Good morning, everyone, and welcome to the Xtant Medical Fourth Quarter and Full Year 2025 Financial Results. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Kevin Gardner of LifeSci Advisors. Kevin, please go ahead.

Thank you, operator, and welcome to Xtant Medical's Fourth Quarter and Full Year 2025 Financial Results Call. Joining me today are Sean Browne, President and Chief Executive Officer; and Scott Neils, Chief Financial Officer. Today's call is being webcast and will be posted on the company's website for playback. During the course of this call, management may make certain forward-looking statements regarding future events and the company's expected future performance. These forward-looking statements reflect Xtant's current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends and other words with similar meaning. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of the company's annual report on Form 10-K filed with the SEC and in subsequent SEC reports and press releases. Actual results may differ materially. The company's financial results press release and today's discussion include certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations, which appear in our press release and are otherwise available on our website. Note that the Form 8-Ks that we file with our financial results press releases provide detailed narratives that describe our use of such measures. For the benefit of those who may be listening to a replay, this call was held and recorded on March 31, 2026, at approximately 8:30 a.m. Eastern Time. The company declines any obligation to update its forward-looking statements, except as required by applicable law. Now I'd like to turn the call over to Sean Browne, CEO. Sean?

Thank you, Kevin, and good morning, everyone. Thank you for joining our fourth quarter update call. As has been our practice, I will begin with a few prepared remarks about our operations, and then Scott will provide a deeper dive into the financials. We will then open the call to your questions. Okay. We again turned in solid financial performance during the fourth quarter, highlighted by $32.4 million of revenue, representing growth of 3% over the fourth quarter of 2024. Now I want -- I would note that the Companion Spine transaction closed in early December, roughly a month ahead of our original assumption, which cost us about $2 million of revenue in the quarter. Scott will provide the details, but I want to flag it upfront so the headline number is properly contextualized. Importantly, we again generated positive cash flow, adjusted EBITDA and net income, a continuation of the favorable trends we have seen over the past several quarters. Before covering the quarter in more detail, I want to briefly recap our recent sale of our noncore Coflex interlaminar stabilization assets and the international Paradigm Spine entities to Companion Spine, which closed in early December. The final purchase price was approximately $21.4 million, and I'm pleased to report that the transaction is now fully closed and settled. We use those proceeds to reduce our borrowings and strengthen our cash position, and we do not anticipate any need to raise additional outside capital in the foreseeable future. More strategically, this transaction was transformational for our company. It further sharpened our focus on our core high-margin biologics business, which is where our competitive differentiation lies and where we intend to grow. So for the full year of 2025, we generated total revenue of $133.9 million toward the upper end of our…

Thank you, Sean, and good morning, everyone. I'll start first with our financial results and then conclude by sharing some specific amounts related to our recent divestitures and license revenue for the benefit of looking ahead to 2026. Total revenue for the fourth quarter of 2025 was $32.4 million compared to $31.5 million for the same period in 2024. The slight increase is attributed mainly to higher license revenue during the fourth quarter of 2025 that Sean alluded to earlier, partially offset by declines in biologics and hardware. As Sean mentioned a moment ago, we expect that the measured investments that we're making in our field sales force on both a regional and national basis should drive accelerating biologics growth in 2026 and beyond. Gross margin for the fourth quarter of 2025 was 54.9% compared to 58% or 50.8% for the same period in 2024. The increase is primarily attributable to favorable sales mix and greater scale, partially offset by a $1.3 million inventory charge associated with the launch of the Cortera Fixation System. Fourth quarter 2025 operating expenses were $18.7 million compared to $17.9 million in the same period a year ago. General and administrative expenses were $7.3 million for the 3 months ended December 31, 2025, compared to $5.7 million for the same period in 2024. The increase is primarily related to a $1.4 million of additional expense related to various compensation plans. Sales and marketing expenses were $10.9 million for the 3 months ended December 31, 2025, compared to $11.7 million for the same quarter last year. The decrease resulted primarily from a $0.9 million reduction in commissions. Research and development expenses were $459,000 for the 3 months ended December 31, 2025, a decrease from $522,000 in the fourth quarter of 2024. Net income in the fourth…

[Operator Instructions] Your first question is coming from Ryan Zimmerman with BTIG.

