Financial

Xtant Medical Announces Third Quarter 2018 Financial Results

BELGRADE, MT, Nov. 14, 2018 (GLOBE NEWSWIRE) — Xtant Medical Holdings, Inc. (NYSE American: XTNT), a leader in the development of regenerative medicine products and medical devices, today reported financial and operating results for the third quarter ended September 30, 2018.

Third Quarter 2018 Financial Highlights and Recent Announcements:

  • Revenue for the third quarter of 2018 was $17.3 million, compared to $19.8 million for the third quarter of 2017
  • Gross profit for the third quarter of 2018 was 66.7%, compared to 57.5% for the same period in the prior year
  • Net loss incurred in the third quarter 2018 was $3.2 million compared to a loss of $8.5 million for the same period in the prior year
  • Non-GAAP Adjusted EBITDA was $1.5 million, compared to $1.4 million for the same period of the prior year
  • As previously announced, the Company appointed Michael Mainelli as Interim Chief Executive Officer and Kathie Lenzen as Senior Vice President, Finance & Administration and Chief Financial Officer

Xtant Interim CEO Michael Mainelli said “After my first few weeks on the job, it’s clear to me that Xtant is a company with great products, strong business partners, and talented employees.  We are pleased that we are starting to see the benefits of the recent facility consolidation efforts and cost reduction initiatives.   At the same time, our sales results are below our potential.  We are working on plans that are expected to improve sales through a combination of new products, marketing programs, and more effective channel management.”

Third Quarter 2018 Financial Results

Revenue for the third quarter of 2018 was $17.3 million, compared to $19.8 million in the same period last year.  This decrease occurred primarily due to company-initiated discontinued distributor arrangements and channel management challenges.

Gross profit for the third quarter of 2018 was 66.7%, up from 57.5% for the same period in 2017. This improvement is largely due to expenses for inventory reserves and impairment of surgical instrument asset values in the third quarter of 2017 that did not recur in 2018, and favorable impacts from cost reduction initiatives.

Operating expenses for the third quarter of 2018 were $13.0 million, a decrease of $3.1 million compared to $16.1 million in the quarter ended September 30, 2017. The reduction is primarily due to lower commission expense as a result of lower revenue due to discontinued distributor arrangements and channel management challenges. In addition, the Company continued to execute its cost reduction initiatives to consolidate facilities used for biologics and fixation systems operations.

Net loss from operations for the third quarter of 2018 was $3.2 million, or $0.24 per share, compared to a net loss of $8.5 million, or $5.62 per share, for the same period in the prior year, primarily the result of the reduced operating expenses and lower interest expense, and in the case of the net share decrease, increased shares outstanding during the current year period.

Non-GAAP Adjusted EBITDA for the third quarter of 2018 was $1.5 million compared to $1.4 million for the same period during 2017. Non-GAAP Adjusted EBITDA for the nine-month period ended September 30, 2018 was $3.4 million, compared to a loss of $0.8 million in the same period in the prior year.  The Company defines Adjusted EBITDA as net income/loss from operations before depreciation, amortization and interest expense, and as further adjusted to add back in or exclude, as applicable, non-cash compensation, change in warrant derivative liability, separation related expenses, litigation reserve, facility consolidation costs and restructuring expenses.  A calculation and reconciliation of non-GAAP Adjusted EBITDA to net loss can be found in the attached financial tables.

Amendments to Credit Facility and Issuance of Warrants

On September 17, 2018, the Company announced the execution of 24th and 25th amendments to its Amended and Restated Credit Agreement, which, among other provisions, reduced interest payable under the credit facility.  In connection with the 25th amendment, the Company issued warrants for the purchase of 1.2 million shares of Xtant common stock with an exercise price of $0.01 per share and an expiration date of August 1, 2028, to OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP, which collectively own approximately 70% of Xtant’s outstanding common stock and are the sole holders of the Company’s outstanding long-term debt under the credit facility.

Conference Call

The Company will host a webcast and conference call to discuss the third quarter 2018 financial results on Wednesday, November 14, 2018 at 4:30 PM ET.  To access the webcast, Click Here.  To access the conference call, dial 877-407-6184 within the U.S. or 201-389-0877 outside the U.S.  A replay of the call will be available at www.xtantmedical.com, under “Investor Info.”

About Xtant Medical Holdings, Inc.

