Xtant Medical (XTNT) - 2025 Q2 - Quarterly Report

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projections Forward-Looking Statements and Risks This section details various factors that could impact future performance, including revenue growth, profitability, strategic execution, economic conditions, and manufacturing challenges - The report contains forward-looking statements about future expectations, hopes, beliefs, intentions, or strategies, identified by words like "anticipate," "believe," "expect," etc[9] - Key risks include the ability to increase revenue and profitability, execute strategic priorities, manage the supply chain, effects of global economic slowdown, dependence on sales agents, success of new products (e.g., Trivium™), international operations, manufacturing challenges (stem cell shortage), competition, regulatory approvals, and financial liquidity[10][11][14] - Forward-looking statements are based on current expectations, but actual results may differ materially due to risks and uncertainties, including those described in the "Risk Factors" section of the Annual Report on Form 10-K for 2024[12] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets This statement presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Assets | $103,479 | $93,837 | +$9,642 | | Total Liabilities | $54,977 | $50,874 | +$4,103 | | Total Stockholders' Equity | $48,502 | $42,963 | +$5,539 | | Cash and cash equivalents | $6,923 | $6,199 | +$724 | | Restricted cash | $114 | $22 | +$92 | | Trade accounts receivable, net | $26,951 | $20,660 | +$6,291 | | Inventories | $40,135 | $38,634 | +$1,501 | | Prepaid and other current assets | $1,466 | $1,601 | $(135) | | Total current assets | $75,589 | $67,116 | +$8,473 | | Accounts payable | $7,223 | $7,918 | $(695) | | Accrued liabilities | $10,626 | $7,771 | +$2,855 | | Current portion of lease liability | $693 | $703 | $(10) | | Current portion of finance lease obligations | $52 | $69 | $(17) | | Line of credit | $12,006 | $12,120 | $(114) | | Total current liabilities | $30,600 | $28,581 | +$2,019 | | Right-of-use asset, net | $2,634 | $829 | +$1,805 | | Long-term debt, plus premium and less issuance costs | $22,278 | $22,038 | +$240 | Condensed Consolidated Statements of Operations This statement reports the company's revenues, expenses, and net income or loss for the three and six months ended June 30, 2025 and 2024 | Metric (Three Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | :------------- | | Total Revenue | $35,411 | $29,943 | +$5,468 | +18.26% | | Product revenue | $30,436 | $29,943 | +$493 | +1.65% | | License revenue | $4,975 | $0 | +$4,975 | N/A | | Cost of sales | $11,127 | $11,361 | $(234) | -2.06% | | Gross Profit | $24,284 | $18,582 | +$5,702 | +30.68% | | Total Operating Expenses | $19,660 | $21,528 | $(1,868) | -8.68% | | Income (Loss) from Operations | $4,624 | $(2,946) | +$7,570 | N/A | | Total Other Expense | $(819) | $(879) | +$60 | -6.83% | | Net Income (Loss) from Operations Before Provision for Income Taxes | $3,805 | $(3,825) | +$7,630 | N/A | | Provision for Income Taxes Current and Deferred | $(255) | $(36) | $(219) | +608.33% | | Net Income (Loss) | $3,550 | $(3,861) | +$7,411 | N/A | | Basic Net Income (Loss) Per Share | $0.03 | $(0.03) | +$0.06 | N/A | | Dilutive Net Income (Loss) Per Share | $0.02 | $(0.03) | +$0.05 | N/A | | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------------- | | Total Revenue | $68,315 | $57,816 | +$10,499 | +18.16% | | Product revenue | $59,720 | $57,816 | +$1,904 | +3.29% | | License revenue | $8,595 | $0 | +$8,595 | N/A | | Cost of sales | $23,788 | $21,932 | +$1,856 | +8.46% | | Gross Profit | $44,527 | $35,884 | +$8,643 | +24.09% | | Total Operating Expenses | $38,840 | $42,300 | $(3,460) | -8.18% | | Income (Loss) from Operations | $5,687 | $(6,416) | +$12,103 | N/A | | Total Other Expense | $(1,849) | $(1,741) | $(108) | +6.20% | | Net Income (Loss) from Operations Before Provision for Income Taxes | $3,838 | $(8,157) | +$11,995 | N/A | | Provision for Income Taxes Current and Deferred | $(230) | $(104) | $(126) | +121.15% | | Net Income (Loss) | $3,608 | $(8,261) | +$11,869 | N/A | | Basic Net Income (Loss) Per Share | $0.03 | $(0.06) | +$0.09 | N/A | | Dilutive Net Income (Loss) Per Share | $0.02 | $(0.06) | +$0.08 | N/A | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents the net income or loss and other comprehensive income or loss components for the three and six months ended June 30, 2025 and 2024 | Metric (Three Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | | Net Income (Loss) | $3,550 | $(3,861) | +$7,411 | | Foreign currency translation adjustments | $361 | $(42) | +$403 | | Comprehensive Income (Loss) | $3,911 | $(3,903) | +$7,814 | | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Net Income (Loss) | $3,608 | $(8,261) | +$11,869 | | Foreign currency translation adjustments | $468 | $(204) | +$672 | | Comprehensive Income (Loss) | $4,076 | $(8,465) | +$12,541 | Condensed Consolidated Statements of Equity This statement details changes in stockholders' equity, including additional paid-in capital and accumulated deficit, for the six months ended June 30, 2025 | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------- | :----------------------------- | :-------------------- | | Total Stockholders' Equity | $42,963 | $48,502 | +$5,539 | | Additional Paid-In Capital | $302,738 | $304,201 | +$1,463 | | Accumulated Other Comprehensive Income (Loss) | $(316) | $152 | +$468 | | Accumulated Deficit | $(259,459) | $(255,851) | +$3,608 | - The increase in Additional Paid-In Capital is mainly due to stock-based compensation ($758k for Q1 2025, $766k for Q2 2025)[23] - Net income contributed $3.550 million for the three months ended June 30, 2025, and $58k for the three months ended March 31, 2025, reducing the accumulated deficit[23] Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Net income (loss) | $3,608 | $(8,261) | +$11,869 | | Depreciation and amortization | $2,243 | $2,003 | +$240 | | Stock-based compensation | $1,524 | $2,138 | $(614) | | Net cash provided by (used in) operating activities | $2,554 | $(10,843) | +$13,397 | | Net cash used in investing activities | $(1,460) | $(1,154) | $(306) | | Net cash (used in) provided by financing activities | $(257) | $11,613 | $(11,870) | | Net change in cash and cash equivalents and restricted cash | $816 | $(445) | +$1,261 | | Cash and cash equivalents and restricted cash at end of period | $7,037 | $5,478 | +$1,559 | - The positive change in operating cash flow is primarily attributed to the company achieving net income in the first six months of 2025, contrasting with a net loss in the comparable prior year period[111] - Financing activities shifted to a net cash outflow in 2025 due to $7.4 million of reduced net revolver borrowings compared to the prior year[113] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements (1) Business Description, Basis of Presentation and Summary of Significant Accounting Policies This note describes Xtant Medical's business, the basis of financial statement presentation, and key accounting policies, including estimates and new accounting pronouncements - Xtant is a global medical technology company focused on designing, developing, and commercializing orthobiologics and spinal implant fixation systems for spinal fusion[29] - The financial statements are prepared in accordance with GAAP, and management's estimates are crucial for items like property and equipment, goodwill, intangible assets, and valuation allowances[30][33] - The company is evaluating the impact of new ASUs: ASU No. 2023-09 (Income Tax Disclosures, effective after Dec 15, 2024) and ASU 2024-03 (Expense Disaggregation Disclosures, effective after Dec 15, 2026)[41][42] (2) Revenue This note details the company's revenue recognition policies for product sales and licensing, including the impact of a recent SimpliMax™ license agreement and CMS policy uncertainties - Product revenue is primarily generated in the U.S. through independent sales agents, with revenue recognized upon product utilization by hospitals[45][46] - Licensing revenue is recognized when control of intellectual property (IP) rights is transferred, with variable consideration (sales-based royalties) recognized when the underlying sale occurs or performance obligation is satisfied[49][50] - A license agreement for SimpliMax™ includes an upfront $1.5 million fee and guaranteed quarterly minimum royalties ($3.75 million in 2025), but future minimums beyond Q2 2025 are constrained due to uncertainty from CMS policy changes regarding reimbursement codes, with the effective date deferred to January 2026[51] | Revenue Source (Three Months Ended June 30) | 2025 (in thousands) | % of Total Revenue | 2024 (in thousands) | % of Total Revenue | | :------------------------------------------ | :------------------ | :----------------- | :------------------ | :----------------- | | Orthobiologics | $19,370 | 55% | $16,128 | 54% | | Spinal implant | $11,066 | 31% | $13,815 | 46% | | License revenue | $4,975 | 14% | $0 | 0% | | Total revenue | $35,411 | 100% | $29,943 | 100% | | Revenue Source (Six Months Ended June 30) | 2025 (in thousands) | % of