Greetings, and welcome to the Xtant Medical’s Fourth Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rich Cockrell, President of the Cockrell Group. Thank you, you may begin.

Thank you, Christine, and good morning, and thank you for joining us today for the Xtant Medical Holdings fourth quarter 2015 and full year 2015 results conference call. With me on the call today are Dan Goldberger, Xtant's Chief Executive Officer and John Gandolfo, Chief Financial Officer. Yesterday afternoon, the Company was pleased to issue a press release announcing record fourth quarter 2015 financial results. Today's call is being webcast and it also include a slide presentation, which has been posted to the Company's website. Following remarks by management, the call will be open to your questions and we expect the duration of the call to be approximately one hour. Now, during the course of this call, management may make certain forward-looking statements regarding future events and the Company's future performance. These forward-looking statements reflect Xtant's current perspective on existing trends and information which can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend and other words of similar meaning. Any such forward-looking statements are not guarantees of the future performance and involve certain risk and uncertainties included in those notes in the Risks Factor section of the Company's most recently Annual Report on Form 10-K. In addition, any unaudited or pro forma financial information is preliminary and does not purport to project the future financial position or operating results of the Company. Actual results may differ materially. For the benefit of those of you who may be listening to the replay, this call was held and recorded on Wednesday, March 16, 2016 at approximately 10 AM Eastern Time. Since then, the Company may have made additional announcements related to the topics discussed herein. Please reference the Company's most recent press releases and current filings with the SEC. Xtant declines any obligation to update these forward-looking statements except as required by applicable law. With that, I'd like to turn the call over to Dan. Go ahead, Dan.

Thank you, Rich, and thank you all for joining us today. So we can discuss another record-breaking quarter. You’ll recall that we combined publicly traded Bacterin with privately held X-Spine Systems last summer. That transaction was closed on July 31, 2015. We changed the name of the combined company to Xtant Medical Holdings Inc. and moved up to the New York Stock Exchange under the XTNT ticker soon after that. Today, the company is led by myself as CEO, David Kirschman MD as Executive Vice President and Chief Scientific Officer and our CFO, John Gandolfo. We currently have three locations, most of our hardware fixation products come from our plant outside Dayton, Ohio. We have a state-of-the-art tissue processing facility outside Bozeman, Montana. We also have administrative offices outside Denver, Colorado that have certain finance and marketing functions. Last night we announced another record-breaking quarter with combined company sales of $22.3 million and 14% year-on-year growth. We’ve now demonstrated two consecutive quarters of mid-teens revenue growth since the combination was closed while integrating businesses of similar size. I am thrilled that the hard work and cooperation demonstrated by our team of dedicated employees has generated outstanding results in such a short time. Full year 2015 revenues was $86.5 million, on a pro forma combined basis and $81.4 million if you back out X-Spine’s legacy OEM business. That represents a very healthy 14.8% year-on-year growth on a pro forma combined company comparison. As you’ll see, when we discuss guidance, I’d fully expect that we can maintain our mid-teens growth through 2016. We’ve largely completed the integration of our two businesses. When John explains the financial statements later in the presentation you’ll see that we’ve set the stage to materially streamlined operations to 2016 and beyond. Xtant today offers a full catalogue…

