Everyone, and welcome to this year's Canaccord Genuity Growth Conference. My name is Caitlin Cronin, and I'm one of the medical device analysts here at Canaccord Genuity. Xtant Medical is with us today, and they are a diversified orthobiologics and spinal hardware player. We're very pleased to be joined today by Sean Browne, CEO, and Scott Neal, CFO. Before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and our firm website. We'll begin with a brief presentation by the Xtant team, followed by a fireside chat, and I'll try to leave a couple minutes at the end for any questions from the audience. So with that, I'll hand it over to Sean.
Great. Thank you, Caitlin. Appreciate it. I'm gonna go through these slides fairly quickly, so I can give enough time for the chat and other things, but we'll go quickly, so promise. As Caitlin said, you know, we are a company focused on design, development, and commercialization of orthobiologics and spinal implant systems. What we're gonna show you today is really a company that's fast-growing, for this year will be over 30% growth, last year, 58% growth. Highly, highly scalable business, so one of the things you're gonna hear me continue to talk about is our platform for growth.
When you look at the market opportunity we have, just within the spine world, is over a $10 billion opportunity, but more, and we'll talk about this, some of the other verticals that we start touching within our OEM and other future orthobiologic opportunities are in the tens of billions of dollars. So we have a very, very, significant opportunity market-wise. We have an established and growing distribution network, so before the last couple of speakers of you were here, talked about access. We have every major GPO. We have over 450 IDNs. We've about 90% of the beds covered in America today. Second, we are. The other big piece of this is that we have over 650 distributors that are out there today, that sell our products.
Then when you flip over to profitability, we've gone five straight consecutive quarters of Adjusted EBITDA growth, with an eye on in Q4 of being cash flow positive or operating cash flow positive. Then last but not least, there's a real opportunity for us to really get to scale through acquisition, and there's a number of opportunities that we talk fairly regularly about with respect to the funnel that we have on our acquisition targets. When you look at the breakup of our business, our breakout of our business is about two-thirds biologics, one-third spinal fixation and spinal hardware business. When you look at the history of where the business has been, Xtant came into being with a merger between X-Spine Systems and Bacterin International. Unfortunately, the acquisition didn't go so well, and so for many years, the company struggled.
In 2019, a new management team was brought in. We were brought in to fix the business. In 2020, part of what helped us fix the business after we got it fixed was also that OrbiMed converted their debt to equity. Then in 2022, we brought in a fantastic, new, and dynamic chairman in way of Stavros Vizirgianakis. So if any of you know Stavros, he's done just wonderful things, and he really helped kickstart our business in many ways as well. Then last year, and we'll talk a little bit about this, we acquired three separate businesses. One was Coflex, a division of Surgalign, then we bought the rest of Surgalign, and then we bought Nanoss, which was a product line that Surgalign had done, but they didn't have the production rights.
And so we got all three of those businesses last year, and they've been instrumental in our growth and where we're going in the future. So when you think about our growth, what we've been able to do over time, as I mentioned, we got here in 2019 or the end of 2019, but even through COVID, we were able to grow, get the business going in the right direction, and now we're starting to get to really some hyper-growth of where just the business is heading. When you look at the market opportunity, just from the spine perspective, is about a $10 billion market internationally. And I'm happy I can talk about international because we have a really nice international business that I'll talk about in our platform for growth.
Breaking that down further domestically, about an $8 billion opportunity, and we are looking really where we, really do well is in the orthobiologics space, which is about a $2.4 billion space. That $2.4 billion space is actually broken into five separate categories, and we're one of the few guys that can hit all five of those areas. And so from our side, this is a real strength for us because it allows us to be in so many other guys' bags. For instance, if there is a major player out there, and they don't have a growth factor product, we have a growth factor product. So there's different things that we can offer, many of our different surgeons and our distributors that we work with.