Total Revenue | 2024 (in thousands) | % of Total Revenue | | :---------------------------------------- | :------------------ | :----------------- | :------------------ | :----------------- | | Orthobiologics | $37,444 | 55% | $31,544 | 55% | | Spinal implant | $22,276 | 33% | $26,272 | 45% | | License revenue | $8,595 | 12% | $0 | 0% | | Total revenue | $68,315 | 100% | $57,816 | 100% | (3) Receivables This note outlines the company's policy for estimating and recognizing the provision for current expected credit losses on trade accounts receivable - The provision for current expected credit loss is determined by historical collection experience and current economic conditions[53] - Account balances are charged to the allowance when collection is remote, and provisions are expensed[53] (4) Inventories This note provides a breakdown of inventory components, including raw materials, work in process, and finished goods, as of June 30, 2025, and December 31, 2024 | Inventory Component (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Raw materials | $5,443 | $6,622 | | Work in process | $3,445 | $2,812 | | Finished goods | $31,247 | $29,200 | | Total Inventories | $40,135 | $38,634 | (5) Property and Equipment, Net This note details the composition of property and equipment, net, and associated depreciation expense for the reported periods | Asset Category (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Equipment | $7,436 | $7,239 | | Computer equipment | $1,311 | $1,254 | | Computer software | $361 | $361 | | Leasehold improvements | $4,413 | $4,356 | | Surgical instruments | $17,326 | $15,798 | | Assets not yet in service | $774 | $960 | | Total cost | $31,621 | $29,968 | | Less: accumulated depreciation | $(21,174) | $(19,837) | | Property and equipment, net | $10,447 | $10,131 | - Depreciation expense for property and equipment increased to $0.8 million for the three months ended June 30, 2025 (from $0.5 million in 2024) and to $1.4 million for the six months ended June 30, 2025 (from $1.1 million in 2024)[55] (6) Intangible Assets This note provides a breakdown of intangible assets, including patents, customer lists, and tradenames, along with their amortization expense | Intangible Asset (in thousands) | Weighted Average Life | Cost | Accumulated Amortization | Net (June 30, 2025) | Net (December 31, 2024) | | :------------------------------ | :-------------------- | :--- | :----------------------- | :------------------ | :---------------------- | | Patents | 11 years | $2,777 | $(1,086) | $1,691 | $1,829 | | Customer List | 6 years | $8,000 | $(3,111) | $4,889 | $5,555 | | Tradenames | 10 years | $1,190 | $(278) | $912 | $972 | | Total | | $11,967 | $(4,475) | $7,492 | $8,356 | - Amortization expense was $0.5 million for both three-month periods ended June 30, 2025 and 2024, and $0.9 million for both six-month periods ended June 30, 2025 and 2024[56] (7) Accrued Liabilities This note details the components of accrued liabilities, highlighting increases in cash compensation/commissions payable and other accrued liabilities | Accrued Liability (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Cash compensation/commissions payable | $6,833 | $5,565 | | Other accrued liabilities | $3,793 | $2,206 | | Total Accrued Liabilities | $10,626 | $7,771 | (8) Debt This note describes the company's term loan and revolving line of credit, including effective interest rates, available credit, and compliance with debt covenants | Debt Component (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Amounts due under the term loan | $22,000 | $22,000 | | Accrued end-of-term payments | $649 | $465 | | Less: unamortized debt issuance costs | $(371) | $(427) | | Long-term debt, less issuance costs | $22,278 | $22,038 | - The effective rate of the term loan was 13.23%, and the revolving line of credit was 8.94% as of June 30, 2025[58] - As of June 30, 2025, the company had $5.0 million available under its revolving line of credit and was in compliance with all covenants under its credit agreements[58][118] - On April 9, 2025, credit agreements were amended to increase the common stock ownership threshold for a change in control from 40% to 49.9% to accommodate the sale of common stock from OrbiMed[59] (9) Stock-Based Compensation This note details stock-based compensation expense for various equity awards and the unrecognized compensation expense for unvested awards - Total stock-based compensation expense recognized for employees and directors was $0.8 million for the three months ended June 30, 2025 (down from $1.2 million in 2024) and $1.5 million for