Xtant Medical Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2026

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this Form 10-Q.

Business Overview

We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products serve the specialized needs of orthopedic and neurological surgeons, as well as trauma, foot and ankle, sports medicine, wound care surgeons including orthobiologics for the promotion of bone healing, amniotic tissue and collagen for both surgical repair and chronic wound care, implants and instrumentation for the treatment of spinal disease. We promote our products primarily in the United States through a direct sales force, independent distributors and stocking agents.

We have an extensive sales channel of direct and independent commissioned agents and stocking distributors in the United States representing some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals and through group purchasing organizations. We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through stocking distribution partners in Europe, Canada, Mexico, South America, and certain Pacific region countries. We have recently made and intend to continue to make measured investments in the expansion of our commercial team to support our new products and maximize the reach of our broad portfolio of orthobiologics solutions. We also recently hired approximately 20 sales personnel in connection with our exclusive distribution arrangement with Dilon Technologies, Inc. (“Dilon”).

As previously disclosed, on December 1, 2025, we completed the sale of certain non-core assets relating to our Coflex and CoFix products and our international hardware business to Companion Spine, LLC (“Companion Spine”) for an aggregate purchase price of $21.4 million. Of the $10.7 million purchase price received during the first quarter of 2026, $2.8 million was used to repay a portion of our term debt. To assist in the transition of this business to Companion Spine, we agreed to certain transition services to Companion Spine for a limited period of time. In 2025, we recognized $20.3 million in revenue from sales of our Coflex and CoFix products and international hardware products which we sold to Companion Spine. The loss of this revenue will adversely affect our 2026 revenue.

In addition, as previously disclosed, we recognized $18.7 million in license revenue in 2025 that we indicated likely will not repeat in 2026 due primarily to changes in the reimbursement environment for our SimpliMax™ product effective January 1, 2026 and will adversely affect a portion of our product revenue in 2026. During first quarter of 2026, as anticipated, our revenue was adversely affected by such changes, including a decrease in license revenue of $3.6 million and a decrease in product revenue, primarily related to skin substitute products, of $2.0 million. The loss of this license and product revenue will continue to have an adverse impact on our revenues and other operating results, including in particular, our gross margins, during the remainder of 2026 as compared to 2025.

Recent Development

On April 13, 2026, we announced that we entered into a Distribution Agreement (the “Distribution Agreement”) with Dilon Technologies, Inc. pursuant to which we obtained the exclusive rights to import, market, distribute and sell the HEMOBLAST® Bellows product in the United States. The HEMOBLAST® Bellows product is an FDA-approved powder-based, topical, surgical hemostatic agent used to control bleeding during surgical procedures. In connection therewith, we hired approximately 20 Dilon sales personnel to assist in the sale of the HEMOBLAST® Bellows product in the United States. Under the terms of the Distribution Agreement, Dilon will continue to manufacture the HEMOBLAST® Bellows product from its current manufacturing location in France and will supply and sell it to us at a specified transfer price as provided in the Distribution Agreement, which price is subject to change under the terms of the Distribution Agreement. The Distribution Agreement does not contain any minimum purchase requirements. Under the terms of the Distribution Agreement, we paid Dilon a $5.0 million exclusivity fee, which fee is subject to repayment by Dilon under certain circumstances, including upon a termination of the Distribution Agreement, which agreement can be terminated by either party upon certain specified events.

Results of Operations

Comparison of Three Months Ended March 31, 2026 and March 31, 2025

Revenue

Total revenue for the three months ended March 31, 2026 decreased 37% to $20.9 million compared to $32.9 million in the same period in 2025. The decrease is attributed primarily to the divestiture of Coflex/CoFix assets and the international hardware business of $5.4 million and the reduction of license revenue of $3.6 million. The remaining decrease related primarily to a decrease in revenue received from the sale of skin substitute products adversely affected by changes in the reimbursement environment effective January 1, 2026.

