Xtant Medical Holdings Inc (XTNT) 2021 Q4 法說會逐字稿

Greetings, and welcome to the Xtant Medical Fourth Quarter and Full Year 2021 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 Finn Partners. Thank you. Please go ahead.

Thank you, operator, and welcome to Xtant Medical's Fourth Quarter and Full Year 2021 Financial Results Call. Joining me today is Sean Browne, President and Chief Executive Officer; and Scott Neils, Interim 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 risks and uncertainties, including those noted in the Risk Factors section of the company's annual report on Form 10-K filed with the SEC on March 8, 2022, and in subsequent SEC reports and press releases. Actual results may differ materially.

The 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 Tuesday, March 8, at approximately 9 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. Xtant Medical withstood significant market challenges in 2021 to grow our annual revenue for the first time in 6 years and for the first time since Bacterin acquired X-spine to form Xtant Medical. In 2021, we grew our overall business by 4%, led by our established biologics business, which grew by 8%. Our commercial team delivered to bring hospitals and physicians to our innovative products so that patients receive the treatment they so desperately need. On today's call, I will first address our current market conditions and our performance in the fourth quarter and full year, then provide an update on the progress of our growth strategy and close with commentary on our operations.

Okay. First, starting with the market environment. On a macro level, 2021 was an up and down year. In Q1, we got hit with the last wave of the COVID alpha variant. In Q2, we swung back to mostly normal caseloads. And then in the third and fourth quarter, we got here with the delta variant followed by the omicron, like everyone else did. While not as challenging as 2020, overall spine procedures by our internal metrics were still down by at least 10% compared to 2019.

COVID restrictions had a profound impact on our business with spine and other surgery procedure volumes negatively impact in many of our key markets. This was due to cancellations and/or postponements of procedures as a result of increased hospitalizations, restrictions on elective procedures and staffing shortages. Despite these headwinds, we achieved top line growth in 2021, primarily driven by our key growth initiatives and have helped to diversify our revenue streams. Although the reduction in elective procedures and staffing issues continue to linger early in the first quarter of 2022, we are cautiously optimistic that conditions will improve as COVID cases continue to decline and restrictions are once again loosened.

I'd like to now touch on the 4 key growth initiatives and the progress made in 2021. As a reminder, these pillars of growth are focused on: one, a regular cadence of new products; two, expansion of our distribution network; three, penetration of adjacent markets; and four, leveraging our growth platform, the technology and strategic acquisitions.

All right, starting with our new product introductions. During 2021, we launched 4 new products, including most recently a bone marrow aspirate concentrate offering, which was introduced in November of 2021. Reception to our new products has been quite positive, particularly with the successful launches of our OsteoFactor and OsteoVive Plus products. Not only do they add to our broad biologics portfolio but they also enable us to enter the $670 million growth factor market.

We intend to roll out 2 new products this year and as many as 4 new products annually in the years ahead, with a focus on products that expand our reach into new markets and revive and update existing successful products. Altogether, we are driving new innovations in the biologics sector and bringing differentiated products to market. The second growth pillar is the expansion of our distribution network. This initiative is critical to advancing sales coverage into new U.S. geographies.

I am pleased that in 2021, we brought in more than 47 new agents, which exceeded our previously stated goal of adding 10 agents per quarter. We grew in the Midwest, New England, California, Arizona, the Southeast and especially in the Mid-Atlantic. Still, we see further room for expansion in 2022 as we remain committed to having more regions represented by more distributors.

Our third pillar of growth is focused on penetrating adjacent markets. In 2021, we added new sales personnel to leverage certain adjacent non-spine markets, such as the foot and ankle, cranial/maxillofacial, oncology, joint reconstruction and trauma markets. By expanding our private label and OEM sales into these markets, we made considerable progress on this initiative in 2021. While COVID had a severe impact on spinal elective procedures, many procedures in these adjacent markets continue to move forward, allowing us to benefit from diversifying our revenue streams.

Finally, one of our key growth initiatives is to add depth to our product offering through targeted strategic acquisitions. This is a strategy that takes time and prudence to execute. We continue to explore opportunities that align with our growth platform, provide scale, fill product or technology gaps, expand into adjacent markets or broaden our access to customers with a goal to increase long-term shareholder value.