the six months ended June 30, 2025 (down from $2.1 million in 2024)[62] - As of June 30, 2025, unrecognized compensation expense for unvested stock options was approximately $0.6 million (expected over 2.0 years), for RSUs/DSUs was $3.2 million (expected over 2.6 years), and for PSUs was $1.4 million (expected over 1.7 years)[63][64][66] | Metric | 2025 Shares | 2025 Avg. Exercise Price | 2024 Shares | 2024 Avg. Exercise Price | | :---------------------- | :---------- | :----------------------- | :---------- | :----------------------- | | Outstanding at January 1 | 3,925,403 | $1.29 | 4,875,828 | $1.31 | | Granted | — | — | — | — | | Cancelled or expired | (164,931) | $1.19 | (156,243) | $1.03 | | Outstanding at June 30 | 3,760,472 | $1.30 | 4,719,585 | $1.32 | | Exercisable at June 30 | 3,006,140 | $1.35 | 2,313,011 | $1.46 | | Metric | 2025 Shares | 2025 Avg. Fair Value at Grant | 2024 Shares | 2024 Avg. Fair Value at Grant | | :---------------------- | :---------- | :---------------------------- | :---------- | :---------------------------- | | Outstanding at January 1 | 5,455,472 | $0.90 | 3,524,675 | $1.07 | | Granted | — | $0.98 | 2,641,549 | $0.98 | | Vested | (386,624) | $0.91 | (142,327) | $0.67 | | Cancelled | (34,197) | $0.98 | (155,668) | $1.03 | | Outstanding at June 30 | 5,034,651 | $0.90 | 5,868,229 | $1.04 | (10) Warrants This note provides information on outstanding and exercisable warrants to purchase common stock, including their exercise price and remaining contractual term - As of June 30, 2025, 12,237,470 warrants were outstanding and exercisable, with a weighted average exercise price of $1.53 per share and a weighted average remaining contractual term of 1.3 years[67] (11) Related Party Transactions This note describes the sale of OrbiMed's shares, the termination of the Investor Rights Agreement, and the new significant ownership by Nantahala Capital Management, LLC - OrbiMed, which previously owned 52.6% of the company's common stock, sold all its shares in April 2025[68] - Nantahala Capital Management, LLC became the lead purchaser in the private secondary resale transaction, now holding 49.1% of the company's issued and outstanding common stock[68] - The sale of OrbiMed's shares resulted in the termination of the Investor Rights Agreement, and the company entered into a registration rights agreement with the purchasers to register the resale of shares[68] (12) Commitments and Contingencies This note outlines the company's operating lease commitments and potential liabilities from government regulations, claims, and legal actions - The company has non-cancelable operating lease agreements for facilities and equipment, with a weighted-average remaining lease term of 2.8 years as of June 30, 2025[69][71] | Period | Amount (in thousands) | | :-------------------------- | :-------------------- | | Remainder of 2025 | $624 | | 2026 | $730 | | 2027 | $611 | | 2028 | $594 | | 2029 | $592 | | Thereafter | $335 | | Total future minimum lease payments | $3,486 | | Less: amount representing interest | $(778) | | Present value of obligations under operating leases | $2,708 | - The company is subject to potential liabilities from various claims and legal actions, assessing contingencies to accrue estimated losses when probable and reasonably estimable, though litigation outcomes are inherently unpredictable[73] (13) Income Taxes This note details income tax expense, effective tax rates, and the impact of a valuation allowance against deferred tax assets, including the evaluation of new tax legislation | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense from continuing operations | $255 | $36 | $230 | $104 | | Income (loss) from continuing operations before income taxes | $3,805 | $(3,825) | $3,838 | $(8,157) | | Effective income tax rate | 6.7% | -1.0% | 6.0% | -1.3% | - The effective tax rate differs from the statutory rate primarily due to a valuation allowance against deferred tax assets, offset by cash state and foreign taxes[74][75] - The company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA) signed on July 4, 2025, but does not anticipate a material change to its effective income tax rate or net deferred federal income tax assets due to maintaining a full valuation allowance[77] (14) Net Income (Loss) Per Share This note presents basic and diluted net income (loss) per share calculations, including the impact of dilutive securities | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $3,550 | $(3,861) | $3,608 | $(8,261) | | Basic – weighted average shares outstanding | 139,310,589 | 130,269,710 | 139,190,378 | 