Thank you, Dan. Before I get started, I want to remind everyone that we are comparing actual fourth quarter 2015 results to pro forma results of prior periods as it’s the Bacterin subsidiary and X-Spine subsidiary would combine to these prior periods. Total fourth quarter 2015 revenue increased $22.3 million from pro forma $19.5 million in the prior year, an increase of 14.1% between the two periods. Fourth quarter 2015 gross profit was approximately $14.9 million, compared to pro forma $13 million for the comparable prior year period, an increase of 14.9%. Fourth quarter 2015 gross margin increased to 67% from 66.5% in the fourth quarter of 2014. On a pro forma basis, full year 2015 revenue increased 11.4% going from $77.7 million in 2014 to $86.5 million in 2015. Pro forma 2015 gross profit increased 10.5% to $56.6 million from $51.2 million for the full year 2014. Slide 17 outlines selected profit and loss statement information on the company on a pro forma basis. We’ve already reviewed the revenue and gross profit information. So I’d like to turn the focus on the EBITDA figure which is the best measurement of the company’s operating performance. For the fourth quarter of 2015, EBITDA was a loss of $350,000 compared to a pro forma gain of $403,000 in the fourth quarter of 2014 due to higher sales and marketing expense and G&A expenses in the fourth quarter of 2015. For the full year 2015, on a pro forma basis, the company was EBITDA breakeven and this compares 2014 EBITDA gain of $3.9 million and this is due largely to increased staffing at both companies which occurred prior to the closing of the acquisition. Slide 18 shows the balance sheet comparison between December 31, 2015 and December 31, 2014. At December 31, 2015,…

Thank you, John. Xtant has a tremendous future ahead of us, now that the hard work of integrating Bacterin and X-Spine is largely complete. There are multiple growth drivers at work here. In the short run, we will leverage the portfolio selling opportunity along our existing field sales agents’ customer base. We are also going to invest additional working capital to deploy more consigned inventory and instrumentation kits. These two activities will lead to accelerating revenue growth later in 2016 as we enter 2017. Longer-term, we are going to continue to invest in our products and technology platform under David’s leadership. 3Demin and Silex are already contributing material revenue and I expect great things from Aranax, OsteoSelect Plus and Atrix-C as we can rollout those products through the rest of the country later in the year. We are also improving our clinical and customer service so that we can continue to offer best-in-class support to our customers. In summary, we’ve largely completed the integration of X-Spine and Bacterin and we are moving forward as a single company. We expect to be able to drive mid-teens revenue growth in our core end-user sales business through 2016 and into 2017. Management is focused on our non-GAAP profitability metrics and we know that incremental revenue beyond our breakeven runrate of $25.5 million per quarter has tremendous leverage on operating income. Thank you all for your kind attention and we’ll turn it over to questions right now.

Thank you. [Operator Instructions] Our first question comes from the line of Jason Wittes with Brean Capital, please proceed with your question.

Hi, thanks for taking the questions. Just first on the – in terms of the cross-selling for the sales force, how long do you anticipate it’s going to take for each site to be fully proficient with the other sites portfolio?

Jason, it’s a lot of people to get trained and our training schedule rolls through July of this year and once everybody is trained, they go back in the field and it takes them a little bit of time to fill up their funnel. So it’s going to be a steady increase, we are rolling through between 8 and 12 trainees per week all the way through the year. So it really starts to gain traction in the third quarter end as we exit the year. That said, I showed you some hospital customer numbers that are pretty encouraging for January and February of this year.

Well, yes, that’s true and actually on that front for hospitals, do you have any kind of outlook or goals for in terms of the number of hospitals you can penetrate this year or related, how many additional distributors you look to bring on this year?

So, because we’ve got this sort of large training bogie right now, my expectation is that we are going to remain relatively flat in terms of the number of field sales assets. And our model shows us being relatively flat in terms of the number of hospitals although – our momentum in the current quarter has exceeded my expectations.

Okay. So, I guess, given that sort of cascade, this will be somewhat of a back-end loaded year, is that the way to think about it?

Yes, yes.

Okay, and then, you mentioned portfolio sales in your targets, I think you said it was about 3.5% right now, and your goal was 10%. Was it Aranax - I am not…

Yes, so our goal is that, the core businesses have been growing in sort of low teens and we expect that to continue that momentum. And we’d like to see the portfolio selling at 10 to 12 basis points on top of that as we exit the year.

Exit the year, but longer-term, I mean, what kind of goal do you have longer-term for that?

Longer-term, I’d like to see at least 30% increase in revenue derived just from the increased number of cross-trained sales assets.

