Bioventus Inc.

Good day and welcome to the BioVentus fourth quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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 touchtone phone. And 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 Mr. Dave Crawford. Please go ahead.

Thanks, Chuck, and good morning, everyone. Thanks for joining us. It's my pleasure to welcome you to the BioVentus 2025 Fourth Quarter Earnings Conference Call. With me this morning are Rob Claypool, President and CEO, and Mark Singleton, Senior Vice President and CFO. Rob will begin his remarks with an update on our business, review our performance against our 2025 priorities, and lay out our 2026 objectives. Then Mark will review the fourth quarter results and discuss our 2026 financial guidance. We'll finish the call with Q&A. A presentation for today's call is available in the Investors 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, 2025. 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 upon any forward-looking statements which speak only as of the date made. Although the company may voluntarily do so from time to time, and undertakes no commitment to update or revise the forward-looking statements, whether a result of new information, future events, or otherwise, except as required by applicable securities laws. This call will also include reference 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 section of our website at bioventus.com. Now, I will turn the call over to Rob.

Thank you, Dave. Good morning, everyone, and thanks for joining our call today. BioVentus delivered another solid quarter and concluded a successful year across our strategic priorities while helping patients recover so they can live life to the fullest. Over the past three years, we have established a strong track record of meeting or exceeding our financial guidance while enhancing our portfolio and significantly strengthening our commercial, operational, and financial fundamentals across our company. In short, we've transformed BioVentus. It's a different company today with a very strong foundation, and we are now entering an exciting new phase and are well-positioned to build a $1 billion leading medtech company. In this next phase, we are increasing our focus on accelerating our revenue growth while further strengthening our earnings power and expanding our capital allocation optionality through strong and consistent growth in free cash flow. We believe this combination will drive significant future value creation for shareholders. For my remarks this morning, I would like to discuss three areas. First, I will briefly highlight our fourth quarter performance. Second, I will summarize our 2025 full-year performance with respect to our three priorities that we outlined at the start of last year. And finally, I will lay out our objectives for 2026. Let's start with the review of the fourth quarter, which represented a significant year-over-year acceleration and reflects our progress with sharpening commercial execution, scaling operations, and strengthening our financial foundation. The results further demonstrate that BioVentus possesses a powerful combination of value drivers of revenue growth, increased profitability, and enhanced cash flow. We delivered 10% organic revenue growth with robust performance across our core businesses, and we achieved the second half revenue acceleration that we guided to throughout the past year. We drove an increase in adjusted EBITDA of $8 million and expanded our adjusted EBITDA margin by almost 500 basis points compared to the prior year. And we set a record for quarterly cash from operations at approximately $38 million, helped in part by our improved inventory management. In addition to our strong financial performance, we received positive market feedback and valuable insights from the pilot launches for two of our exciting growth drivers, Peripheral Nerve Stimulation, or PNS, and Platelet-Rich Plasma, or PRP, which I will discuss in more detail in a moment. Now let me shift to a review of our full-year performance against the three priorities I introduced at the start of 2025, driving above-market revenue growth, continuing to expand our profitability, and accelerating free cash flow generation. Across all three of our businesses, we delivered above-market organic revenue growth for 2025. In our pain treatments business, we drove solid growth from our market-leading HA business and added the two new high-potential growth drivers I already referred to, P&S and PRP. We also received a strong contribution to our 2025 growth from surgical solutions, and equally important, solidified our plan to accelerate growth in this business in 2026 and beyond. And in restorative therapies, we delivered our highest organic growth in the last seven years, thanks to the excellent execution of our great team and the powerful impact Exogen has on patients' lives. Turning to our second focus area, expanding profitability, we drove nearly 150 basis points of adjusted EBITDA margin expansion compared to 2024. surpassing our goal to expand our adjusted EBITDA margin by 100 basis points. This illustrates our capability to build our profitability by leveraging the combination of strong organic revenue growth, our peer-leading gross margin, and consistent operational efficiencies. Expanding our adjusted EBITDA margin to a level at or above many of our peers gives us the ability to invest in our significant growth opportunities in 2026. which we believe will accelerate future revenue growth. And with respect to our third focus area, we ended the year by generating nearly $75 million of cash from operations, accomplishing our goal to nearly double cash flow from operations compared to the prior year. In addition, we refinanced our term loan, which enhanced our liquidity and drove interest expense savings in the second half of the year that we expect to continue throughout 2026. Overall, 2025 was a pivotal year for our company and reflected our substantial advancements with our portfolio, execution, and financial performance. Next, I would like to highlight the three objectives we are prioritizing in 2026. First, with a strong financial foundation established, we are very focused