Bioventus Inc.

Good afternoon and welcome to the BioVentus, Inc. first quarter 2023 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Dave Crawford, Vice President, Investor Relations. Please go ahead.

Thanks, Chad. Good afternoon, everyone, and thanks for joining us. It is my pleasure to welcome you to the BioVenice 2023 First Quarter Earnings Conference Call. With me today are Tony Beale, CEO, and Mark Singleton, Senior Vice President and CFO. Tony will begin his remarks with his perspective on our business, lay out our current priorities, and then we'll review the quarter. Mark will offer further detail on our first quarter results, and we will finish the call with Q&A. A presentation for today's call is available on the investor section of our website, bioventus.com. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and 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 Securities and Exchange Commission, including item 1A risk factors of the company's Form 10-K for the year ended December 31st, 2022, as well as our most recent 10-Q and other company's filings made with the Securities and Exchange Commission. Your caution not to place undue reliance upon any forward-looking statements which speak only at the date made. 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 events, 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. We generally refer to these as non-GAAP or adjusted financial measures. Important disclosures about and definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website at bioventus.com. Now I'll turn the call over to Tony.

Well, thanks, Dave, and good afternoon, everyone. Thank you for your continued interest in BioVentus. Let me begin by saying that I'm thrilled to be back leading BioVentus and its talented team Before discussing the quarter's performance, I want to take a few minutes to discuss my perspective on our business since returning and to lay out our priorities for the remainder of the year. Over the past month, I've had the opportunity to reconnect with employees from across the company, meet new members of the BioVentus team who joined since my retirement in 2020, and to understand their perspective on our business. Despite the near-term challenges, I am confident in the revenue and earnings growth opportunities and our ability to reduce leverage as we move forward. Across our business, we participate in large, growing markets and provide innovative, differentiated products for our patients. Most importantly, we have a dedicated team of employees who truly understand our current challenges and are focused on execution, delivering on our commitments and enhancing our business. My role is to stabilize the team, to build on the positive elements of our profitable growth plan, and then quickly focus on action plans to address issues that are impacting our profitability and predictability. In returning as CEO, my leadership team and I are prioritizing the here and now and look to aggressively address the issues impacting our recent performance. Our attention will be on ensuring we deliver not just growth, but profitable growth, and we have a laser-like focus on remaining compliant with covenants of our amended bank loan and driving down leverage. While we will not reverse all the headwinds of the past year in a single quarter, we believe we will, over the course of the next several quarters, rebuild our balance sheet and look to regain credibility with our investors. Over the remainder of 2023, we'll prioritize the following strategic areas. First, dissecting the impact of the recent headwinds in our HA franchise and executing the necessary actions to improve our business and predictability. Second, continuing to evaluate the divestiture of non-core assets after closing the divestiture of our wound franchise. And third, examining opportunities to increase profitability, improve operating efficiency and controls throughout our business. Let me provide further context on these three areas before reviewing our recent quarter. First, due to the recent increase in procedural volume through private payer contracts in our HA franchise, we've initiated a strategic review to assess potential changes to bolster profitability. It's important to highlight that most of the increased volume has resulted from one private payer, and we continue to partner with them to understand the changes impacting us in recent quarters and to improve the quality of their invoicing. In addition, we would expect to see smaller impact on the future results given the renegotiated rebate rates that began in the third quarter and lower pricing on which the rebates are based. These aspects will reduce uncertainty, but we must evaluate additional steps that we can further improve our HA franchise. Working with an external consultant, We expect to conduct our evaluation over the next few months and provide an update on our second quarter earnings call as we assess the impact of increased sales volume coming through private payer contracts. Second, we are encouraged by last week's announcement regarding the strategic divestiture of our wound business, which simplifies our business and allows management to focus additional attention on the remaining areas of our portfolio. The divestiture of our wound franchise also improves our liquidity and delevers our balance sheet. At