Item
2.02 Results of Operations and Financial Condition.
On
November 12, 2021, Xtant Medical Holdings, Inc. (the “Company”) announced its financial results for the third quarter ended
September 30, 2021. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this
Current Report on Form 8-K.
The
information in Item 2.02 of this report (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section,
nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except
as expressly provided by specific reference in such a filing.
To
supplement its consolidated financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”),
the Company uses certain non-GAAP financial measures, such as non-GAAP adjusted EBITDA, which are included in the press release furnished
as Exhibit 99.1 to this report. The Company’s non-GAAP adjusted EBITDA is calculated by adding back to net loss the charges for
other expense, depreciation and amortization expense, interest expense, and tax expense and further adjusted by adding back in or excluding,
as appropriate, non-cash compensation, separation-related expenses and litigation settlement reserves.
The
Company uses adjusted EBITDA and the other non-GAAP measures in making operating decisions because it believes these measures provide
meaningful supplemental information regarding its core operational performance. Additionally, these measures give the Company a better
understanding of how it should invest in sales and marketing and research and development activities and how it should allocate resources
to both ongoing and prospective business initiatives. The Company also uses these measures to help make budgeting and spending decisions,
for example, among sales and marketing expenses, general and administrative expenses, and research and development expenses. Additionally,
the Company believes its use of non-GAAP adjusted EBITDA and other non-GAAP measures facilitates management’s internal comparisons
to historical operating results by factoring out potential differences caused by charges not related to its regular, ongoing business,
including, without limitation, non-cash charges and certain large and unpredictable charges.
As
described above, the Company excludes the following items from its non-GAAP financial measures for the following reasons:
Non-cash
compensation. The Company excludes non-cash compensation, which is a non-cash charge related to equity awards granted by the Company.
Although non-cash compensation is a recurring charge to the Company’s operations, management has excluded it because it relies
on valuations based on future events, such as the market price of the Company’s common stock, that are difficult to predict and
are affected by market factors that are largely not within the control of the Company. Thus, management believes that excluding non-cash
compensation facilitates comparisons of the Company’s operational performance in different periods, as well as with similarly determined
non-GAAP financial measures of comparable companies.
Separation-related
expenses. The Company excludes separation-related expenses from non-GAAP adjusted EBITDA primarily because such expenses are not
reflective of the Company’s ongoing operating results and are not used by management to assess the core profitability of the Company’s
business operations. The Company further believes that excluding this item from its non-GAAP results is useful to investors in that it
allows for period-over-period comparability.
Litigation
settlement reserves. The Company excludes litigation settlement reserves from non-GAAP adjusted EBITDA primarily because such reserves
are not reflective of the Company’s ongoing operating results and are not used by management to assess the core profitability of
the Company’s business operations. The Company further believes that excluding this item from its non-GAAP results is useful to
investors in that it allows for period-over-period comparability.
Non-GAAP
adjusted EBITDA is reconciled to net loss, the most directly comparable GAAP measure, in the press release.
Non-GAAP
financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures
used by other companies. In addition, non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules
or principles. Accordingly, the calculation of the Company’s non-GAAP financial measures may differ from the definitions of other
companies using the same or similar names, limiting, to some extent, the usefulness of such measures for comparison purposes. Non-GAAP
financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s financial results
as determined in accordance with GAAP. Non-GAAP financial measures should only be used to evaluate the Company’s financial results
in conjunction with the corresponding GAAP measures. Accordingly, the Company qualifies its use of non-GAAP financial information in
a statement when non-GAAP financial information is presented.