on accelerating our growth drivers through targeted and disciplined investments. Second, as we significantly increase investments to accelerate future growth, we aim to drive profitability at a pace exceeding revenue growth. Third, we look to continue to strengthen our already robust cash flow, which in turn will enhance our capital allocation optionality. Let me expand on each objective, starting with revenue growth. We remain focused on driving above-market growth across our core business, led by our durable and very profitable HA franchise, which generates profit to invest in and accelerate our future growth drivers of P&S, PRP, ultrasonics, and our international business. In 2026, we plan to allocate approximately $13 million of incremental investment toward these exciting growth drivers. Investment across these businesses includes expansion of commercial resources, evidence generation to highlight the clinical and economic benefits of our technology, stronger marketing to raise awareness of our clinically differentiated portfolio, and continued R&D innovation. Let me provide additional context on these investments across our three businesses. First, within our pain treatments business, we will be investing in both P&S and PRP. Our P&S platform will receive the largest share of the incremental investment, given the rapidly expanding market, our highly differentiated technology, and the enormous potential of this business. This resource allocation strategy is supported by our successful pilot launch and positive feedback from physicians and patients as they see the benefits of our innovative technology. During the pilot launch, we gained positive traction with both our trial and permanent solutions and collected valuable insights. The learnings from the pilot launch enable us to invest aggressively in 2026 in a very targeted and measured way to maximize the growth of this business in 2026 and over the coming years. Mark and I have spent time in the field and witnessed firsthand the positive impact that our P&S technology has on patients' lives. Our interactions with a wide variety of customers and patients have made us even more confident that our P&S business will become a major growth driver for BioVentus, given the power, size, and ease of use of our differentiated technology. We are also excited about PRP following its successful pilot launch. As a reminder, we are leveraging our existing HA commercial team for PRP, so there is less incremental investment required for this growth driver. Again, the market feedback from our pilot launch has been positive about our differentiated technology and the benefits for both physicians and patients. We believe the combination of P&S and PRP will provide a minimum of 200 basis points of growth this year with further acceleration in 2027. Shifting to our surgical solutions business, where ultrasonics will receive a disproportionate amount of our incremental investments considering the size of the market, unique benefits of our technology, and our increasing ability to make our solution the standard of care. In 2026, we plan to invest aggressively in marketing to raise awareness, in medical education to train surgeons earlier in their careers, and in sales expansion in targeted areas. We will also continue to support the growth of our excellent bone graft substitutes technology by raising awareness of our distinct clinical and economic value proposition. And with respect to our restorative therapies business, we will continue to support the business with targeted investments in 2026 and maintain our renewed focus and disciplined execution following a very successful 2025. Finally, within our international segment, we plan to make significant investments across pain treatment, surgical solutions, and restorative therapies, given the untapped growth potential in front of us. I recently attended our international sales meeting and came away even more confident that our international business is well positioned to become a key growth driver for BioVentus. We now have a targeted growth plan, new structure and capabilities, and a highly energetic team that is very focused on driving excellent execution in 2026. Before I turn the call over to Mark, let me briefly touch on our other two key objectives for 2026, earnings and cash flow. Mark will share more details on both during his section, so I'll just provide the headlines. We remain committed to increasing our earnings. and strengthening cash flow, even as we accelerate investment in our growth drivers. We expect earnings growth to outpace revenue growth, driven by our peer leading gross margin, disciplined resource allocation, and our interest expense savings. Given our substantial progress over the past few years in raising our EBITDA margin, we believe the best way to maximize shareholder value is to prioritize greater investment in our future growth, while maintaining an EBITDA margin of approximately 20% for 2026. We believe our strong business model gives us the flexibility to invest more aggressively in 2026 to accelerate our future growth and the ability to expand our margins as soon as 2027. And we believe this combination of accelerating growth and margin expansion will create significant shareholder value. And with respect to our third objective, As our increased earnings outpaces revenue growth, we expect it to contribute to an increase in cash flow, which will create increased capital allocation optionality. In the near term, we will continue to prioritize strengthening our balance sheet by using our strong free cash flow to further reduce debt. In conclusion, thanks to the strong execution of our team, We have transformed BioVentus and created a strong foundation. It's unusual for a company our size to consistently grow above the market while simultaneously increasing its investment in growth and expanding profitability and cash flow. We believe this combination is one of the many aspects that sets BioVentus apart. We are now entering a new stage. confident in our portfolio, growth strategy, and investment power to become a $1 billion leading MedTech company. Our team is focused, excited, and ready for the year ahead. Now I'll turn the call over to Mark.