When you look at the transition of our business, and this is a big, big key part to where we're going, is that for the longest time, this business made these low-end, it's called demineralized bone and allograft products, products that were in the 50%-60% gross margin range, lower end, lower price, too. Well, over the course of time, we started adding these other products, like a synthetic, a growth factor, viable bone matrix. We added all of these to our bags, but we were distributing those products. One of the things that you've heard, if you've been following our story at all, is that we've run into various supply chain issues. So as a business, we said, "We can't rely on other people.
We've got to be self-sustaining." And so in that, we've now rolled out an amnio product, which I'm really excited about, and I'll talk a little bit more about that in a minute. We bought the synthetics production, and so that's now an 80%+ margin product, as is amnio, which is when we sell it, it's over 90%. As an OEM product, it's 65%-70% contribution margin. Viable bone matrix, we're producing that this quarter, so really, really, really great stuff that we've got going on there. And, and hopefully very soon, we'll also have our own growth factor product that we'll be making ourselves.
So when you look at the transition of this business, it's not just a matter of what we're doing in way of making sure that we're ensuring that we have our own supplies and that we're not relying on other people. It's also the margin profile for this business is gonna change and change fairly dramatically over the course of the next couple of years. So when you think about us from a biologics perspective, we serve, and this is the great thing about being a tissue bank, a 13485 tissue bank, too, because having that 510(k) being able to make 510(k) products is really, really important as we start thinking about these other verticals that we currently touch. So today, we already touched sports medicine with what we do with our tendons.
With our Amnio product that we just rolled out back in March, we now are serving the wound care market. We will be serving some sports medicine opportunities as well, as well as the surgical repair side. With what we bought with our Nanoss product line, the core elements of that was a product called E-Matrix. E-Matrix now pulls us into more surgical repair, pulls us into the hemostatic biologics, and also, eventually, the antimicrobial biologics as well. So really, a number of really cool opportunities that most of these, when we think about these other verticals, will be things that we'll be doing from an OEM perspective. But there are things with our contract portfolio and our access to IDNs will allow us to go direct in certain cases. So when you think about our platform for growth, it really comes in three different buckets.
Bucket number one is contract access. If you don't have contract access, you just, you're not gonna sell anything, right? So this is something, as I mentioned, we have about 90% of the beds in, in America covered today. When you look at the next piece of this, what is our reach? What is the distribution reach we have today? So we have over 650 distributors that sell our products domestically, but then also, part of our Surgalign acquisitions, we picked up an international distribution business based in Germany.
And the reason why that's important and why it's got such great prospects is that once we get the, and I'll talk about supply chain, supply chain squared away there, because we have products that are already MDR accredited, if you will, or I should say, certified, we have a bunker in a place where everybody else is running from. I mean think about small, medium, even large, companies are no longer selling into the EU. We actually acquired this, and it's actually been a really nice upside, and we think it's gonna have great upside in the years to come.
Then you think about our expanding capabilities, not only what we're doing and expanding what we're doing from a production perspective, but when you also look at the managed care, I think managed care, just the capabilities that we acquired when we brought on Coflex, that's a strength that I think over the course of time will serve us well as we look at other verticals, as well as we look at what's happening within spine today. Then last but not least, I can't emphasize this enough, is that the less invasive motion preservation, or I should say the motion preservation systems that we acquired, are ones that I think are going to make a difference in the years to come. You know, when you think about fixation, that's literally the standard of care.
You think about in any other part of orthopedic care, would you ever fuse a knee? Would you ever fuse a hip? Would you ever fuse a shoulder? No, you wouldn't. So with what we have here are things that actually maintain motion, allow patients to live a more a fulfilled life and not have to worry about things like Adjacent Level Syndrome. So next thing, when we think about our growth strategy, our growth strategy is really based on these four key pillars. One, every great company that is successful has a terrific new product flow. Second big thing, they gotta have access, and they gotta be able to reach, and so that's part of where we talked about expanding our reach and our distribution network.
