strategically, this transaction was transformational for our company. It further sharpened our focus on our core high-margin biologics business, which is where our competitive differentiation lies and where we intend to grow. So for the full year of 2025, we generated total revenue of $133.9 million toward the upper end of our previously stated guidance of $131 million to $135 million. Again, remember that guidance also included a full month of coflex and Paradigm Spine revenues. And this represented a growth of over 14% in the full year of 2024. Adjusted EBITDA for the full year was $16.3 million compared to a loss of $1.9 million in 2024. A result we are very proud of and 1 that reflects the sustained operational discipline our team has demonstrated over the past 2 years. our biologics product family, which is the greatest potential for growth, both from a revenue and cash generation perspective was essentially flat for the fourth quarter of last year. We've been direct with investors that our recent emphasis of self sustainability, positive cash flows, tighter operating discipline, in-house manufacturing was intentional, and those goals are now achieved. The strategic initiatives we implanted are sharp and focused on higher-margin biologics, our emphasis on in-house manufacturing to improve quality and control costs and our more disciplined approach to operating expenses were all pursued with self-sustainability in mind. We are pleased to have delivered on each of them. With that foundation now firmly in place, we are turning our full attention to driving top line growth, leveraging the strength of our biologics product family. On the commercial side, we have been making measured but meaningful investments to expand our reach in 2025 and into 2026, we have doubled the number of regional sales reps in the field. Those reps are now deployed, ramping up and calling on accounts. This year, we plan to add significant resources to our national accounts team, which will expand our ability to drive institutional adoption at scale across hospital systems and large practice groups. Together, we believe these additions will have an accelerating impact on our Biologics revenue as the year progresses. We continue to invest in R&D to bring innovations to surgeons and their patients and we remain committed to the cadence of new product introductions that is characterized these past several years. So let's talk a little bit about new product launches. Innovation remains central to our strategy, and we continue to build out our portfolio during the quarter. In December, we announced the commercial launch of Manos Strata, our next-generation synthetic bone graft manufactured from hydroxy carbon appetite, a material with higher solubility than traditional hydroxyapatite, which is the most commonly used synthetic material. Increased solubility enhances the bioactivity of the graft, allowing for better integration and remodeling with surrounding bone tissue during the healing process. Early surgeon feedback has been excellent, and we are encouraged by Nasrat prospects. We also launched Collagen X, our bovine collagen, in particular, for surgical wound closure designed to promote healing, prevent editions and help mitigate surgical site infection risk. What makes collagen X particularly compelling commercially, is that is a potential add-on to virtually every case type in our existing biologics portfolio, creating meaningful attach rate opportunity across our current procedure base. as well as an entry point into adjacent surgical disciplines we do not currently serve. The size of that addressable market opportunity is significant. We are very excited about what this product represents for both patients and for our business. As we have said before, but it bears repeating, we now offer an internally produced solutions across all 5 major orthobiologic categories, which includes demineralized bone matrix, cellular allografts synthetics, structural allografts and growth factors. Additionally, with our amnio and collagen product lines, we are also well positioned to grow in the surgical repair and wound care markets. This breadth positions us as the partner of choice and regenerative medicine, a position that has been further reinforced by the very positive feedback we continue to receive from surgeons on these recent innovations. Turning now to guidance our 2026 revenue outlook reflects the impact of our of the conveyance find divestiture and the expiration of license revenue from our C-Code and amniotic membrane agreements. Both nonrecurring items that Scott will address in detail. Offsetting these headwinds is continued anticipated organic growth in our core Biologics business which we expect to accelerate as our expanded commercial team is fully deployed and our newest products gain traction in the field. With that context, we anticipate full year 2026 revenue in the range of in to $99 million. On a pro forma basis, this represents solid organic growth in our core business. We are committed to maintaining positive free cash flow at these revenue levels. And as I noted, we do not anticipate any need for any outside additional capital. story heading into 2026 is straightforward, a focus on our core business and expanding commercial footprint an innovative and comprehensive product portfolio and a clean balance sheet. We believe we have the right strategy, the right team and the right foundation to deliver. Now with that, I will turn the call over to Scott for a more detailed review of our financial results. Scott?

