Xtant Medical Holdings Inc (XTNT) 2015 Q2 法說會逐字稿

Greetings and welcome to the XTANT Medical second-quarter 2015 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rich Cockrell. Thank you, Mr. Cockrell. You may begin.

Good morning and thank you for joining us today for the XTANT Medical second-quarter 2015 financial results conference call. With me on the call today are Dan Goldberger, XTANT's Chief Executive Officer; John Gandolfo, Chief Financial Officer; Dr. David Kirschman, Executive Vice President and Chief Scientific Officer; and Michael Schmitz, Chief Financial Officer of X-spine.

Yesterday afternoon, XTANT was pleased to issue a press release announcing second-quarter 2015 financial results through June 30, 2015. Today's call is being webcast and will also include a slide presentation and is accessible via the Company's website at www.XTANTMedical.com. Following remarks by management, the call will be opened to your questions. We expect the duration of the call to be approximately one hour.

Now during the course of this call, management may make certain forward-looking statements regarding the Company's 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 of similar meaning. Any such forward-looking statements are not guarantees of the Company's future performance and involve risks and uncertainties, including those noted in the Risk Factors section attached as an exhibit to the Company's current report on Form 8-K filed with the SEC on July 27, 2015.

In addition, any unaudited pro forma financial information is preliminary and does not purport to project the future financial position or operating results of the combined company. Actual results may differ materially. For the benefit of those of you who may be listening to the replay, this call was held and recorded on Thursday, August 13 at approximately 10:00 AM Eastern time. Since then, the Company may have made additional announcements related to the topics discussed herein. Please reference the Company's most recent press releases and current filings with the SEC. XTANT declines any obligation to update these forward-looking statements except as required by law. With that, I'd like to turn the call over to Dan. Go ahead, Dan.

Thank you, Rich. Today, I will briefly review the acquisition of X-spine and discuss the impact it will have on the combined company strategically. We will then go over our pro forma first-half and second-quarter results by subsidiary, which will be defined as Bacterin and X-spine subsidiaries. Dr. Kirschman will discuss operations of the X-spine subsidiary and I will present the Bacterin subsidiary. John and Michael will provide the pro forma financial review. I will have a few closing remarks and then we will open the call to questions.

We announced the acquisition of X-spine Systems Incorporated of Miamisburg, Ohio on Monday, July 27, 2015 and that transaction closed on Friday, July 31, 2015. We also changed the name of our company to XTANT Medical Holdings, Inc. on Friday, July 31, 2015, marking a new and exciting chapter in the growth of our Company. This is an important event for both companies and sets us on the path towards becoming a world-class provider of biologics and devices for a variety of orthopedic and spine therapies.

Financing for the transaction was anchored by OrbiMed through a modification of and an $18 million increase to their existing $24 million senior secured debt facility and by their purchase of a majority of the $65 million senior unsecured convertible debt offering marketed by Leerink Partners on our behalf.

Earlier this week, Leerink placed another $3 million of the convertible notes as a partial exercise of their overallotment option, bringing the current total to $68 million of senior unsecured convertible debt. We also issued approximately 4.24 million shares of restricted common stock to the X-spine shareholders, which will be subject to a 12-month lockup. William Blair advised XTANT on the acquisition.

As we discussed when we announced the transaction, Bacterin International and X-spine Systems will continue as wholly-owned subsidiaries of XTANT Medical Holdings. We are very fortunate that Dr. David Kirschman will continue with us as Executive Vice President and Chief Scientific Officer of XTANT and President of X-spine Systems. Michael Schmitz will continue as CFO of X-spine Systems, reporting to John Gandolfo, with a dotted line to Dr. Kirschman. Management is currently exploring the best path towards listing our common stock on a major national exchange. In the meantime, we will continue to be treated on the OTC QX under the BONE ticker.

Let me give you a bit of our strategic thinking leading up to the transaction. Many orthopedic and spine procedures require a fixation implant to stabilize and immobilize the bones and a biologic implant to encourage bone growth and fusion. Making both product categories available through the same customer service and distribution channel makes our field sales function more productive and could lead to an increase in the average revenue per procedure. The broader catalog of product offerings makes the combined company more attractive to hospital purchasing executives and to the distributors and sales agents that dominate this channel.