Three, addressing these adjacent levels or adjacent segments that I should say, that are next to our markets, so including other verticals that we touched on. And then last but not least, M&A activity, 'cause M&A activity is the part that allows us to really get to that next level and way of scale. So when we think about M&A opportunities, we're looking for those things within the three Cs. And the three Cs, again, start with capabilities, anything that's gonna help us with respect to not only from what we do from a fusion or a motion preservation side, but also what we do on a biologics side. Capacity. As we look down the path, we know that we're gonna need more space with where we're doing our production, so capacity is important. And then last but not least, cash flows.
We wanna make sure that we're buying these companies, that right away, they're gonna help propel us to more profits, and ultimately, whether it be through synergies or as a profitable company already, we wanna make sure that there is some synergistic element to that. So last but not least, and I guess this is where I would end it on before our questions, is if you think about, especially where our stock is today, we are, without a doubt, probably the best value stock here in, at this conference. But if you think about what we've got lined up, strategically, we're leaning forward in the right ways. Operationally, we've proven that we can, we can actually turn a business around and get it going the way it needs to go. And then financially, we're growing fast.
We've got a line of sight on profitability, and you look at our margin profile over the next couple of years, it's gonna be improving considerably. Okay, those are my comments. Caitlin, I'll bring it back to you.
Great. Thanks, Sean. Maybe just starting with the Q2, given you released results last week, what do you want investors to understand coming out of these results and how you're positioned going forward?
Yeah, first and foremost, the first half of the year, which I had signaled, was gonna be rough because of supply chain challenges with the Surgalign acquisition. Also, just again, some of the headwinds we saw with our stem cell business. So the fact that we came out in the first half, ahead of analysts' expectations and ahead of where we needed to be, I'm thrilled. We again, Adjusted EBITDA positive, line of sight on cashflow, operating cashflow positive in the fourth quarter, feeling very good about where we are in Q2. And did I mention we're an unbelievable value stock at this point in time? I just wanna keep- Might come up three more times.
That's okay. You also reaffirmed your guidance of 27%-31% growth for the full year, and how do you expect that cadence of revenue to trend in the second half?
Yeah, I'll throw that over to Scott.
Sure. You know, I think when we look forward to Q3, typically we see a seasonally softer Q3. But even in spite of that, with the Amnio launch, we should see modest growth. And then as we move into Q4, I think we'll see a really strong finish, with the lion's share of the growth there for the contributions in Amnio, stem cells, and also the Cortera launch.
Great. Well, just going off of that, I wanted to jump onto spinal hardware. You know, you acquired the Surgalign assets last year. Can you just talk about what really came with these assets, from an, you know, hardware standpoint, but also from a distribution standpoint, and, the also the cannibalization that has occurred-
Sure
... really since you've launched those products versus your, you know, your older products, but why that's important going forward?
Yeah. You know, it's kind of goes back in time. So the X-Spine systems were one—first of all, it was a very good product line in 2015, when the deal was originally done. Unfortunately, just over time, there was decisions, strategic decisions not to upgrade those in any way. So by buying the Surgalign product line, it gave us a brand-new, and recently updated, too, they've done a good job of staying on top of their product lines. They gave us a new adult degenerative, great, full line, spine fixation business, which was outstanding. It's been very good. It's helping us replace a lot of that old X-Spine. Now, I say that, but there's a couple of lines that we have within the X-Spine product line that are still outstanding.
An SI fusion product called Silex, and we got an interspinous process device product, which again, Axle is still, like, one of our, our number one selling products. When you couple that with Coflex, which is another one of the acquisition pieces, these are a really potent offering to the ambulatory surgery center market. So when you look at it from that perspective, it's been great. And then, of course, as I mentioned, the international acquisitions, or at least the Paradigm Spine acquisition is what it's called, has been outstanding because they have 3 different motion preservation technologies, of which we plan on bringing at least one here to the United States, that I think is absolutely outstanding, that has over 10 years of outstanding data showing how much it's better than fusion.
