Xtant Medical Reports Third Quarter 2017 Financial Results

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| Source: Xtant Medical Holdings, Inc.

Company restructuring efforts continue to gain traction towards profitability

Third Quarter 2017 Highlights

  • Reported third quarter 2017 revenue of $19.8 million compared to $23.1 million reported during the third quarter of 2016
  • Operating Expenses decreased 17% to $14.9 million, compared to $17.9 million reported during the third quarter of 2016
  • Third quarter 2017 EBITDA of $1.4 million compared to $0.7 million reported during the third quarter of 2016  
  • Company management to host conference call at 9:00 AM Eastern Time November 22, 2017

BELGRADE, Mont., Nov. 21, 2017 (GLOBE NEWSWIRE) -- Xtant™ Medical Holdings, Inc. (NYSE American:XTNT), a leader in the development of regenerative medicine products and medical devices, today reported its financial results for the quarter ended September 30th, 2017. The Company reported Third Quarter 2017 revenue of approximately $19.8 million and EBITDA of approximately $1.4 million for the period.

Revenue
Consolidated third quarter 2017 revenue was approximately $19.8 million, compared to revenue of approximately $23.1 million for the same period of 2016.  The decrease in revenue is due to the company's continued efforts to reduce underperforming sales channels and unprofitable distributor agreements resulting in a decrease of fixation revenue offset by an increase in biologics revenue.

"As we transition the business, our focus will be on profitable revenue growth", said Carl O' Connell, Chief Executive Officer of Xtant Medical. "We continue to rationalize sales that are not profitable to the business and removing expenses that are not yielding returns.  Although our revenues were lower during the period, true operating leverage in the business is beginning to take shape. Once we have completed our restructuring efforts, we will be well positioned to grow revenues and profitability."

Gross Profit
Consolidated gross profit for the third quarter of 2017 was approximately $11.4 million or 57.5% of revenues, compared to gross profit of approximately $16.0 million or 69.2% of revenues for the third quarter of 2016.   The decrease in gross profit is due to a shift in product mix to biologics which has a lower margin than fixation products.  In addition, inventory and surgical instruments reserves were increased $1.1 million in the third quarter of 2017 over the prior year based on current estimates of missing or damaged parts, primarily on consignment.  Gross margin was also impacted by a one-time adjustment of $900,000 in inventory and surgical instrument reserves related to litigation with a distributor.

General and Administrative Expenses
In the third quarter of 2017, consolidated general and administrative expenses decreased to $3.3 million, compared to general and administrative expenses of $3.8 million for the same period during the prior year. As a percentage of revenues, general and administrative expenses were 16.8% during the period, compared to 16.3% for the same period of 2016. The reduction in expenses is primarily due to lower personnel expense and occupancy costs of $1.9 million as a result of restructuring efforts, offset by an increase of $1.1 million in other administrative costs such as legal fees, insurance, bad debts, and finance costs.  In addition, the Company took a one time write-off of $400,000 related to litigation with a distributor.

Sales and Marketing Expenses
Consolidated third quarter 2017 sales and marketing expenses decreased to $8.9 million, compared to sales and marketing expenses of $11.2 million during the same period in 2016. For the quarter, sales and marketing as a percentage of revenues decreased to 45.0% compared to 48.7% in the third quarter of 2016.  Changes made to the commission rate structure for sales distributors, a reduction of $1.6 million over the third quarter of 2016, coupled with a reduction in sales and marketing personnel of $1.0 million, offset by an increase in other net marketing expenses of $300,000, resulted in lower sales and marketing expense in the quarter.

Separation Expenses
One-time separation related expenses were $800,000 for the quarter ended September 30, 2017.  The reduction in personnel related to restructuring the Company for profitable operations, and is a key factor in the reduction of operating expenses for the third quarter and year to date.

Net Income / Loss
Third quarter 2017 consolidated net loss increased to ($8.5) million, compared to a net loss of ($4.9) million reported during the year-ago period. Third quarter 2017 consolidated loss per share was ($0.47), compared to a loss per share of ($0.40) in the third quarter of 2016.

