Xtant Medical Holdings, Inc.

Previous wording

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants and instrumentation for the treatment of spinal disease. We promote our products in the United States through independent distributors and stocking agents, supported by direct employees.

Current wording

We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products serve the specialized needs of orthopedic and neurological surgeons, as well as trauma, foot and ankle, sports medicine, wound care surgeons including orthobiologics for the promotion of bone healing, amniotic tissue and collagen for both surgical repair and chronic wound care, implants and instrumentation for the treatment of spinal disease. We promote our products primarily in the United States through independent distributors and stocking agents, supported by direct employees.

Previous wording

We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals (“IDNs”) and through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our primary focus is the United States market, we promote and sell our products internationally through direct sales representatives and stocking distribution partners in Europe, Canada, Mexico, South America, Australia, and certain Pacific region countries.

Current wording

We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals and through group purchasing organizations. We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through stocking distribution partners in Europe, Canada, Mexico, South America, and certain Pacific region countries. We have recently made and intend to continue to make measured investments in the expansion of our commercial team to support our new products and maximize the reach of our broad portfolio of orthobiologics solutions.

Previous wording

We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products, including our Cortera®Spinal Fixation System, viable bone matrix, OsteoVive® Plus, and amniotic membrane allografts, SimpliGraft®and SimpliMax TM; (2) leverage our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues.

Current wording

We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products, including ourrecently launched nanOss Strata™, an advanced synthetic bone graft designed to closely resemble natural bone; CollagenX™, a bovine collagen particulate product for surgical wound closure; OsteoFactor Pro TM, an allogenic growth factor solution; and Trivium™, a next-generation demineralized bone matrix, in addition to our introductions in 2024: Cortera® Posterior Fixation System, a viable bone matrix; OsteoVive® Plus and amniotic membrane allografts, SimpliGraft™ and SimpliMax TM, (2) expand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues. Since one of our key growth initiatives is to leverage our growth platform with technology and strategic acquisitions and explore other strategic transactions with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other companies, we, as a matter of course, often engage in discussions with third parties regarding such matters.

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 37%, or $13.2 million, to $49.1 million for the year ended December 31, 2024 from $35.8 million for the year ended December 31, 2023. This increase is primarily due to greater revenue, as described above and the write-off of approximately $1.5 million of inventory acquired from Surgalign Holdings’ hardware and biologics business resulting from performance of verification procedures performed during the course of 2024.

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 and inventory on consignment that may be missing and not returned. Cost of sales increased by 1%, or $0.6 million, to $49.7 million for the year ended December 31, 2025 from $49.1 million for the year ended December 31, 2024. The increase was due primarily to increased charges for excess and obsolete inventory, partially offset by reduced product costs resulting from the transition to internal production in 2025 compared to 2024.

Previous wording

Gross profit as a percentage of revenue decreased to 58.2% for the year ended December 31, 2024 compared to 60.8% for the year ended December 31, 2023. Of this decrease, 220 basis points were due to product mix, 200 basis points were due to reduced production throughput and 130 basis points were due to charges for the write-off of inventory associated with our acquisition of Surgalign Holdings’ hardware and biologics business. This decrease was partially offset by increased leverage on higher revenue.

Current wording

Gross profit as a percentage of revenue increased to 62.9% for the year ended December 31, 2025 compared to 58.2% for the year ended December 31, 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.

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 other professional fees, as well as occupancy costs. General and administrative expenses increased 11%, or $2.8 million, to $28.7 million for the year ended December 31, 2024 compared to $25.9 million for the year ended December 31, 2023. This increase is primarily attributable to $1.4 million of additional stock-based compensation, $0.5 million of additional severance expense, $0.6 million of additional hardware and software expense, and $0.3 million of additional amortization expense, in each case in 2024 as compared to 2023. These increases were partially offset by reduced expense of $0.4 million related to various compensation plans.

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 other professional fees, as well as occupancy costs. General and administrative expenses increased 2%, or $0.7 million, to $29.4 million for the year ended December 31, 2025 compared to $28.7 million for the year ended December 31, 2024. This increase is primarily attributable to $2.2 million of additional expense related to various compensation plans, $0.7 million of additional bad debt expense, $0.7 million of additional legal fees associated primarily with the divestiture transactions with Companion Spine, partially offset by $1.2 million of reduced stock-based compensation 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 28%, or $10.8 million, to $49.2 million for the year ended December 31, 2024 compared to $38.4 million for the year ended December 31, 2023. This increase was due primarily to additional independent agent commissions expense of $7.0 million resulting from higher independent agent sales, $2.4 million of additional expense associated with various compensation plans and $0.9 million of additional professional service fees.

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 expenses decreased 8%, or $3.7 million, to $45.5 million for the year ended December 31, 2025 compared to $49.2 million for the year ended December 31, 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 headcount, partially offset by $2.9 million of additional consulting fees.

Previous wording

Research and development expenses consist primarily of internal costs for the development of new product technologies. Research and development expenses increased 79%, or $1.0 million, to $2.4 million for year ended December 31, 2024 compared to $1.3 million for the year end December 31, 2023. This increase resulted primarily from increased headcount due to additional personnel hired in connection with our acquisitions and increased expenses associated with new product development.