130,291,796 | | Effect of dilutive securities: Employee restricted stock units and deferred stock units | 4,011,541 | — | 3,896,933 | — | | Effect of dilutive securities: Warrants | 5,252,112 | — | 5,252,112 | — | | Diluted – weighted average shares outstanding | 148,574,242 | 130,269,710 | 148,339,423 | 130,291,796 | | Basic earnings (loss) per share | $0.03 | $(0.03) | $0.03 | $(0.06) | | Diluted earnings (loss) per share | $0.02 | $(0.03) | $0.02 | $(0.06) | - For the three and six months ended June 30, 2024, shares underlying stock options, restricted stock units, deferred stock units, and warrants were excluded from diluted EPS calculation as they were anti-dilutive due to net losses[78][79] (15) Supplemental Disclosure of Cash Flow Information This note provides additional cash flow details, including cash interest paid and non-cash activities related to right-of-use assets and lease liabilities | Item | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Cash paid during the period for: Interest | $1,760 | $774 | | Non-cash activities: Increase in right of use assets and lease liability | $2,107 | $0 | (16) Segment and Geographic Information This note clarifies that the company operates as a single reportable segment and provides a breakdown of revenue by geographic area - The company operates as one reportable and operating segment, with the CEO using consolidated net income (loss) as the primary performance measure[81] | Geographic Area (Three Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | | :------------------------------------------- | :------------------ | :------------------ | | United States | $32,133 | $26,276 | | Rest of world | $3,278 | $3,667 | | Total revenue | $35,411 | $29,943 | | Geographic Area (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | | :------------------------------------------- | :------------------ | :------------------ | | United States | $62,250 | $51,409 | | Rest of world | $6,065 | $6,407 | | Total revenue | $68,315 | $57,816 | - Approximately 91% of total revenue for both the three and six months ended June 30, 2025, was generated in the United States[82] (17) Subsequent Event This note details the company's agreements to sell its Coflex/CoFix Business and international hardware business to Companion Spine, LLC, including terms and contingencies - On July 7, 2025, the company agreed to sell its Coflex/CoFix Business in the U.S. to Companion Spine, LLC for $17.5 million, including a $2.5 million non-refundable cash deposit and an $8.2 million unsecured promissory note due December 31, 2025[83][96] - Concurrently, the company agreed to sell its international hardware business, Paradigm Spine GmbH, to Companion for $1.7 million[84][97] - Both transactions are contingent on each other and the buyer obtaining financing, with an expected closing in the third quarter of 2025, subject to potential delays or termination[85][98] - MidCap, the company's lender, consented to the transactions, requiring a $9.6 million prepayment from the proceeds[87][101] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section discusses the company's financial performance, strategic developments, and liquidity for the three and six months ended June 30, 2025 Business Overview This overview describes the company's focus on regenerative medicine and medical devices, its market strategy, growth initiatives, and potential impacts of CMS policy changes - The company develops, manufactures, and markets regenerative medicine products and medical devices, including orthobiologics for bone healing and spinal implant fixation systems[90] - Products are promoted in the U.S. through independent distributors and stocking agents, with access to IDNs and GPOs, and internationally through direct sales and distribution partners in Europe, Canada, Mexico, South America, Australia, and Pacific regions[91] - Four key growth initiatives include introducing new products (Trivium™, Cortera, OsteoVive Plus, SimpliGraft™, SimpliMax™), expanding distribution, penetrating adjacent markets, and leveraging growth with technology and strategic acquisitions[92] - The company entered into license agreements for SimpliGraft® and SimpliMax™ products, but potential CMS policy changes for 2026 could significantly impact reimbursement for cellular and tissue-based products[94] Recent Developments This section highlights the company's recent agreements to sell its Coflex/CoFix Business and international hardware business, including transaction terms and lender requirements - On July 7, 2025, Xtant agreed to sell its Coflex/CoFix Business in the U.S. to Companion