Xtant Medical Holdings Inc

Previous wording

Comparison of Three Months Ended March 31, 2024 and March 31, 2023

Current wording

Comparison of Three and Six Months Ended June 30, 2024 and June 30, 2023

Previous wording

Total revenue for the three months ended March 31, 2024 was $27.9 million, which represents an increase of 55% compared to $17.9 million in the same quarter of the prior year. The increase is attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware and biologics business, greater independent agent sales and additional Coflex and CoFix product sales.

Current wording

Total revenue for the three and six months ended June 30, 2024 was $29.9 million and $57.8 million, respectively, which represents an increase of 48% and 51%, respectively, compared to $20.2 million and $38.2 million for the three and six months ended June 30, 2023, respectively. These increases are attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware and biologics business.

Previous wording

Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments. Cost of sales increased by $3.2 million to $10.6 million for the three months ended March 31, 2024 from $7.4 million for the three months ended March 31, 2023. The increase in cost of sales is primarily due to greater revenue in the first quarter of 2024 compared to the first quarter of 2023, as mentioned above.

Current wording

Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments. Cost of sales increased by 46%, or $3.6 million, to $11.4 million for the three months ended June 30, 2024 from $7.8 million for the three months ended June 30, 2023. Cost of sales increased by 44%, or $6.8 million, to $21.9 million for the six months ended June 30, 2024 from $15.2 million for the six months ended June 30, 2023. These increases are primarily due to greater revenue in the 2024 periods compared to the comparable 2023 periods, as mentioned above.

Previous wording

Gross profit as a percentage of revenue increased 340 basis points to 62.1% for the three months ended March 31, 2024 compared to 58.7% for the same period in 2023. Of this increase, 660 basis points were due to greater scale and improved production efficiency, partially offset by 140 basis points due to higher production costs.

Current wording

Gross profit as a percentage of revenue increased to 62.1% for the three months ended June 30, 2024 compared to 61.6% for the same period in 2023 and increased to 62.1% for the six months ended June 30, 2024 compared to 60.2% for the same period in 2023. Of the increase for the three-month comparison, 550 basis points were due to greater scale and improved production efficiency, partially offset by 260 basis points related to increased charges for excess and obsolete inventory and non-absorbed costs and 110 basis points related to sales mix. Of the increase for the six-month comparison, 570 basis points were due to greater scale and improved production efficiency, partially offset by 200 basis points related to increased charges for excess and obsolete inventory and non-absorbed costs and 100 basis points related to higher product cost.

Previous wording

General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and professional fees, as well as occupancy costs. General and administrative expenses increased 59%, or $2.9 million, to $7.8 million for the three months ended March 31, 2024, compared to $4.9 million for the prior year period. This increase is primarily attributable to additional employee compensation expense of $1.2 million, $0.4 million of additional legal and accounting fees and $0.3 million of amortization of intangible assets associated with the acquisition of Surgalign SPV.

Current wording

General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and professional fees, as well as occupancy costs. General and administrative expenses increased 56%, or $2.8 million, to $7.7 million for the three months ended June 30, 2024, compared to $5.0 million for the same period in 2023. General and administrative expenses increased 58%, or $5.7 million, to $15.5 million for the six months ended June 30, 2024, compared to $9.8 million for the same period in 2023. The increase for the three-month comparison is primarily attributable to $0.7 million of additional compensation expense related to additional headcount, $0.8 million additional stock-based compensation, $0.3 million additional professional service fees and $0.2 million of additional hardware and software expense. The increase for the six-month comparison is primarily attributable to $1.7 million of additional compensation expense related to additional headcount, $1.1 million of additional stock-based compensation expense, $0.7 million of additional professional service fees, $0.5 million of additional consultant fees and $0.4 million of additional hardware and software expense.

Previous wording

Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows, sales conventions and meetings, travel expenses, advertising, and other sales and marketing related costs. Sales and marketing expenses increased 77%, or $5.4 million, to $12.5 million for the three months ended March 31, 2024, compared to $7.1 million for the prior year period. This increase is primarily due to additional independent agent commissions expense of $3.2 million resulting from higher sales, $1.6 million of additional compensation expense related to additional headcount and $0.5 million of additional consulting expenses.

Current wording

Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows, sales conventions and meetings, travel expenses, advertising, and other sales and marketing related costs. Sales and marketing increased 51%, or $4.5 million, to $13.2 million for the three months ended June 30, 2024, compared to $8.7 million for the same period in 2023. Sales and marketing expenses increased 63%, or $9.9 million, to $25.6 million for the six months ended June 30, 2024, compared to $15.8 million for the same period in 2023. The increase for the three-month comparison is primarily due to additional commission expense of $2.8 million resulting from revenue growth and $1.2 million of additional compensation expense related to additional headcount. The increase for the six-month comparison is primarily due to additional commission expense of $5.7 million resulting from revenue growth, $2.8 million of additional compensation expense related to additional headcount and $0.6 million of additional consulting fees.

Previous wording

Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.5 million for the three months ended March 31, 2024, compared to $0.2 million for the same period in 2023. This increase is primarily due to increased headcount.

Current wording

Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.6 million for the three months ended June 30, 2024, compared to $0.2 million for the same period in 2023. Research and development expenses were $1.2 million for the six months ended June 30, 2024, compared to $0.4 million for the same period in 2023. The increases for the three- and six-month comparisons are primarily due to $0.2 million and $0.4 million, respectively, of compensation expense related to additional headcount.