Scott, this is Izzy on for Ryan. So I just wanted to start out on the outlook for 2026. I know guidance excludes Coflex, Cofix and the OUS business. But I was curious if you could kind of unpack what your thoughts are for underlying organic growth, especially in the core biologics business. .

Scott, I'll let you dive in, and I'll add any color.

Sure. I think as we look out through 2026, we're going to be looking for sequential quarter-over-quarter growth, which will reflect the growing contributions of the new product offering Sean mentioned as well as the expanding impact from additions to our commercial organization. I will note, though, that seasonality will still be present. So thinking of Q3, for instance, we're likely to see less sequential growth there than in other quarters. I think maybe setting Q1 as a baseline, for example, starting biologics or with biologics to your point, I expect biologics in the first quarter to be down low double digits compared to Q1 of 2025 in response to headwinds related mainly to lost Amnio product and for hardware to be down approximately mid-teens after adjusting for the revenue associated with the divestiture in 2025. Does that help, Izzy.

Yes, that's really helpful. And then you kind of touched on it already with the low double-digit decline for first quarter. But how much of a headwind are you expecting in 2026 from the loss of the license revenue relating to the Q codes?

I think it's more -- okay, so first of all, all of that, the Q code revenue all goes away. However, what we are waiting to see and is still shaking out is what is the base of that business now going to be because we still manufacture a really terrific product line that will be used in advanced wound care by distributors and others. Now what's going to be different is that as this continues to shake out, more of those distributors will be using our contracts, and it will be actually [ Xtant ] brand. So we expect as the year progresses, we'll see that business begin to ramp up, and we feel good about some of the discussions we've had with many of the groups that are out there today looking for a product to sell into hospitals because, as you know, in the advanced wound care world, we're going to see a lot more patients being shifted from the non-acute facilities to acute. And so we see an upside that's going to be coming our way really starting probably -- well, I guess, guys who are in this market a little more than we are, would tell you it's probably going to be looking more like sometime in the late second quarter to the second half of the year where we'll start to see the pickup on that. But in the first quarter, we [ OEMed ] a fair amount of product for guys last for manufacturer, I should say, distributors last year under their brands. And so that business has gone away. But now the business that will come back will most likely be product that will sell under our brand, and it will be into hospitals. Does that answer your question?

Yes, that's really helpful. And then just the last one for me. I was curious how quickly you guys are expecting to see a decline in the hardware business throughout 2026.

I think the best way of looking at hardware is we will see a slow decline throughout the year. So yes, so I'll just leave it at that. Scott, do you want to add any color to that?

Yes. I'd simply say that we've already seen a decline in the hardware that remains post divestiture, and we expect that, that decline will continue at a reasonably steady rate approaching high teens in 2026.

Your next question is coming from Chase Knickerbocker with Craig-Hallum.

Maybe I just wanted to start on kind of that cadence of biologics growth that's kind of implicit in all that commentary that you just gave. It calls for, call it, kind of last 3 quarters kind of acceleration and kind of organic year-over-year biologics growth. Sean, can you maybe just walk us through kind of which products in particular you kind of expect to support that kind of the -- just help us, I guess, bridge to their kind of by product as far as what you see accelerating growth? And then kind of same question as far as how much of that comes from your distribution network versus kind of white label contracts, white label business that you have visibility on?