Cost of Sales

Cost of sales consists primarily of manufacturing cost, product purchase costs, and depreciation of surgical instruments. Cost of sales also includes reserves for estimated excess inventory and inventory on consignment that may be missing and not returned. Cost of sales decreased by 30%, or $3.8 million, to $8.9 million for the three months ended March 31, 2026 from $12.7 million for the prior year period. The decrease in cost of sales is primarily due to lower revenue in the current year period compared to the prior year period, as described above.

Gross Profit

Gross profit as a percentage of revenue decreased to 57.3% for the three months ended March 31, 2026 compared to 61.5% for the same period in 2025. Of this decrease, 490 basis points were due to reduction in scale and change in sales mix with 470 basis points related to the reduction in license revenue.

General and Administrative

General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs. General and administrative expenses decreased 17%, or $1.3 million, to $6.3 million for the three months ended March 31, 2026, compared to $7.5 million for the prior year period. Of this decrease, $1.6 million is due to the sale of certain assets relating to our Coflex and CoFix products and international hardware business to Companion Spine, partially offset by $0.2 million in additional accounting and consulting fees incurred during the current year period.

Sales and Marketing

Sales and marketing expenses consist primarily of sales commissions; personnel costs for sales and marketing employees; costs for trade shows, sales conventions and meetings; travel expenses; advertising; and other sales and marketing related costs. Sales and marketing expenses decreased 27%, or $3.0 million, to $8.2 million for the three months ended March 31, 2026, compared to $11.2 million for the prior year period. Of this decrease, $2.5 million is due to the sale of certain assets relating to our Coflex and CoFix products and international hardware business to Companion Spine. The remaining decrease is primarily due to a $0.4 million decrease in independent agent commissions expense resulting from the decline in revenue and a $0.6 million decrease in professional fees during the current year period. The decrease was partially offset by a $0.2 million increase in compensation expense related to increased headcount. We expect our sales and marketing expenses to increase in future periods due to our exclusive distribution agreement with Dilon and our recent hiring of approximately 20 sales personnel in connection therewith to assist in the sale of the HEMOBLAST® Bellows product in the United States.

Research and Development

Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.4 million for each of the three months ended March 31, 2026 and 2025.

Interest Expense

Interest expense decreased $0.4 million to $0.6 million for the three months ended March 31, 2026, compared to $1.0 million for the same period in 2025. This decrease resulted primarily from reduced borrowings under our revolving line of credit, as well as prepayments totaling $10.8 million on our term loan. Based on our current outstanding borrowings, we expect that our annualized interest expense will increase approximately $0.1 million for every 25 basis points of increase to the reference rate associated with our credit agreements.

Interest Income

We recognized $0.2 million of interest income for the three months ended March 31, 2026 related to the promissory note that we received from Companion Spine in connection with the sale of assets related to our Coflex and CoFix products to Companion Spine. While we do not expect to receive any additional interest income from this promissory note since it was repaid by Companion Spine in February 2026, we do expect to receive nominal interest income from our invested cash and cash equivalents.

Other Income/(Expense)

We recognized $0.2 million of other income for the three months ended March 31, 2026 primarily related to certain transition services provided to Companion Spine. We expect such other income to continue for approximately three months through the remaining term of the transition services agreement with Companion Spine.

Liquidity and Capital Resources

Working Capital

Since our inception, we have financed our operations primarily through operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions.

The following table summarizes our working capital as of March 31, 2026 and December 31, 2025 (in thousands):

20

While our working capital decreased by $4.9 million as of March 31, 2026 as compared to December 31, 2025, we used cash received from the Companion Spine transaction to repay some of our long-term debt, resulting in our long-term debt, less the current portion and plus premium and less issuance costs, being $8.1 million as of March 31, 2026, compared to $11.0 million as of December 31, 2025.