Xtant Medical Holdings, Inc. (www.xtantmedical.com) is a global medical technology company focused on the design, development, and commercialization of a comprehensive portfolio of orthobiologics and spinal implant systems to facilitate spinal fusion in complex spine, deformity and degenerative procedures.  Xtant people are dedicated and talented, operating with the highest integrity to serve our customers.

™ and ® denote trademarks and registered trademarks of Xtant Medical Holdings, Inc. or its affiliates, registered as indicated in the United States, and in other countries. All other trademarks and trade names referred to in this release are the property of their respective owners.

Non-GAAP Financial Measures  

To supplement the Company’s consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures in this release, including Adjusted EBITDA. Reconciliations of the non-GAAP financial measures used in this release to the most comparable GAAP measures for the respective periods can be found in tables later in this release. The Company’s management believes that the presentation of these measures provides useful information to investors.  These measures may assist investors in evaluating the Company’s operations, period over period. Management uses the non-GAAP measures in this release internally for evaluation of the performance of the business, including the allocation of resources.  Investors should consider non-GAAP financial measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP.

Important Cautions Regarding Forward-looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as ‘‘expects,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘estimates,’’ “continue,” “future,” ‘‘will,’’ “potential,” similar expressions or the negative thereof, and the use of future dates. Forward-looking statements in this release include the Company’s plans to improve sales through a combination of new products, marketing programs, and more effective channel management.  The Company cautions that its forward-looking statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others: the Company’s future operating results and financial performance; its ability to increase revenue,  remain competitive and innovate and develop new products; the effect of management changes and ability to engage and retain qualified personnel; government and third-party coverage and reimbursement for Company products, ability to obtain and maintain regulatory approvals; government regulations; product liability claims and other litigation to which the Company may be subject; product recalls and defects; timing and results of clinical studies; the ability to obtain and protect Company intellectual property and proprietary rights and operate without infringing the rights of others; the ability to service Company debt and comply with debt covenants; the ability to raise additional financing and other factors. Additional risk factors are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (SEC) on April 2, 2018 and subsequent SEC filings by the Company, including without limitation its most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed with the SEC on August 8, 2018. Investors are encouraged to read the Company’s filings with the SEC, available at www.sec.gov, for a discussion of these and other risks and uncertainties. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement.

XTANT MEDICAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value)

As of As of
September 30, 
2018
December 31, 
2017
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,064 $ 2,856
Trade accounts receivable, net of allowance for doubtful accounts of $2,108 and $1,923, respectively 9,869 12,714
Current inventories, net 22,187 22,229
Prepaid and other current assets 738 1,706
Total current assets 37,858 39,505
Non-current inventories, net 194
Property and equipment, net 8,069 9,913
Goodwill 41,535 41,535
Intangible assets, net 11,248 13,826
Other assets 560 732
Total Assets $ 99,270 $ 105,705
LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 5,918 $ 9,316
Accounts payable – related party 160
Accrued liabilities 3,976 15,845
Warrant derivative liability 48 131
Current portion of capital lease obligations 478 366
Total current liabilities 10,420 25,818
Long-term Liabilities:
Capital lease obligations, less current portion 251 624
Long-term convertible debt, less issuance costs 70,853
Long-term debt, less issuance costs 75,944 67,109
Total Liabilities 86,615 164,404
Commitments and Contingencies (note 10)
Stockholders’ Equity (Deficit):
Preferred stock, $0.000001 par value; 10,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.000001 par value; 50,000,000 shares authorized; 13,171,347 shares issued and outstanding as of September 30, 2018 and 1,514,899 shares issued and outstanding as of December 31,2017
Additional paid-in capital 171,008 86,247
Accumulated deficit (158,353 ) (144,946 )
Total Stockholders’ Equity (Deficit) 12,655 (58,699 )
Total Liabilities & Stockholders’ Equity (Deficit) $ 99,270 $ 105,705

XTANT MEDICAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except number of shares and per share amounts)