Spine, LLC for $17.5 million, including a $2.5 million non-refundable deposit and an $8.2 million unsecured promissory note[96] - Simultaneously, Xtant agreed to sell its international hardware business, Paradigm Spine GmbH, to Companion for $1.7 million[97] - Both transactions are contingent on each other and the buyer obtaining financing, with an expected closing in Q3 2025, but no assurance of timely completion[98] - MidCap, the company's lenders, provided consent to the transactions, requiring a $9.6 million prepayment from the proceeds[101] Results of Operations This section analyzes the company's revenue, cost of sales, gross profit, and operating expenses for the three and six months ended June 30, 2025 and 2024 Revenue This analysis details the increase in total revenue, primarily driven by higher orthobiologics sales and significant license revenue | Period | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Increase (millions) | % Increase | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------ | :--------- | | Three Months Ended | $35.4 | $30.0 | $5.4 | 18% | | Six Months Ended | $68.3 | $57.8 | $10.5 | 18% | - Revenue increases were primarily attributed to higher orthobiologics sales and $5.0 million (three months) and $8.6 million (six months) in licensing revenue[102] Cost of Sales This analysis explains the changes in cost of sales, attributing them to reduced product costs from internal production and higher revenue | Period | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Three Months Ended | $11.2 | $11.4 | $(0.2) | | Six Months Ended | $23.8 | $21.9 | $1.9 | - The decrease in cost of sales for the three-month period was due to reduced product costs from transitioning to internal production, partially offset by higher revenue[103] - The increase for the six-month period was primarily due to greater revenue in the current year[103] Gross Profit This analysis highlights the significant increase in gross profit percentage due to favorable sales mix, greater scale, improved production efficiency, and reduced product costs | Period | June 30, 2025 | June 30, 2024 | Increase (basis points) | | :-------------------------- | :------------ | :------------ | :---------------------- | | Three Months Ended | 68.6% | 62.1% | 650 bps | | Six Months Ended | 65.2% | 62.1% | 310 bps | - For the three-month comparison, 460 basis points of the increase were due to sales mix, greater scale, and improved production efficiency, and 110 basis points were due to reductions in product cost[104] - For the six-month comparison, 280 basis points were due to sales mix and greater scale, and 100 basis points were due to reductions in product cost[104] General and Administrative This analysis details the decrease in general and administrative expenses, primarily due to reduced stock-based compensation and audit fees, partially offset by increased legal fees | Period | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (millions) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Three Months Ended | $7.5 | $7.7 | $(0.2) | -3% | | Six Months Ended | $15.0 | $15.5 | $(0.5) | -3% | - The three-month decrease was mainly due to $0.5 million reduced stock-based compensation, partially offset by $0.3 million additional legal fees related to the Companion transactions[105] - The six-month decrease was primarily due to $0.6 million reduced stock-based compensation and $0.3 million reduced audit fees, partially offset by $0.4 million additional legal fees for the Companion transactions[105] Sales and Marketing This analysis explains the decrease in sales and marketing expenses, mainly due to reduced commission expense from revenue mix and lower compensation expense | Period | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (millions) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Three Months Ended | $11.6 | $13.2 | $(1.6) | -12% | | Six Months Ended | $22.9 | $25.6 | $(2.8) | -11% | - The three-month decrease was primarily due to $1.5 million reduced commission expense (revenue mix) and $0.7 million reduced compensation expense (headcount), partially offset by $0.9 million additional consulting fees[106] - The six-month decrease was primarily due to $2.3 million reduced commission expense (revenue mix) and $1.3 million reduced compensation expense (headcount), partially offset by $1.4 million additional consulting fees[106] Research and Development This analysis shows the consistency in research and development expenses for the three-month period and a slight decrease for the six-month period | Period | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Three