EBITDA
The Company defines earnings before interest, taxes, depreciation and amortization ("EBITDA") as net income/loss from operations before depreciation, amortization, impairment charges, non-recurring expenses and non-cash stock-based compensation. Consolidated EBITDA for the third quarter of 2017 was approximately $1.4 million compared to $0.7 million for the same period during 2016 after the net income loss adjustment of $3.8 million in interest expense which increased 20.4%, $1.3 million in one-time total litigation reserves, $1.1 million increase in other expenses, representing restructuring costs consisting primarily of legal and professional fees, and the adjustment of $0.8 million of separation-related expenses related to the restructuring.

Recent Filings
On November 20, 2017, the Company filed a Form 8-K disclosing a restatement of its financial statements included in the Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.  This restatement resulted in a decline in net income in the quarter ended March 31, 2017 of $0.6 million related to accumulated depreciation of property and equipment. 

Financial Liquidity and Outstanding Debt
At September 30, 2017, the Company had $2.1 million of cash and cash equivalents; $13.9 million of net accounts receivable and $24.8 million of inventory plus approximately $2.1 million of funds available to draw down on its delayed draw term loan.

The Company reduced its accounts payable from $11.1 million at December 31, 2016, to $7.7 million as of September 30, 2017. Accrued liabilities of $13.4 million at September 30th, rose from $9.0 million at December 31, 2016 primarily due to the accumulation of accrued interest on long-term debt, the payment of which has been delayed as noted in recent amendments of the Company’s long-term debt agreements.

The Company's long-term debt agreement includes a minimum revenue covenant requiring the Company to achieve minimum revenue benchmarks on a calendar quarter basis. A waiver was obtained from the lenders for not achieving the minimum revenue covenant for the third quarter ended September 30, 2017. The minimum revenue covenant is $27.5 million for the fourth quarter ended December 31, 2017. The Company does not anticipate achieving this minimum revenue covenant and it is not assured the lenders will provide a waiver of this anticipated covenant violation at this future date. The Company has classified this debt as a current liability in its September 30, 2017 balance sheet.

Conference Call to be Held November 22, 2017
An accompanying listen-only conference call will be hosted by Carl O'Connell, Chief Executive Officer, and Laura Kendall, interim Chief Financial Officer, to discuss the results. The call will be held at 9:00 AM ET, on November 22, 2017. Please refer to the information below for conference call dial-in information and webcast registration.

Conference date: November 22, 2017, 9:00 AM ET
Conference dial-in: 877-269-7756
International dial-in: 201-689-7817
Conference Call Name: Xtant Medical's Third Quarter 2017 Results Call
Webcast Registration: Click Here
Following the live call, a replay will be available on the Company's website, www.xtantmedical.com, under "Investor Info."

About Xtant™ Medical Holdings, Inc.

Xtant Medical Holdings, Inc. (NYSE American:XTNT) develops, manufactures and markets class-leading regenerative medicine products and medical devices for domestic and international markets. Xtant 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, tissue grafts for the treatment of orthopedic disorders, and biologics to promote healing following cranial, and foot and ankle surgeries. With core competencies in both biologic and non-biologic surgical technologies, Xtant can leverage its resources to successfully compete in global neurological and orthopedic surgery markets. For further information, please visit www.xtantmedical.com.

Important Cautions Regarding Forward-looking Statements 

This press release contains certain disclosures that may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to significant risks and uncertainties. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "continue," "efforts," "expects," "anticipates," "intends," "plans," "believes," "estimates," "projects," "forecasts," "strategy," "will," "goal," "target," "prospects," "potential," "optimistic," "confident," "likely," "probable" or similar expressions or the negative thereof. Statements of historical fact also may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others:  the ability to comply with covenants in the Company’s senior credit facility and to make deferred interest payments; the ability to maintain sufficient liquidity to fund operations; the ability to remain listed on the NYSE American; the ability to obtain financing on reasonable terms; the ability to increase revenue; the ability to continue as a going concern; the ability to maintain sufficient liquidity to fund operations; the ability to achieve expected results; the ability to remain competitive; government regulations; the ability to innovate and develop new products; the ability to obtain donor cadavers for products; the ability to engage and retain qualified technical personnel and members of the Company’s management team; the availability of Company facilities; government and third-party coverage and reimbursement for Company products; the ability to obtain regulatory approvals; the ability to successfully integrate recent and future business combinations or acquisitions; the ability to use net operating loss carry-forwards to offset future taxable income; the ability to deduct all or a portion of the interest payments on the notes for U.S. federal income tax purposes; the ability to service Company debt; product liability claims and other litigation to which we may be subjected; product recalls and defects; timing and results of clinical studies; the ability to obtain and protect Company intellectual property and proprietary rights; infringement and ownership of intellectual property; the ability to remain accredited with the American Association of Tissue Banks; influence by Company management; the ability to pay dividends; and the ability to issue preferred stock; and other factors.

