Bioventus Inc. Price & Performance (BVS)

Thanks for joining us. It is my pleasure to welcome you to the Bioventus twenty twenty four fourth quarter earnings conference call. With me this morning are Rob Claypool, President and CEO Mark Singleton, Senior Vice President and CFO Pablo will begin his remarks with an update on our business and lay out our 2025 priorities. Mark will provide detail on our fourth quarter results and discuss our 2025 financial guidance, [indiscernible] we will finish the call with Q and A. [indiscernible] The presentation for today's call is available on the Investors section of our website bioventis.com. But before we begin, I would like to remind everyone that our are based on the current expectations of management and involve inherent risks and uncertainties uncertainties that could cause actual results to differ materially from those indicated. Including the risks and uncertainties described in the company's filings with the SEC including Item 1A Risk Factors of the company's Form 10 ks for the year ended 12/31/2024, as such factors may be updated from time to time in the company's other filings made with the SEC. You are cautioned not to place undue reliance on any forward looking statement which speak only as the date may.

Although it may voluntarily do so from time to time. The company undertakes no commitment to update or revise the forward looking statements. Whether as a result of new information, future Bioventus, or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with U. S. Generally Accepted Accounting Principles or GAAP. [indiscernible] We will generally refer to these as non GAAP or adjusted financial measures. [indiscernible] Important disclosures about the definitions and reconciliations of those non GAAP financial measures to the most comparable measures calculated in presented in accordance with GAAP are available in the earnings press release on the Investors section of our website at bioventis.com. And now, I will turn the call over to Rob. Thank you, Dave. Good morning, everyone, and thanks for joining our call today.

I'm pleased to report that the BioVentis team delivered another strong quarter. Concluding a very successful and transformational year for our company. I want to express my gratitude to our talented team who embracing the improvements we are making across our company. And for helping over one million patients last year recover and live life to the fullest. Looking forward, we believe we're well positioned driving above market revenue growth through a multitude of diverse growth drivers for the short mid and long term, while also enhancing profitability, and accelerating cash flow to create significant shareholder value. Now that I've surpassed my one year anniversary with Bioventus, it's an appropriate time to briefly reflect on the meaningful progress our company has made to position us for continued success. I'll categorize our progress into three areas.

Strategy, people and execution. First, with respect to our growth strategy, we completed a comprehensive review of all of our markets and established a framework for sustained and profitable growth. This plan has aligned our entire organization around a common vision and is already serving as a strategic roadmap for organic and inorganic opportunities to optimize our portfolio, commercial and operational improvements, and select high ROI investments to support our business. Second, in terms of our people, we continue to strengthen the Bioventus team and enhance our culture. We are developing new capabilities internally and recruiting new talent that we believe possess the expertise, experience and the market knowledge necessary to maximize our growth prospects.

We are also improving an already great culture at Bioventus, and we have seen a significant increase in our employee engagement based on our recent survey. And with respect to execution, there's been a lot of progress. And so I'll highlight just a few areas. First, we delivered a strong financial performance in 2024. Including double digit organic revenue growth in all four quarters along with 150 basis points of adjusted gross margin expansion. [indiscernible] And we leveraged this combination to generate positive cash flow, improved liquidity. We also optimized our global portfolio with a successful divestiture [indiscernible] We aligned our commercial and operational strategies and priorities with targeted investments more disciplined focus enhanced accountability. And we have elevated the visibility and the collective ownership of the execution of our key initiatives to my entire executive leadership team. [indiscernible] While there's more work to be done, I'm pleased with the progress to date and believe we now have an even stronger foundation for sustained future momentum and success. Now I'll transition and briefly review our performance across the three priorities that I introduced at the start of last year. Accelerating revenue growth, improving profitability, enhancing our liquidity position. With respect to our first priority, accelerating revenue growth, for 2024, we exceeded our expectations.

