Xtant Medical Holdings, Inc. (NYSEMKT:XTNT) Q4 2018 Results Earnings Conference Call April 1, 2019 9:00 AM ET
David Carey - Investor Relations
Greg Jensen - Vice President, Finance and Interim Chief Financial Officer
Conference Call Participants
Greetings and welcome to the Xtant Medical Fourth Quarter and Full Year 2018 Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mr. David Carey. Please go ahead.
Thank you, operator. And welcome to Xtant Medical’s fourth quarter and full year 2018 financial results call. Joining me today for the conference call will be Greg Jensen, Vice President, Finance and 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, intend, and other words with similar meaning. Any 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 that will be filed today. Actual results may differ materially.
The company’s financial results, press release, and today’s discussion includes certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations, which appears in the tables of our press release and are otherwise available on our website. Note that our Form 8-K filed with our financial release 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 Monday, April 1, at approximately 09:00 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 filings with the SEC. The Company declines any obligation to update these forward-looking statements except as required by applicable law.
Now, I'd like to turn the call back over to Greg Jenson.
Thank you, David. And good morning to everyone listening. I will begin by providing a general update of Xtant, followed by a review of our financial results for the fourth quarter and full year 2018.
Let me start by saying that I joined Xtant almost two months ago, because I believed that the company has tremendous value to offer to both patients and shareholders .Xtant’s portfolio of orthobiologics and spinal fixation systems are important solutions for the challenges of spinal fusion in complex spine, deformity, and degenerative procedures. I also have great confidence that the recent hires that we have made within our sales team gives us the expertise and leadership needed to realize the commercial and clinical value of these products.
As announced in February, we added to our team five senior sales executives comprising of a Vice-President of U.S sales and four regional Vice-Presidents. Combined, these very talented individuals have over 120 years of proven experience in sales with the majority of expertise coming from sales within the spine industry.
Their deep relationships in the commercial spine market and their extended knowledge of spine products and therapies are enabling us to take our sales strategy and execution to a level that we have not previously achieved, and while it will take time to be reflected in our financial results, the value they provide to Xtant is already quite clear to our customers and within the company.
Under the leadership of Kevin Brandt, who joined Xtant last July as Chief Commercial Officer, this newly revitalized sales force has the strategy, motivation, and dedication to help Xtant grow our revenue through increasing sales of our diverse product portfolio.
Ensuring the success of our sales efforts requires that we offer customers products that meet their needs and the needs of their patients with absolute quality and integrity. The appointment of Ron Berlin, as Vice-President and Chief Operations Officer in January of 2019 is another transformative hire for our company. Ron, who also now serves as our General Manager has over 35 years of operations experience and has successfully served in multiple senior level positions throughout the orthopedic device and tissue processing industry.
As a result of his prior experience, Ron brings to Xtant a wealth of knowledge in all aspects of medical device and tissue processing operations and quality assurance. He has a proven track record for improving compliance and quality, cost effectiveness, asset utilization, and continuous improvement programs based on Six Sigma, Kaizen, Lean Implementation, as well as managing the implementation of M&A programs. I believe that his leadership will allow us to continue making significant progress in reducing our operating costs and improving our gross margins which are key components to our strategy for increasing profitability.
I believe firmly that our recent personnel additions have brought the expertise, excitement, and enthusiasm that Xtant needs to execute our turnaround strategies.
Another important factor in achieving our goals is having the financial flexibility to make decisions that support our growth strategies. Towards that end, we announced earlier today that we have amended and extended our credit facility with the affiliates of OrbiMed Advisors.
As noted in the press release announcing the transaction, the second amended and restated credit agreement provides for upto $10 million via an incremental delayed draw term loan. It also extends the maturity date from July 31, 2020 to March 31, 2021 and the period during which no interest accruals from December 31, 2018 until March 31, 2020.
Further, the credit facility replaces the minimum consolidated EBITDA and consolidated senior leverage ratio covenants with a new minimum revenue covenant among other provisions. As part of this transaction, Xtant will issue warrants to OrbiMed for the purchase of 1.2 million shares of common stock.