Sure. So starting off with the different products. So all of the advanced biologics products that we're now manufacturing. So when you think about our OsteoVive Plus, which is the stem cell product, our OsteoFactor Pro which is our growth factor product, the CollagenX product we just rolled out our Trivium product, which is an advanced demineralized bone matrix product. Those are the ones that I see, quite frankly, all of them expect to grow, but those are the ones that are going to be the big drivers. And those are the ones that if you look at our funnel today, which I'm really excited about because this is something with the added sales people new opportunities that we're looking at these days is substantially greater than what we've had really, quite frankly, ever. And with this advanced portfolio, we're touching on a lot more -- a lot of areas in and around spine. So when we start looking at the number of trauma, foot and ankle and other opportunities that have come our way, it's become substantially greater. So those would be the product lines that I would say that will be driving what we see as our growth.

And then just as far as channel, Sean, white label versus your own distribution network?

So yes. So when we think again about the biologics business, we'll look at our channel or our OEM channel about 20%. Scott, is that right? About 20% of our growth this year or 5% of our overall biologics business will be in the OEM channels that maybe a little higher, like 22%. Is that about right, Scott?

Yes, that is about right, Sean.

Yes.

And then a couple as we think kind of longer term, Sean, as we think about kind of direct -- your distribution network, white label, potentially kind of some larger contracts with institutions, like where do you see over the medium term, your business kind of showing the most growth? Is it these white label contracts? Is it continuing to be in your distribution network? Just some thoughts there as far as kind of where you're really leaning in.

Yes, especially given the fact that we had -- it will definitely be the Xtant branded product working through our independent agent networks, mostly because, quite frankly, that's where we had the most significant reduction over the 2024, 2025 years in way of we lose a person didn't replace them. And so we had -- and that was strategically a choice we made. Strategy is about choices. And our strategy was we need to get to self-sustainability and that meant building products internally, being able to have our own products that we feel really good about that are advanced, give us the much higher ASPs and better margins. And so these are decisions we made. Now we've replaced and then added basically doubled the size of the sales force. And that sales force is focused on our Xtant branded products. And so when you see the growth that will be coming out, it will be coming from really what I see has been a down to flat independent agent network. We have a real opportunity to really start growing that world again. And so we're feeling really good about where that's going.

And then two, just to finish for me on -- maybe on hardware. That business is obviously a lot smaller than it has been for you in the past. You expect it to decline. What are your kind of plans there over the medium to long term? Is that a little bit of a melting ice cube for the business that's obviously kind of drawing down growth on the overall top line? Just kind of give us your strategic thoughts there. And then just with kind of all the movement in the portfolio, can you give us a little bit more kind of color on gross margin in 2026? And sorry if I missed that during your prepared remarks, Scott.

I'll let Scott address the 2026. I'll address the hardware issues. So hardware for us, where we are good in hardware, we're really good. Like we have this new Cortera line, which is outstanding. We have a cervical offering that is as good as -- it's actually better than almost anything else that's out there. So we do adult degenerative spine really well. The question is, at what point in time does this become something that becomes a strategic distraction. And at this point in time, it's still helping to set the table for some of our biologics business. So I guess the point is at what point do we kind of look at this and say, when doesn't it? And does the, I guess, the drag on growth become more than it's worth. And so we're not there right now. And -- but it is something we're looking at. So I'll -- without getting too deep into that, but that is clearly high on our strategic list of things to choose or decide. And so that's something that we'll be working on over the course of the next year or so. Scott, do you want to answer the gross profit margin question?

Sure. I think over the course of 2026, we're probably going to be running low 60s in terms of gross margin. As far as the puts and takes within that, -- the new product launches, these higher-margin biologics launches that we've done have had the desired effect in terms of what they've done to our overall biologics product margins. However, what we've seen out of hardware is that really the nonproduct costs, say, excess and obsolete charges, for example, have offset to some extent, the positive contributions from those new biologics product offerings. So net-net, I think we're probably running low 60s in way of gross margin during the course of 2026.

Thank you, everyone. This does conclude our Q&A session at this time. This also concludes our conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Thank you.