And so, so we're really, really excited about that particular, those particular assets.
That's great. And Scott, you mentioned the Cortera launch. You guys have the open application out now, MIS expected at NASS. How significant of a growth contributor do you think this product will be going forward?
I think it'll be significant. I mean, I think it ought to double really what we're seeing coming out of Cortera now. So it'll be a big, big driver in Q4.
And giving us a lot of tailwinds for 2025 and beyond.
Mm-hmm.
Yeah.
That's great. And then just, moving to the biologics business, you know, you mentioned that you're the only biologics company with a complete line of ortho biologics. You know, how important is this to penetrating the distributors that you already work with, and also in attracting new distributors?
Right. You know, when you think about just having a full line of things, I know, just, for instance, some of the guys we work with are one of the big, you know, the big four, right? When you think about the guys in the spinal hardware side, almost none of them, other than Medtronic, has a growth factor product, for instance. We're able to sell that to those guys, for instance, or having an allograft product, which a lot of guys don't carry anymore because it's, it's not necessarily something that a lot of people have. And so being able to be a full complement, and then when you throw Amnio on top of it, which is, again, something that is used in surgical... like, for instance, in spine cases, we have about-- this is a million-dollar product line for us today.
That's a product line that actually is used when people are trying to protect arteries or nerves, and so they'll actually use our Amnio layer or Amnio product to protect before a surgeon will be going, let's say, an anterior approach. And so it is a very nice addition. So when you have the full complement of all these product lines, it just gives you more reason to be in the operating room.
Mm-hmm. And you know, you also touched earlier on your move more broadly to internally produced products, and particularly stem cell-based products. How does this move benefit your margins and your bottom line? And what's the pace that we can expect the transition to, you know, the internally produced stem cell products, both for, you know, your own business as well as your, your OEM business?
Sure.
Yeah. I mean, Sean showed the slide on the transformation of our gross margin profile, and I think particularly on the gross margin side, as we start selling that through our distribution channel, we see gross margins in 2025 going from low 60s% to mid-60s%, up into high to, you know, even approaching 70% in 2026. And then as we bring that down to the bottom line, Sean also talked about a scalable platform for growth. So we don't see much needing to change within our infrastructure to facilitate that. So we see, you know, increase in leverage to the point where in 2025, we start approaching operating income, and then in 2026, net income.
Mm-hmm.... That's great. You know, and along with the Q2 results, you also announced a private placement.
Yeah.
You know, what do you anticipate using the proceeds for, and why was it a good time now for this transaction?
You know, it was good timing. We wanted to put more cash on our balance sheet. It was opportunistic. It allows us to get us at a minimum to an inflection point. So, and then, you know, from there, as we're operating cash flow positive, we'll see what we have to do at that point in time, too. But for the most part, it was opportunistic, and we thought it was a good time to do it.
That's great. Any questions from the audience? Okay. Well, guys, if I would love if you could leave the team here, you know, with some insights about why Xtant is a great asset and a great investment, and where you expect, you know, to see your trajectory going forward.
Sure. So where I would, again, look at where we've come from, what we've been able to do, how we've performed to what we've said. So operationally, I think we're again, we're leaning forward. We're doing the things that we said we were going to be doing. When you look at our growth right now, we're expecting this growth, you know, today, when we think about 2025 and 2026 and beyond, still mid-double-digit type of growth, improved margin profile. Right now, I'm thrilled that we got through this first half of the year, fighting through the supply challenges that we have. We've gotten through most of them. There's still a few that's hanging around, but for the most part, we finally are getting the winds, not in our face, but actually in our sails.
And so I would tell you that if you look at our stock price today, and you look at what our traditionally our price has been over time, never mind what our intrinsic value should be, I think we're a hell of a deal right now. So I think I've put that plug in three times now, so.
