Q4 2020 Bioventus Inc Earnings Call
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Please standby good afternoon, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2020 earnings conference call for Bioventures incorporated at this time all participants have been placed on listen only mode. Please note that this conference call is being recorded and that day recording will be available on the company.
Website for replay shortly before we begin I would like to remind everyone that our remarks today may contain forward looking statements are based on the corner and expectations of management and involve inherent risks and uncertainties that could cause actual results from differ materially from those indicated included there.
And at risk and uncertainties described in the computing and the company's filings with the Securities and Exchange Commission, including item, one and risk factors of the company's form 10-K for the year ended December 31st 2020.
And I cautioned not to place undue reliance upon any forward looking statements, which speak only as of debate 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 law.
This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP, which and how are you referred to this as non-GAAP financial measures reconciliations of those non-GAAP financial measures to the most comparable measures calculate.
Debt and presented in accordance with GAAP I Hope saleable in the earnings press release on the Investor Relations portion of our website I would now like to turn the call over to Mr. Can be on the dire Ventas Chief Executive Officer. Please go ahead Sir.
Well, thank you Carmen and welcome everyone to the bio Ventas fourth quarter 2020 earnings Conference call, which also marks our first quarterly earnings call as a public company.
I'm joined on the call today by Greg Engel, our Chief Financial Officer.
Let me start with a brief agenda of what we'll cover during our prepared remarks, we will start with an introduction to our company and our business.
I will then provide a high level overview of our financial performance for the fourth quarter and full year 2020.
As well as some thoughts on why bio ventas is well positioned for long term growth.
Based on our find debt foundational business and strategy.
After my opening remarks, Greg will provide you with a more in depth review of our financial results for the fourth quarter and full year 2020, and our financial guidance for full year 2021, which we introduced in our press release this afternoon.
And then we will open the call for your questions.
As this is <unk> first quarterly earnings call as a public company, we thought it would be helpful to spend a few minutes, describing our company's history and our business.
Bio Ventas is a global medical device company focused on developing and commercializing clinically differentiated cost efficient and minimally invasive treatments that engage and enhance the body's natural healing process.
<unk> was formed in May 2012, as a spin out of Smith, <unk>, nephew's biologic and clinical therapies business.
Where it was largely on autonomous Lee run Division.
The spin out over eight years ago was funded by five growth investors the largest of which was Essex woodlands, who together owned 51% of Bioventures with Smith <unk> nephew owning 49% of the newly formed company.
At the time of the spin out the business was comprised of profitable products, providing minimally invasive treatments to promote active healing and patients with osteoarthritis and fractures.
With $227 million and revenue and just over $30 million of EBITDA.
And the over eight years since that spin out we have expanded our portfolio around less invasive active healing products through a combination of market access and organic growth acquisitions and new licensing deals.
We increased our revenue at a mid single digit CAGR over this period to more than $321 million in 2020.
We have significantly increased the profitability profile of the business over this period generating more than $72 million and adjusted EBITDA in 'twenty, and 'twenty compared to $30 million and 2012, representing a CAGR of 12% and an improvement and adjusted.
And EBITDA margin from 15% to nearly 23% over this period.
We believe the company stands at a key inflection point and its history having.
Having grown significantly since the spin out in 2012, creating a foundation across many orthopedic specialties.
We believe we are poised to drive sustainable double digit growth with an achievable goal of doubling the size of the business over the next five years.
Today bio Ventas has more than 700 employees worldwide, many of whom are working at our headquarters in Durham, North Carolina or at our office and manufacturing facilities and Memphis, Tennessee.
We also have team members based on one of our international facilities and Amsterdam and Toronto.
Our products are marketed and the United States and 37 international countries.
Sales to U S customers represented more than 90% of our total sales in 2020.
And our largest commercial markets outside the U S include Canada, Europe and Asia Pacific.
Our products are most often used to delay or replace the need for and elective surgical procedure.
And they are focused on reaching patients early on and their treatment paradigm.
Approximately 81% of our $321 $2 million of 2020 revenues were associated with non surgical procedures.
Our products are widely reimbursed by both public and private insurers and are sold and the physician offices, and our clinics and ambulatory surgical centers and in the hospital setting.
<unk> mission is to make a difference by helping patients resume and enjoy living active lives.