OrbiMed is the longstanding investor in Xtant and we believe that their willingness to modify the terms of our credit facility and commit additional capital to our company is an important vote of confidence in our ability to realize our vision for value creation. We appreciate OrbiMed’s continued support.
Before I turn to a review of our financial results, let me also add that we have commenced the search for a new Chief Executive Officer. While leading a company that is in transition is often a challenge, it also provides opportunities to implement bold and transformative strategies. We are seeking an individual who has the ability to leverage his or her knowledge, energy and creativity into new opportunities for growing our top line revenue, reducing our operating costs, and putting the company on a path towards profitability.
Now let me turn to our financial results. Total revenue for the fourth quarter of 2018 was $18.3 million compared to $19.3 million for the same period in 2017. Full year 2018 revenue was $72.2 million compared to $82.6 million for 2017. The decrease in revenue occurred primarily due to decreased sales in the spinal hardware implant product line.
Gross margin for the fourth quarter of 2018 was 39.7% compared to 53.2% during the fourth quarter of 2017. Full year 2018 gross margin was 60.2% compared to 60.6% for 2017. In the fourth quarters of 2018 and 2017, the company increased its inventory reserve by $4.4 million and $2.2 million respectively, primarily due to excess inventory in the spinal implant product line.
Excluding the inventory reserve adjustments in 2018 and 2017, gross profit margins would have been 63.7% and 64.6% for the fourth quarter, and for the full year 66.3% and 63.3% respectively.
Fourth quarter of 2018 operating expenses were $62 million compared to $37.4 million in the same period a year ago. For the full year, operating expenses were $103.6 million in 2018 compared to $87.9 million in 2017.
In the fourth quarter of 2018 and 2017, the company incurred non-cash impairment charges to goodwill and intangibles attributed to the X-Spine acquisition totaling $48.1 million and $17.6 million respectively.
Excluding the non-cash impairment charges to goodwill and intangibles attributed to the X-Spine acquisition, operating expenses for the fourth quarter of 2018 were $13.8 million compared to $19.8 million in the fourth quarter of 2017, and $55.4 million in 2018 compared to $70.3 million in 2017.
The improvement is primarily attributed to lower commission expense as a result of lower revenue during 2018, a decrease in general and administrative expenses, and cost reduction -- cost reduction initiatives to consolidate facilities.
The net loss from operations was $56.7 million or $4.31 per share for the fourth quarter in 2018 compared to a loss of $28.4 million or $18.77 per share in 2017. The year-to-date net loss for 2018 was $70.1 million or $5.97 per share compared to $52.4 million or $34.76 per share in 2017.
Excluding the non-cash impairment charges and the inventory reserve charges, the net loss in the fourth quarter of 2018 was $4.2 million or $0.32 per share compared to $8.6 million or $5.70 per share for 2017 fourth quarter.
For 2018, the net loss would have been $17.6 million or $1.50 per share compared to $32.6 million or $21.64 per share in 2017. The company defines adjusted EBITDA as net income/loss from operations before depreciation, amortization and interest expense and is further adjusted to add back in/or exclude as applicable non-cash special charges, provision for losses on accounts receivable and inventory, non-cash impairment charges, non-cash compensation, changes in warrant derivative liability, separation related expenses, litigation reserves, facility consolidation costs, and restructuring expenses.
Non-GAAP adjusted EBITDA for the fourth quarter of 2018 was $1.3 million compared to a loss of $900,000 for the same period of 2017. For 2018, our non-GAAP adjusted EBITDA was $4.7 million compared to $500,000 for the same period in 2017. The increase in adjusted EBITDA is attributed to the progress we are making in restructuring the business, including the facility consolidation initiatives.
As of December 31, 2018, we had $6.8 million of cash and cash equivalents to $10 million of net accounts receivable and $17.3 million of inventory. As previously mentioned the company has closed its amended and restated a credit agreement for $10 million on March 29, 2019.
In closing, I would like to highlight that we are making significant progress in repositioning Xtant. Driven by the combined cost reductions and sales channels improvement along with the strong support of OrbiMed, we believe we are on the right trajectory to achieve growth over the long term while driving value for our patients and stakeholders. We look forward to providing updates of our progress.
Thank you for those joining us on the call today or listening at a later time.
This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.