Xtant Medical Holdings Inc (XTNT) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Xtant Medical Fourth Quarter and Full Year 2020 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Matt Steinberg of Lazar FINN Partners. Please go ahead.

Thank you, operator, and welcome to Xtant Medical's fourth quarter and full year 2020 financial results call. Joining me today is Sean Browne, President and Chief Executive Officer; and Greg Jensen, Vice President, Finance and Chief Financial Officer. Today's call is being webcast and will be posted on the company's website for playback.

During the course of this call, management may make certain forward-looking statements regarding future events and the company's expected future performance. These forward-looking statements reflect Xtant's current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends and other words with similar meaning. Such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including those noted in the Risk Factors section of the company's annual report on Form 10-K that will be filed with the SEC today. Actual results may differ materially.

Company's financial results press release and today's discussion include certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations, which appear in the tables of our press release and are otherwise available on our website. Note that our Form 8-K filed with our financial results press release provides a detailed narrative that describes our use of such measures.

For the benefit of those of you who may be listening to the replay, this call was held and recorded on Wednesday, February 24th, at approximately 9:00 a.m. Eastern Standard Time. The company declines any obligation to update its forward-looking statements, except as required by applicable law.

Now, I'd like to turn the call over to Sean Browne.

Thank you, Matt, and good morning to everyone listening. During the past year, we undertook numerous strategic and operational initiatives to mitigate the effects of the pandemic while positioning Xtant to focus on delivering growth in the years to come.

These actions enabled us to preserve cash while rightsizing our operations. As we enter 2021, we are a leaner, more efficient company that is poised for growth.

Despite a fairly significant uptick in COVID hospitalizations across our largest markets in the fourth quarter of 2020, we are pleased with the progress made across our business, highlighted consecutive quarters of income from operations in the second half of 2020.

Our aggressive actions earlier in the year have paid off as we work through the second wave of COVID hospitalizations. Strategically, we chose to focus on our strengths and to align our business with the changing market environment, which, when combined with our successful debt restructuring and revamped operational initiatives, provide us with positive momentum entering in 2021.

Our confidence is further underscored by the $20 million private placement investment that we are in the process of closing and expect to close today. This investment recognizes the success that we've had in turning around Xtant Medical as well as the growth potential of our business moving forward.

Our revenues for the fourth quarter of 2020 were $14 million, about flat from the third quarter as the rebound in domestic spinal elective procedures slowed dramatically towards the second half of the quarter due to the rise in COVID cases.

Our largest markets were hit particularly hard with delayed or canceled elect procedures. In spite of these challenges, which we expect will persist in the near term, we anticipate that our shift from an operational focus to a commercial focus will drive our future growth.

Before I highlight our 2021 strategy, let me first recap last year's accomplishments. One, we completely rebuilt our cost structure and refocused the company on areas where we could be successful. This included stripping out underperforming investments and activities that were either strategically distracting or financially unsustainable.

Two, we converted most of our sizable outstanding debt, this clean up our balance sheet and has now given us the freedom to focus our working capital on growth type initiatives.

Three, we rolled out 2 new product lines, the Matriform Si and the [OsteoVive PLUS] in the second half of 2020 that are now starting to get traction. More importantly, we have at least 3 new products that will be rolled out in 2021 that will continue this forward momentum.

And four, we closed one of the largest regional GPOs in the country that will give us the kind of contract coverage that our prospective distributors have been looking for in the Midwestern and Southern states.

Thanks to these actions, we generated consecutive quarters of operating profit during the second half of 2020, which was a major accomplishment for the Xtant team. More importantly, we have set the standard for our business to expect this type of performance.

Additionally, our debt restructuring dramatically reduced our debt load and lowered our cost to service this debt. Moving forward, these actions should make it easier for us to facilitate future access to the capital markets to fund our growth initiatives.

Now that we've made tremendous progress under difficult circumstances, we are focused on strategic initiatives, which will drive our overall commercial performance.

First, we plan to continue to develop and release new products under regular cadence. We believe there is a significant opportunity to expand and improve our biologics offering, and we have initiatives underway to bring 3 new products to market throughout the year and several more in the years to come.

Second, we are expanding our marketing programs and distribution network. As I mentioned earlier, our latest GPO agreement was critical in creating broad coverage to further expand our distribution network, particularly into locations that have higher density populations. Additionally, we remain committed to helping our existing distributors drive greater penetration in their markets.

Through new incentive programs, new product releases and a revamped high-touch service model, we anticipate that these events will help enable our distributors to grow more profitably and, in turn, help Xtant grow as well.