We aim to achieve this mission by offering a portfolio of noninvasive medical device and biologic products that we believe play a critical role and supporting the body's own healing mechanisms or eliminating the pain caused by orthopedic conditions.
And some cases are medical devices can reduce the morbidity of surgical procedures.
We have direct commercial operations and five countries and we believe we have one of the largest sales organizations within the three verticals and which we operate.
Our direct sales organization is comprised of 305 sales reps, including 45 International direct Representatives and our team of 20 market access Representatives, who work with our sales team to provide access account access through IV Ns G P o's and payer.
Contracting.
We also have over 170 independent sales agency partnerships and the United States, along with 15 regional sales managers that support our distribution network, we have distribution partners and 37 international markets.
This expansive direct sales and distribution channel provides us with a broad and differentiated customer reach and allows us to serve physicians spanning the orthopedic continuum, including.
Including sports Medicine total joint reconstruction.
And in upper extremities foot and ankle podiatric surgery trauma spine, neurosurgery and physical medicine or physiatrists.
This broad commercial reach across our established orthopedic customer base is a key strength of the company.
We are focused on leveraging this significant customer base and the reach of our commercial organization to continue to grow the company by expanding our market share and product portfolio.
Our existing portfolio of products is grouped into three verticals.
Just on clinical use.
Osteoarthritis joint pain, and joint preservation and <unk>.
Minimally invasive fracture treatments and bone graft substitutes.
These products address and estimated $6 billion market opportunity with attractive growth characteristics from multiple industry tailwind, including and aging population.
Increased participation and sports and active lifestyles and rising obesity rates.
Now, let me share a little color on our differentiated products and each of our primary verticals beginning.
Beginning with osteoarthritis or OA.
We are the largest pure play orthopedics focused company and the OE joint pain treatment and joint preservation market.
We offer the only complete portfolio of H E or hyaluronic acid visco supplementation therapies, including single three and five injection regimens for patients experiencing pain related to OE in the knee.
We believe our complex portfolio of <unk> solutions gives physicians and patients the freedom of choice and appeals to the growing preference among providers to interact with a single vendor to access our complete portfolio of care.
Our products are all FDA approved by the U S food and drug administration through pre market approval or PMA.
We sell our products through long term exclusive license agreements.
Our flagship product is sterling, which is the fastest growing single injection products within the H, a viscose supplementation market.
We also offer a three injection solution called jealous and three and a market leading five injection solution called Sue parts FX.
We have been the fastest growing H a participant over the last three years driving our market share and number three by revenue and the U S market.
We expect sales of our OE products to be the largest contributor to our organic growth on a total dollar basis and 2021.
Led by our <unk> single injection product.
<unk> is a truly special products with unique features and benefits that dramatically improve its residents time and the knee joints.
The product also has a very strong safety profile with more than 15 years of evidence.
We expect <unk> will continue to benefit from the expected growth tailwind afforded to differentiated products early in their commercial lifecycle, having just been launched and the U S and 2018 and the continued strong growth of the single injection market.
And importantly, we have leveraged the company's strong free cash flow generation in recent years to invest and our product development pipeline as well as our M&A strategy.
And in order to advance our long term growth profile.
The early evidence of our success and this strategy is clear when you look at the pipeline of new products and our OE vertical.
We have a product and development called modus and injectable placental tissue product for the treatment of osteoarthritis of the knee.
We are excited by the opportunity modus gives us in terms of accessing patients earlier in the treatment paradigm and advance of H E. As we expect modus to be used as a superior alternative to steroids.
As it reduces inflammation and can potentially modify the impact of early stage arthritis.
We have a dual path growth strategy over the medium term with modus as we launched this product last September under the human tissue regulations and into the cash pay market.
And we received <unk> approval and Q4 of 2020, and recently started enrollment and our first clinical study for knee OA to commence securing the requisite clinical evidence to support and eventual BLA submission.
We are very excited by the potential growth opportunity that modus offers and the coming years. We believe it is a highly differentiated product that is complementary with our existing portfolio of OE solutions and importantly, it gives us access to the $110 million U S amniotic tissue.
Market for Orthopedics, and sports medicine, and spine applications, which is projected to grow at a 25% CAGR from 2019 through 2023.