We got it all in.
Excellent.
Okay, great. Thank you guys so much. I think we'll end it there.
Great. Thank you.
Thank you.
Appreciate it.
... We'll begin with a brief presentation by the Xtant team, followed by a fireside chat. I'll try to leave a couple minutes at the end for any questions from the audience. So with that, I'll hand it over to Sean.
Great. Thank you, Caitlin. Appreciate it. I'm gonna go through these slides fairly quickly, so I can give enough time for the chat and other things, but we'll go quickly, so promise. As Caitlin said, you know, we are a company focused on design, development, and commercialization of orthobiologics and spinal implant systems. What we're gonna show you today is really a company that's fast-growing. For this year, we'll be over 30% growth, last year, 58% growth. Highly, highly scalable business, so one of the things you're gonna hear me continue to talk about is our platform for growth.
When you look at the market opportunity we have, just within the spine world, is over a $10 billion opportunity, but more, and we'll talk about this, some of the other verticals that we start touching within our OEM and other future orthobiologic opportunities are in the $10s of billions of dollars. So we have a very, very, significant opportunity market-wise. We have an established and growing distribution network, so before the last couple of speakers, if you were here, talked about access. We have every major GPO. We have over 450 IDNs. We've about 90% of the beds covered in America today. Second, the other big piece of this is that we have over 650 distributors that are out there today, that sell our products.
Then when you flip over to profitability, we've gone five straight consecutive quarters of Adjusted EBITDA growth, with an eye on in Q4 of being cash flow positive or operating cash flow positive. And then last but not least, there's a real opportunity for us to really get to scale through acquisition, and there's a number of opportunities that we talk fairly regularly about with respect to the funnel that we have on our acquisition targets. When you look at the breakup of our business, our breakout of our business is about two-thirds biologics, one-third spinal fixation and spinal hardware business. When you look at the history of where the business has been, Xtant came into being with a merger between X-Spine Systems and Bacterin International. Unfortunately, the acquisition didn't go so well, and so for many years, the company struggled.
In 2019, a new management team was brought in. We were brought in to fix the business. In 2020, part of what helped us fix the business after we got it fixed, was also that OrbiMed converted their debt to equity. And then in 2022, we brought in a fantastic, new, and dynamic chairman by way of Stavros Vizirgianakis. So if any of you know Stavros, he's, he's done just wonderful things, and he really helped kickstart our business in many ways as well. And then last year, and we'll talk a little bit about this, we acquired three separate businesses.
One was Coflex, a division of Surgalign, then we bought the rest of Surgalign, and then we bought Nanoss, which was a product line that Surgalign had done, but they didn't have the production rights, and so we got all three of those businesses last year, and they've been instrumental in our growth and where we're going in the future. So when you think about our growth, what we've been able to do over time, as I mentioned, we got here in 2019 or the end of 2019, but even through COVID, we were able to grow, get the business going in the right direction, and now we're starting to get to really some hypergrowth of where just the business is heading. When you look at the market opportunity, just from the spine perspective, is about a $10 billion market internationally.
I'm happy I can talk about international, because we have a really nice international business that I'll talk about in our, in our platform for growth. Breaking that down further domestically, about an $8 billion opportunity, and we are looking really where we, really do well, is in the orthobiologics space, which is about a $2.4 billion space. That $2.4 billion space is actually broken into five separate categories, and we're one of the few guys that can hit all five of those areas. And so from our side, this is a real strength for us because it allows us to be in so many other guys' bags. For instance, if there is a major player out there, and they don't have a growth factor product, we have a growth factor product.
So there's different things that we can offer many of our different surgeons and our distributors that we work with. When you look at the transition of our business, and this is a big, big, key part to where we're going, is that for the longest time, this business made these low-end, it's called demineralized bone and allograft products, products that were in the 50%-60% gross margin range, lower end, lower price, too. Well, over the course of time, we started adding these other products, like a synthetic, a growth factor, a viable bone matrix. We added all of these to our bags, but we were distributing those products. One of the things that you've heard, if you've been following our story at all, is that we've run into various supply chain issues.