Thank you, Sean, and good morning, everyone. I'll start first for their financial results and then conclude by sharing some specific amounts related to our recent divestitures and license revenue for the benefit of looking ahead to 2026. Total revenue for the fourth quarter of 2025 was $32.4 million compared to $31.5 million for the same period in 2024. And the slight increase is attributed mainly to higher license revenue during the fourth quarter of 2025 that Sean alluded to earlier, partially offset by declines in biologics and hardware. . As Sean mentioned a moment ago, we expect that the measured investments that we're making in our field sales force on both a regional and national basis should drive accelerating Biologics growth in 2026 and beyond. Gross margin for the fourth quarter of 2025 was 54.9% compared to 58% or 50.8% for the same period in 2024. The increase is primarily attributable to favorable sales mix and greater scale partially offset by a $1.3 million inventory charge associated with the launch of the Cortera Fixation System. Fourth quarter 2025 operating expenses were $18.7 million, compared to $17.9 million in the same period a year ago. General and administrative expenses were $7.3 million for the 3 months ended December 31, 2025, and compared to $5.7 million for the same period in 2024. The increase is primarily related to a $1.4 million of additional expense related to various compensation plans. Sales and marketing expenses were $10.9 million for the 3 months ended December 31, 2025, compared to $11.7 million for the same quarter last year. The decrease resulted primarily from a $0.9 million reduction in commissions. Research and development expenses were $459,000 for the 3 months ended December 31, 2025, and a decrease from $522,000 in the fourth quarter of 2024. Net income in the fourth quarter of 2025 was $57,000 or $0.00 per share on a fully diluted basis. compared to a net loss of $3.2 million or $0.02 per share in the comparable 2024 period. Adjusted EBITDA for the fourth quarter of 2025 was $1.9 million compared to adjusted EBITDA of approximately $0.4 million for the same period in 2024. Turning now to full year results. For the full year 2025, total revenue was $133.9 million, representing growth of 14% over $117.3 million for the full year 2024. Again, our revenue for the fourth quarter and the full year 2025 were negatively impacted by the closing of the sale of our coflex assets and international hardware business companion spine in early December, which is about a month sooner than we were anticipating. The assets of the businesses that were included in the transaction were generating about $2 million of revenue per month. Gross margin for the full year 2025 was 62.9% and compared to 58.2% for the full year 2024. Of this increase, 530 basis points were due to sales mix and greater scale partially offset by a decrease of 260 basis points due to increased charges for excess and obsolete inventory. General and administrative expenses were $29.5 million for the full year 2025 and compared to $28.7 million for the same period in 2024. This increase is primarily attributable to $2.4 million of additional expense related to various compensation plans partially offset by a $1.2 million reduction in expense for stock-based compensation. Sales and marketing expenses were $45.5 million for the full year 2025 and compared to $49.2 million for full year 2024. This decrease is primarily due to reduced commission expense of $3.9 million, resulting from revenue mix and $2.1 million of reduced compensation expense related to head count partially offset by $2.9 million of additional consulting fees. Research and development expenses were $2.1 million for the full year 2025 a modest decrease from $2.4 million for the full year 2024. Full year 2025 total operating expenses were $77 million compared to $80.3 million for the full year 2024. The Net income for the full year 2025 was $5 million or $0.03 per share on a fully diluted basis compared to a net loss of $16.5 million or $0.12 per share for the full year 2024. Adjusted EBITDA for the full year 2025 was $16.3 million compared to an adjusted EBITDA loss of approximately $2.3 million for the full year 2024. As of December 31, 2025, we had $17.3 million of cash, cash equivalents and restricted cash compared to $6.2 million as of December 31, 2024, and as Sean alluded to earlier, our cash balance as of December 31, 2025, excludes the $10.7 million that we subsequently received from companion spine and satisfaction of the unsecured promissory note of $8.2 million issued extent by companion Spine related to the Coflex transaction, plus accrued interest and related working capital and other purchase price adjustments. Net accounts receivable, $17.8 million, inventory was $30.3 million, and we had $3.8 million available under our revolving credit facility as of the end of the year. Turning now to nonrecurring revenue and related expenses for 2026. Total revenue for the business sold to companion Spine was $20.3 million for 11 months ended November 30, 2025. We will include disclosure of the 2025 quarterly revenue amounts on Xtant's investor website. Cost of sales and operating expenses for those disposed businesses were $6.6 million and $15.4 million, respectively, for the same period. Also, with respect to the $18.7 million of license revenue recognized during 2025, please note that the related sales and marketing expense was $3.7 million. That concludes the financial overview. Operator, you may now open the line for questions.