Longer term, I am very excited about the R&D teams working together to commercialize products in a combined pipeline. One of the striking aspects of the combination of X-spine and Bacterin is that there's little overlap in our current distribution channels, thus implying a very large cross-selling opportunity in the near term. We share some hospital customers, but very few surgeons are currently using both productlines. Our geographic footprint has very little overlap even though we will have approximately 312 combined sales agents and distribution partners. More on this later in the call.

For the six months ended June 30, the combined company had pro forma revenue of $43.4 million, an increase of 12.6% from pro forma combined revenues of $38.5 million for the same period during 2014. The combined company has been growing at an 18% compound annual growth rate for the three years ended December 31, 2014.

For the first half of 2015, pro forma gross margin expanded a full percentage point from 63.6% of revenue for the first six months of 2014 to 64.6% of revenue for the first six months of 2015. It's important to note that the gross margin from an incremental dollar of revenue is about 75% for Bacterin products and as much as 78% for X-spine products. Therefore, we expect to see continued improvements in gross margin as top-line sales increased and we can spread the fixed expenses over a larger revenue base. We are guiding gross margins to 64% to 66% for the full-year 2015 and 65% to 67% for the full-year 2016.

Pro forma EBITDA for the first six months of 2015 was $1.2 million. The combined company had certain one-time nonrecurring expenses in the first quarter of 2015, which depressed first-half EBITDA by about $700,000. Combined pro forma EBITDA in the first half would have been $1.9 million without those one-time charges. Both companies increased their investments in management team and sales function as reflected in the combined SG&A expense during the first half of 2015. We believe that those SG&A investments in 2015 will drive future revenue growth. We are guiding EBITDA for the combined company to be between 3.2 million and 3.7 million for the full-year 2015 and between $7 million and $9 million for the full-year 2016.

I would now like to turn the call over to Dr. Kirschman, who will review the operating performance of the X-spine subsidiary. David?

Thank you, Dan. For the first half of 2015, X-spine generated $24 million of revenue, which is a 15.7% increase over the first-half 2014 revenue of $20.7 million. The higher revenue was largely attributed to the successful launch of the IRIX standalone intervertebral fusion device, our new Xpress minimally invasive pedicle system, and increasing traction of our AXLE interspinous and Silex sacroiliac lines.

Our market emphasis is on less-invasive treatments for the degenerative spine. Our proprietary portfolio of low-profile and minimally invasive devices, including the AXLE, IRIX and Silex lines combined to generate 54% of revenue in the first half of 2015. We market our products to orthopedic surgeons and neurosurgeons through a network of approximately 186 resellers and distributors. Silex, in particular, is an exciting new productline for treatment of debilitating sacroiliac pain through fusion of the sacroiliac joint. It was launched in 2013 and is already generating a significant portion of our revenue. Refractory sacroiliac dysfunction is an underdiagnosed, but significant contributor to back pain syndromes and there are many prospective patients who can benefit from sacroiliac fusion.

We have trained 36 surgeons in Silex techniques during the first half of this year and have another 25 trainings scheduled to support adoption of sacroiliac fusion with the Silex system. With up to 25% of low back pain having a sacroiliac pain generator, we believe that we are only beginning to see the growth in this procedure. In July, we received 510(k) clearance for our new pre-sterilized Aranax cervical fixation system, which represents the state-of-the-art in ventral cervical fixation. Cervical fixation procedures represented 27% of our spinal implant sales in the first half and the Aranax system will be a valuable contributor in this segment.

Our new access to Bacterin biologics is exciting from a product standpoint by meeting immediate channel needs, as well as bringing opportunities for future innovations. The 3Demin product is ideal for packing into our IRIX and Silex products. Bacterin's structural allograft can be seamlessly integrated into X-spine instrumentation. We are already looking at novel ways to combine biologic and non-biologic technologies to drive a new generation of combination products. Throughout this time, we have been in close contact with our key surgeon and distributor customers to ensure a smooth transition and to make certain that present and future product needs will be met. I would now like to turn the call over to Dan for a review of the Bacterin subsidiary.