Thank you, Rob, and good morning, everyone. Let me begin by saying that I am proud of our team's hard work and dedication to transform BioVentus and significantly improve our financial results over the past few years. After a strong finish to the year, our improved execution has now positioned us to increase investment in our future growth while continuing to strengthen our balance sheet. I'm confident that with continued strong focus and disciplined execution, we will advance our business and create significant shareholder value. Turning to our headline results for the fourth quarter, revenue of $158 million increased 3% compared to the prior year. Organic growth was 10% after adjusting for the impact of our advanced rehabilitation divestiture at the end of 2024, which was a result of strong performance across pain treatments and restorative therapies. Revenue growth also benefited from an additional selling day compared to the prior year. Adjusted EBITDA of $37 million was $8 million higher than the prior year and represented an increase of 30%. Again, foreign exchange rates had an unfavorable impact for the quarter, and we incurred an unplanned loss of almost $1 million. For the year, we've absorbed more than $3 million in unplanned impacts from FX rate movements. Adjusted EBITDA margin of 23% expanded 490 basis points compared to the fourth quarter of last year. This was the result of higher revenue, improved gross margin, and disciplined spending. And adjusted earnings were $0.24 per diluted share for the quarter. Now let me provide some additional commentary on our quarterly revenue. In pain treatments, we continue to see the second half acceleration that we previously communicated as revenue advanced 15% in Q4. Growth in HA benefited from strong volume growth of Duralane and recent account wins from earlier in the year. Next, surgical solutions revenue grew by 3%. Results in ultrasonics were impacted due to a tough comparison to the prior year for capital sales, which was an all-time high. To give you a sense of the tough comparison, generator revenue in the fourth quarter this year still represented our third highest total ever. For the year, we exceeded our plan for capital sales, which provides the foundation to accelerate disposable growth in 2026. Growth was also impacted in our international segment due to the timing of distributor orders. Shifting to restorative therapies, revenue declined 26% compared to the prior year due to the divestiture of our advanced rehabilitation business. Excluding the impact of the divestiture, organic growth was 10% as the Exogen team delivered another strong quarter to close a remarkable year. Finally, revenue from our international segment was unchanged compared to the prior year, while organic growth climbed 10%. For the year, our international segment grew 11% organically. As our new team delivered on its target of double-digit organic growth in 2025, we believe this positive momentum can continue given the talent additions made throughout the year, market expansion opportunities, and improved commercial execution. Moving down the income statement, adjusted gross margin of 76% was 180 basis points higher than the prior year period due to improved product mix and favorable comparison to the prior year, which more than offset the impact of tariffs and foreign exchange rates. Adjusted total operating expenses and R&D expenses declined by $2 million as increased investment was more than offset by direct expense savings related to the divestiture of our advanced rehabilitation business. Now for additional detail on our bottom line financial metrics, adjusted operating income of $33 million increased $7 million compared to the prior year. Adjusted net income of $20 million increased $1 million compared to the prior year. This growth is the result of our increased gross margin, decreased operating expenses, and lower interest expense, which was offset by higher tax expense. Now shifting to the balance sheet and cash flow statement. Consistent with our planning assumptions, we generated significant cash flow for a third straight quarter. Cash flow from operations totaled $38 million, nearly doubled compared to the fourth quarter last year. The stronger cash flow is driven by higher profitability, lower interest expense, and a reduction in inventories. As Rob mentioned, we achieved a full-year objective of nearly doubling cash flow from operations, delivering a 92% increase for the year. We ended the quarter with $51 million in cash on hand, $294 million in outstanding debt. During the quarter, debt decreased $29 million as we repaid the borrowings on a revolving credit facility. As a result of a lower debt outstanding, our net leverage ratio declined to below 2.5 times at the end of the quarter. We are confident our projected strong cash flow and increase in adjusted EBITDA will drive our net leverage well below two times by the end of 2026. We believe this reduction in our net leverage will drive additional interest expense savings and enable greater optionality for future capital deployment. Finally, let me lay out our 2026 financial guidance and provide some additional color on our guidance for the year. Based on current business trends, we expect net sales to range from $600 million to $610 million. In terms of quarterly phasing, we expect our first quarter revenue growth to be below our implied guidance range, at which point we believe it will accelerate in Q2 in the second half of 2026 as our PRP and P&S investments result in a more meaningful contribution to growth. First quarter growth is expected to be impacted by one fewer selling day than the prior year and a rebalancing of HA distributor inventory levels given a very strong fourth quarter results. For the year, we expect adjusted earnings per share of 73 cents to 77 cents, which represents growth that outpaces our revenue growth. This demonstrates strong earnings expansion while making significant incremental investments in our growth drivers. Finally, further demonstrating the strength of our business and our momentum, we project cash from operations to range between $82 million and $87 million, an increase of approximately 10% to 17%, driven by higher operating earnings and lower interest expense. In line with the cadence established in prior years, we expect revenue and adjusted EBITDA to be the lowest in the first quarter of 2026 and to be the highest in the fourth quarter. Our guidance does not assume additional impact from the U.S. dollar fluctuation for the year. In closing, BioVent has solidified its foundation and we are now at an inflection point to invest in our four growth drivers. To accelerate future revenue growth, deliver increased profitability and strengthened earnings power, and generate significant free cash flow. We believe this is a powerful combination as we strive to create increased value for our shareholders.