Current wording

Research and development expenses consist primarily of internal costs for the development of new product technologies. Research and development expenses decreased 12%, or $0.3 million, to $2.1 million for year ended December 31, 2025 compared to $2.4 million for the year ended December 31, 2024.

Previous wording

Interest expense for the year ended December 31, 2024 increased $1.2 million to $4.2 million as compared to $2.9 million for the year ended December 31, 2023. This increase 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.

Current wording

Interest expense for the year ended December 31, 2025 decreased $0.5 million to $3.7 million as compared to $4.2 million for the year ended December 31, 2024. This decrease resulted primarily from reduced borrowings on our revolving line of credit, as well as prepayments totaling $8.0 million on our term loan, during 2025 as compared to 2024.

Previous wording

(Provision) Benefit for Income Taxes Current and Deferred

Current wording

Provision for Income Taxes Current and Deferred

Previous wording

Net cash used in operating activities for the year ended December 31, 2024 was $11.9 million compared to $9.5 million for the year ended December 31, 2023. This increase in net cash used in operating activities relates primarily to the increase in inventory balance.

Current wording

Net cash provided by operating activities for the year ended December 31, 2025 was $12.5 million compared to net cash used in operating activities of $11.9 million for the year ended December 31, 2024. This change relates primarily to net income for the year ended December 31, 2025 compared to a net loss for the year ended December 31, 2024.

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) (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.

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 (collectively, “MidCap”), each in its respective capacity as agent, and lenders from time to time party thereto.

Previous wording

On May 14, 2024, we entered into Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Term Loan) (“Term Amendment No. 1”), which amends the Term Credit Agreement, and Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Revolving Loan) (“Revolving Amendment No. 1” and, together with Term Amendment No. 1, the “Amendments No. 1”), which amends the Revolving Credit Agreement. The Term Amendment No. 1 increases the amount of term loans that may be borrowed by $5.0 million to a maximum of $22.0 million, which are fully drawn as of December 31, 2024. In addition, the Amendments No. 1 re-set the date certain fees payable in connection with optional prepayments are determined to May 14, 2024 and consequently extend such fees’ original expiration. The exit fees were increased by 2.50% to 6.50% of the principal amount borrowed pursuant to the Term Credit Agreement. The terms of borrowing under the Credit Agreements otherwise remain materially unchanged.

Current wording

On May 14, 2024, we entered into Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Term Loan) (“Term Amendment No. 1”), which amended the Term Credit Agreement, and Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Revolving Loan) (“Revolving Amendment No. 1” and, together with Term Amendment No. 1, the “Amendments No. 1”), which amended the Revolving Credit Agreement. The Term Amendment No. 1 increased the amount of term loans that may be borrowed by $5.0 million to a maximum of $22.0 million, which was fully drawn as of December 31, 2025. In addition, the Amendments No. 1 re-set the date certain fees payable in connection with optional prepayments are determined to May 14, 2024 and consequently extended such fees’ original expiration. The exit fees were increased by 2.50% to 6.50% of the principal amount borrowed pursuant to the Term Credit Agreement. The terms of borrowing under the Credit Agreements otherwise remained materially unchanged after the Amendments No. 1.

Previous 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 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, as amended, 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 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. 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 December 31, 2024, we had $12.1 million outstanding and $4.2 million of availability under the Revolving Credit Facility.

Current wording

The Facilities have a maturity date of March 1, 2029. 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 December 31, 2025, we had $10.9 million outstanding and $3.8 million of availability under the Revolving Credit Facility. As mentioned above, on February 27, 2026, we received $10.7 million upon repayment of the Companion Spine Note and settlement of the net working capital and other purchase price adjustments, $2.8 million of which was used to repay a portion of our term debt, resulting in $11.2 million outstanding as of the date of the filing of this report.

Previous wording

The loans and other obligations pursuant to the Credit Agreements will bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December 31, 2024, the effective rate of the Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 15.23%, and the effective rate of the Revolving Credit Agreement was 9.96%.

Current wording

The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December 31, 2025, the effective rate of the Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 14.08%, and the effective rate of the Revolving Credit Agreement was 8.49%.

Previous wording

The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements. As of December 31, 2024, we were in compliance with all covenants under the Credit Agreements.

Current wording

The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements. As of December 31, 2025, we were in compliance with all applicable covenants under the Credit Agreements. As of December 31, 2025, our Credit Agreements included a minimum net revenue covenant, however, pursuant to the Amendment No. 4s executed in March 2026, we were not required to comply with the minimum net revenue covenant for the quarter ended December 31, 2025. Under the covenant terms in effect prior to the Amendment No. 4s, we would not have been in compliance with the minimum net revenue requirement for that quarter.

Previous wording

We believe that our $6.2 million of cash and cash equivalents as of December 31, 2024, together with our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least March 2026. However, we may require or seek additional capital to fund our future operations and business strategy prior to March 2026. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

Current wording

We believe that our $17.3 million of cash and cash equivalents as of December 31, 2025, together with the $10.7 million in cash we received on February 27, 2026 from Companion Spine in connection with the Divestitures, our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least March 2027. However, we may require or seek additional capital to fund our future operations and business strategy prior to March 2027. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

Previous wording

To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.

Current wording

To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.