Xtant Medical Holdings, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Xtant Medical develops, manufactures and markets orthobiologics, spinal implants and related instrumentation for spinal fusion and other orthopedic procedures. The company operates as one reportable segment and generates most revenue through independent sales agents, distributors and hospital relationships. This report covers the three months ended March 31, 2021; financial statements are unaudited.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $12.542 million | $14.778 million | Down 15.1% |
| Gross profit | $8.091 million | $9.613 million | Down 15.8% |
| Gross margin | 64.5% | 65.0% | Down 50 basis points |
| Operating expenses | $8.096 million | $10.976 million | Down 26.2% |
| Loss from operations | $5 thousand | $1.363 million | Improved |
| Net loss | $29 thousand | $2.493 million | Improved |
| Net loss per share | $0.00 | $0.19 | Improved |
| Cash used in operations | $1.307 million | $1.789 million | Improved |
- Orthobiologics revenue was $9.011 million, or 72% of total revenue, versus $10.755 million, or 73%, in Q1 2020.
- Spinal implant revenue was $3.498 million, or 28% of total revenue, versus $3.980 million, or 27%, in Q1 2020.
- General and administrative expense declined to $3.027 million from $4.318 million, primarily because Q1 2020 included severance and enterprise-resource-planning upgrade costs.
- Sales and marketing expense declined to $4.855 million from $6.413 million, reflecting lower commissions and reduced headcount.
- Interest expense fell to $1 thousand from $1.108 million because cash interest payments under the prior credit agreement were recorded as reductions of debt carrying value under the amended accounting treatment.
- Cash and cash equivalents increased to $18.643 million at March 31, 2021 from $2.341 million at December 31, 2020. Working capital increased to $24.466 million from $5.716 million.
- Total assets were $58.697 million and total liabilities were $25.331 million at March 31, 2021. Current debt was $16.490 million; no long-term debt was reported on the balance sheet.
- Inventory was $21.641 million, compared with $21.408 million at year-end 2020. Accounts receivable, net, was $7.027 million.
Material changes versus the prior comparable period
- Revenue decreased $2.236 million, primarily because COVID-19 continued to defer elective procedures and restrict access to hospitals and healthcare facilities.
- Cost of sales decreased 13.8% to $4.451 million, but declined less than revenue, contributing to the modest gross-margin contraction.
- Total operating expenses declined $2.880 million, allowing the company to approach operating break-even despite lower revenue.
- Net loss improved by $2.464 million, primarily due to lower operating expenses and the reduction in reported interest expense.
- Operating cash outflow improved by $482 thousand, although the company continued to consume cash in operations.
- The share count increased materially following the issuance of 8,888,890 common shares in a February 2021 private placement. Shares outstanding were 86,707,286 at March 31, 2021 versus 77,573,680 at December 31, 2020.
Financing, outlook, risks and unusual items
- On February 24, 2021, the company sold 8,888,890 shares at $2.25 per share and issued warrants to purchase 6,666,668 shares at an exercise price of $2.25. Net proceeds were approximately $18.4 million after offering costs; placement-agent warrants for 444,444 shares were also issued at an exercise price of $2.8125.
- On May 6, 2021, after quarter-end, the company entered into secured credit facilities with a $12.0 million funded term loan, an additional $5.0 million discretionary term tranche and an $8.0 million revolving facility. The facilities mature May 1, 2026 and bear interest at LIBOR plus 7.00% for the term loan and LIBOR plus 4.50% for the revolver, each subject to a 1.00% LIBOR floor.
- The new facilities refinanced and terminated the prior OrbiMed credit agreement. They are secured by substantially all company and subsidiary assets and include minimum revenue, adjusted EBITDA and liquidity covenants.
- Management stated that cash of $18.6 million at March 31, 2021, together with facility availability, is expected to fund anticipated requirements through at least May 2022. Management also stated that additional capital may be needed before then.
- COVID-19 remains a material risk to elective procedure volumes, sales-agent productivity, customers, suppliers, manufacturing and access to capital. Management stated that revenues may not return to pre-pandemic levels.
- The company received a patent-infringement claim concerning several products, including the Butrex, Spider, Aranax and Irix systems. The matter is at an early stage, and a possible loss or range of loss cannot be estimated.
- No goodwill or long-lived-asset impairment was recorded in either comparable quarter. The company maintains a full valuation allowance against deferred tax assets because future profitability cannot be determined.
Investor verification checklist
- Verify the effect of the May 6, 2021 refinancing on debt balances, interest expense, collateral, covenant compliance and liquidity.
- Assess whether elective procedure volumes and revenue trends recover from the COVID-19-related decline.
- Review dilution from the February private placement, investor warrants, placement-agent warrants, options and restricted stock units.
- Reconcile the filing’s references to approximately $18.4 million versus $18.5 million of private-placement proceeds.
- Monitor inventory levels, excess and obsolete inventory reserves, consigned assets and operating cash consumption.
- Obtain updates on the patent-infringement matter and any related accruals, settlement exposure or product restrictions.
- Evaluate compliance with the new secured-credit-facility minimum revenue, adjusted EBITDA and liquidity covenants.