Operator, please open the line for questions. Thank you. We will now begin the question and answer session.

To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And our first question for today will come from Chase Knickerbocker with Craig Hallam Capital Group.

Please go ahead.

Good morning, Rob and Mark. Congrats on the impressive execution to finish 2025 here. Wanted to start in pain. You know, you've kind of far exceeded kind of what we had modeled there in Q4. Wanted to get a little bit more color, just throw out a couple kind of quick questions on pain. So just any growth contribution year over year from price and then some thoughts on kind of Jelson and Supart's contribution to growth. You know, was it positive? Was it negative? and, you know, clearly it looks like double-digit duralane growth, but can you just give us a sense of kind of underlying volume, too? Thanks.

Hey, Chase. This is Rob. Thanks for the question. Yeah, you know, maybe I'll start by saying is we have a great pain treatments business, and, of course, it starts with HA. Saw that again in the fourth quarter. Knee osteoarthritis isn't going away. It has favorable underlying demographics, and And as you know, HA is a very trusted therapy in this space, and we believe we set ourselves apart competitively with our clinical differentiation and broad private payer access and significant commercial strengths. And we saw that again in the fourth quarter. I think it's another example of how this business over the long term generates durable, very profitable growth for us. So, yeah, the fourth quarter, strong performance by the team. It was a great job. It's in line with what we signaled to you, that we'd see a back half of the year acceleration. And, of course, that's driven always by account wins and market expansion in general. It was also aided to a small extent by selling days and distributor dynamics, so even more positive than what we saw, than what we expected. As it relates to price volume, our business continues to be driven by volume. We're focused on both, very intentional about both. But as it relates to the performance that we saw, highly driven by volume and saw a good performance across the portfolio there. Matt, I may just mention one more in the last part of what you said, which was on Duralane. Yeah, you know, with the strength of Duralane for us and the continued shift in the market from multi to single injection, as you would expect, Duralane is what led the performance for us.