closing, we expect to receive after fees approximately $30 million, which we plan to use to repay debt. This debt repayment will remove the need to repay quarterly or pay quarterly amortization on our term loan for the next three quarters and potentially additional quarters with the proceeds from the potential sales milestones. While the wound divestiture is a positive step, we will continue to evaluate opportunities to further strengthen our balance sheet through additional divestiture of non-core assets. Our prioritization and investment emphasis will be placed on the areas of the business where we can strategically win. Still, we will remain disciplined in any negotiation for areas that we define as non-core, and we'll only consider divesting assets which simplify our business and we believe add an attractive value. The third focus area involves exploring opportunities to increase profitability and improve operating efficiency and controls throughout our business. At the start of the year, we began work across select areas of our business where inefficiencies arose due to our recent acquisitions and employee turnover. We're beginning to make some steady progress in addressing these operational inefficiencies, but additional work will be required throughout the year. Those efforts should drive improved working capital performance, enable us to find potential cost savings, and enhance our back office processes and internal controls. In addition, we continue to expect to complete the integration of Masonics by the end of the year with the move of the manufacturing to our new facility in Memphis. Now, let me turn to our first quarter results. For the quarter, revenues of $119 million increased 2% compared to the same period a year ago. which was in line with the commentary Mark laid out in our last quarterly earnings call. More importantly, our adjusted EBITDA increased to 17 million compared to 7 million in the prior year. Adjusted EBITDA was above our expectations due to disciplined control of our expenses. Across pain treatments, we continue to be impacted by the rise in volume related to private payer contracts for hyaluronic acid. The impact of this shift required us to increase accrual rate for HA sales but strong volume growth helped to mitigate the headwinds. Once again, Durling was less impacted given its clinical differentiation. Consistent with our message last quarter, we anticipate price erosion to subside as we progress through 2023. Meanwhile, across our HA portfolio, we believe market growth combined with an increase in share from lower selling price will drive volume growth. However, we expect overall reduction in HA revenue of high single to low double digits due to the impact of lower selling price. We do expect by the fourth quarter of this year and the first quarter of next year to begin to see turnaround and improved HA revenue growth driven by price stabilization and volume growth. Now turning to surgical solutions, for the quarter we continued to deliver strong double digit organic growth. Growth across bone graft substitutes was once again driven by osteoAMP flowable Additionally, our ultrasonic portfolio grew high single digits. Looking ahead to the second quarter, we expect some slowdown in our bone graft substitute portfolio due to increased customer churn, but recent large account wins are anticipated to offset these losses as we move into the second half of the year. While overall growth will likely be lower in the current quarter, we forecast that our double-digit organic growth will continue for the full year. Our overall A smaller market share and our market growth rates provide a strong backdrop for continued market penetration and growth across both ultrasonics and bone graft substitutes. Within restorative therapies, organic revenue grew double digits, driven by advanced rehabilitation. Revenue growth partially benefited from the recovery associated with supply chain disruptions and regulatory approval challenges experienced in the fourth quarter. Exogen revenue was similar to prior year and reflects the improving trend we're experiencing across the business as we continue to reengage physicians after our sales force realignment at the start of 2022. When excluding our recently divested wound portfolio, growth across exogen and advanced rehabilitation was approximately 300 basis points higher than the total restorative therapies vertical. We expect growth in advanced rehabilitation combined with stability for exogen will drive overall mid-single-digit growth for our entire restorative therapies portfolio. Finally, our international segment grew 14%. Constant currency growth was 18%. Growth was driven by our recovery in advanced rehabilitation from the EU MDR-related regulatory headwinds, as well as strong growth in duralane and bone graft substitutes. We anticipate maintaining double-digit growth in our international segment as we proceed through the year. Finally, let me repeat how excited I am to be leading BioVentus again. I'm confident in our team's ability to address our immediate challenges and move the business forward. We are aggressively prioritizing those areas most meaningful in driving increased profitability and margins, improving our balance sheet, and enhancing our operational efficiencies as we work to restore your confidence in BioVentus.