Thank you, David, and congratulations again on building an excellent X-spine company. Second quarter 2015 represented another record for Bacterin and is the seventh consecutive quarter of year-over-year revenue growth. Second-quarter 2015 revenue was approximately $9.9 million, an increase of 11.4% compared to approximately $8.9 million for the same period in 2014. That is slightly below our previously announced $10 million because we did not receive tissue utilization records to back up a small amount of accrued revenue by the time we closed our books. That revenue will be recognized in the third quarter of 2015. Sequentially, second-quarter 2015 revenue increased 4.1% over first quarter 2015 as our increased field sales headcount is gaining traction.

Continuing onto the next slide, you see our second-quarter and first six months' gross margins. Gross profit through the second quarter of 2015 increased 16.5% to $6.5 million or 65.9% of revenues compared to $5.6 million or 63% of revenues for the second quarter of 2014. Our gross margins continue to track above our previously stated 2015 guidance of between 61% and 63%. Improvements in sales mix and discipline in operations have driven gross margin expansion over the prior year.

Bacterin's flagship brand, OsteoSponge, is a proprietary, highly differentiated bone void filler crafted from [tamseles] allograft. OsteoSponge generated approximately two-thirds of our revenue on a trailing basis. The 3Demin product family was launched late last year and continues to exceed our expectations. We will be rolling the product out nationally in the second half of 2015 and I look forward to increased sales of this new product. Now I'm going to turn the call over to John Gandolfo, who is going to discuss the financial results.

Thank you, Dan. I would like to remind our listeners to refer to the second-quarter 2015 earnings press release we issued yesterday and our Form 10-Q for the quarter ended June 30, 2015, which will reflect the financials for Bacterin International on a standalone basis. An 8-K will also be filed to reflect the XTANT Medical Holdings business, which will provide financials on a combined basis.

During today's call, I will discuss the pro forma first-half 2015 results of the combined company and second-quarter results of the Bacterin business. Combined pro forma revenue for the six months ended June 30, 2015 was approximately $43.4 million, an increase of 12.6% compared to approximately $38.5 million for the same period during 2014. The higher revenue on a combined basis was largely due to increased revenue on both the biologics and the hardware subsidiaries, which generated $1.7 million and $3.2 million respectively for the first half of 2015.

Furthermore, increased revenues reflect more penetration of a targeted market, as well as an increase in internal and external sales resources compared to prior periods. Combined gross profit for the first half of 2015 was $28 million or 64.6% of revenues compared to $24.5 million or 63.6% of revenues for the first half of 2014, a gross profit improvement of 14.3%. The higher gross margin reflects the combination of Bacterin and X-spine continued sales mix and operational improvements.

It is important to note that gross margins for the legacy Bacterin business were ahead of the Company's previously stated range of 61% to 63% and this increase in gross profit and gross margins are the result of a continuing focus on operations, which has yielded improved manufacturing efficiencies, as well as the shift in product mix.

The combined company reported a loss from operations of approximately $3.4 million for the first half of 2015 compared to an operating loss of $1.6 million in the first half of 2014. The Company defines earnings before interest, taxes, depreciation and amortization, or EBITDA, as net income lost from operations before depreciation, amortization, impairment charges and non-cash stock-based compensation expense.

Pro forma EBITDA for the first half of 2015 was $1.2 million. On a pro forma basis during the first quarter of 2015, the combined company incurred approximately $700,000 of one-time nonrecurring expenses. Excluding this figure, EBITDA for the first half of 2015 would have been approximately $1.9 million. As of June 30, 2015, the combined company had pro forma cash and cash equivalents of $7.6 million. With the partial exercise of the overallotment option by Leerink, the Company's pro forma cash position as of today is approximately $10.4 million.

Slide 22 shows the pro forma [cap] table post-closing of the transaction. As of today, the Company has 11.3 million common shares outstanding, as well as 2.2 million options and warrants, leaving us with 13.5 million fully diluted shares. It's important to note that the average strike price of the options and warrants are both above $10.50 per share. Finally, the conversion of the convertible debt will result in 16.8 million additional shares. Meaning on an as-converted fully diluted basis, the Company has approximately 30.2 million shares outstanding.