Accelerated revenue growth to 12%. And delivered organic growth of 14%. And we ended the year with continued momentum and a strong performance in the fourth quarter with revenue growth of nearly 14%. I'll share just a few highlights. [indiscernible] Starting with Surgical Solutions, our team beat internal expectations and generated double digit [indiscernible] which achieved its highest quarterly growth rate of the year. In pain treatments, our portfolio for knee osteoarthritis also exceeded our internal expectations. And achieved another quarter of double digit growth driven by Duralane. And in Restorative Therapies, ExoGen generated growth in the fourth quarter despite a tough comp. And we are very pleased with accelerating growth to 7% for the full year 2024 after five years of declines in this business. Turning to our second focus area, boosting profitability. [indiscernible] With our peer leading gross margin, [indiscernible] our accelerated revenue growth, we generated adjusted EBITDA of $109,000,000 for the full year. An increase of 23% and we expanded adjusted EBITDA margin by 160 basis points This included a strong finish to the year as we generated adjusted EBITDA of $28,000,000 in the fourth quarter. Up over $6,000,000 versus prior year. And with respect to our third focus area, improving our liquidity position, I'm pleased to say that we paid down nearly $50,000,000 in debt in the fourth quarter. [indiscernible] This included the proceeds from the divestiture of our Advanced Rehabilitation business.

And as a result of our growth in adjusted EBITDA, and our debt repayment, we further reduced our net leverage ratio to slightly above three turns at the end of twenty twenty four. [indiscernible] representing a reduction of more than a full turn since the start of the year. [indiscernible] In summary, our team accomplished a great deal in 2024 but we are not satisfied with our progress as we strive to capitalize on our enormous potential to create even greater value for our stakeholders. Now I'll transition to our 2025 financial priorities. Which are: one, driving above market growth two, continuing to expand our profitability and three, accelerating free cash flow generation. [indiscernible] Let me provide further context on these three areas. First, across our diverse portfolio, we participate in large growing markets with favorable demographic trends. On average, these markets are growing low to mid single digits.

However, given our strong clinical differentiation, enhanced commercial execution, [indiscernible] believe we have demonstrated our ability to grow at a higher rate and achieve above market revenue growth. Let me take a moment to highlight some of the opportunities in front of us. Starting with Surgical Solutions, this is our highest growth business today. It includes both ultrasonics and bone graft substitutes, and we project long term double digit growth. With Ultrasonics, we are in the early stages of penetrating the $1,000,000,000 market opportunity across spine, neuro and general surgery. Customers I've met with over the past year have referred to our technology as revolutionary because it provides control and precision for surgeons, reduces blood loss for patients and decreases time in surgery which enables hospitals to improve operating room productivity. It's for these reasons that we believe we can make our technology the standard of care. We recently brought on new leadership over this business to capitalize on this substantial opportunity. And we are focusing our efforts in several key areas. Including strategic marketing, commercial effectiveness and medical education, to raise awareness about the benefits of ultrasonic surgery versus current practices. In addition to ultrasonics, our OsteoAmp portfolio enables us to continue growing our bone graft substitutes business above the market growth rate.

OsteoAmp provides similar results for a large number of spinal procedures as compared to the leading product in the premium segment and delivers material savings for hospitals. In the pain treatments business, we are an established market leader in for knee osteoarthritis. We are driving above market growth and we will continue to enhance our commercial execution and expand our footprint within large customer accounts. Looking ahead, we are confident in our ability to drive sustained above market growth with our clinical differentiation dedicated commercial team, robust private payer coverage and targeted opportunities for geographic expansion. [indiscernible] And with restorative therapies, We're focused on capitalizing on our clear momentum with Exogen, and driving sustained profitable growth. With a market growth rate in the low single digits, we believe we can grow Oxygen annually in the low to mid single digits.

And the team is working hard to achieve the upper end of that range. Our second focus area is to continue to improve our profitability. Last year, we demonstrated how the powerful combination of pure leading gross margin, with above market growth can drive meaningful margin accretion. We will focus on preserving our high gross margin with supply chain improvements we remain committed to growing our bottom line faster than our top line. Consequently, as we have already mentioned publicly, our goal is to deliver 100 basis points of incremental And our third priority for 2025 is continuing to accelerate the free cash flow. In 2024, our cash from operations more than doubled. And we believe that we will further accelerate cash generation and have the opportunity for it to nearly double again in 2025. We plan to achieve this by increasing EBITDA reducing one time cash costs, managing our working capital as and lowering interest expense. In conclusion, we made significant progress in transforming BioVentis in 2024. And we exceeded our financial expectations. But this is just the start of what we can achieve. I'm confident that with strong focus and disciplined execution, we we will continue to advance our business I'll turn the call over to Mark.