We also purchased the rights to acquire a product called agility through our transaction with car to heal.
The agility technology is the only off the shelf aragonite or sea coral scaffold implant designed to address osteochondrosis defects and the knee.
The product helps treat patients suffering from advanced OE, but comes before a total knee replacement, which offers the potential to add value not only to patients and delaying the surgical procedure, but also and the significant cost savings to hospitals and payers by delaying or avoiding the.
Total knee replacement procedure.
Agility was granted breakthrough device designation by the FDA and Q4 of 2020 for the treatment of Osteochondrosis need joint surface lesions, which we believe is validation of the product's potential.
We expect car to heal to complete its modular PMA submission and Q4 of 2021 which would put the agility on track for approval and the second half of 'twenty 'twenty two.
The agility and plant potentially unlocks applications for the millions of patients and the global knee cartilage repair market, which we estimate at over $1.3 billion.
We are also excited by our product that expands our OE solution portfolio, but this time addressing the shoulder specifically and the rotator cuff repair market.
Pro Cup is a bio inductive college and implant for regeneration of tender and tissue and the rotator cuff.
This biologic shoulder repair products gives us access to the more than 530000 rotator cuff injuries that occur and the U S. Each year make.
And it's a key area of focus amongst sports medicine surgeons.
We signed a license agreement with Harbor Med Tech Corp broke up.
And we expect five 10-K clearance and the second half of 2022.
Our second vertical is minimally invasive fracture treatment.
Our <unk> system has made us the leader and bone stimulation for fracture healing.
We are the only company to utilize advanced pulse ultrasound technology for bone growth and delayed and non union fractures, and all fracture locations, except spine as well as and fresh fractures of the tibia and radios.
Our <unk> system offers significant advantages over electrical based long bone stimulation systems, including a documented mechanism of action shorter treatment times and published clinical studies, demonstrating superior non human use non union heal rates.
Our <unk> system was the number one prescribed device and the long bone growth stimulation market and 2018, the latest period for which data is available.
<unk> also sold internationally under our CE, mark for non unions, and fresh fractures and as the market, leading bone healing treatment for long bones and Japan.
We are also excited by the pipeline opportunities and our <unk> franchise.
We are investing and our <unk> system to enhance the products multi year growth profile, specifically conducting I D E clinical studies of <unk> to expand the indications to larger market opportunities.
We plan to use data from these studies to seek approval for expanded indications with respect to fresh fractures that have risk of going on to a surgical procedure or a non union.
We submitted our first of three PMA supplements and December of 'twenty, and 'twenty and expect approval for brush fracture metatarsal applications and the second half of 2021.
We also intend to leverage the clinical data from this program to support payer coverage in this area.
Our third vertical is bone graft substitutes and we are the fastest growing participant and the bone graft substitutes market.
We offer a comprehensive clinically proven and cost effective portfolio of bone graft substitutes to meet a broad range of patient needs and procedures.
Our products are designed to improve spine fusion rates and avoid the cost and risks associated with autograft, commonly used and spinal fusion and other orthopedic fusion and fracture surgeries.
Our bone graft substitute products are agnostic to the brand of implants used and can be used in conjunction with any orthopedic fixation and spinal fusion and plant.
We market, our bone graft substitute products, primarily orthopedic spine surgeons and neurosurgeons for use and the operating room and both the hospital and ASC setting.
Our bone graft substitute products are sold by approximately 170 independent distributors and the United States each with their own independent sales force supported by our 15 member regionalized sales support team.
Our bone graft substitute product portfolio includes seven commercialized products and include and Allograph derived bone grafts with growth factors, a demineralized bone matrix cancellus bone and different preparations.
Oh active synthetics, a college and ceramic matrix and to bone marrow isolation systems.
This product suite is led by Osteo Amp, which is an osteo conductive allograft that is minimally manipulated and offers many different formulations.
Our bone graft substitute business is agnostic to spinal hardware and often a separate line item and hospital budgets and we have been successful and whole hospital conversions to our bone graft substitute products saving hospitals money spent on bone graft substitutes, especially compare.
And to Medtronic and fears.
We have a compelling new product pipeline.
And our bone graft substitute vertical.
Which we expect will enhance the verticals organic growth profile and the coming years.