Okay, this would help. And then, I recall last year you had some supply constraints on 3Demins, it looks like you invested in some infrastructure of its supply constraints, is that will be an issue for the prep product this year?

Yes, for the first half of this year, yes.

And to give us a sense on Silex, it sounds like those sales continues to accelerate. I don’t know if you can try anymore color of that product that’s kind of a unique product within your portfolio?

Yes, so, no, we are not prepared to provide any of that product line detail at this time.

Okay, I’ll jump back in queue. Thanks a lot guys.

Thanks, Jason.

Our next question comes from the line of Suraj Kalia with Northland Securities. Please proceed with your question.

Good morning everyone.

Good morning, Suraj.

So, Dan, couple of questions for you and couple of questions for John. In terms of – and forgive me if you all have already mentioned this, Dan, I remember in Q3, there was this number 3% thrown out in terms of cross-selling activities, maybe I am just rephrasing Jason’s question to a certain extent. Could you give us some color of how much do you think you all are – your reps are cross-selling between X-Spine and organic Bacterin?

So, the number for Q4 2015 was a little over 3%. Let me restate that to little over 3% of our revenues at $22.3 million was legacy X-Spine reps selling biologics and vice versa. In the current quarter, one of our slide shows an increase in the number of hospitals in January and February that have purchased products from both product lines.

Okay. Okay, and in terms of FY 2016 guidance, Dan, or John for that matter, I know you haven’t given the break out between X-Spine and organic Bacterin. How should we think about that? I mean, when the deal was consummated, there was certain CAGRs given that were either components of the business, how do you all think now that you know you are now almost two quarters into the launch?

So, the company has - the combined company has 18 major product lines and then within those product lines, there are a variety of sub-categories and we are managing the business in two ways. We are looking at product line trends. Now, for example, Silex is a product line, Axle is a product line, OsteoSponge is a product line and then we also look at individual sales rep performance and we slice the data both ways. We are specifically – since we’ve integrated the sales function and now we’ve integrated many of the other functions of this company, we are not managing the business in terms of legacy Bacterin or legacy X-Spine.

Got it. But, Dan, you all – I presume you all don’t want to give additional color, okay, got it in terms of X-Spine and backing that, understood. John the gross profits – the gross margins are slightly better than what we were expecting. Can you give us some underlying themes here at least on the gross margin line and how should we look at FY 2016? I know you all haven’t specifically provided guidance, but I am just curious how should we – is this a good benchmark or was this an anomaly?

No, no, we think that it’s a good benchmark, especially starting out for 2016, we expect gross margins of 66 to 68 type percent. As we grow revenues throughout the year of 2016, we do expect those gross margins to expand probably to the very high 60s percent. We don’t believe that this year that’s going be 70%, but we do expect expansion. So I think a good way to look at it is, continuing in that 67% range for the first quarter and expanding as we go to the second, third and fourth quarter. In terms of the other expenses in the company, we expect G&A expenses to remain in line with what the actual 2015 number was and with respect to R&D expenses, we also expect those to be slightly above where they were for last year. So, the game plan in order to get to that positive EBITDA, positive non-GAAP profitability is, continuing to increase the revenues as we go forward. Getting margin expansion on gross margins, keeping G&A and R&D at the current levels and then having a reduced sales and marketing expense as a percentage of revenues as that revenues increase.

Got it. So, Dan, would it be – the number, $25 million always comes to mind in terms of – I think it’s a break-even at these GAAP breakeven of close thereof. Do you think that’s still – just given, it looks like you are looking to improve on the gross margin line as OpEx remains relatively stable. Are we pushing GAAP breakeven a little sooner than the $25 million bogie? Thank you for taking my questions.

Yes, so, so first of all, it’s non-GAAP breakeven. There is still a variety of non-cash items that flow through the income statement. But we are focused on our definition of non-GAAP profitability and breakeven which is really a measure of cash after debt service. And our current guidance is $25.5 million, that’s where that breakeven occurs where we can fully cover all of our debt service and our fixed expenses. And – but you are correctly pointing out that there are reasons why that would happen at a lower runrate.