Thank you, Rob, and good morning, everyone. Let me begin by saying I am very proud of our ability to deliver on our 2024 financial commitments and the progress our team made to continuously improve our business. Turning to our results for the fourth quarter, revenue of $154,000,000 increased 14% and adjusted EBITDA of over $28,000,000 grew $6,000,000 reflecting a 28% increase compared to the prior year. Surgical Solutions revenue accelerated by 18%. [indiscernible] the second consecutive quarter, our ultrasonics revenue advanced by more than 20%. With respect to bone graft substitutes, we are on track to add new customers as we onboard new distributors while at the same time we are increasing the productivity of our existing distributors. As a result, we expect BGS to return to double digit growth in the second half of twenty twenty five. In pain treatments, positive momentum continued as revenue increased 17%.

Compared to the prior year.

As we previously mentioned, DuraLANe's strong brand recognition and clinical differentiation along with the strength of our team's commercial execution is enabling us to gain share and grow faster than the overall market. For single injection treatments. Sales for the fourth quarter also benefited by up to $2,000,000 due to a higher year end orders by certain distributors.

Consequently, our first quarter twenty twenty five growth expectations for will have this headwind as these distributors lower their inventory to normal levels.

Shifting to restorative therapies, sales were flat compared to the prior year as growth in exoGen was off while we divested in the fourth quarter. Going forward, we remain optimistic about our ability to drive consistent growth in ExoGen. Through our demonstrated improvement in sales force execution, and the impact of additional resources to assist our sales team. Finally, our international segment grew 11% compared to the prior year as we benefited from shipments in our ultrasonics business that were delayed earlier in the year. Moving down the income statement, adjusted gross margin of 74% expanded two thirty basis points compared to last year as we experienced transitory inventory write offs in the prior year. In line with our expectations, adjusted total operating expenses rose by nearly $10,000,000 compared to the prior year. As we increased investment and strategic growth initiatives and spending normalized from the reduced levels we operated with a year ago. Now turning to our bottom line financial metrics. Adjusted operating income increased 34% to $26,000,000 from $20,000,000 in the prior year. Adjusted net income of $13,000,000 more than doubled in and adjusted earnings per share were $0.15 for the quarter.

Almost more than doubled compared to the prior year.

Now shifting to the balance sheet and cash flow statement. We ended the quarter with $42,000,000 of cash on hand and $336,000,000 of outstanding debt. During the quarter, we repaid $48,000,000 of debt. From free cash flow and acquisition proceeds. As anticipated, we ended the year with no amount drawn on our revolving credit facility. [indiscernible] Operating cash flow represented an inflow of $19,000,000 which was an 86% higher than the fourth quarter last year. We forecast further accelerating our cash generation in 2025 and expect free cash flow to nearly double compared to 2024. Through adjusted EBITDA growth and debt pay down, we continue to lower our net leverage ratio. And as Rob mentioned, our leverage ratio at the end of the year as defined in our credit agreements was just above three times net debt to adjusted EBITDA. [indiscernible] and we have increased our liquidity meaningfully. We are confident in our ability to continue to reduce our net leverage 2.5 times by the end of twenty twenty five. Finally, let me lay out our 2025 financial guidance and provide some additional color on our guidance for the year. Based on current trends in our business, we expect net sales to be in the range of $560,000,000 to $570,000,000 reflecting above market organic growth of approximately 6% to 8%.

Organic growth adjusts for the divestiture of the Advanced Real Rehabilitation business that generated approximately $45,400,000 of revenue For the year, we expect adjusted EBITDA to be between $112,000,000 and $116,000,000 This represents growth in the range of 8% to 12% when adjusting for the impact of Advanced Rehabilitation business which generated approximately $5,000,000 of adjusted EBITDA in 2024. Finally, we expect adjusted earnings per share of $0.64 to $0.68 an increase of 31% to 39%. In line with the cadence established in prior years we expect revenue and adjusted EBITDA to be the lowest in the first quarter of twenty twenty five and to be the highest in the fourth quarter. To elaborate further, we expect first quarter organic revenue growth to be below our implied guidance range of 6% to 8% given the strong finish in Q4 primarily in the business as we mentioned earlier. Including two fewer selling days. And given the strong adjusted EBITDA performance in the first half of twenty twenty four, the timing of our growth investments and the return to normalized spending levels across our business our projected adjusted EBITDA is expected to be lower than the prior year during the first half of twenty twenty five and significantly higher in the second half of twenty twenty five.