Months Ended | $0.6 | $0.6 | $0.0 | | Six Months Ended | $1.0 | $1.2 | $(0.2) | Interest Expense This analysis details the stability of interest expense for the three-month period and an increase for the six-month period due to additional borrowings | Period | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Three Months Ended | $1.0 | $1.0 | $0.0 | | Six Months Ended | $2.0 | $1.8 | $0.2 | - The increase for the six-month comparison resulted primarily from additional borrowings on the revolving line of credit and a $5.0 million borrowing under the term credit agreement in May 2024[108] - Annualized interest expense is expected to increase by approximately $0.1 million for every 25 basis points increase in the reference rate associated with credit agreements[108] Provision for Income Taxes Current and Deferred This analysis attributes the increase in income tax expense to higher cash state taxes for both the three and six months ended June 30, 2025 - The increase in income tax expense for both the three and six months ended June 30, 2025, compared to the prior year periods, was primarily due to an increase in cash state taxes in 2025[109] Liquidity and Capital Resources This section assesses the company's working capital, cash flows, debt facilities, and future cash requirements Working Capital This analysis details the increase in net working capital, driven by a rise in current assets exceeding current liabilities | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :---------------------- | :--------------------------- | :------------------------------- | :-------------------- | | Total current assets | $75,589 | $67,116 | +$8,473 | | Total current liabilities | $30,600 | $28,581 | +$2,019 | | Net working capital | $44,989 | $38,535 | +$6,454 | Cash Flows This analysis highlights the significant improvement in operating cash flow, changes in investing activities, and a shift in financing activities - Net cash provided by operating activities for the first six months of 2025 was $2.6 million, a significant improvement from net cash used of $10.8 million in the comparable prior year period, primarily due to net income[111] - Net cash used in investing activities increased to $1.5 million for the first six months of 2025, up from $1.2 million in 2024, mainly due to increased purchases of property and equipment[112] - Net cash used in financing activities was $0.3 million for the first six months of 2025, a shift from $11.6 million provided in 2024, primarily due to $7.4 million of reduced net revolver borrowings[113] Term Loan and Revolving Credit Facilities The company maintains a $22.0 million Term Facility and a Revolving Facility allowing up to $17.0 million, with $12.0 million outstanding and $5.0 million available as of June 30, 2025. Both facilities mature on March 1, 2029, are secured by company assets, and the company was in compliance with all covenants as of the reporting date - The company has a Term Facility of $22.0 million and a Revolving Facility allowing borrowings up to $17.0 million, with $12.0 million outstanding and $5.0 million available as of June 30, 2025[114][115][116] - The facilities mature on March 1, 2029, and are secured by first-priority liens on substantially all company assets[116] - Interest rates are SOFR plus an applicable margin (6.50% for Term, 4.50% for Revolving), with a 2.50% floor. Effective rates as of June 30, 2025, were 13.23% for the Term Facility and 8.94% for the Revolving Facility[117] - The company was in compliance with all covenants, including minimum net product revenue and liquidity levels, as of June 30, 2025[118] Cash Requirements This section outlines the company's assessment of its ability to meet future cash requirements and potential needs for additional financing - The company believes its $7.0 million cash and cash equivalents, anticipated operating cash flows, and available credit facilities will be sufficient to meet cash requirements through at least August 2026[120] - The company may seek additional financing before August 2026 if market conditions are favorable, through equity, debt, or strategic transactions, but there's no assurance of securing funds on acceptable terms[121] - Raising additional capital could dilute current stockholders, introduce discounted equity purchase prices, warrants, or liquidation preferences, or impose new debt covenants[122] Critical Accounting Estimates This section confirms that there have been no changes in the company's critical accounting estimates for the reported period - There have been no changes in the company's critical accounting estimates