Finally, as we've done in the past, we'll continue to pursue operational improvements. While we are pleased to have generated an operating profit in the last 2 quarters, there is still more margin upside to our business. Additionally, we see significant opportunity in reducing our inventory on hand and thus improving our working capital.

With 2020 in our rearview mirror, we feel a renewed energy throughout Xtant as we shift our strategy to focus on growth. Supported by our improved financial position, combined with new product introductions and the expansion of our distribution and sales channels, we have a well-earned sense of confidence that we can substantially grow our business moving forward.

Now, I'd like to turn the call over to our CFO, Greg Jensen, for discussion of our fourth quarter and full year 2020 financial results.

Thank you, Sean, and good morning, everyone. Total revenue for the fourth quarter of 2020 was $14 million compared to $17 million in the same quarter of the prior year. For full year 2020, total revenue was $53.3 million compared to $64.7 million for the same period in 2019.

These decreases were due primarily to the impact of the COVID pandemic that began in March of this year. However, elective procedures did recover to some extent during the second half of 2020 and then decreased again during the months of November and December as COVID hospitalizations increased dramatically in our largest markets.

Gross margin for the fourth quarter of 2020 was 64.1% compared to 67.3% for the same period in 2019. Gross margin for full year 2020 was 64.5% compared to 65.7% for the same period in 2019. These decreases were primarily attributed to diminished economies of scale, partially offset by reduced depreciation expense.

Fourth quarter 2020 operating expenses were $8.7 million compared to $11.7 million in the same period a year ago. For full year 2020, operating expenses were $35.1 million compared to $44.8 million for the same period in 2019.

As a percentage of total revenue, operating expenses were 62.4% and 65.9% for the 3 and 12-month periods ended December 31, 2020, respectively, compared to 68.6% and 69.1% for the 3 and 12-month periods ended December 31, 2019, respectively.

General and administrative expenses decreased by $1.3 million to $3.2 million for the fourth quarter of 2020 compared to the same period in 2019 and decreased by $3.8 million to $13.5 million for the full year 2020 compared to the same period in 2019.

These decreases were primarily due to lower legal and consulting fees, legal settlement expenses, salaries and wages, license fees and executive recruiting fees, partially offset by additional stock-based compensation expense and severance-related expenses.

Sales and marketing expenses were $5.4 million and $21 million for the 3 and 12-month periods ended December 31, 2020, respectively, a decrease of 23% and 21% for the 3 and 12-month periods, respectively. These decreases were primarily due to lower sales commissions because of lower sales, reduced salaries and wages and lower travel expenses.

As Sean mentioned earlier, responding to the early onset of the pandemic, we took immediate action to restructure and realign our business model, enabling the company to turn an operating profit for the second straight quarter in 2020, even with COVID's impact on revenues during fourth quarter.

Net loss for the fourth quarter 2020 was $700,000 or $0.01 per share compared to a loss of $1.6 million or $0.12 per share in the comparable 2019 period. Net loss for 2020 was $7 million or $0.25 per share compared to $8.2 million or $0.62 per share in 2019.

Adjusted EBITDA for the fourth quarter of 2020 was $1.1 million compared to $1.2 million for the same period of 2019. Both full year 2020 and 2019 adjusted EBITDA were $3.9 million.

As of December 31, 2020, we had $2.3 million of cash and cash equivalents, $6.9 million of net accounts receivable, $21.4 million of inventory and $5 million available under our credit facility.

Following the completion of our debt restructuring transaction in October, we launched a rights offering that resulted in total gross proceeds of $763,000. And as announced earlier this week, we are in the process of closing a private placement investment that is expected to result in total gross proceeds of $20 million. The remaining principal balance of our outstanding debt totals $15.6 million at the end of 2020.

Now, I'll turn the call back to Sean for closing remarks.

Thank you, Greg. We are pleased to have closed a challenging year with consecutive quarters of operating profit. These results represent the success of our decisive strategic actions we took back in the beginning of March.

Looking ahead, we are well positioned to invest in our commercial pursuits to drive growth. Our growth strategy will be focused on establishing a regular cadence of new products and broadening and engaging our distribution network.

At the same time, we will continue to monitor the elective procedure landscape and COVID cases across the country. Adjusting our commercial strategy is necessary.

That said, as the vaccine rollout accelerates, we are optimistic that elective procedures will normalize over the course of the year. We believe that those same markets hit hardest by the pandemic, which in turn adversely affected Xtant have pent-up demand and should return to normalized procedure volumes quickly.

Above all else, through these actions, we remain dedicated to fulfilling our mission of honoring the gift of donation so our patients can live as full life as possible.

Thank you for joining us today and your continued support.

This concludes today's call. All parties may now disconnect.