Lastly, as we accelerate investments during the year, and as revenue increases, we expect to see a slight increase in quarterly operating expenses throughout the year. In closing, the execution of our business plan over the past year has significantly strengthened our growth, profitability and liquidity position. Looking forward, we are excited about the long term potential as we strive to become a $1,000,000,000 high growth high margin, high cash flow medical device company. Operator, please open the line for questions.

The first question comes from Chase Nickerbocker with Craig Hallum. Please go ahead.

Good morning, guys.

Thanks for taking the questions and congrats on the great results and guidance here. Maybe just first from me. Can we just just maybe for Mark, maybe just walk through the guidance assumptions by segment? In 2025. Sorry if I missed that. But should we be thinking about it kind of consistent with kind of prior messaging, call it mid to high single digits in pain, which was kind of like longer term how we're thinking about the business? Low double digits in surgical and then call it low single digits in restorative, maybe just give us a a specific update there what the assumptions are?

Yes, Chase, thanks. Appreciate your comments. Really, we focus on toy 2025, the full year guidance. We feel really good about the midpoint of our guidance of 7%, which is which is clearly above market. And obviously, we had a great year in 2024 where it was significantly above market as well. I think when we think about it and break it down by segment, it's pretty consistent with what you said. We're looking from a pain treatment above market growth. When we look at our restorative therapies segment, that's a low single digits. And then we look at our strong surgical portfolio with both Ultrasonics and BGS, those are expected to be double digit growth as well. So we really feel good about the short term growth drivers and the longer term growth drivers that we have in the business. And are very positioned very well to drive the above market growth and 2025.

And Rob, if we look at pain, the performance in that business is far away better than peers. And you've got competitors kind of shifting strategy, pricing and such things. I guess just how should we think about and DuraLane performance in 2025? I mean are you seeing impact from some of these market shifts so far in the year? Or are you pretty insulated this point with your contract and access position with Duralin?

Yes. Thanks, Chase. We feel great about the business. What our guidance implies is growing above the market, roughly And keep in mind that's very volume based. As it relates to price, we're very focused on price. We're analytical, we're strategic and we're very disciplined with our pricing. And and we closely monitor what our competitors are doing as well. At this point for 2025, we expect that our growth is going to be driven by volume again. And that price will be fairly stable when you consider the entire year. So feel good about the the clinical differentiation and the awareness of that just continues to spread along with our large dedicated commercial team that every day is focused on this business. And And then last, that strong private payer contract base that we have. So again feeling good about generating that above market growth driven by volume.

And just last for me, 3x leverage now, 2.5 by the end of the year. I mean, when should investors be thinking thinking about kind of capital allocation priorities shifting And how do you see that kind of developing over the next call it eighteen months?

First, let me talk broadly about that. We're really pleased with continuing to deliver on the commitment that we've mentioned to you in the beginning of last year. And which is to lower our debt. And that gives us this both flexibility both strategically and financially. It's a and we like to as I've said before too, we like the potential of our current diverse portfolio to drive really exciting growth in the short, mid and long term. So we have this combination of increasing financial flexibility and at the same time that we can be really selective with any portfolio expansion opportunities we have, which is a great combination. So that means that as it relates to the portfolio, we'll pursue something only if it fits within our portfolio strategy perfectly. Mark, anything to add to that? No, I think that's perfectly said. And right now, we just demonstrates the progress that we have made in the business with the strengthening and acceleration of cash flow, it gives us some lots of options, but we're still remaining very focused on executing the business and delivering on the goals we have and we'll continue to evaluate opportunities that come forward with a very critical eye and understanding that leverage just the footprint that we already have in the the with our sales forces in those call points.

Thanks guys. Congrats again. [indiscernible] The next question comes from Robbie Marcus with JPMorgan. Please go ahead.

Hi, this is Ashley Lilly on for Robbie. Thanks for taking the question.

You talked a bit about some of those transitory supply challenges impacting the bone graft substitute business So how are you thinking about that trending this year? What's assumed in guidance? And how much confidence and visibility do you have to getting to that double digit growth in the back half? Hi, Lily. This is Rob. Thanks for the question. We feel really good about the bone graft substitutes business. It faced challenges as we mentioned in the middle of last year because of the supply challenge, which then because of that, we slowed our onboarding of new customers through distributor agents. And as we mentioned in the last call, we overcame those supply challenges and have been driving new customers since that time. So still ramping up with that. We feel really good about that. At the same time, what we saw in the fourth quarter was increased productivity from our existing distributor agents. So we have the combination of both productivity from existing and ramping up with Nuance. So and then from a guidance standpoint, as Mark alluded to, for overall for the surgical business, we expect a good double digit growth, both in the short and the long term for that business.

