Bioventus Inc. Q1 FY2025 earnings call

• First quarter team executed plan, delivered solid financial results with revenue in line with expectation and adjusted earnings up 33%.
• Surgical Solutions: Ultrasonics had double-digit growth, bone graft substitutes growth slowed but expected to accelerate in second half. Expanded pain treatment portfolio by signing agreement with APEX Biologix for XCELL PRP system in U.S.
• Restorative Therapies: Exogen had high single-digit growth in U.S., divestiture impacted revenue but organic growth maintained.
• Expanding profitability: Believes peer-leading gross margin combined with second half revenue growth acceleration will enable at least 100 basis points of adjusted EBITDA margin expansion.
• Cash flow: Expect to nearly double cash from operations in 2025 compared to 2024, with acceleration expected in second quarter and remainder of year.

First quarter revenue was $124 million. Surgical Solutions revenue advanced 7%, driven by double-digit growth in Ultrasonics. Restorative Therapies' Exogen maintained momentum with high single-digit growth in the U.S. Pain treatments saw double-digit growth in DUROLANE. The divestiture of Advanced rehabilitation business led to a 35% decline in Restorative Therapies revenue. International segment revenue declined 12% compared to prior year while organic growth was 1%. Adjusting for divestiture, organic growth was 5%. Surgical Solutions organic growth 7%, Restorative Therapies organic growth 4% excluding divestiture, International organic growth 1%. Adjusted gross margin was 75%, 70 basis points lower than last year due to channel mix and higher freight costs. Adjusted EBITDA of over $19 million was $3 million lower than prior year, primarily due to divestiture and foreign currency loss.

• Reiterates full year revenue, adjusted EBITDA and adjusted earnings per share guidance.
• Organic revenue growth expected to be 6% to 8%, adjusted EBITDA $112 million to $116 million, EPS $0.64 to $0.68.
• Anticipates strong acceleration in second half of the year.
• Expect net leverage to decrease below 2.5x by end of 2025.

• Macro environment uncertainty.
• Potential impact from tariffs, although no material impact seen currently but continuously monitoring.

Q: Just wanted to start in pain, maybe kind of a bigger picture kind of competitive question. Can you just kind of give us an update on the market and how you see it? I mean, are you seeing kind of any increased competition in the single injection space kind of give us an update on the multi shot. I know it's a little bit more of a competitive environment out there. And then can you just kind of level set us? Was there any price benefit for DUROLANE in the quarter on a year-over-year basis? And then kind of how you expect the year to kind of play out from that perspective?

A: Chase, it's Rob. Yes. On the first one, we continue to see a shift from multi-injection to single-injection in this space. And from our perspective, that's fine for a few different reasons. We have a really strong clinical value proposition with DUROLANE and strong contract backbone. And those 2 combined with our dedicated commercial organization we're driving good growth in that space, again, double-digit growth in the first quarter, also carries a higher profitability for us in the single-injection space. So we expect that to continue to take place. From a competitive standpoint, the competitors that we've had in the past still exists today. We feel good about competing against them, given that combination that I just mentioned with our clinical value proposition and contracts and really dedicated sales force. So regarding the pricing, I'll turn that over to Mark.

Q: Just wanted to follow up there. You guided to first quarter below the low end of the 6% to 8% organic. It came in at 5%. You touched on some of it in the last few questions. But just maybe on organic growth and EBITDA, just speak to the level of confidence and visibility you have to the acceleration in 2Q through 4Q?

A: Thanks, Robbie. This is Mark. And really, when we look at the second half of the year or, I guess, the remaining 3 quarters in front of us, we talked a little bit about from a first quarter perspective that BGS was going to be slow in the first half of the year, we expect that to start accelerating in the back half of the year. HA, from a seasonality perspective, Q2 last year was our biggest quarter so Q2 and Q4 really in front of us. We talked about the recent account wins that we have. From an EBITDA perspective, you can really look at the big jump in EBITDA we had from Q1 to Q2 and 2024. We expect the same in 2025 and then to accelerate from there. And so as the sales increase throughout the year, we don't expect big spikes in expense other than kind of the correlation of commissions that would go with that. And so as the sales drives throughout the year, EBITDA will drop to the bottom line. And again, focused on increasing our margin by 100 basis points for that as well. And then also the cash flow acceleration nearly doubled from last time. So really just gets into the -- continue executing like we have over the last couple of years.

Q: Kind of piggybacking off of the last question. Can you maybe talk about like what level of leverage you become more constructive on M&A opportunities?

A: Yes. This is Rob. I'll start by saying by saying that kind of the premise there is the portfolio. And we feel really good about the portfolio that we have right now and our ability to drive short, mid- and long-term growth. So the -- and then on top of the existing portfolio we have, we're layering additional growth drivers, which we're really excited about as well. We have in the back half of this year, going through FDA clearance right now. We have game change in technology for our peripheral nerve stimulation business. We have a significant untapped opportunity in our international business. And as mentioned today, we're now going to be in the PRP space, which opens up a large and growing market for us. So we feel really good about the portfolio that we have. And so the focus from capital deployment standpoint is really to keep reducing leverage to get it below 2 eventually. And that's the focus for us. Nonetheless, as opportunities come along that are really synergistic with our mission and synergistic with our current business footprint and the channels and call points that we have. We're going to go after those if they help us achieve our goals, which is driving growth, profitability and cash flow. And that's what you saw with the PRP announcement today. So that's our focus at this point.

Q: Has the new OUS business manager started? And if so, maybe what are some of the initiatives they're driving in early days?

A: Yes. Thank you. So we just started this month, actually, and really excited about that. I mentioned a couple of times in the past that this – our international business is still quite small, even though many of the products that we have are eligible to drive significant growth. And with this type of business, when you have a ton of opportunity, but you’re early in the evolution. We really need a leader who can fly high and low at the same time and driving a powerful overarching growth strategy but also with really disciplined prioritization and very hands-on leadership and improving commercial execution country by country. So that’s why we brought on the new leader, and that’s what he’s going to do. So we’re going to, again, not just take a broad random approach, but very prioritized in terms of which countries, which products, refining the go-to-market approach, putting the investments in the right place to unlock more significant growth going forward for our international business.