for the six months ended June 30, 2025, compared to those described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[123] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Xtant Medical Holdings, Inc. is exempt from providing detailed quantitative and qualitative disclosures about market risk - As a smaller reporting company, Xtant Medical Holdings, Inc. is exempt from providing quantitative and qualitative disclosures about market risk[124] ITEM 4. CONTROLS AND PROCEDURES This section addresses the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of June 30, 2025 Limitations on Effectiveness of Controls and Procedures This section acknowledges that controls and procedures can only provide reasonable assurance due to inherent limitations and the need for judgment - Management recognizes that any controls and procedures, regardless of design, can only provide reasonable assurance of achieving desired control objectives due to resource constraints and the need for judgment in evaluating benefits versus costs[125] Evaluation of Disclosure Controls and Procedures This section confirms that management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of June 30, 2025 - As of June 30, 2025, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective in providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[126] Changes in Internal Control over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during the three months ended June 30, 2025 - There were no changes in internal control over financial reporting during the three months ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[127] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS Information regarding the company's legal proceedings is incorporated by reference from Note 12, "Commitments and Contingencies" - Legal proceedings are discussed in Note 12, "Commitments and Contingencies," of the condensed consolidated financial statements[128] ITEM 1A. RISK FACTORS This section discloses new risk factors related to the pending asset sales and the significant ownership by Nantahala Capital Management, LLC - New risk factors are disclosed despite the company being a smaller reporting company, supplementing those in the 2024 Form 10-K[129] - Risks associated with the pending sale of Coflex/CoFix Business and international hardware business include delays/termination (e.g., buyer financing), diversion of management, potential loss of key employees/partners, adverse impact if transactions fail or don't meet expectations, higher transaction costs, and the buyer's potential default on the $8.2 million promissory note[129][132] - Nantahala Capital Management's 49.1% ownership allows it to exert significant control over stockholder-approved matters, potentially preventing other stockholders from influencing corporate decisions and affecting the common stock's market price[130] - The sale or availability of substantial amounts of common stock, or the perception thereof, could adversely affect the market price and the company's ability to raise future capital, potentially leading to delisting if the price drops too low[131] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This item is not applicable to the company for the reporting period - This item is not applicable[133] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the company for the reporting period - This item is not applicable[134] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company for the reporting period - This item is not applicable[135] ITEM 5. OTHER INFORMATION This section confirms that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[136] ITEM 6. EXHIBITS This section lists all exhibits filed or furnished with the Quarterly Report on Form 10-Q, including asset purchase agreements, equity purchase agreements, registration rights agreements, credit agreement amendments, and certifications - The report includes various exhibits such as Asset Purchase Agreement (Coflex/CoFix), Equity Purchase Agreement (Paradigm), Registration Rights Agreement, and amendments to Credit, Security and Guaranty Agreements[137][138] - Certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act are also filed[138] SIGNATURES This section contains the official signatures of the company's President and Chief Executive Officer and Chief Financial Officer Report Signatures This section contains the official signatures of the company's President and Chief Executive Officer, Sean E. Browne, and Chief Financial Officer, Scott C. Neils - The report is signed by Sean E. Browne, President and CEO, and Scott C. Neils, CFO, on August 12, 2025[141]