We launched the Cigna fuse bioactive strip and 2020 for poster of lateral spinal fusions and expect to launch a global version of Osteo M.
And the second half of 2021, which gets us into the minimally invasive spinal fusion market the fastest growing segment of the spine market.
As with all three of our verticals. We are excited by the many potential M&A opportunities and the bone graft substitute vertical.
And importantly, we are not interested and moving into the spinal implant area.
Rather our focus will remain on the many synergistic areas of the bone graft substitute market that we believe will help advance our market penetration and the future.
Our portfolio of active healing products across our three verticals is supported by our significant body of clinical evidence.
This is a key differentiator and creates a competitive barrier to entry given the time and investment required to amass the amount of published clinical data, we have and it's an asset that would take years for a competitor to try to replicate.
Turning to a brief review of our fourth quarter and 2020 results.
We were pleased to report fourth quarter net sales of $98 $6 million, which represented growth of 1% year over year, which was a record setting quarterly revenue performance and made even stronger still in light of the continued challenges and our external environment.
As the recovery from the global pandemic continues.
Importantly, our fourth quarter sales increased 15% on a quarter over quarter basis, which we believe is a better reflection of the improvement and the underlying trends and our business as we continue our steady recovery from the Covid related business disruption the worse.
First of which we experienced and the second quarter of 2020.
While the environment remains challenging we were encouraged by the growth results and the second half of 2020.
Where we grew our sales 3% year over year and for 2020 overall, we had year over year growth and three out of four quarters and.
And achievement, we are proud of.
We were also pleased with the improving financial performance on a quarter over quarter basis, as Roop reported higher non-GAAP gross margins operating margins and adjusted EBITDA margins compared to the third quarter of 2020.
We generated more than $26 million of free cash flow and the fourth quarter of 2020 and generated nearly $78 million for the full year 2020.
Period, reflecting the strong financial profile of our business.
Our robust free cash flow conversion is best in class and has allowed us to make investments and our commercial channel R&D as well as M&A and we expect to continue to leverage our free cash flow generation and the years to come.
Finally, we are proud of the strong operating and financial performance, we delivered in 2020.
Despite the unprecedented challenges presented by the external environment.
We believe this performance is a direct result of our results oriented culture at bio Ventas and the focus by our team on our mission to make a difference by helping patients resume and enjoy active lives.
The substantial improvements and our execution and operating achievements that we delivered in 2020 have continued and 2021.
We believe we have a thoughtful strategy to continue to drive growth and improve profitability going forward.
In addition to the strong free cash flow generation, we expect to use to execute our growth strategy. We are also encouraged by the significant improvement and our balance sheet and financial condition. As a result of the capital raised from our IPO in February.
We completed and initial public offering led by Morgan Stanley Jpmorgan Goldman Sachs and managed by Canaccord Genuity.
As a result of this transaction, we began trading on the NASDAQ Global market on February 11, and under the ticker symbol B V. S and raised net proceeds of $111 million to fuel our future longer term strategic growth initiatives.
We introduced financial guidance for 'twenty, and 'twenty, one, which reflects revenue growth and the range of 12% to 16% year over year fueled primarily by strong global growth and sales of our leading portfolio of PMA approved therapies for OA.
Pain, our portfolio of clinically efficacious and cost effective bone graft solutions and continuing to build on our minimally invasive fracture treatment franchise and.
Importantly, we look forward to potential acceleration and our multiyear growth profile.
Fueled by continued progress and our clinical and product development and new product pipeline.
And our pursuit of inorganic business development opportunities that are accretive to our long term growth profile and leverage our significant customer presence across orthopedics.
Rod and our portfolio and increase our global footprint.
With that let me turn the call over to Greg for a detailed review of our financial results and the fourth quarter and full year 2020 period as well as a review of our 2021 guidance.
Thank you Ken.
Before I begin I'd first like to highlight three items for analysts and investors to bear in mind during my prepared remarks. This afternoon.
First to avoid confusion.
And when evaluating our reported results or when reviewing our historical financial statements and SEC filings as indicated in our press release. This afternoon and further detailed in our annual report and 10-K to be filed with the SEC. The historical results for the fourth quarter and full year 2020 periods presented are those of bio Ventas LLS.
And the predecessor of Bioventures, Inc for financial reporting purposes.