So as a business, we said, "We can't rely on other people. We've got to be self-sustaining." And so in that, we've now rolled out an Amnio product, which I'm really excited about, and I'll talk a little bit more about that in a minute. We bought the synthetics production, and so that's now an 80%+ margin product, as is Amnio, which is a, when we sell, it's over 90%. As an OEM product, it's 65%-70% contribution margin. Viable Bone Matrix, we're producing that this quarter, so really, really, really great stuff that we've got going on there. And hopefully very soon, we'll also have our own growth factor product that we'll be making ourselves.
So when you look at the transition of this business, it's not just a matter of what we're doing in way of making sure that we're ensuring that we have our own supplies, and that we're not relying on other people. It's also the margin profile for this business is gonna change and change fairly dramatically over the course of the next couple of years. So when you think about us from a biologics perspective, we serve, and this is the great thing about being a tissue bank, a 13485 tissue bank, too, because having that 510(k) being able to make 510(k) products is really, really important as we start thinking about these other verticals that we currently touch. So today, we already touched sports medicine with what we do with our tendons.
With our Amnio product that we just rolled out back in March, we now are serving the wound care market. We will be serving some sports medicine opportunities as well as the surgical repair side. With what we bought with our Nanoss product line, the core elements of that was a product called E-Matrix. E-Matrix now pulls us into more surgical repair, pulls us into the hemostatic biologics, and also, eventually, the antimicrobial biologics as well. So really, a number of really cool opportunities that most of these, when we think about these other verticals, will be things that we'll be doing from an OEM perspective. But there are things with our contract portfolio, and our access to IDNs will allow us to go direct in certain cases. So when you think about our platform for growth, it really comes in three different buckets.
Bucket number one is contract access. If you don't have contract access, you just, you're not gonna sell anything, right? So this is something, as I mentioned, we have about 90% of the beds in America covered today. When you look at the next piece of this, what is our reach? What is the distribution reach we have today? So we have over 650 distributors that sell our products domestically, but then also, part of our Surgalign acquisitions, we picked up an international distribution business based in Germany. And the reason why that's important and why it's got such great prospects, is that once we get the... And I'll talk about supply chain, supply chain squared away there.
Because we have products that are already MDR-accredited, if you will, or I should say, certified, we have a bunker in a place where everybody else is running from. I mean, you think about small, medium, even large companies are no longer selling into the EU. We actually acquired this, and it's actually been a really nice upside, and we think it's gonna have great upside in the years to come.
And then you think about our expanding capabilities, not only what we're doing and expanding what we're doing from a production perspective, but when you also look at the managed care, I think managed care, just the capabilities that we acquired when we brought on Coflex, that's a strength that I think over the course of time will serve us well as we look at other verticals, as well as we look at what's happening within spine today. And then last but not least, I can't emphasize this enough, is that the less invasive motion preservation, or I should say, the motion preservation systems that we acquired, are ones that I think are going to make a difference in the years to come. You know, when you think about fixation, that's literally the standard of care.
And you think about in any other part of orthopedic care, would you ever fuse a knee? Would you ever fuse a hip? Would you ever fuse a shoulder? No, you wouldn't. And so with what we have here are things that actually maintain motion, allow patients to live a more, a fulfilled life and not have to worry about things like Adjacent Level Syndrome. So next thing, when we think about our growth strategy, our growth strategy is really based on these four key pillars. One, every great company that is successful has a terrific new product flow. Second big thing, they gotta have access, and they gotta be able to reach, and so that's part of where we talked about expanding our reach and our distribution network.