Subsequent to the end of first quarter of 2026, we used $5.0 million of our cash and cash equivalents to pay the $5.0 million exclusivity fee to Dilon under the terms of the Distribution Agreement, which fee is subject to repayment by Dilon under certain circumstances, including upon a termination of the Distribution Agreement.

Cash Flows

Net cash used in operating activities for the first three months of 2026 was $2.1 million compared to net cash provided by operating activities of $1.3 million for the first three months of 2025. This change relates primarily to the net loss in the first three months of 2026 compared to net income in the comparable prior year period.

Net cash provided by investing activities for the first three months of 2026 was $10.2 million compared to net cash used in investing activities of $1.1 million for the first three months of 2025. This change relates primarily to the proceeds received from the sale of certain assets relating to our Coflex and CoFix products and international hardware business to Companion Spine.

Net cash used in financing activities for the first three months of 2026 was $13.3 million compared to net cash used in financing activities of $0.9 million for the first three months of 2025. This change relates primarily to $9.6 million of reduced borrowings, net of repayments, under our revolving line of credit during the current year period compared to the prior year period and a $2.8 million payment on long-term debt from the proceeds from the sale of certain assets relating to our Coflex and CoFix products and international hardware business to Companion Spine in 2025.

Term Loan and Revolving Credit Facilities

Xtant, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), are parties to a term loan credit agreement (the “Term Credit Agreement”) and revolving loan credit agreement (the “Revolving Credit Agreement” and together with the Term Loan Credit Agreement, the “Loan Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, respectively and each in its respective capacity as agent, and lenders from time to time party thereto. As of March 31, 2026, $11.2 million was outstanding under the term loan facility under the Term Credit Agreement (the “Term Facility”), reduced from $17.0 million as of December 31, 2025. This reduction was due to the final purchase price payment of $2.8 million by Companion Spine to us during the current year period in connection with the sale of certain assets relating to our Coflex and CoFix products and international hardware business to Companion Spine.

The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the secured term credit facility under the Term Credit Agreement, the “Facilities”) under which the Borrowers may borrow up to $17.0 million at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects, and the delivery of an updated borrowing base certificate.

The Facilities have a maturity date of March 1, 2029. Each of the Borrowers, and Xtant, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and Xtant’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of Xtant and the Borrowers. As of March 31, 2026, we had $0.4 million outstanding and $11.8 million of availability under the Revolving Credit Facility.

The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of March 31, 2026, the effective rate of the Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 14.80%, and the effective rate of the Revolving Credit Agreement was 8.49%.

The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, undergo a change in control and change the nature of their businesses. In addition, the Credit Agreements require us to maintain net product revenue at or above certain minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements. On March 26, 2026, we entered into Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) with MidCap Financial Trust and Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) with MidCap Funding IV Trust pursuant to which we eliminated the requirement to comply with the minimum net revenue covenant for fourth quarter of 2025, adjusted the amortization of the term loan to have amortization calculated off the amount of principal outstanding when amortization payments start instead of the original principal amount of the term loan, and revised the minimum net revenue covenant to align solely with revenue generated from our orthobiologics products and correspondingly adjusted the minimum net revenue amounts. As of March 31, 2026, we were in compliance with all covenants under the Credit Agreements.

Cash Requirements

We believe that our $12.2 million of cash and cash equivalents as of March 31, 2026, together with our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least May 2027. However, we may require or seek additional capital to fund our future operations and business strategy prior to May 2027. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable. We may seek to raise additional financing through various sources, such as equity and debt financings, debt restructurings or refinancings or through strategic transactions, dispositions, collaborations or license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate or our business, financial performance or prospects deteriorate.

To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. There have been no changes in our critical accounting estimates for the three months ended March 31, 2026 as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2026. Based upon that evaluation, and as a result of the material weakness in our internal control over financial reporting discussed below, our principal executive officer and principal financial officer concluded that as of March 31, 2026, our disclosure controls and procedures were not effective.