Turning to Bacterin's standalone operational performance for the second quarter of the year, revenue was approximately $9.9 million, an increase of 11.4% compared to approximately $8.9 million for the same period during 2014. Sequentially, revenues increased 4.1% compared to the first quarter of 2015. The higher revenues reflect increased penetration of our targeted markets and an increase in internal and external sales resources compared to our prior periods.

Gross profit for the second quarter of 2015 was $6.5 million or 66% of revenues compared to $5.6 million or 63% of revenues for the second quarter of 2014. Bacterin's reported gross profit for the quarter improved 16.5% compared to the second quarter of 2014 and 8.1% compared to the first quarter of 2015. Second-quarter 2015 loss from operations was approximately $1.4 million compared to approximately $1.3 million in the second quarter 2014. The increased loss primarily reflects the increase in sales and marketing expenses associated with the Company's ongoing execution of its strategy, the increase in enhanced field sales assets in order to drive future revenue growth. The reported second-quarter 2015 net loss was approximately $2.9 million or $0.41 per share.

Now I would like to turn the call back to Dan for any closing remarks.

Thank you, John. The combination of Bacterin and X-spine has brought together two exciting companies with tremendous market opportunities and top-line growth and earnings potential. With our new name and large national distribution capability and innovative product development pipeline, we're poised for accelerating growth.

We continue to be pleased with the performance of our new products. Silex will be a tremendous growth driver for the X-spine subsidiary. The demand for 3Demin fibers continues to grow faster than anticipated as we are adding capacity in our Belgrade, Montana facility to support a national product launch and make 3Demin available to the X-spine distribution channel. Revenue from 3Demin grew from $186,000 in Q1 2015 to $450,000 in the second quarter of 2015 in spite of a very limited pilot launch. X-spine is planning to commercialize the structural allograft already in the Bacterin catalog, leveraging their more advanced instrumentation capabilities.

Both management teams are now fully engaged in our integration process, led by Dr. Kirschman and myself. We held a very successful meeting of our combined sales management team in Chicago last week and I am pleased to report that the cross-selling opportunity has been enthusiastically embraced and the first revenue from Bacterin biologics sold through the X-spine channel has already been scheduled.

XTANT Medical will continue to build on the hybrid sales organization already in place. Daniel Abromowitz will continue to manage the X-spine team selling through approximately 186 resellers and sales agents or distributors. Melanie Head continues to manage the Bacterin biologics sales team with approximately 22 direct sales employees and 113 sales agents. Note that the combined company fields a team of approximately 312 field sales assets comprised of direct sales in certain cities, sales agents or distributors and resellers.

You can see on slide 26 that X-spine has been strong in certain parts of the country -- the Midwest, the Southeast, Texas, and Michigan -- while Bacterin has been strong in complementary cities like Southern California, Chicago and New York. Bacterin has added about 15 sales agents or distributors in the last nine months, increasing from 98 in the third quarter of 2014 to 113 in the second quarter of 2015.

X-spine has been adding partners at a similar rate. We plan to continue to add field sales agents or distributors at the rate of 5 to 10 per quarter with an expectation that it will take 6 to 9 months for a new sales agent to become productive. Management is confident that the continued increase in field sales assets and the increase in productivity driven by new products and cross-selling will accelerate revenue growth through the remainder of 2015 and 2016.

One of the most effective ways to increase productivity is to encourage cross-selling. Many of the X-spine sales partners have expressed interest in representing Bacterin biologics and vice versa. We've developed an aggressive training schedule to make those cross-selling opportunities successful quickly. The availability of additional products for each procedure we participate in should provide a lift in our sales asset productivity going forward.

Slide 27 is an overview of the cross-selling opportunity. In the first quarter of 2015, X-spine sold implants into about 3000 spine procedures. If Bacterin biologics had been included in all of those procedures, at an average revenue of $2500 per procedure, the combined company would've generated an additional $7.5 million in the first quarter. That annualizes to $30 million per year of cross-selling opportunity.

That opportunity is even greater going in the other direction, X-spine sales into Bacterin spine procedures. All told, it's an $86 million cross-selling opportunity. It's going to take time, effort, and cross-training to get to those cross-selling numbers, but the initial reaction from our sales management team has been very positive.