Thank you for taking my questions.

Thank you, Suraj.

Our next question comes from the line of RK with HC Wainwright. Please proceed with your question.

Good morning gentlemen. Great year and 2015 this lot of changes in the firm and I think some of them or actually most of them have gone well in the right direction. For the coming year, 2016, what are the things that can happen that can even do better than the mid-teens growth rate that you are expecting and the three new products that you launched, what are some of the things that can happen which that looks better than and what you are expecting?

So, yes, thank you for the question, RK. There is tremendous enthusiasm and momentum in our sales channel right now. Frankly, we need to throttle that somewhat, because of our working capital – just the amount of working capital that we can deploy. But there is tremendous upside as we can invest additional cash into working capital to deploy more inventory and support that momentum. The new products we’ve launched are very exciting. OsteoSelect Plus could be as large or larger than OsteoSponge. 3Demin still has a lot of momentum behind it. The same thing with Aranax and Silex, both of those products are still in their very early stages of being rolled out. And as I mentioned in the script, David has some very exciting new entries that we may be able to announce here before the – sometime in the second quarter. So, all of those can be accelerators if we have the working capital to invest in them. There is another element that we don’t talk about much which is, ex-US sales, very small percentage of the business currently comes from outside the US as we roll into the second half of the year, we’ll start to set the stage for some international business in 2017 and beyond.

Fantastic. And then, on – I know John gave some color on the Xtant lines, but at the same time you are also seeing that you want to keep the sales force flattish over the coming year. So, I am just trying to triangle at these things such a way that you are expecting revenue growth, you are keeping your sales force flattish. So does that mean you are already starting to see some increase in the efficiency of the sales force and you expect that to be growing at a higher pace than what happened by the end of 2015?

Absolutely, we are optimistic. We’ve – right now, we are working our way through a pretty substantial training activity and as folks rotate through training and pick up the other half of the catalog that they aren’t really selling yet, we do expect substantial efficiencies both by whatever metric, we are able to – if we do this portfolio selling properly, we ought to be able to increase the average revenue per procedure which increases the efficiency of the sales guys, allows them they earn big commissions as well as generates more distribution efficiencies for the company.

Thank you. That’s it for me.

Thanks, RK.

Thanks, RK.

Our next question comes from the line of Sherry Grisewood with Dawson James. Please proceed with your question.

All right, thank you for taking my questions. I’d be interested in getting a little bit more color around your statement about deploying more inventories. Is this been a material constraint in sales growth and is there a factor 1.2, 1.5 times current inventory level where you feel you are actually maximizing both the sales cycle and the demand?

Hi, Sherry, and thanks for joining the call. The business model is conscience inventory. So every time we open up a new hospital or we open up a new doctor within an existing hospital, we need to deploy finished goods inventory and surgical tools to that site to service that physician and that’s where the working capital increase comes in. So it scales 1 to 1 with revenue growth.

Okay.

If we are planning to grow at a 15% rate, and we need to plan for approximately a 15% increase in our total working capital to service those new customers.

Okay. Follow-up question, what was the single best selling product in Q4?

So, OsteoSponge, which is our proprietary biologic configuration represents 22% to 23% of our total revenues.

And do you see that percentage of sales attributable to that product staying the same over 2016 or are you anticipating a material product mix shift?

So, we do not anticipate a material product mix shift. However, some of our newer products like, 3Demin and Silex have been supply site limited and as we limit, as we remove those supply constraints, I think, those newer products are going to grow disproportionately fast, but from smaller numbers.

Yes, but the OsteoSponge product is going to maintained on an absolute basis to current sales levels to slightly increased levels.

Okay. Thank you very much.

Thanks, Sherry.

[Operator Instructions] Thank you. Mr. Goldberger, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you, Christine and thank you all for your kind attention and we’re looking forward to a great 2016. Have a good day. Thank you.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.