Xtant Medical Holdings, Inc. (NYSEMKT:XTNT) Q1 2019 Earnings Conference Call May 15, 2019 9:00 AM ET
David Carey - MD, IR
Greg Jensen - VP, Finance and Interim CFO
Conference Call Participants
Greetings and welcome to the Xtant Medical First Quarter 2019 Financial Results 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 of Lazar Partners. Thank you. You may begin.
Thank you, operator, and welcome to Xtant Medical’s first quarter 2019 financial results call. Joining me today for the conference call is 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 filed with the SEC on April 1, 2019. 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 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 Wednesday, May 15, at approximately 9 AM Eastern Time. The company declines any obligations to update its forward-looking statements except as required by applicable law.
Now I'd like to turn the call over to Greg Jensen.
Thank you, David, and good morning to everyone listening. I will begin by providing a general corporate update, followed by a review of our financial results for the first quarter of 2019. As I noted in our last call Xtant’s products meet important needs in spinal fusion procedures and we are committed to realizing both the clinical and commercial value of our product portfolio. We recognize that achieving that objective requires the successful execution of our turnaround strategy, which includes investing in technologies and the personnel needed to provide a strong foundation for future growth.
I am pleased to report that we have made important progress. While the impact of this progress is not yet evident in our financial results, we have made progress to expand our sales activities, improve our operational capabilities, and improve our overall financial results. For example, we completed the hiring of our sales team in the first quarter, which is led by Kevin Brandt, Our Chief Commercial Officer.
The sales team signed 12 new distributors over the past four months, and we have achieved an improved level of productivity compared to the previous four months.
Before providing a detailed overview of our first quarter financial results, I would like to take a moment to put our results in context with respect to our rebuilding strategy. During the first quarter of 2019, we generated a positive EBITDA of $1 million, which demonstrated our continued ability to generate sufficient cash to fund our operations. We know we can achieve long-term profitability simply by cutting costs.
Therefore, our growth strategy requires that we make strategic investments in the business, which we want to accomplish from a position of financial strength. We believe we have the necessary working capital resources and support needed to position Xtant for long-term success.
Now let me comment on two important aspects of our corporate turnaround strategy. First, as noted during our last call, OrbiMed remains a dedicated investor in Xtant. Its recent commitment for an additional $10 million in debt capital has strengthened our capital structure, enhanced our financial flexibility, and further enables Xtant to build a strong foundation on which to pursue our growth and value creation strategies.
Second, we are making investments to improve our infrastructure, which includes an upgrade to the company's existing enterprise resource planning platform. We believe this upgrade will better streamline our processes, integrate our teams and enhance our operational efficiencies. More importantly, it will enable our employees to better serve our customers, which is necessary to increase sales in future periods. This project will occur in two phases, with the first phase expected to be completed in fourth quarter 2019, and the second phase completed during the first half of 2020.
Regarding the notice that we received from the NYSE, American Exchange, regarding compliance with listing requirements, we submitted a plan of compliance to the exchange prior to the May 4 deadline. Based on the plan submitted Xtant would be back in compliance with the continued listing requirements within the timeframe required by the exchange. Maintaining our NYSE American listing has been and remains a top priority for Xtant, and we're hopeful that the exchange will accept our plan.
Now let me turn to our financial results. Total revenue for the first quarter of 2019 was $16.7 million, compared to $17.9 million for the same period in 2018. The decrease in revenue was primarily due to a continued decline in spinal hardware implant sales.
Gross margin for the first quarter of 2019 was 64.6% compared to 68.2% during the first quarter of 2018. During the first quarter of 2019, the company increased its inventory reserve and an adjustment for manufacturing overhead absorption, totaling $400,000 or 2.3% of net sales. Excluding these items, gross profit margin would have been 67.6% for the first quarter of 2019.
First quarter 2019 operating expenses were $11.5 million compared to $13.9 million in the same period a year ago. First quarter 2019 operating expenses were lower, primarily due to lower sales commissions, travel expenses, and lower amortization expense.
Going forward, we expect that our sales and marketing expenses, including sales commissions, and travel expenses will increase as we focus on improving our sales performance and expanding our sales and marketing outreach.
I'd also like to note that our research and development expense of $262,000 for the first quarter of 2019 was down by approximately 37% compared with the same period in 2018. Consistent with our commitment to invest in our future new product development spend is expected to increase in the second half of 2019. We are projecting to spend approximately $1 million for the remainder of 2019.
The net loss was $2.8 million or $0.21 per share for the first quarter in 2019 compared to a loss of $5.3 million or $0.07 per share in the comparable 2018 period. Non-GAAP adjusted EBITDA for the first quarter of 2019 was $1 million compared to $1.2 million for the same period of 2018. As of March 31, 2019 we had $7.1 million of cash and cash equivalents, $9.5 million of net accounts receivable and $16.5 million of inventory and $12.2 million in availability under our credit facility.
In closing I would like to highlight that we are making progress in repositioning our Xtant, driven by sales channel and operational improvements along with the strong support of OrbiMed we believe we are on the right trajectory to achieve growth over the long-term and look forward to providing updates of our progress on future calls.
Thank you for listening and have a nice day.
Thank you, ladies and gentleman. This concludes today’s conference. We thank you for your participation. You may now disconnect your lines and have a wonderful day.
End of Q&A