Got it. And maybe just on the 26 guide, can you give us a sense for kind of assumptions by segment as far as how you kind of come out on the top line as far as contribution for growth by segment?

Yeah, thanks, Chase. This is Mark.

When you kind of walk through the portfolio, again, really strong fourth quarter, proud of the results that we delivered in fourth quarter and the turnaround that we've done over the last few years. When we look at our growth for 2026, in 2025, Exogen had a really strong year. So from that perspective, we look for the restorative therapies segment to be you know, low to mid single-digit growth in 2026. From a pain perspective, really, you know, look at that as our, you know, continued execution across the different pieces of our portfolio within that. And we'd expect, you know, mid to high single-digit growth in the pain portfolio. And then from a surgical perspective with our, you know, strong ultrasonics technology that we believe is, you know, ability to really change the standard of care in that business over time that, you know, we would expect to have

in 2026.

And then just one last one from you guys, if I can sneak one in. Just as it relates to kind of pain for 2026, you know, obviously exiting the year on that strong quarter and, you know, guide kind of implies a step down in organic growth for the HA business that gets you kind of closer to market growth rates. Can you just kind of walk us through, you know, kind of why that deceleration and organic growth in the first half of the year from kind of the strong Q4 performance. And just maybe walk us through what in the market is kind of causing that expectation from you guys.

Yeah, sure. I'll take that, Chase. So, in 2026, we expect to grow our HA business above the market again, and we anticipate that growth to be less than 2025, partly influenced by the selling days in Q1 and normalizing inventories, but mainly because of our very intentional approach to continuously play the long game and to go after business that is accretive to our profitable growth. That's the main driver. And, you know, we've done that and shown that for years with our durable, profitable growth in this business. And that's important for us because we're leveraging that profitable growth to fund our exciting future growth drivers and two of which, as you know, fall into our pain treatments business with PRP and PNS. So that's really the key, some contribution from selling days and normalizing inventories, but really our intentional approach to go after profitable growth. So we feel good about HA and our pain treatments business overall for 2026.

Understood. Thanks, guys. The next question will come from Mike Potusky with Barrington Research.

Please go ahead.

Hey, good morning. Yeah, nice finish to the year. So I guess, Mark, you guys sort of alluded multiple times in terms of pain and maybe some favorable order timing at seem like, distributor dynamics, et cetera. Is there any way to quantify how much sort of, I guess, tailwind you got just from sort of favorable order timing in the quarter?

Yeah, thanks, Mike. Appreciate your question. From an order timing perspective, really, you know, selling days was really favorable to us in Q4, so that helped us a little bit overall from the, you know, what, as Rob said, a little bit higher growth than what we expected. Some of the distributor dynamics in Q4 probably helped us, you know, $2-ish million, maybe a little bit higher overall. And that's a little bit alluded to when we look into Q1, that'll be our lowest growth from an overall year perspective. So as we see some of that, you know, move down after Q4. And so those are really the two main drivers of that.

Okay, and then just sort of one more, I guess, maybe a couple questions within one more category. In terms of P&S, you guys referred to learnings during the pilot phase, and I'm just curious, you know, what were your learnings in terms of, you know, is it the trial lead? Is it as important as I think you guys had believed it was? Is Talisman getting, you know, favorable reception? Like, what have you guys learned? And then... Second part to that, I guess, is I may have missed this, but are you guys reaffirming the 200 basis point bump from P&S and PRP for 26? Thanks.