For the second half of 2015, XTANT has updated its guidance to reflect the combination with X-spine. We're guiding revenue for the combined company in the range of $43 million to $46 million. Our guidance for EBITDA in the second half of 2015 is between $2 million and $2.5 million, excluding one-time transaction expenses. For the full-year 2016, the Company is projecting revenues in the range of $100 million to $105 million and EBITDA of approximately $7 million to $9 million.

Note that our cash-based debt service will be about $7.860 million in 2016, which should be covered by our EBITDA. Based on our five-year operating model, we believe that the Company will generate sufficient free cash flow to pay off the principal and related interest of our senior secured debt facility, as well as fully service the convertible debt coupon.

XTANT has emerged as an exciting revenue growth story with solid, expanding EBITDA. I am confident that we will drive growth in the second half of 2015 and throughout 2016 by first increasing the productivity of our existing field sales function by enabling cross-selling; second, increasing the total number of field sales assets representing XTANT products; and third, rolling out new products, including Silex, 3Demin, Aranax and structural allograft.

Both teams are excited and energized by the new name and the integration process. I want to take a moment to thank our combined management team and all of our employees and partners for creating this powerful combination -- our financial sponsors at OrbiMed, and the advisors that worked with us on the transaction. We remain committed to the Donate Life organization and our profound responsibility as stewards of the gift of donation. I look forward to building a great company together. Thank you for your kind attention and now we will turn the call over for your questions.

(Operator Instructions). Suraj Kalia, Northland.

Good morning, gentlemen. Congrats on the progress. So again, my apologies. I know you made some commentary about the delta in the revenues preannounced versus actual. What was that delta dividend?

The amount? Our reported revenue is $9.9 million for our Bacterin as a standalone business. We had previously, in July, we had preannounced a $10 million revenue number, so we are $100,000 below that.

Okay, fair enough. So again, you gave a lot of color on the combined company, including $86 million in synergies. While admittedly it is quite early in the process and you all have just closed the transaction, so I won't specifically ask about (technical difficulty). My apologies, what I was saying, Dan, is you gave color on the $86 million in synergies that could potentially be realized through cross-selling and streamlining. Admittedly, you have just closed the transaction, so I won't ask about the second half of this year, but for fiscal 2016, can you give us some color on how you are thinking through these cross-selling opportunities and also streamlining your hybrid sales organization?

As you know, I am very quantitative on establishing metrics for the combined team that are based on productivity of our field sales function and a number of assets that we have in the field. So the guidance that we are giving for 2016 is based on selling our existing catalog of products through the 312 field sales assets that we have in place today and adding 5 to 10 field sales assets per quarter to that selling organization. So we are driving that 15% to 20% revenue growth in 2016 by that grassroots approach, same products, increasing number of field sales assets, increasing productivity of those field sales assets.

The upsides for 2016 come from cross-selling. In the near term, selling biologics through the legacy X-spine device channel is -- looks like it can happen relatively quickly. And the other upsides come from increased or accelerating adoption of Silex from increasing the supply of 3Demin and rolling that 3Demin product out to the broader distribution channel, relaunching the structural allografts that Bacterin has had in its catalog using the instrumentation from X-spine and the Aranax product, which will be launched later this year.

Fair enough. I can't help but think just kind of going over your comments on your boots on the ground in fiscal 2016. It almost comes across, and forgive me for belaboring this point, it almost comes across -- you all are being conservative here and not really factoring in much from the synergy side of the equation. While I respect your desire to be conservative, would we be far off in thinking that the new boots on the ground and just cross-selling itself has the potential for revenue upside in fiscal 2016?

Absolutely and I am optimistic that we will start to see that revenue upside as soon as the fourth quarter of 2015. But as you stated earlier, we are 10 days into our integration and getting to know -- the management teams getting to know each other. So we are being conservative on those synergies until I see them with my own eyes.

Fair enough and one last question for John. Again, John, knowing it's still early in the process -- forgive me again if this question seems top preemptive. Bacterin had given a certain gross margin guidance. X-spine has a certain gross margin target. There is a certain manufacturing facility layout for both of the respective companies. In this new combined entity, John, from a manufacturing perspective, what all can be done to improve gross margins of the combined entity?