Three Months Ended 
September 30,
Nine Months Ended 
September 30,
2018 2017 2018 2017
Revenue
Orthopedic product sales $ 17,139 $ 19,618 $ 53,622 $ 62,986
Other revenue 127 171 319 294
Total Revenue 17,266 19,789 53,941 63,280
Cost of sales 5,743 8,416 17,711 23,472
Gross Profit 11,523 11,373 36,230 39,808
Operating Expenses
General and administrative 2,505 3,330 8,931 11,985
Sales and marketing 7,847 8,904 24,742 31,038
Research and development 347 504 1,179 1,843
Depreciation and amortization 1,029 1,354 3,074 4,105
Restructuring expenses 614 1,194 2,582 2,814
Separation related expenses 436 792 490 1,396
Non-cash compensation expense 180 (20 ) 585 217
Total Operating Expenses 12,958 16,058 41,583 53,398
Loss from Operations (1,435 ) (4,685 ) (5,353 ) (13,590 )
Other (Expense) Income
Interest expense (1,790 ) (3,809 ) (8,156 ) (10,538 )
Change in warrant derivative liability 42 (20 ) 83 136
Other (expense) income 30 18
Total Other (Expense) Income (1,718 ) (3,829 ) (8,055 ) (10,402 )
Net Loss from Operations $ (3,153 ) $ (8,514 ) $ (13,408 ) $ (23,992 )
Net loss per share:
Basic $ (0.24 ) $ (5.62 ) $ (1.19 ) $ (15.94 )
Dilutive $ (0.24 ) $ (5.62 ) $ (1.19 ) $ (15.94 )
Shares used in the computation:
Basic 13,158,326 1,514,126 11,262,642 1,505,493
Dilutive 13,158,326 1,514,126 11,262,642 1,505,493


XTANT MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

Nine Months Ended 
September 30,
2018 2017
Operating activities:
Net loss $ (13,408 ) $ (23,992 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 4,943 7,433
Non-cash interest 7,853 9,966
(Gain) loss on disposal of fixed assets (15 ) 1,909
Non-cash compensation expense/stock option expense 585 593
Provision for losses on accounts receivable and inventory 298 1,711
Change in derivative warrant liability (83 ) (136 )
Changes in operating assets and liabilities:
Accounts receivable 2,842 4,135
Inventories (508 ) 1,718
Prepaid and other assets 1,138 (211 )
Accounts payable (3,557 ) (3,418 )
Accrued liabilities (867 ) (897 )
Net cash used in operating activities (779 ) (1,189 )
Investing activities:
Purchases of property and equipment and intangible assets (308 ) (1,456 )
Proceeds from sale of fixed assets 251
Net cash used in investing activities (57 ) (1,456 )
Financing activities:
Proceeds from long-term debt 12,787
Payments on capital leases (260 ) (203 )
Payments on revolving line credit (10,448 )
Expenses associated with private placement and convertible debt conversion (3,507 )
Proceeds from equity private placement 6,810
Proceeds from issuance of stock 1
Net cash provided by financing activities 3,044 2,136
Net change in cash and cash equivalents 2,208 (509 )
Cash and cash equivalents at beginning of period 2,856 2,578
Cash and cash equivalents at end of period $ 5,064 $ 2,069

XTANT MEDICAL HOLDINGS, INC.
CALCULATION OF NON-GAAP CONSOLIDATED EBITDA AND ADJUSTED EBITDA
AND RECONCILIATION TO NET LOSS FOR THE PERIODS ENDED
SEPTEMBER 30, 2018 AND 2017
(Unaudited, in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net loss $ (3,153 ) $ (8,514 ) $ (13,408 ) $ (23,992 )
Other expense (30 ) (18 )
Depreciation and amortization 1,655 2,797 4,943 7,037
Interest expense 1,790 3,810 8,156 10,538
Non-GAAP EBITDA gain (loss) 262 (1,907 ) (327 ) (6,417 )
Non-GAAP EBITDA/Total revenue 1.5 % -9.6 % -0.6 % -10.1 %
NON-GAAP ADJUSTED EBITDA CALCULATION
Non-cash compensation 180 (20 ) 585 217
Change in warrant derivative liability (42 ) 20 (83 ) (136 )
Separation related expenses 436 792 490 1,396
Litigation reserve 1,342 1,342
Facility consolidation costs 9 195
Restructuring expenses 614 1,194 2,582 2,814
Non-GAAP Adjusted EBITDA gain (loss) $ 1,459 $ 1,421 $ 3,442 $ (784 )
Non-GAAP Adjusted EBITDA/Total revenue 8.5 % 7.2 % 6.4 % -1.2 %

Contact
Kathie Lenzen, Senior Vice President, Finance & Administration and Chief Financial Officer
406.388.0480
Email: klenzen@xtantmedical.com

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Drue De Angelis

Drue is Managing Partner for The De Angelis Group, Executive Search firm exclusively for the Ortho & Spine industry.

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