The financial results of Bioventures, Inc. Have not been included in this press release as it had no material assets or liabilities and no material business transactions or activities. During the periods presented specifically, our fourth quarter and full year 2020, and 2019 periods.
And on February 16th 2021, the company successfully closed our IPO of common stock. Accordingly. These historical results do not reflect what the results of operations of Bioventures, Inc. Would have been had the IPO and related transactions occurred prior to such periods. For example, these hits.
Auricle results do not reflect the attribution of net income to non controlling interest or the provision for corporate income taxes on the income attributable to <unk>, Inc. That the company expects to recognize and future periods. The financial statements also reflect <unk> Llc's unit.
<unk> ownership structure as the class a and class B common shares were not issued until Q1 2021, when our IPO and the related transactions occurred.
Second for the avoidance of doubt unless otherwise noted my commentary will focus on the Companys GAAP results during the fourth quarter and full year 2020 periods for all non-GAAP references. We have included full reconciliations from our GAAP reported results to the related non-GAAP item and our press release this afternoon.
Third as Ken mentioned earlier, we report our net sales results by our major geographic regions U S and international.
And by our three primary verticals OE joint pain treatment and joint preservation, and minimally invasive fracture treatment and bone graft substitutes and the interest of brevity. During my prepared remarks. This afternoon I'll refer to these three verticals by OE.
And bgs, respectively.
Turning to a review of our fourth quarter financial results.
Net sales increased $1.0 million or 1% year over year on both a reported and constant currency basis in the fourth quarter of 2020.
The year over year change and net sales by geography was driven by a $2 $8 million increase or 3% year over year and U S. Net sales and a $1 $8 million decrease and international net sales.
Fourth quarter net sales to international customers decreased 17% year over year on a reported basis and 19% on a constant currency basis.
U S sales represented 91% of the company's total net I'm sorry, the total company net sales for the fourth quarter of 2020 compared to 89% of total company net sales last year.
The year over year change and net sales by vertical for the fourth quarter of 2020 was driven by a $2 $8 million increase or 17% year over year and global net sales of Bgs products.
And a zero point $4 million increase or 2% year over year and global net sales of minimally invasive fracture products offset partially by a $2 $2 million decrease or 4% year over year decline and global net sales of OE products.
Global OE MRI and Bgs sales represented approximately 53%, 28% and 19% respectively of our total company net sales for the fourth quarter of 2020, compared to 56%, 27% and 17% respectively last year.
Finally, while it is not our practice to disclose product specific revenue details and the interest of transparency with the investment community. We are electing to provide additional color on the growth performance of our largest and fastest growing OE product Darling.
Sales of dearly and products increased 9% year over year and the fourth quarter of 2020, driven primarily by 19% growth and the U S.
Gross profit was $73 5 million compared to $73 $4 million last year, and essentially flat year over year.
Importantly, our cost of goods line item includes noncash amortization expense of $5 $1 billion for the fourth quarter of 2020 compared to $5 $2 million last year.
Excluding noncash amortization expense, our non-GAAP gross margin was 80% compared to 81% for the fourth quarter of 2019 down 100 basis points year over year, driven primarily by the mix of revenue by geography and by vertical as compared to the prior year period.
Total operating expense was $67 6 million compared to $59 7 million for the fourth quarter of 2019 and increase of $7 8 million or 13% year over year.
The change and total operating expense year over year was driven by a $7 $5 million increase or 14% year over year and SG&A expense and.
Zero point $6 million increase and restructuring expenses offset partially by a zero point $3 million decrease in R&D expense compared to the prior year period.
Keep in mind that our GAAP operating expense includes a noncash depreciation and amortization expense of which approximately $1 $3 million is non cash intangible amortization expense, we exclude noncash amortization expense from both our non-GAAP cost of goods and our non-GAAP operating expenses.
And the non-GAAP reconciliation tables detailed in our press release this afternoon.
We also have identified certain items that impacted our fourth quarter operating expenses and given the non operating nature of these items, we have excluded them and our non-GAAP reconciliation to better reflect the underlying operating expense profile of the company.
And specifically in addition to the aforementioned noncash amortization expense and restructuring expenses fourth quarter GAAP Opex included approximately $4 $2 million of non operating expenses.
One 9 million of which was driven by nonrecurring settlement and legal costs.