And extrapolating on that, John, in this new selling environment where bundling could -- is pretty rampant, how do you guys -- if you guys have to bundle products, biologics and implants, how much can be squeezed extra from the COGS line item let's say a year or two years down the line as we exit fiscal 2016, get into 2017? Is there a lot of room for improvement? Thank you for taking my questions.

I think that there's definitely room for improvement on the gross margin as both companies allocate their overhead across a larger base as revenues increase. I could definitely see a few percentage point increase on the overall gross margin going forward.

In terms of operating or manufacturing synergies, we do plan on keeping both facilities operating independently, so there's not going to be any pickup from that vantage point. Most of it will come through the allocation of corporate overhead.

I will let Dan address the question that you have with respect to the bundling of products and potential gross margin improvements.

Yes, the way spine products are being sold today, we do not see any price compression imminent from the combination of biologics and fixation devices. We believe we may have some advantages in the combination of our two catalogs and we will be exploring those as we roll into 2016 to provide some better customer experiences, ease-of-use kinds of things for the hospital and for the physicians. But I really don't see any price compression coming from bundling in the spine category. I think you see that elsewhere in orthopedics, but not yet in spine.

Gentlemen, thank you and congrats again.

RK Swayampakula, H.C. Wainwright.

Good morning, gentlemen. Thank you for taking my questions and also giving a lot of color on the combined entity for the two segments. What products in the hardware business and the biologics business are going to be the major drivers of gross margins going forward?

So for the biologics business, OsteoSponge continues to be a majority of the revenue. For the fixation device business, for the X-spine subsidiary, the AXLE interspinous device, the IRIX integrated spacers and Silex will continue to be the sort of top-line drivers. The 3Demin products for Bacterin carry a higher gross margin and while we need to add some capacity, that productline is growing very quickly.

Another revenue driver that could really kick in in 2016 are structural allografts. 40% of cervical fusion procedures give or take are still done with allografts and X-spine has the instrumentation and Bacterin has the processing capability to build some marketshare in that category. That could be a real sleeper for us.

Okay, thank you. The next question probably might look like exactly what Suraj was trying to get to, but let me try. What do you attribute the growth in revenues, the 16% to 17% growth you are expecting in 2016, translates to the high growth you're expecting in the EBITDA, like the 120% plus?

So we see about $400,000 in cost reductions mostly from outside services in the 2016 income statement. We do not, at this time, see any changes in the G&A expense in absolute dollars and no changes in R&D expense in absolute dollars for 2016. And so as a percent of revenue, those contributors will decline, allowing for more substantial flowthrough in the income statement.

The sales and marketing expense will largely scale with revenue increases because a huge portion of that is commissions and we look forward to paying higher commissions because that means higher revenues, but there is some fixed expense, attendance of trade shows and the like, which will remain the same in absolute dollars and decline as a percent of sales. All the things, all of those elements lead to substantial increase in flowthrough in the income statement.

Thank you. Thank you for that additional color. The next question is a little bit of a high-level one. Of the $86 million cross-selling opportunity that you expect to have, when or what number would you say that you would consider that you have achieved what you set out for? Or to put it in a different way, what's the trust level for you to think it is meaningful?

So in our -- there's little or no cross-selling in our revenue guidance. I think a fair model would be that we could get 15% to 20% of that cross-selling opportunity of biologics through the X-spine channel in 2017. It will take some time for training and for filling the funnel for all of those new distributors. But getting a 15% to 20% of that $30 million opportunity in 2017 I think would be a reasonable way to model the cross-selling upside.

You told us that you have obviously started seeing some cross-selling. When will you start seeing that at a meaningful level in the sense -- when are you expecting for your integration to be complete and when would you start seeing meaningful cross-selling -- sales (inaudible)?

I think we will see a small amount of opportunistic revenue in the fourth quarter of 2015, but the real momentum will build as we exit 2016 and go into 2017 because it just takes us six to nine months to train a new distributor, a new sales associate, on how to sell these products, whether it's cross-selling of biologics to an X-spine distributor partner or cross-selling fixation devices through a biologics distributor partner.

