Greetings and welcome to the Xtant Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host David Carey at FINN Partners. Thank you. You may begin.

Thank you, operator, and welcome to Xtant Medical’s third quarter 2021 financial results call. Joining me today is Sean Browne, President and Chief Executive Officer; and Greg Jensen, Vice President, Finance and 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 risk and uncertainties including those noted in the Risk Factor section of the company’s annual report on Form 10-K filed with the SEC on February 24, 2021 and 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 the tables of our press release and are otherwise available on our website. Note that our Form 8-K filed with our financial results, press release provides a detailed narrative that describes our use of such measures. For the benefit of those of you who may be listening to the replay, this call was held and recorded on Friday, November 12th at approximately 9:00 A.M. Eastern Standard Time. The company declines any obligation to update its forward-looking statements, except as required by applicable law. Now, I’ll like to turn the call over to Sean Browne.

Thank you, David. And good morning to everyone listening. In my comments this morning, I’m going to address the following. One, the impact of the COVID Delta variant on our business this past quarter, which was similar to its impact in other companies in the spine industry. Two, our Q3 revenue results, which on a relative basis were better than most of the market leaders in the spine industry. Three, our key growth initiatives and progress made on those initiatives. And then four, changes in our gross margin. Although I had hoped to never again, bring up COVID in the context of the company’s financial performance on a macro level, as we have seen with other medical technology companies that have recently reported the COVID Delta wave has had a negative impact on financial results across the board. Following our solid second quarter, the rapidly expanding Delta variant began to severely impact elective spinal procedures in some of our core markets. While July results were good overall, we’d actually met all of our internal financial goals. The months of August and September proved to be challenging. Despite those challenges, I am pleased with our top-line results. When comparing our top-line results against the leading players in the spine market on a relative basis, we outperformed or fared as well as the biggest names in our industry, which we feel can be attributed to our focus on key growth initiatives that have helped diversify our revenue stream. In the third quarter, we continue to make great progress against those key growth initiatives. Our focus on new product introductions, distribution network expansion, and penetration into adjacent markets, which will continue to diversify our revenue stream, have us poised to leverage our platform for growth and position the company for long-term success. In…

Thank you, Sean, and good morning, everyone. Total revenue for the third quarter of 2021 was $13.8 million compared to $14 million in the same quarter of the prior year. As Sean mentioned earlier, the revenue decrease was attributed to significantly lower sales from the distributor sales channel because elective procedures across our key markets were significantly impacted by COVID-19. However, on a positive note, we saw a significant increase in our OEM revenue during Q3, which we believe is an indication that our initiatives to expand into other vertical markets are showing early signs of success. We remain focused on future growth opportunities by expanding into a other adjacent markets. Gross margin for the third quarter of 2021 was 52.2% compared to 66% for the same period in 2020. The decrease in gross margin was attributed to three key factors, which include the shift in the sales channel mix, lower absorption of labor and overhead expenses. And finally, an increase in the excess in obsolete inventory expense. The shift in the sales channel mix was evidenced by the significant increase in OEM and private label sales combined with a corresponding decrease in the distributor sales channel. Since OEM and private label sales carry lower gross margins. The impact on gross margin was $500,000 or 3.4% of the total gross margin percentage decline. The lower absorption of labor and overhead expenses totaled $800,000 or 5.6% of the total gross margin percentage decline. The success of our inventory reduction efforts have decreased our finished goods inventory by $2 million. In addition, because we have reduced our production lead times from eight weeks to three weeks, it has enabled us to improve our working capital and equally as important has reduced our time to ship OEM customer orders from 90 days to…

Thank you, Greg. To summarize, we are pleased that our dedicated team continues their strong execution, against the persistent backdrop of the ongoing pandemic. Despite the broader market challenges, we plan to stay the course with our strategy, because we believe the pandemic related headwinds are temporary, and we are confident in the opportunities and benefits of our leading spine brand. With positive momentum from our actions earlier this year to increase our manufacturing capabilities and invest in our key growth initiatives, we believe we are putting the company in a position to grow top-line revenues over the long run. On a parallel track, we continue to optimize our manufacturing capabilities, which will allow us to meet additional demand while optimizing inventory levels. As we look beyond COVID and elective procedures begin to normalize, we feel Xtant is poised to benefit from the combination of the increased market access, newly introduced, differentiated products and ability to achieve scale. And finally, I’d like to end on a positive note, with a story that reinforces our mission. As we announce last month, we honored Samuel Lee Becker, a donor hero as part of our sponsorship of the 2022 Donate Life Float at the Rose Bowl Parade in Pasadena on New Year’s Day. Sam was a person who gave freely and frequently and had every intention of making the world a better place for everyone. Sam gave his time, money, smile, humor, compassion, empathy, and ultimately himself. Since his passing through bone and tissue donation, a part of Sam lives on and the patient recipients whose lives are greatly improved. Thanks to Sam’s gift. We are proud to celebrate the life of Sam Becker, whose extraordinary gift enables others to have a full life. Our support of Sam Donate Life and encouraged to hope, which is the title, the 2022 Donate Life Rose Bowl Parade float closely aligned with our mission of honoring the gift of donation by allowing our patients to live as full and complete a life as possible. Our thoughts, prayers, and appreciation are with the Sam and the Becker family. That concludes our call. Thank you for joining us today and for your continued support.

Thank you. This concludes today’s conference. Thank you for your participation. You may now disconnect your lines.