Now moving to our operational performance. I'd like to remind everyone of the strategic and intentional decisions made by the management team to temporarily lower our gross margins. Part of the strategic margin decline was related to product mix due to higher OEM channel sales, which actually has a slightly better operating margin than our independent agent sales channels. The more intentional and temporary margin decline was due to our efforts to lower our finished goods inventory. As a result, we reduced our finished goods inventory by more than $4 million. However, it also temporarily increased our underabsorption of labor and overhead. We expect higher production costs to continue in future periods, but otherwise expect gross profit to improve as the effect of COVID-19 on surgical procedures diminishes. With anticipated higher volumes later in the year, we expect to see our absorption number go much lower.

Lastly, we set a solid foundation in 2021 for future growth by laying the groundwork across each of our 4 key growth initiatives. We brought exciting new products to market that have already contributed to our top line. We grew our distribution network above our expectations and benefited from the continuation of certain procedures by expanding in adjacent markets. Supported by our growth platform and operating from a position of financial strength, we look forward to a very promising 2022 for our business and shareholders.

Now I'd like to introduce Scott Neils, who was appointed interim CFO at the start of this year. Scott has 15 years of public accounting and corporate finance experience, serving as our controller since August 2019. We are excited to have Scott here with us today to discuss our fourth quarter and full year 2021 financial results.

Thank you for that warm welcome, Sean, and good morning, everyone. Total revenue for the fourth quarter of 2021 was $14 million, comparable to the same quarter in the prior year. For the year 2021, total revenue was $55.3 million compared to $53.3 million for 2020. Revenue benefited from additional private label and OEM orthobiologics sales, partially offset by reduced implant sales versus the prior year. Revenue in the second half of 2021 was impacted by lower sales from the distributor sales channel due to lower elective procedures across our key markets because of COVID-19.

Gross margin for the fourth quarter of 2021 was 55.1% compared to 64.1% for the same period in 2020. Gross margin for the full year 2021 was 58.8% compared to 64.5% for the same period in 2020. The decrease in gross margin was attributed to increased underabsorption of labor and overhead, shift in the sales channel mix and sell-through of products subject to greater production costs during prior periods. We expect higher product costs continue in future periods, but otherwise expect gross margin to improve as the effect of COVID-19 on surgical procedures diminishes.

Fourth quarter 2021 operating expenses were $9.6 million compared to $8.7 million in the same period a year ago. For the full year 2021, operating expenses were $36.3 million compared to $35.1 million for 2020. As a percentage of revenue, operating expenses were 68.8% and 65.8% for the 3- and 12-month periods ended December 31, 2021, respectively, compared to 62.4% and 65.9% for the 3- and 12-month periods ended December 31, 2020, respectively.

General and administrative expenses were $4.1 million and $14.4 million for the 3- and 12-month periods ended December 31, 2021, representing an increase of 29% and 7%, respectively, over the prior year periods. These increases were primarily due to additional stock-based compensation expense and severance in the 2021 period. Sales and marketing expenses were $5.3 million and $21 million for the 3- and 12-month periods ended December 31, 2021, respectively, a decrease of 2% for the 3-month period and about the same for the 12-month period. The 3-month comparison included reduced commissions expense resulting from a greater mix of private label and OEM sales, partially offset by increased salaries and wages.

Net loss in the fourth quarter in 2021 was $2.3 million or $0.03 per share compared to a loss of $700,000 or $0.01 per share in the comparable 2020 period. Net loss for 2021 was $4.8 million or $0.06 per share compared to $7 million or $0.25 per share in 2020. Adjusted EBITDA for the fourth quarter of 2021 was a $0.5 million loss compared to adjusted EBITDA of $1.1 million for the same period in 2020. For the full year 2021, adjusted EBITDA was $0.7 million compared to a $4.3 million EBITDA for the year ended December 31, 2020. As of December 31, 2021, we had $18.2 million of cash and cash equivalents, $7.2 million of net accounts receivable, $17.9 million of inventory and $3.2 million available on our term credit facility.

Now I'll turn it back to Sean for closing remarks.

Thank you, Scott. To recap, achieving top line annual growth for the first time in 6 years at the beginning of what we believe will be a long-term trend for Xtant. We have a number of initiatives planned, both commercially and operationally, that will drive our path forward led by our 4 key growth pillars. We are well underway to building on this momentum over the long run. Although we continue to operate with the effects of COVID on elective procedures across our markets that may impact our first quarter results, we look forward to easing restrictions and higher procedure volumes that will enable us to further ramp up our sales and production.

Our mission of honoring the gift of donation by allowing our patients to live as full and complete the life as possible continues to guide us. With our strategy firmly in place, we look to execute on it in 2020 to in order to advance our mission forward.

That concludes our call. Thank you for joining us today and for your continued support.

Ladies and gentlemen, thank you for your participation and interest in Xtant Medical. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.