Three, addressing these adjacent level or adjacent segments, that I should say, that are next to our markets, so including other verticals that we touched on. And then last but not least, M&A activity, 'cause M&A activity is the part that allows us to really get to that next level and way of scale. So when we think about M&A opportunities, we're looking for those things within the three Cs. And the three Cs, again, start with capabilities, anything that's gonna help us with respect to not only from what we do from a fusion or a, or a motion preservation side, but also what we do on a biologics side. Capacity. As we look down the path, we know that we're gonna need more space with where we're doing our production, so capacity is important. And then last but not least, cash flows.
We wanna make sure that we're buying these companies, that right away, they're gonna help propel us to more profits, and ultimately, whether it be through synergies or as a profitable company already, we wanna make sure that there is some synergistic element to that. So last but not least, and I guess this is where I would end it on before our questions, is if you think about, especially where our stock is today, we are, without a doubt, probably the best value stock here at this conference. But if you think about what we've got lined up, strategically, we're leaning forward in the right ways. Operationally, we've proven that we can, we can actually turn a business around and get it going the way it needs to go. And then financially, we're growing fast.
We've got a line of sight on profitability, and you look at our margin profile over the next couple of years, it's gonna be improving considerably. Okay, those are my comments. Caitlin, I'll bring it back to you.
Great. Thanks, Sean. Maybe just starting with the Q2, given you released results last week, what do you want investors to understand coming out of these results and how you're positioned going forward?
Yeah, first and foremost, the first half of the year, which I had signaled, was gonna be rough because of supply chain challenges with the Surgalign acquisition. Also, just again, some of the headwinds we saw with our stem cell business. So the fact that we came out in the first half, ahead of analysts' expectations and ahead of where we needed to be, I'm thrilled. We, again, adjusted EBITDA positive, line of sight on cash flow, operating cash flow positive in the fourth quarter, feeling very good about where we are in Q2. And did I mention we're an unbelievable value stock at this point in time? I just wanna keep- ... Might come up three more times.
That's okay. And you also reaffirmed your guidance of 27%-31% growth for the full year, and how do you expect that cadence of revenue to trend in the second half?
Yeah, I'll throw that over to Scott.
... Sure. You know, I think when we look forward to Q3, typically we see a seasonally softer Q3. But even in spite of that, with the Amnio launch, we should see modest growth. And then as we move into Q4, I think we'll see a really strong finish with the lion's share of the growth there for the contributions in Amnio, stem cells, and also the Cortera launch.
Great. Well, just going off of that, I wanted to jump onto spinal hardware. You know, you acquired the Surgalign assets last year. Can you just talk about what really came with these assets, from an, you know, hardware standpoint, but also from a distribution standpoint, and, the also the cannibalization that has occurred-
Sure
... really since you've launched those products versus your, you know, your older products, but why that's important going forward?
Yeah. You know, it's, it kind of goes back in time. So the X-Spine Systems were first of all, it was a very good product line in 2015, when the deal was originally done. Unfortunately, just over time, there was decisions, strategic decisions, not to upgrade those in any way. So by buying the Surgalign product line, it gave us a brand-new, and recently updated, too, they've done a good job of staying on top of their product lines. They gave us a new adult degenerative, great, full line, spine, fixation business, which was outstanding. It's been very good. It's helping us replace a lot of that old X-Spine. Now, I say that, but there's a couple of lines that we have within the X-Spine product line that are still outstanding.
An SI fusion product called Silex, and we got an interspinous process device product, which again, AXLE is still, like, one of our, our number one selling products. When you couple that with Coflex, which is another one of the acquisition pieces, these are a really potent offering to the ambulatory surgery center market. So when you look at it from that perspective, it's, it's been great, and then, of course, as I mentioned, the international acquisitions, or at least the Paradigm Spine acquisition, is what it's called, has been outstanding because they have three different motion preservation technologies, of which we plan on bringing at least one here to the United States, that I think is absolutely outstanding, that has over 10 years of outstanding data showing how much it's better than fusion.