Previously Reported Material Weakness in Internal Control over Financial Reporting

As previously described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, in connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2025, we identified certain control deficiencies in the design and implementation of our internal control over financial reporting, which constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

More specifically, our controls surrounding our evaluation of inventory net realizable value were insufficient and did not operate at an appropriate level of precision. Our review and evaluation of inventory failed to identify specific items not assessed for net realizable value under our existing control, which constitutes a material weakness as of December 31, 2025. This material weakness, if not remediated, could result in a material misstatement of one or more disclosures in our annual or interim consolidated financial statements that would not be prevented or detected in a timely manner.

Our management, under the oversight of the Audit Committee of the Board of Directors, is continuing to implement measures designed to improve our internal control over financial reporting to remediate the identified material weakness. The remediation actions we are taking, and expect to take, include evaluating inventory balances outside of the scope of our current process for estimating net realizable value to determine if there are other inventory items that need to be assessed for a specific reserve.

As management continues to evaluate and work to remediate the material weakness, we may determine to take additional measures to address the material weakness. However, we cannot provide assurance that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weakness or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

Other than the remediation steps described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Although as a smaller reporting company, we are not required to provide the information required by this Item 1A, we hereby disclose the following new risk factor:

We recently entered into a distribution agreement with Dilon Technologies, Inc. and hired approximately 20 sales personnel in connection therewith, which will result in increased sales and marketing costs and involves other risks, which could adversely affect our business, operating results, and financial condition.

On April 13, 2026, we announced that we entered into a distribution agreement with Dilon Technologies, Inc. pursuant to which we obtained the exclusive rights to import, market, distribute and sell the HEMOBLAST® Bellows product in the United States and Dilon agreed to transition its existing U.S. customer base for the product to us. In connection with the agreement, we hired approximately 20 Dilon sales personnel to assist in the sale of the HEMOBLAST® Bellows product in the United States. While the agreement expands our portfolio with a unique and versatile hemostatic solution while also bolstering our own commercial capabilities with the integration of Dilon’s approximately 20-person U.S. sales team into our organization, no assurance can be provided that we will be successful in selling the HEMOBLAST® Bellows product or successfully integrating it with our portfolio. In addition, while we believe we will be able to leverage new cross-selling opportunities between the HEMOBLAST® Bellows product and our existing products, no assurance can be provided that we will be effective in doing so or otherwise realize the benefits that we anticipate receiving as a result of this new arrangement and the addition of these new sales personnel. We expect our sales and marketing expenses to increase substantially compared to prior periods beginning in our second quarter of 2026. While we anticipate that the additional revenue from the sale of the HEMOBLAST® Bellows product will offset these additional expenses, no assurance can be provided that it will or that the transition to us of Dilon’s existing U.S. customer base for the product will be successful.

Under the terms of the agreement, Dilon will continue to manufacture the HEMOBLAST® Bellows product from its current manufacturing location in France and will supply and sell it to us at a specified transfer price as provided in the agreement, which price is subject to change in certain circumstances. We, therefore, rely on Dilon, as the sole manufacturer, to produce the product for us and in sufficient quantities and at an appropriate transfer price. This arrangement involves risk since we do not control the manufacturing process and Dilon will remain responsible for all manufacturing decisions, as well as compliance with all applicable rules and regulations in connection therewith. In addition, since the product is manufactured in France, we are also subject to risks associated with international operations.

We paid Dilon a $5.0 million exclusivity fee upon execution of the agreement, which fee is subject to repayment by Dilon under certain circumstances, including upon a termination of the agreement. Since the agreement can be terminated by either party upon certain specified events, no assurance can be provided that the agreement will not be terminated, which would result in our loss of the U.S. distribution rights for the product and possibly not being repaid the $5.0 million exclusivity fee we paid Dilon. In addition, if the agreement terminates, we would need to reassign or terminate the additional sales personnel that we hired to sell the product.