Xtant Medical Holdings, Inc. (XTNT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Xtant Medical Second Quarter 2026 Financial Results Conference Call. [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. Please go ahead.

Thank you, operator, and welcome to Xtant Medical's Second Quarter 2026 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 of you who may be listening to a replay of this call, it was held and recorded on August 11, 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 second 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. During the second quarter, we achieved meaningful progress across several aspects of our business. We integrated the new Dilon sales reps into our own commercial organization and we addressed a significant unmet need among surgeons with the launch of Trivium shaped. While our reported revenue continues to face challenging year-over-year comps due to the sale of certain assets and businesses to Companion Spine last year as well as the cessation of certain license revenue due to changes in reimbursements that took effect on January 1, we are building a solid resilient foundation that we believe will support sustained, predictable and profitable growth in the future. Now turning to the Dilon Technologies distribution agreement that we announced in April. Recall that through this agreement, we acquired exclusive U.S. distribution rights to Dilon's HEMOBLAST product for high-performance hemostasis following certain surgical procedures. This agreement adds a highly complementary hemostatic technology to our portfolio and gives us entry into an estimated $1 billion global addressable market for hemostatic products. As part of that agreement, we hired Dilon's U.S. team of 17 salespeople and to their regional managers that have been integrated into our own commercial organization and are being trained on our entire portfolio. This is in addition to our own investments that we have been making in our commercial organization, including, as we stated previously, doubling the number of regional sales reps in the field. In 2026, we've been adding significant resources to our marketing and national accounts teams and these professionals have had an immediate impact driving institutional adoption of our portfolio at scale across hospital systems and large practice groups. Now as a side note, the training, integration of these new reps consumed a significant amount of our time and resources and played a role in our soft Q2 sales. However, I'm more than excited than ever about Xtant's future with a significantly larger commercial team. Now as for HEMOBLAST, HEMOBLAST orders during the quarter were in line with our expectations, but our recognition of this revenue from sales is lower than we expected since we didn't transition purchase orders for HEMOBLAST at Xtant until after the end of the second quarter and our transition of certain customers to Xtant contracts remains ongoing. Accordingly, we were unable to fully recognize the revenue on orders submitted to Dilon during the quarter. As we look out into the remainder of the year, we see significant sales synergies as our legacy commercial organization and the new specialty reps share very few overlapping call points in the field. As specialty reps continue to get comfortable selling our other product lines, we anticipate that this will translate into accelerating biologics growth in Q3 and beyond. But at this point, while we are very pleased with the speed with which they are coming [ up to ] the learning curve, we see significant untapped potential that we expect to penetrate once these additional sales resources are fully deployed. We view the newly integrated sales force as a foundational part of our future commercial strategy. Now turning to Trivium Shaped. We are seeing strong early sales traction since the product's launch in May, joining collagen and OsteoFactor Pro as recent product launches that are key drivers to our overall biologics growth. Trivium Shaped is an extension of our Trivium bone graft portfolio available in pre-shaped configurations, designed to support handling preparation and placement across a range of surgical applications. Trivium is a composite allograft that combines cortical fibers, [indiscernible] bone and demineralized bone matrix into a single connected graft matrix. Trivium Shaped builds on the Trivium sculptable format, which we launched in 2025 by offering surgeons ready-to-use graft forms, including boats and strips that are designed to improve consistency and handling in the operating room. Surgeons tell us that these preshape formats reduce preparation time and support more predictable placement, and that feedback is translating directly into the sales momentum we are seeing since launch. Innovations such as Trivium Shaped, a demineralized bone matrix together with our amnio and collagen product lines also position us to move into adjacent high-value markets, including chronic wound care and surgical repair, a combined TAM of approximately $6.5 billion. Now with the addition of hemostatic biologic, we gained access to an additional $1 billion of TAM, and we are uniquely positioned to be a partner of choice that can address a very broad range of surgeon and hospital needs in regenerative medicine. We believe that breadth of our portfolio, together with the quality control that comes in with in-house manufacturing steps apart from nearly everyone else in the field. Now from a guidance perspective, reflecting lower-than-expected biologics revenue in the second quarter as well as the ongoing headwinds related to our Amnio product line directly tied to the advanced wound care market that are expected to persist through the back half of the year we are today modestly reducing our full year revenue guidance to a range of $99 million to $103 million, and that was from $101 million to $105 million previously. Notwithstanding this change, however, we continue to believe that our enhanced commercial presence and expanded product portfolio position us well to drive top line growth throughout 2026 and beyond. With that, I'll turn the call over to Scott for a more detailed review of our financial results. Scott?