[Operator Instructions] Your first question is coming from Ryan Zimmerman with BTIG.

Scott, this is Izzy on for Ryan. So I just wanted to start out on the outlook for 2026. I know guidance excludes Coflex, COFIX and the OUS business. But I was curious if you could kind of unpack what your thoughts are for underlying organic growth, especially in the core biologics business.

Scott, I'll let you dive in, and I'll add any color.

Sure. I think as we look out through 2026, we're going to be looking for sequential quarter-over-quarter growth, which will reflect the growing contributions of the new product offering Sean mentioned as well as the expanding impact from additions to our commercial organization. I will note though that seasonality will still be present. So thinking of Q3, for instance, we're likely to see less sequential growth there than in other quarters. I think maybe setting Q1 as a baseline, for example, starting biologics or with biologics to your point. I expect Biologics in the first quarter to be down low double digits compared to Q1 of 2025 in response to headwinds related mainly to lost amnio product and for hardware to be down approximately mid-teens after adjusting for the revenue associated with the divestiture in 2025. Does that help, Jaz?

Yes, that's really helpful. And then you kind of touched on it already with the low double-digit decline for first quarter. But how much of a headwind are you expecting in 2026 from the loss of the license revenue relating to the C codes?

I think it's more, okay. So first of all, all of that, the Q-Code revenue all goes away. However, what we are waiting to see and is still shaking out. is what is the base of that business now going to be because we still manufacture a really terrific product line that will be used in advanced Wound Care by distributors and others. Now what's going to be different is that as this continues to shake out, more of those distributors will be using our contracts, and it will be actually expands brand. So we expect as the year progresses, we'll see that business begin to ramp up, and we feel good about some of the discussions we've had with many of the groups that are out there today looking for a product to sell in hospice because as you know, the advanced wound care world, we're going to see a lot more patients being shifted from the non-acute facilities to acute. And so we see an upside that's going to be coming our way. really starting probably well, I guess, guys who are in this market a little more than we are. I would tell you it's probably going to be looking more like sometime in the late second quarter to the second half of the year where we'll start to see the pickup on that. But in the first quarter, we OEMed a fair amount of product for guys last 4 manufacturer, I should say, distributors last year under their brands. And so that business has gone away. But now the business that will come back will most likely be product that will sell under our brand, and it will be into hospitals. Does that answer your question?

Yes, that's really helpful. And then just the last 1 for me. I was curious how quickly you guys are expecting to see a decline in the hardware business throughout 2026.

I think the best way of looking at hardware, is we will see a slow decline throughout the year. So yes, so I'll just let it at that. Scott, do you want to add any color to that?

Yes. I simply say that we've already seen a decline in the hardware that remains post divestiture, and we expect that, that decline will continue at a reasonably steady rate approaching high teens in 2026. .

Your next question is coming from Chase Knickerbocker with Craig-Hallum.

Maybe I just wanted to start on kind of that cadence of biologics growth that's kind of implicit and all that commentary that you just gave. -- calls for, call it, kind of last 3 quarters kind of acceleration and kind of organic year-over-year biologics growth, Sean, can you maybe just walk us through kind of which products, in particular, you kind of expect to support that kind of the just help us, I guess, bridge to their kind of by product as far as what you see accelerating growth? And then kind of same question as far as how much of that comes from your distribution network versus kind of white label contracts, white label business that you have visibility on?