Got it. And then it seems like Exogen could really be turning point now. So could you talk about some of the trends that you've been seeing there now that the business has sort of stabilized and the confidence that you have in that business staying in growth mode in 2025? Thanks so much.

Yes, thank you. Yes, we're really excited about the XGM business. This is a great technology. Clay, and they've been declining for five years. And as we mentioned that was not because of the market, it was because Bioventus had [indiscernible] And and also made some strategic investments and we saw the impact from that. In the the investments were rather small and the team has just done a fantastic job with that business. So we feel like we're in control of this business. We turned it around as I mentioned to the 7% growth last year. And now with the market growing in the low single digits, we as we mentioned, we expect it to grow in the low to mid single digits. And of course, we're going to work hard to achieve the upper end of that range. So really this one is just about maintaining the focus that we've restored to the business and doing the fundamentals really well. And with that, we feel like we're in control of continuing to drive profitable growth with that business.

Great. Thank you.

The next question comes from Caitlin Cronin with Canaccord Genuity. Please go ahead.

Hi, congrats on a great If you could just maybe break down within teen treatment the expectations within your three products? So So how the growth is expected to trend there?

Yes. Caitlin, this is Mark. Thank you for the question. Within pain treatments, obviously, our portfolio and significant percentage of our revenue is Endurolane, which we continue to be really successful with. One, the market moves that way, is moving towards a single injection.

We're clinically differentiated with that product. The sales force that we have, the drives and sells around the private payer contracts, which we've really feel we have a strength of and a little bit different than some of the competitors out there. We look at Gelson, that's a lot more price sensitive product than what Duralane is. And we've continued to be very disciplined measured in the opportunities that we engage in with that. So it's more declining from an overall revenue Gelson as well. And so that's where some of the over this is in the new news for 2025 or 2024, but it is a little more price sensitive, but we can anticipate in that market and have some headwinds there. But overall, we still feel strong about the portfolio. And soup parts continues to be a steadfast product year over year at continues to be a strong part of the portfolio.

Caitlin, this is Rob. Just to clarify there, Mark mentioned, transitioning into DuraLay, just for clarity. [indiscernible] Yes, you're saying the revenue from that over time kind of just transitioning more into [indiscernible] Yes, just in line with the overall category of shifting to single injection, but also our efforts internally are to continue to shift to DuraLane, just given, again, the very strong combination that we have with that business.

Got it. Got it. Thank you. And then Rob, just with your expertise you've really highlighted OUS as an opportunity going forward. Any more color on how you will drive OUS expansion in 2025 and beyond?

Yes, thanks for the question. Yes, we continue to be really optimistic about the international business. We're bringing in a new person to lead our international business, joined shortly to leverage big opportunity that's in front of us. But at the same time, when I recognized last year is that it's going to take more work and more time than than than just 2024 alone. So very optimistic about it. What we're going to do is be quite targeted in our geographic expansion internationally. Mentioned a number of times that we want to make high ROI investments and with international that's critical to make sure we understand the markets, which business are more most eligible for those markets and what our specific go to market strategy is, before we start to put the investment in place to drive that accelerated growth. So overall, optimistic about it and excited for the new leader to start as well.

Awesome. And then just one more for me. On Ultrasonics. You talked about expanding to general and neurosurgery. What's the timeline for those opportunities?

Well, we already have the portfolio for both neuro and for general search and we have a presence in those segments right now. But what we've been primarily focused on is the spine segment given both its size and our bone cutting technology. So just to make sure that we don't dilute our resources, we've been mostly focused on that segment. We started to introduce to the team this year opportunities that exist within neuro and general surgery and And so we'll start penetrating those segments. But again, this will be the number one priority for us by far will remain in the spine segment. What I would expect is that in the outer years and 2026 and beyond that we ramp up more seriously in those segments.

Thanks so much.

Thank you.

This concludes our question and answer session. I would like to turn conference back over to Rob Claypool, for any closing remarks. Okay. Thanks everyone for your interest in Bioventus. Once again, we delivered a strong performance throughout our business in the fourth quarter and we are confident in our ability to build on our momentum to deliver above market revenue growth improve profitability and accelerate our cash flow to create significant shareholder value.

The conference has now concluded. [indiscernible]