Thank you, Dan. Thank you, John. Congratulations, again, for what you have achieved so far and looking for better days.

Thank you. I appreciate your support.

(Operator Instructions). [Bill Voles], Private Investor.

Good morning. Congratulations on the merger and looking for lots of great things. It's like going from JV to the varsity. You're doing a great job. Just a couple oddball questions. In your statement, you said it's going to take nine months for a new salesperson to become productive. It just seems like a long time, nine months. Six months, yes, but nine months not to expect anything out of them, that just seems like a very long time. A lot of cost with no return.

So I don't disagree with you, but our experience is that it takes six to nine months. I want to make sure you understand though that these are straight commission sales partners, so some of them are getting paid on 1099s, others are structured as distributors. So we do incur some upfront cost in terms of training and providing samples, but it's not very expensive for us to add sales assets in this business model.

Okay, that makes me feel a lot better. Beyond all the synergies and cross-selling and that, is there a pipeline of new products to carry you beyond 2016 with new innovations and other sales opportunities?

Absolutely. Thank you for asking that question. Silex, for treatment of sacroiliac-related dysfunction, is a product that X-spine launched recently and has a lot of potential ahead of it. Similarly, the 3Demin family of cortical fibers that Bacterin launched late last year has a lot of runway ahead of it. And then more recently, X-spine received 510(k) approval for the Aranax cervical plating system and that will be launched later this year.

As I mentioned in the conversations previously, the ability to commercialize Bacterin's structural allografts with X-spine's instrumentation kits is going to be a substantial revenue driver as we go through the period. Both companies have an R&D pipeline that I find very, very exciting, but we're not going to talk about anything that's in development yet.

Okay, one last administrative detail. When is the CUSIP and the stock symbol going to be trading or showing? I'm with Ameritrade and all we have is a number. There's no account value; there's nothing.

I will have Rich Cockrell follow up with you on that point. Right now, we are traded on the OTC QX. We are preparing an application to list on one of the national exchanges, but we don't really have a date certain of when that will become effective.

Right, because it cannot be traded at Ameritrade right now. Cannot buy, you can't sell, you can't do anything. It's just a number; there's no symbol at all.

Let us get back to you offline and we can walk you through it.

Okay, that's it. Thank you very much.

[Ryan Espinosa], Leerink Partners.

Congratulations on closing the deal. For a number of our new institutional convert holders that are newer to the story, could you just walk us through the uplisting requirements and what we're looking at here and what potential timing we could expect?

So we are -- management believes that the Company is eligible for the NYSE right now today and that we are eligible for NASDAQ with a $4 bid price I think is the nomenclature. So we're working through the pros and cons of those two exchanges.

Got it. And so in terms of timing, that could be within the next, I don't want to put words in your mouth, but what would we expect?

From the time we put in a listing application or rather from the time the listing application is accepted, we're told that it will be four to six weeks for the listing to become effective.

Okay, great. With the two combined companies, and when we're looking through your guys' R&D pipeline, what are some things we can be looking out for in the next year that you're excited about new products?

You should continue to watch for physician surgeon adds on the Silex product. You should watch for us to roll out the 3Demin product on a national basis. Right now, it's still in a very limited pilot launch available to only a small number of accounts. Later this year, you should look for the Aranax launch, the cervical plating system that was recently approved. You should also watch for physician adds on our structural allograft product launch.

Okay, great. Thanks. Then just the last question, you guys filed the Zimmer distribution agreement and renewal. They obviously looked at the deal. Any comments from them, indifferent or positive or what have you, about their thoughts about the tie-up between your two companies?

We talked to Steve Healy as part of the diligence process. Steve is I believe going to be or is the President of the combined Zimmer Biomet Spine. Mr. Healy was very complementary of the X-spine product portfolio and the management team and execution over here and reiterated his support for their commitments going forward. So obviously, he had to be careful and since we have a confidential relationship with Zimmer, that's about all we can say about it for now.

Great. Thank you, guys.

Jay Harris, Goldsmith & Harris.

Dan, on prior conference calls, we've heard you talk about the efficiencies of the Bacterin sales organization. Could we get some color on how the X-spine sales organization is functioning, how they are doing relative to what that management deems to be an appropriate revenue base per salesman? And it seems to me 5 to 10 additional salesmen per year for XTANT is aggressive if there's a lot of unused capacity, sales capacity, in that 312 sales representatives.