Thank you, Sean, and good morning, everyone. Total revenue for the second quarter of 2026 was $23 million compared to $35.4 million for the second quarter of 2025 or $24.8 million for the second quarter of 2025 on a pro forma basis, excluding the revenue from the noncore products and businesses that we sold the companion spine and nonrecurring license revenue. Note that a reconciliation of [indiscernible] to pro forma revenue results for each quarter of 2025 can be found on the company's website at www.xtantmedical.com. With respect to the Q2 comparison on a pro forma basis, headwinds related to our Amnio product revenue directly tied to the advanced wound care market were the main driver for the decline in 2026 Biologics revenue compared to the pro forma 2025 period, although this was partially offset by approximately $1.5 million of HEMOBLAST sales as well as higher-than-anticipated hardware revenue in the current year period, driven by sales of our Cortera spinal fixation system. Our second quarter revenue was also impacted by the time our legacy sales team spent getting up to speed on egoless bells during the quarter. which created a modest additional headwind that we expect to abate in the second half of the year. Staying on the topic of Hemoblast, the $1.5 million of revenue that we recognized in the second quarter was accounted for primarily on a net basis as we will ship directly to customer sites from the Dilling Technologies facility under Dylan's customer agreements. We previously anticipated that significantly more of these transactions would be ordered from and shift by Xtant, which would have increased reported revenue by approximately $600,000 to $700,000. Going forward, we believe that substantially all HEMOBLAST Bellows sales will be processed through our own customer agreements and distribution network and will therefore be recognized on a gross basis. As Sean mentioned a moment ago, new product introduction and the new measured investments we've made in our field sales force on both the regional and national basis should drive it [indiscernible] Biologics growth on a sequential basis for the remainder of 2026 and beyond. Gross margin for the second quarter of 2026 was 57.9% and compared to 68.6% for the same period in 2025. The decrease is primarily attributable to the cessation of Q-Code license revenue from our amniotic membrane agreements that terminated at the end of 2025. Together with reduced production efficiencies and increased charges for excess and obsolete inventory, partially offset by improvements in production mix. Second quarter 2026 operating expenses were $22.5 million compared to $19.7 million for the second quarter of 2025. The increase was primarily due to a $5 million exclusive DC paid to Dilon technologies in connection with their distribution agreement, which is recorded as an operating expense partially offset by lower general and administrative and sales and marketing expenses following the sale of our noncore Coflex and CoFix assets and international hardware businesses, the Companion Spine in December 2025. General and administrative expenses were $6.4 million for the 3 months ended June 30, 2026, compared to $7.5 million for the same period in 2025. The decrease was driven primarily by the divestiture of assets and businesses to Companion Spine in December of last year. Sales and marketing expenses were $10.4 million for the 3 months ended June 30, 2026 compared to $11.6 million for the same quarter last year. Approximately $2.4 million of the decrease resulted from the companion spine divestitures. The remaining change reflects $1.2 million of increased compensation expense related to headcount, a $0.3 million increase in independent agent commissions resulting from revenue mix and a $0.3 million increase in travel-related expenses, partially offset by a $0.9 million reduction in consulting fees. Research and development expenses were $695,000 for the 3 months ended June 30, 2026, an increase from $566,000 in the second quarter of 2025. Net loss for the second quarter of 2026 was $9.4 million or $0.07 per basic and diluted share compared to net income of $3.6 million for the second quarter of or $0.03 per basic share and $0.02 per diluted share. Adjusted EBITDA for the second quarter of 2026 was a loss of $2.7 million compared to positive adjusted EBITDA or approximately $6.9 million for the second quarter of 2025. As of June 30, 2026, we had $9.9 million of cash and cash equivalents total indebtedness of $23 million and availability under revolving credit facility of $0.7 million. This compares to $17.3 million of cash and cash equivalents total indebtedness of $25.4 million and availability under revolving credit facility of $3.8 million as of December 31, 2025. That concludes the financial overview. Operator, you may now open the line for questions.

[Operator Instructions] Your first question is coming from Chase Knickerbocker with Craig-Hallum.

This is Jake on for Chase. I'm just wondering, can you peel apart the layers of orthobiologics for us, please? What's kind of underperforming relative to expectations that you guys had earlier in the year when the guidance was initially issued.

Scott, I'll start this, and then if you want to add any color to it. I'd say there's a couple of key areas. One of the big areas has been like our old line like our OsteoSelect, OsteoSponge, 3Demin product lines, which have workhorses of our product line, and they're older product lines. And so those have been down more than we expected. The other area, too, that's been down, of course, has been the Amnio side, which we mentioned, which has been due and was somewhat expected we did think that they would start to see green shoots of growth in that world in the annual world. But those would be the key areas that I would say that we have seen much more softness than we originally expected. So I don't know if you want to add anything to that?

No. I think we covered it with those too, Sean.