Previous wording

Interest expense is related to interest incurred from our debt instruments and finance leases. Interest expense was $0.8 million for the three months ended March 31, 2024, compared to $0.6 million for the three months ended March 31, 2023. This increase resulted primarily from increases to the base interest rate applied to our debt instruments and the additional borrowing of $5.0 million under our term credit agreement in February 2023 in connection with our acquisition of Surgalign SPV and the Coflex and CoFix product lines. We expect that our annualized interest expense will increase approximately $0.1 million for every 50 basis points of increase to the reference rate associated with our credit agreements.

Current wording

Interest expense consists of interest incurred from our debt instruments and finance leases. Interest expense was $1.0 million and $1.8 million for the three and six months ended June 30, 2024, respectively, compared to $0.8 million and $1.4 million for the three and six months ended June 30, 2023. The increase in interest expense during the three- and six-month comparisons resulted primarily from additional borrowings on our revolving line of credit and the additional borrowing of $5.0 million under our term credit agreement in May 2024.

Previous wording

The increase in income tax expense for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to an increase in cash taxes in the domestic and foreign jurisdictions in 2024.

Current wording

The increase in income tax expense for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was primarily due to an increase in cash taxes in the domestic and foreign jurisdictions in 2024.

Previous wording

Net cash used in operating activities for the first three months of 2024 was $5.8 million compared to $2.2 million for the first three months of 2023. This increase in net cash used in operating activities relates primarily to changes in operating assets and liabilities.

Current wording

Net cash used in operating activities for the first six months of 2024 was $10.8 million compared to $4.8 million for the first six months of 2023. This increase in net cash used in operating activities relates primarily to the combination of the increase in net losses during the first six months of 2024 compared to the prior year period and the effects of changes in operating assets and liabilities.

Previous wording

Net cash used in investing activities for the first three months of 2024 was $0.7 million compared to $17.4 million for the first three months of 2023. This decrease relates primarily to the use of $17.0 in cash for the acquisition of Surgalign SPV, Inc. during the first three months of 2023.

Current wording

Net cash used in investing activities for the first six months of 2024 was $1.2 million compared to $17.8 million for the first six months of 2023. This decrease relates primarily to the use of $17.0 in cash for the acquisition of Surgalign SPV, Inc. during the first six months of 2023.

Previous wording

Net cash provided by financing activities for the first three months of 2024 was $5.2 million compared to $4.6 million for the first three months of 2023. This increase relates primarily to $6.0 million of additional revolver borrowings, net of repayments, partially offset by $5.0 million of additional term loan borrowings during the first three months of 2023.

Current wording

Net cash provided by financing activities for the first six months of 2024 was $11.6 million compared to $6.5 million for the first six months of 2023. This increase relates primarily to $5.6 million of additional borrowings under the Revolving Facility, as defined below, net of repayments.

Previous wording

On March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into an Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and an Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, each in its respective capacity as agent, and lenders from time to time party thereto. These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan), as amended (the “Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Revolving Loan), as amended (the “Prior Revolving Credit Agreement” and, together with the Prior Term Credit Agreement, the “Prior Credit Agreements”), in each case, by and among the Borrowers, the Company and MidCap Financial Trust and MidCap Funding IV Trust, as respective agents, and the lenders from time to time party thereto.

Current wording

On March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into an Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (as amended from time to time, the “Term Credit Agreement”) and an Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (as amended from time to time, the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, each in its respective capacity as agent, and lenders from time to time party thereto. These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan), as amended (the “Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Revolving Loan), as amended (the “Prior Revolving Credit Agreement” and, together with the Prior Term Credit Agreement, the “Prior Credit Agreements”), in each case, by and among the Borrowers, the Company and MidCap Financial Trust and MidCap Funding IV Trust, as respective agents, and the lenders from time to time party thereto.

Previous wording

The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $17.0 million (the “Term Loan Commitment”), which was previously funded under the Prior Term Credit Agreement, and an additional $10.0 million tranche available solely at the discretion of MidCap Financial Trust and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of the making of loans under such additional tranche. The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $17.0 million (such amount, the “Revolving Loan Commitment”) at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate.

Current wording

The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the secured term credit facility under the Term Credit Agreement, the “Facilities”) under which the Borrowers may borrow up to $17.0 million (such amount, the “Revolving Loan Commitment”) at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate.

Previous wording

The Facilities have a maturity date of March 1, 2029 (the “Maturity Date”). Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of March 31, 2024, the Company had $10.3 million outstanding and $6.7 million of availability under the Revolving Facility.

Current wording

The Facilities have a maturity date of March 1, 2029 (the “Maturity Date”). Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of June 30, 2024, the Company had $11.9 million outstanding and $5.1 million of availability under the Revolving Facility.

Previous wording

We believe that our $4.6 million of cash and cash equivalents as of March 31, 2024, together with our anticipated operating cash flows and amounts available under the Facilities, including additional term loan borrowings of $5.0 million on May 14, 2024, will be sufficient to meet our anticipated cash requirements through at least May 2025. However, we may require or seek additional capital to fund our future operations and business strategy prior to May 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

Current wording

We believe that our $5.5 million of cash and cash equivalents as of June 30, 2024, together with the net proceeds to our recent $5.0 million private placement, our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least August 2025. However, we may require or seek additional capital to fund our future operations and business strategy prior to August 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.