Additional risk factors are listed in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q under the heading "Risk Factors." The Company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

Contact:
CG CAPITAL
877.889.1972
investorrelations@cg.capital 
cg.capital


XTANT MEDICAL HOLDINGS, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS 
  As of  As of  
  September 30,  December 31, 
  2017  2016 
  (unaudited)    
ASSETS        
Current Assets:        
Cash and cash equivalents $2,069,088  $2,578,267 
Trade accounts receivable, net of allowance for doubtful accounts of $2,109,155 and $1,653,385 respectively  13,909,090   18,991,872 
Current inventories, net  24,038,913   26,266,457 
Prepaid and other current assets  664,581   1,149,615 
Total current assets  40,681,672   48,986,211 
         
Non-current inventories, net  717,817   971,854 
Property and equipment, net  11,450,837   15,840,730 
Goodwill  41,534,626   41,534,626 
Intangible assets, net  32,548,102   35,940,810 
Other assets  1,523,430   827,374 
         
Total Assets $128,456,484  $144,101,605 
         
LIABILITIES & STOCKHOLDERS’ DEFICIT        
Current Liabilities:        
Accounts payable $7,350,313  $10,471,944 
Accounts payable - related party (note 13)  344,150   640,442 
Revolving line of credit  -   10,448,283 
Accrued liabilities  13,425,741   8,982,187 
Warrant derivative liability  196,929   333,613 
Current portion of capital lease obligations  319,095   244,847 
Debt, less issuance costs  65,609,693   - 
Total current liabilities  87,245,921   31,121,316 
         
Long-term Liabilities:        
Capital lease obligation, less current portion  658,011   832,152 
Long-term convertible debt, less issuance costs  70,781,212   68,937,247 
Long-term debt, less issuance costs  -   50,284,187 
Total Liabilities  158,685,144   151,174,902 
         
Commitments and Contingencies (note 10)        
Stockholders’ Deficit:        
Preferred stock, $0.000001 par value; 5,000,000 shares authorized; no shares issued and Outstanding  -   - 
Common stock, $0.000001 par value; 95,000,000 shares authorized; 18,173,007 shares issued and outstanding as of September 30, 2017 and 17,249,315 shares issued and outstanding as of December 31, 2016  18   17 
Additional paid-in capital  86,297,517   85,461,210 
Accumulated deficit  (116,526,195)  (92,534,524)
Total Stockholders’ Deficit  (30,228,660)  (7,073,297)
         
Total Liabilities & Stockholders’ Deficit $128,456,484  $144,101,605 
         

  

XTANT MEDICAL HOLDINGS, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(Unaudited) 
  
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Revenue                
Orthopedic product sales $19,618,192  $22,907,717  $62,985,537  $65,025,908 
Other revenue  170,891   186,423   294,375   505,971 
Total Revenue  19,789,083   23,094,140   63,279,912   65,531,879 
                 
Cost of sales  8,416,239   7,114,041   23,472,107   20,749,381 
                 
Gross Profit  11,372,844   15,980,099   39,807,805   44,782,498 
                 
Operating Expenses                
General and administrative  3,330,230   3,773,236   11,985,041   11,216,112 
Sales and marketing  8,903,777   11,242,820   31,037,878   32,115,763 
Research and development  504,227   928,930   1,842,907   2,612,402 
Depreciation and amortization  1,353,997   1,265,490   4,104,565   3,690,519 
Acquisition and integration related expenses  -   517,083   -   1,269,613 
Separation related expenses  791,538   -   1,396,457   - 
Non-cash consulting expense  (20,000)  156,129   216,581   266,721 
Total Operating Expenses  14,863,769   17,883,688   50,583,429   51,171,130 
                 