Sure. So starting off with the different products. So all of the advanced biologics products that we're now manufacturing. So when you think about our Ostby, which is the stem cell product our Osteo factor Pro, the which is our growth factor product, the collagen X product, we just rolled out our Tridium product, which is an advanced demineralized bone matrix product. Those are all the ones that I see well, a, quite frankly, all of them I expect it to grow, but those are the ones that are going to be the big drivers. And so those are the ones that if you look at our funnels today, which I'm really excited about because this is something with the added sales people, just the number of new opportunities that we're looking at these days is substantially greater than we've had, really, quite frankly, ever. And with this advanced portfolio, we're touching on a lot more a lot of areas in and around line. So when we started looking at the number of trauma, foot and ankle and other opportunities that have come our way, it's become substantially greater. So those would be the product lines that I would say that will be driving what we see as our growth. And then just as far as channel, Sean, white label versus your own distribution network yes. So when we think again about the biologics business, we'll look at our channel, our OEM channel to about 20%. Scott, is that right? About 20% of our growth this year or 5% of our overall biologics business. will be in the OEM channel. Is that maybe a little higher? Like 22%. Is that about right, Scott?

Yes, that is about right, Sean.

Yes.

And then a couple as we think kind of longer term, Sean, as we think about kind of direct your distribution network, white label, potentially kind of some larger contracts with institutions. Like where do you see over the medium term, your business kind of showing the most growth? Is it these white label contracts? Is it continuing to be in your distribution network just some thoughts there as far as kind of where you're really leaning in.

Yes, especially given the fact that we had -- it will definitely be the Xtam-branded product, working through our independent agent networks mostly because, quite frankly, that's where we had the most significant reduction over the 2024, 2025 years in way of we lose a person didn't replace them. And so we had and that was it was strategically a choice of me. Strategy is about choices. And our strategy was we need to get to self-sustainability and that meant building products internally, being able to have our own products that we feel really good about that are advanced. It give us the much higher ASPs and better margins. so these are decisions we made. Now we've replaced and then added basically double the size of the sales force. And that sales force is focused on our Xtant brand new products. And so when you see the growth that will be coming out, it will be coming from really, what I see has been a down to flat independent agent network. We have a real opportunity to really start growing that world again. And so we're feeling really good about where that's going.

And then 2, just to finish for me on maybe on hardware. That business is obviously a lot smaller than it has been for you in the past you expect it to decline. What are your kind of plans there over the medium to long term? Is that a little bit of a melting ice for the business? It's obviously kind of drawing down growth on the overall top line. Just kind of give us your strategic thoughts there. And then just with kind of all the movement in the portfolio, can you give us a little bit more kind of color on gross margin in 2026? And sorry, if I missed that during your prepared remarks, Scott.

I'll let Scott address the 2026, I'll adjust the hardware issues. So hardware for us, where we are good in hardware, we're really good. Like we have this new Cortera, which is outstanding we have a cervical offering that is as good as anything it's actually better than almost anything else that's out there. So we do adult degenerative spine really well. The question is at what point in time does this become something that becomes a strategic distraction? And at this point in time, it's still helping set the table for some of our biologics business. So I guess the point is, is that we'll point to we kind of look at this and say, when doesn't it? And does the, I guess, the drag on growth become more than it's worth. And so we're not there right now, and but it is something we're looking at. So I'll without getting too deep into that. But that is clearly on our strategic list of things to choose or decide. And so that's something that we'll be working on over the course of the next year or so. Scott, do you want to answer the gross profit margin question.

Sure. I think over the course of 2026, we're probably going to be running low 60s in terms of gross margin. As far as the puts and takes within that the new product launches, these higher-margin biologics launches that we've done have had the desired effect in terms of what they've done to our overall biologics product margins However, what we've seen out of hardware is that really the non-product costs, say, excess and obsolete charges for example, have offset to some extent the positive contributions from those new biologics product or offerings. So net-net, I think we're probably running low 60s in way of gross margin during the course of 2026.

Thank you, everyone. This does conclude our Q&A session at this time. This also concludes our conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Thank you.