So we're really, really excited about that particular, those particular assets.
That's great. And Scott, you mentioned the Cortera launch. You guys have the open application out now, MIS expected at NASS. How significant of a growth contributor do you think this product will be going forward?
I think it'll be significant. I mean, I think it ought to double really what we're seeing coming out of Cortera now. So it'll be a big, big driver in Q4.
And giving us a lot of tailwinds for 2025 and beyond.
Mm-hmm.
Yeah.
That's great. And then just moving to the biologics business, you know, you mentioned that you're the only biologics company with a complete line of ortho biologics. You know, how important is this to penetrating the distributors that you already work with, and also in attracting new distributors?
Right. You know, when you think about just having a full line of things, I know, for instance, some of the guys we work with are one of the big, you know, the big four, right? When you think about the guys in the spinal hardware side, almost none of them, other than Medtronic, has a growth factor product, for instance. We are able to sell that to those guys, for instance, or having an allograft product, which a lot of guys don't carry anymore because it's not necessarily something that a lot of people have. And so being able to be a full complement, and then when you throw Amnio on top of it, which is again something that is used in surgical... like, for instance, in spine cases, we have about—this is a million-dollar product line for us today.
That's a product line that actually is used when people are trying to protect arteries or nerves, and so they'll actually use our Amnio layer or Amnio product to protect before a surgeon will be going, let's say, an anterior approach. So it is a very nice addition. So when you have the full complement of all these product lines, it just gives you more reason to be in the operating room.
Mm-hmm. And, you know, you also touched earlier on your move more broadly to internally produced products, and particularly stem cell-based products. How does this move benefit your margins and your bottom line? And what's the pace that we can expect the transition to, you know, the internally produced stem cell products, both for, you know, your own business as well as your OEM business?
Sure.
Yeah, I mean, Sean showed the slide on the transformation of our gross margin profile, and I think particularly on the gross margin side, as we start selling that through our distribution channel, we see gross margins in 2025 going from low 60s to mid-60s, up into high 60s to, you know, even approaching 70% in 2026. And then as we bring that down to the bottom line, Sean also talked about a scalable platform for growth. So we don't see much needing to change within our infrastructure to facilitate that. So we see, you know, increase in leverage to the point where in 2025, we start approaching operating income, and then in 2026, net income.
Mm-hmm. That's great. You know, and along with the Q2 results, you also announced a private placement.
Yeah
... you know, what do you anticipate using the proceeds for, and why was it a good time now for this transaction?
You know, it was good timing. We wanted to put more cash on our balance sheet. It was opportunistic. It allows us to get, at a minimum, to an inflection point. So, and then, you know, from there, as we're operating cash flow positive, we'll see what we're gonna have to do at that point in time, too. But for the most part, it was opportunistic, and we thought it was a good time to do it.
That's great. Any questions from the audience? Okay, well, guys, I would love if you could leave the team here, you know, with some insights about why Xtant is a great asset and a great investment, and where you expect, you know, to see your trajectory going forward.
Sure. So where I would, again, look at where we've come from, what we've been able to do, how we've performed to what we've said. So operationally, I think we're, again, we're leaning forward, we're doing the things that we said we were going to be doing. When you look at our growth right now, we're expecting this growth, you know, today, when we think about 2025 and 2026 and beyond, still mid double-digit type of growth, improved margin profile. Right now, I'm thrilled that we got through this first half of the year, fighting through the supply challenges that we have. We've gotten through most of them. There's still a few that's hanging around, but for the most part, we finally are getting the winds, not in our face, but actually in our sails.
So I would tell you that if you look at our stock price today and you look at what our traditionally our price has been over time, never mind what our intrinsic value should be, I think we're a hell of a deal right now. So I think I put that plug in three times now, so.
We got it all in.
Absolutely.
Okay, great. Thank you guys so much. I think we'll end it there.
Great. Thank you.
Thank you.
Appreciate it.