Loss from Operations  (3,490,925)  (1,903,589)  (10,775,624)  (6,388,632)
                 
Other Income (Expense)                
Interest expense  (3,809,771)  (3,163,534)  (10,538,422)  (8,974,895)
Change in warrant derivative liability  (19,549)  220,409   136,684   716,738 
Other income (expense)  (1,194,041)  (51,350)  (2,814,309)  (309,924)
                 
Total Other Income (Expense)  (5,023,361)  (2,994,475)  (13,216,047)  (8,568,081)
                 
Net Loss from Operations $(8,514,286) $(4,898,064) $(23,991,671) $(14,956,713)
                 
Net loss per share:                
Basic $(0.47) $(0.40) $(1.33) $(1.24)
Dilutive $(0.47) $(0.40) $(1.33) $(1.24)
                 
Shares used in the computation:                
Basic  18,169,511   12,193,970   18,065,911   12,064,782 
Dilutive  18,169,511   12,193,970   18,065,911   12,064,782 


XTANT MEDICAL HOLDINGS, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 
  
  Nine Months Ended
September 30,
 
  2017  2016 
Operating activities:        
Net loss $(23,991,671) $(14,956,713)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  7,432,544   5,551,854 
Non-cash interest  9,966,139   4,477,148 
Loss on impairment and disposal of fixed assets  1,909,385   - 
Non-cash consulting expense/stock option expense  592,888   522,987 
(Gain) loss on sale of fixed assets  -   (14,149)
Provision for losses on accounts receivable and inventory  1,710,746   898,285 
Change in derivative warrant liability  (136,684)  (716,738)
Changes in operating assets and liabilities:        
Accounts receivable  4,135,353   (859,026)
Inventories  1,718,264   (3,958,050)
Prepaid and other assets  (211,022)  (1,482,561)
Accounts payable  (3,417,923)  3,155,962 
Accrued liabilities  (896,788)  (3,813,998)
Net cash used by operating activities  (1,188,769)  (11,194,999)
         
Investing activities:        
Purchases of property and equipment and intangible assets  (1,455,845)  (5,566,569)
Proceeds from sale of fixed assets  -   16,400 
Net cash used by investing activities  (1,455,845)  (5,550,169)
         
Financing activities:        
Proceeds from long-term debt  12,787,094   - 
Payments on capital leases  (203,376)  (80,071)
Proceeds from the issuance of long-term debt  -   1,000,000 
Proceeds from the issuance of convertible debt  -   2,212,718 
Proceeds from revolving line of credit  -   8,353,113 
Payments on revolving line of credit  (10,448,283)  - 
Net proceeds from issuance of stock  -   300,000 
Net cash provided by financing activities  2,135,435   11,785,760 
         
Net change in cash and cash equivalents  (509,179)  (4,959,408)
         
Cash and cash equivalents at beginning of period  2,578,267   6,368,016 
Cash and cash equivalents at end of period $2,069,088  $1,408,608 
         


 
XTANT MEDICAL HOLDINGS, INC.
Calculation of Consolidated EBITDA for the Periods Ended September 30, 2017 and 2016
(Unaudited)
      
 For  the  three months ended For  the  nine  months  ended
  2017  2016   2017  2016 
Net Loss$(8,514,286)$(4,898,064) $(23,991,671)$(14,956,713)
      
Tax (Benefit) Provision   -    -     -    - 
Other (Income) Expense 1,194,041  51,350   2,814,309  309,924 
Change in warrant derivative liability 19,549  (220,409)  (136,684) (716,738)
Interest expense 3,809,771  3,163,533   10,538,422  8,974,895 
Separation related expenses 791,537    -   1,396,457    - 
Acquisition and Integration related expenses   -  517,083     -  1,269,613 
Non-Cash Compensation (20,000) 156,129   216,581  266,721 
Litigation Reserve 1,342,049  -   1,342,049  - 
Depreciation, Amortization & Asset Impairment    2,797,118  1,902,490   7,036,559  5,551,852 
EBITDA Gain (Loss)$1,419,779 $672,112  $(783,978)$$699,554