Jay, thank you for the question. The model for the combined company today is a little bit more complex. A portion of X-spine business goes through resellers and we count each reseller as one field sales asset even though they usually have multiple employees. And a significant portion of the business for both companies goes through what I call sales agents or distributors. These are straight commission-based revenues and then Bacterin has a direct salesforce in Chicago, in Illinois, but in the Chicago area and in Arizona, primarily in Phoenix.

So for purposes of our modeling, we have very detailed expectations for each one of those functional elements, but because it's a larger business now, we also look at it sort of more macroscopically and that's how I get to the 312 total field assets. I think the right way to model it is to look at our total revenue divided by that 312 to get to a sort of productivity per head. It's not precise, but I believe it's directionally correct because of the blend of different business models.

We are going to be adding 5 to 10 per quarter, not per year, and the idea in the adds is that it's relatively inexpensive, as I mentioned with the previous caller, for us to add a sales agent or distributor because it's straight commission. There is some investment in training and samples, but, in general, it's straight commission, so it's all variable expense. It still takes six to nine months for those sales assets to become productive and we have to be prepared for that delay in return on that investment.

So to your point about utilization, yes, in some cases, for those sales assets that are exclusive to the productline, but most of these field sales assets are either straight commission or resellers and we only get a portion of their attention.

What does it cost per 10 additional -- what will it cost the Company per 10 additional sales personnel as you define them?

So they are not employees, right? These are straight commission entities. Sometimes they are a single person. Other times they are groups of 10 or 15 individuals loosely organized under distributor branding. So our cost is training, which is maybe a $10,000 or $15,000 investment and providing samples, which are really assets and go through -- the depreciation runs through our income statement. The incremental cost is maybe $50,000 or $60,000 to add 10 sales agents.

So if you added 40 next year, you're talking about a couple hundred thousand?

Correct.

Okay, thank you.

(Operator Instructions). [Todd Robbins], [Robbins Capital Management.]

Good morning, gentlemen. Most of my questions have been asked. Could you describe the competitive pricing landscape? If I were just to combine the Bacterin and X-spine products at current price points and walk into a spinal surgeon and say here's the combined biologic and X-spine products, it looks like they come in about 9500 bucks in total. I believe Medtronic may be the only company that has a like-for-like comparison. How do you stack up pricing-wise relative to competitive offerings?

We are generally straight across and in many cases, we are getting a small premium either because, on the Bacterin side, OsteoSponge and now 3Demin have superior clinical performance and on the X-spine side, AXLE and IRIX and now Silex are differentiated products that have specific surgeon appeal.

So in the example of Medtronic, their combined offering per procedure is about $10,000 as well?

As a fleet average, yes. The devil is in the details and multilevel deformity would be much higher. A single level interspinous intervention would be lower.

I ask this question relative to your ability to raise prices for the OsteoSponge. You did raise prices in January. So we shouldn't be thinking about that as a revenue kicker going forward?

So we will be studying the X-spine portfolio as we roll into the new year, but we're not modeling any price -- we're not modeling any price increases. We're not modeling any price compression either. The 3Demin product we are starting to second-guess ourselves on the launch pricing because of the rapid uptake, so we may be adjusting some pricing expectations on that product.

One of the metrics that people are going to look at going forward will be the revenues per procedure. Is that something you guys can offer color on on future conference calls or even now if one were to try to estimate what that would be?

So we certainly track it. One of the slides in the deck said that the average biologics revenue procedure is $2500. Our trailing actual is closer to $2800 and that same slide I think said that the fixation devices from X-spine average revenue is $7500 per procedure.

This is the fastest way to get increased productivity?

So the two simplest ways to increase productivity are increase revenue per procedure and to add new products.

Correct, okay. Good call. Thank you very much.

Thank you for your support, Todd.

Mr. Cockrell, there are no further questions at this time. Would you like to make any closing remarks?

Yes. Thank you, sir, and thank you, all of you, for participating in the call. We look forward to increased revenues and improving financial performance and launching new products in the next few months. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.