Bioventus Inc.

Thank you for standing by and welcome to BioVentus Incorporated Second Quarter 2023 Earnings Conference Call. I will now turn the call over to your host for today, Mr. Dave Crawford, Vice President of Investor Relations. Please go ahead.

Thanks, Joanne. Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to the BioVentus 2023 Second Quarter Earnings Conference Call. With me this morning are Tony Beal, CEO, and Mark Singleton, Senior Vice President and CFO. Tony will begin his remarks with an update on our business and outlook for the second half of the year, followed by a review of the quarter. Mark will offer further detail of our second quarter results and discuss our 2023 financial guidance. 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 current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risk 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 31, 2022. as well as our most recent Form 10-Q, and other company filings made with the SEC. You are cautioned not to place undue reliance upon any forward-looking statements which speak only as a 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. And now I'll turn the call over to Tony.

Thanks Dave and good morning everyone. Thank you for your continued interest in BioVentus. Let me begin by saying that I'm encouraged by our results for the quarter. Our dedicated employees are diligently addressing last year's challenges as we focus on improving our execution, delivering on our commitments, and enhancing our business. Before discussing the quarter's performance, I want to take a few minutes to reflect on our progress made the first half of the year to solidify our financial position and then discuss our priorities for the remainder of the year as we strive to deliver improved growth, profitability, and predictability. Our leadership team and I are focused on the near term and continue to aggressively address the issues impacting last year's performance. Our attention remains on delivering sustainable, profitable growth, and we have a laser-like focus on remaining compliant with our debt covenants and reducing leverage. We believe that this will better position our next CEO to more quickly turn his or her attention to maximizing the long-term opportunities for BioVentus. As I stated last quarter, we won't be able to reverse all of the recent headwinds in the single quarter, but we believe the strong results over the first half of the year, combined with our ability to further solidify the business over the course of the next several quarters, will enable us to rebuild our balance sheet and regain credibility with our investors. During the quarter, we significantly improved our financial position while we also undertook important steps to strategically assess our growth and investment opportunities. Let me provide further context. First, we executed our financial plan for the quarter and achieved revenue in the range of our expectations while we maintained thorough control of expenses similar to the first quarter. So far in the first half of the year, adjusted EBITDA is up nearly $16 million. Compared to prior year, this growth equates to more than 50% increase. In addition, we achieved a significant pay down of our debt in part with the proceeds from the closing of our wound business divestiture, but also from strong cash generation. Cashflow was enhanced by our targeted work to reduce working capital across selected areas of the business where inefficiencies arose during our recent acquisitions and employee turnover. Second, from a strategic perspective, we furthered our analysis and dialogue with our board of directors, on an assessment of our growth and investment opportunities as we evaluate which areas to prioritize as we move forward. Due to our current leverage and desire to accelerate the improvement in our profitability, we need to be selective in the areas we choose to invest. We intend to focus our investments where we believe we can achieve sustainable, profitable growth. As we continue into the second half of the year, we plan to review the hierarchy or areas for improved investment with our board. Additionally, We plan to keep pressure on the business to maintain the cost control exemplified during the first half of the year. As we begin the second half of the year, we're confident in taking prudent steps to enhance our financial metrics and diligently execute our plan. As we look to build on our momentum for the remainder of the year, we remain focused in the following areas. First, delivering our sales plan through continued strong double-digit revenue growth in surgical solutions and our international business. while maintaining volume growth and share gain access across our EHA portfolio as we return to growth through price stabilization expected to start in the fourth quarter. Second, maintaining spending discipline, but in selected areas, begin to seed some investment back into the business for future growth. And third, continuing to improve our operating efficiencies to bolster cash flow and enhance internal controls. With our strong start to the year, I'm confident in our revenue and earnings growth opportunities and 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. Now, let me turn to our second quarter results. For the quarter, revenue of $137 million declined 2% compared to the same period a year ago. However, when considering the impact of our wound business divestiture, growth was even to prior year. More importantly, our adjusted EBITDA increased to $28 million compared to $22 million in the prior year. Adjusted EBITDA was above our expectations due in part to stringent control of our expenses. Across pain treatments, while we continue to be impacted by the decline in our average selling price for Duralane and Jelson, we once again saw double-digit increase in sales volume with significant double-digit gain in volume for Duralane. As we continue to take market share, with our clinically differentiated and complete portfolio offering. We continue to anticipate price erosion to subside as we progress through 2023 and into early 2024. Meanwhile, across our HA portfolio, we believe that market growth combined with an increase in share from lower selling prices will continue to drive volume growth. While for the year we expect an overall reduction in HA revenue of high single to low double digits due to the impact of lower selling price, we expect to see year-over-year revenue growth return in the fourth quarter of this year. Now turning to surgical solutions, as we previewed last quarter, we saw a slowdown in revenue growth due to increased distributor churn in bone graft substitutes. Looking ahead in the second half of the year, we expect growth to accelerate as we increase our distributor base and gain from recent large account wins to offset these losses. Additionally, Our ultrasonics portfolio for the quarter grew double digits, and we expect the momentum across ultrasonics to continue through the second half of the year. One aspect which is bolstering growth in ultrasonics is a program we initiated this year to sell the Nexus generators rather than place them on consignment and accounts. While a small portion of revenue, the program results are ahead of expectation, and we believe customers who purchase the generators will use more disposable scalpels due to the investment made. We believe our overall smaller market share and market growth rates provide a very strong backdrop for continued market penetration and growth across both ultrasonics and bone graft substitutes. Within restorative therapies, organic revenue fell low single digits when removing the impact of our wound business divestiture. Revenue growth and advanced rehabilitation benefited from accelerated placements of vector weight-bearing systems, which were expected to be installed in the third quarter. this acceleration pulled forward some revenue into the second quarter. Exogen revenue was down compared to prior year, but revenue increased sequentially and reflects an improving trend we're experiencing across the business as we continue to reengage with positions after our Salesforce realignment last year. Finally, our international segment grew 16%. Constant currency growth was 17%. Growth was driven by strength across surgical solutions business, as well as strong growth in exogen. Additionally, we recently hired David Rennie as our new general manager for international business. David is a strategic leader with a track record of delivering profitable growth across several medical device segments. With David on board, we anticipate maintaining double-digit growth in our national segment as we proceed throughout the year. Finally, I'm pleased with our ability to address last year's headwinds and achieve meaningful improvement in our financial results and liquidity. While more work is required, we remain focused on executing our business plan, prioritizing those areas we believe are most meaningful in driving increased profitability, improving our balance sheet, and enhancing our operating efficiencies and internal controls as we work to restore your confidence in BioDentist.