Thanks, Mike. Yeah, first on the P&S pilot, a number of things that we were seeking to learn during that pilot, and it was very successful from that standpoint. First is just in terms of our differentiated technology. It's a You always gain additional insights once you go into pilot launch. And what we received back was very positive feedback on the power of our technology, the size of it, and the ease of use. And all of those relate back to that our peripheral nerve stimulation technology, in particular our permanent solution, is the only one on the market that was designed from the start for peripheral nerves. And so we saw positive feedback from that during the pilot launch. We expected it, but good to have that confirmed. And then also from a learning standpoint, we plan to scale this business aggressively. And so what we learned during the pilot launch was how to do that most effectively from the optimal resource allocation across that business in terms of where we invest. and also the pace at which we should go with throughout 2026 and beyond in order to maximize our success. And then just a lot of learnings around the best way to execute in the market to help patients with our fantastic technology while creating this major new growth driver for BioVenta. So we're really looking forward to all of that playing out as we are shifting here into the full launch and accelerating this year and expected for the years to come as well. Regarding the second part of your question in terms of the 200 basis points, yeah, we reaffirmed that in our remarks earlier that we expect to see a minimum of 200 basis points from the contribution of P&S and PRP combined.

All right, great, thank you so much. Thank you. The next question will come from Caitlin Roberts with Canaccord Genuity.

Please go ahead.

Hi, congrats for the quarter, and thanks so much for taking the questions. Maybe just starting with ultrasonics, how near-term are your expectations to build out the neurosurgery and the general surgery parts of the business, and does this require more rep ads from that perspective?

Hi, Caitlin. Yeah, you know, our biggest focus for our ultrasonics business is in the spine space, and that's for a few different reasons, but the most, the biggest reason is just the significant size and opportunity of that space. It's much larger than neuro in general. But we're also, we have the technology and the interest with neuro in general because it's already, the ultrasonics is already an established standard of care in those spaces. and it lends itself naturally to us accelerating the growth in this business. But the biggest focus and the majority of our investment is going to be aimed at expanding within the spine space. And then was that the – did I cover both parts of your question, or was there a second part to it there?

Yeah, it was just if you required any more rep ads for adding – those other indications, but it sounds like the focus is more on spine.

Yeah, but I'll touch on that as well. I mean, it is the same sales organization that calls on both the spine space and neuro for us within ultrasonics. And as we've alluded to a number of times, our four growth drivers, including ultrasonics, are getting a disproportionate amount of our investment in 2026. And with ultrasonics, we expect that to be in a number of places, including expanding our sales presence. So that will impact, of course, both Spine and Beyond Spine, and also increasing our marketing power. We have such great technology, but we need to raise awareness of our differentiated clinical and economic benefits with ultrasonics. And we're really looking forward to putting more marketing power beyond this business and And then doing some other things in terms of search and training and evidence and continued innovation. We have a fantastic R&D team behind our ultrasonics business and we're rejuvenating some of the Investments from an innovation standpoint, because we believe we can continue to drive exciting technology that will really help surgeons and patients in this space. So we'll see some of the investment go to ultrasonics this year.

That's great. And just a quick one on P&S. Any color on the progress to building out the P&S team and cadence to hiring this year?

Yeah, we're moving fast. We're scaling the business. Again, as I mentioned earlier with Mike, really driving that optimal resource allocation across P&S and It's with the sales organization, of course, but it's also with the back support that we have, evidence that we're investing in. And as you may have seen recently, we've brought on a new dedicated general manager for this business, just given the enormous potential that it has. So Megan Rosengarten has joined BioVentus, and under her leadership, we're really looking forward to driving it aggressively throughout the year or so. We'll see throughout the year an investment in this business across multiple aspects that are required to scale it effectively, not just to drive the growth in 2026, but as we mentioned, we expect that growth to further accelerate in 2027 and beyond.

Thanks so much. Thank you, Caitlin.

This will conclude our question and answer session. I would like to turn the conference back over to Mr. Rob Claypool, our CEO, for any closing remarks. Please go ahead.

All right. Thanks, everyone, for your interest in BioVentus. Once again, we delivered a solid 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 earnings, and accelerate our cash flow to create significant shareholder value.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.