Bioventus Inc.

Thank you for standing by. My name is Dustin and I will be your conference operator today. This time, I'd like to welcome everyone to BioVentus Inc. Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, Please press star 1. At this time, I'd like to turn the call over to Mr. Dave Crawford, Vice President of Investor Relations. Sir, you may begin your conference.

Thanks, Dustin, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the BioVentus 2023 Third Quarter Earnings Conference Call. With me this morning are Tony Veal, CEO, and Mark Singleton, Senior Vice President and CFO. Tony will begin his remarks with an update on our business and outlook for the remainder of the year, followed by a review of the quarter. Mark will offer further detail on our third quarter results and discuss the update to our 2023 financial guidance. We will finish the call with Q&A. A presentation for today's call is available in the investor section of our website, bioventus.com. Before we begin, I would like to remind everyone that our remarks today 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 SEC, including item 1A risk factors of the company's Form 10-K for the year ended December 31st, 2022, as well as subsequent Forms 10-Q and other company's filings made with the SEC. You are cautioned not to place undue reliance upon any forward-looking statements which speak only as 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 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 Investors Relations portion of our website at bioventus.com. And now, I'll turn the call over to Tony.

Thanks, David, and good morning, everyone, and thank you for your continued interest in BioVentus. Let me begin by saying that I am again encouraged by the strength of our results for the quarter. as we delivered earnings ahead of our expectations for a third consecutive quarter, raised our annual financial guidance. The highlight for us was the return to growth for our HA business, one quarter ahead of schedule. Our resilient employees have worked diligently to address last year's challenges and have made measurable progress in improving our execution, delivering on our commitments, enhancing our business controls and processes. Before discussing the quarter's performance, I want to take a moment to reflect on the recent progress made to solidify our financial metrics. We believe successfully delivering on our financial plan this year will position us to deliver future improvement in revenue growth, profitability, and predictability. As I mentioned in the past, we will not reverse last year's headwinds and fully rebuild our balance sheet, earn back stakeholders' trust, and regain credibility with our investors with a couple of quarters of strong performance. With that said, I believe we have achieved substantial progress to solidify our financial position and maximize the long-term opportunities for BioVentus as we begin to gradually increase our attention to future growth drivers. During the quarter, we demonstrated several positive indicators of our future success, including, one, the continued financial discipline to reduce spending and enhance operating margin. Two, as I mentioned earlier, we saw a return to growth for our HA business, including continued double-digit unit volume gains. And three, we achieve double-digit growth across key long-term revenue drivers in our ultrasonics business and across our international segment. As we begin planning for next year, we remain focused on investing and prioritizing areas of our business where we believe we can deliver sustainable, profitable growth. We believe the steps we are taking will result in enhanced growth and increased visibility to our key business drivers. While less visible, we've begun to show signs of improvement in stabilizing our organization. My leadership team and I are encouraged by the results of our recent employee engagement survey as we look to continually strengthen our culture. From a headline perspective, we saw an improvement in our employee engagement scores, which is important given the challenges we placed on our teams over the past two years. As a positive sign of engagement, 85% of our employees participated in the survey, well above industry benchmarks, and they provided over 1,400 comments. We're committed to work together create a culture that is inclusive, engaged, and empowered as we deliver on our promises to our customers, employees, shareholders, and the communities where we operate. Our impressive performance so far this year has reinforced my confidence in our ability to reduce leverage and to enhance our revenue and earnings growth opportunities as we maintain focus on cost control. We participate in large growing markets and provide innovative, differentiated products for our patients, Across each segment of our business, BioVentis is either a market leader or growth leader. Now let me turn to the third quarter results. For the quarter, revenue of $121 million declined 6% compared to the same period a year ago. However, when considering the impact of our wound business divestiture, growth was even compared to the prior year. More importantly, our adjusted EBITDA of $22 million was above our expectations do impart the stringent control of our expenses and the significant improvement in our accounts receivable collections over the course of the year, which enabled us to have a favorable adjustment to our bad debt reserves. Year-to-date, adjusted EBITDA has increased more than $15 million, representing a 30 percent increase. Across pain treatments, as I highlighted earlier, we saw significant double-digit gain in volume for Duralane as we continue to take market share with our clinically differentiated offering. Overall volumes were also higher for Jelson and Sioux Farms. While we continue to be impacted by the decline in our average selling price for Duralane and Jelson, that headwind has steadily declined on a sequential basis. As we mentioned previously, we expected the average selling price for Duralane to increase sequentially in the fourth quarter. CMS published pricing for Duralane in mid-September, and it showed the ASP for Duralane was increasing for the fourth quarter, as we predicted. However, we do anticipate a temporary sequential decline in pricing for Duraline in the first quarter 2024. After the first quarter, we expect to see CMS pricing rising sequentially for the rest of the year. Due to a higher percentage of contracted volume for Jelson, the average selling price has continued to decline sequentially. We continue to expect that by mid-2024, we will see ASP for Jelson begin to rise sequentially as well. While the move to ASP combined with higher-than-anticipated private-payer contracted volumes, presented meaningful headwinds to our HA business. We are now returning our overall HA portfolio to growth. We believe market growth, combined with an increase in market share and improving pricing dynamic, will enable mid-single to high single-digit growth in the coming year. Now turning to Surgical Solutions, in the third quarter, our Ultrasonics portfolio grew at its highest double-digit rate of the year. We expect the momentum to continue into next year. We believe our leading technology and small market share provide a strong backdrop for continued market penetration and growth across ultrasonics. Limiting the overall growth for surgical solutions was a slower than anticipated recovery in our bone graft substitute business. When we brought up on a sequential number of new distributors and accounts, the ramp up in sales volume trailed our expectations. Beginning in the fourth quarter, we've implemented structural change to our surgical solution selling effort, which we believe will improve growth and eliminate potential channel overlap. Our direct sales team will now focus on ultrasonics as primary target, and our distributors will focus on bone graft substitutes as their primary target. We believe this increased attention will help limit any further distributor churn in bone graft substitutes while driving improved efficiency in our recent account conversions. Within restorative therapies, Organic revenue declined double digits when removing the impact of our wound business divestiture. Revenue growth and advanced rehabilitation was impacted by accelerated placements of vector weight-bearing systems in the second quarter. Exigent revenue fell slightly compared to prior year, but revenue increased sequentially in the U.S. and reflect the improving trend we're experiencing across the business as we continue to reengage with physicians after our Salesforce realignment last year. Finally, our international segment grew 18 percent with constant currency growth of 16 percent. Growth was driven by strength across our surgical solutions business. While international growth is expected to temporarily slow in the fourth quarter due to challenging comparisons to prior year period, we anticipate maintaining double-digit growth for our international segment in 2024. Finally, I'm pleased with our ability to address last year's headwinds and achieve meaningful improvement in our financial results and liquidity. We've improved the predictability of our HA business and demonstrated the ability to manage through complex changes. While more work remains, our resolve is steadfast in executing our business plan and prioritizing those areas we believe are most meaningful in driving increased profitability, improving our balance sheet, and enhancing our operational efficiencies and internal controls as we work to restore your confidence in BioVentus. Now I'll turn the call over to Mark.