Excluding these items, our non-GAAP operating expense was $61 5 million compared to $57 7 million up $3 $8 million or 7% year over year.
Operating income was $5 9 million compared to $13 7 million for the fourth quarter of 2019, a decrease of $7 8 million or 57% year over year.
Non-GAAP operating income was $17 million compared to $21 million down $4 million or 19% year over year.
Non-GAAP operating margin was 17, 3% of net sales compared to 21, 5% of net sales for the fourth quarter of 2019.
Total other expense was $2 8 million compared.
Compared to $7 5 million for the fourth quarter of 2019, a decrease of $4 7 million or 63% year over year, primarily due to decreased debt interest, resulting from refinancing our debt and December 2019, as well as the decline in interest rates.
GAAP net income from continuing operations was $2 $3 million above the high end of our preliminary range. We provided in our S. One filing in early February.
GAAP net income attributable to common unit holders was zero point $5 million compared to $2 $5 billion last year.
Note net income attributable to common unit holders is based on <unk> Llc's capital structure as a private company during the three and 12 months reporting periods presented and our financial statements. In this afternoon's press release, and 10-K, which will be filed with the SEC.
As detailed on our consolidated statement of operations and comprehensive income in our press release this afternoon.
Excluding the impacts of accumulated and unpaid preferred distributions of $1 $6 million and net income allocated to participating shareholders of zero point $7 million. Our GAAP net income from continuing operations attributable to unit holders for the three.
Months ended December 31, and 2020 was $2 $8 million compared to $5 $8 million last year.
GAAP net income attributable to unit holders is the equivalent to P&L line item that the public company <unk>, Inc will compare in our financial statements beginning in the first quarter of 2021.
On an as converted basis, reflecting the recapitalization and IPO, we would expect approximately $56 8 million common shares outstanding and the first quarter of 2021.
Non-GAAP net income attributable to common unit holders from continuing operations was $11 4 million compared to $9 $8 million last year.
Non-GAAP net income attributable to unit holders was $13 7 million compared to $13 1 million last year.
Note. This excludes the aforementioned impact of accumulated and unpaid preferred distributions and net income allocated to participating shareholders totaling $2 $3 million for the 12 months ended December 31, and 2020 and as the equivalent non-GAAP P&L line item that the public company <unk>, Inc.
We will compare two beginning in the first quarter of 2021.
Adjusted EBITDA was $28 $2 million down 8% year over year and above the midpoint of the preliminary range. We provided in our S. One filing in early February.
As detailed in the non-GAAP reconciliation table on our press release adjusted EBITDA excludes the impact of stock compensation expense and other noncash and nonrecurring items and we believe this better reflects the underlying operating performance of our business.
Now turning to a brief review of our revenue results for the 12 months ended December 31 2020.
Net sales were $321 2 million compared to $340 1 million last year, a decrease of $19 million or 6% year over year.
The year over year change and net sales by geography was driven by a 4% decrease and U S. Net sales and a 22% decrease and international net sales compared to the prior year period.
<unk> and foreign currency exchange rates did not have a material impact on our international net sales results for the full year 2020 period.
The year over year change and net sales by vertical for the full year 2020 period was driven by a $14 $9 million decrease or 14% year over year and global net sales of <unk> products.
And a $10 $9 million decrease or 6% year over year and global net sales of OE products, partially offset by a $6 million up $6 8 million increase or 12% year over year and global net sales of Bgs products.
Finally, while it is not our practice to disclose product specific revenue details and the interest of transparency with the investment community. We were electing to provide additional color on the growth performance of our largest and fastest growing OE product Sterling.
Sales of Berlin products increased 21% year over year, and 2020, driven primarily by 39% growth and the U S impressive growth performance in light of the challenging operating environment during 2020.
Turning now to a brief review of our financial results for the 12 months ended December 31 and 2020.
GAAP net income from continuing operations increased 81% year over year to $14 $7 million.
GAAP net income attributable to common unit holders from continuing operations was $4 4 million compared to $1 $2 million last year.
Excluding the impacts of accumulated and unpaid preferred distributions of $6 $1 million and net income and allocated to participating shareholders of $5 9 million or GAAP net income attributable to unitholders for the 12 months ended December 31, and 2020 increased a 100.
And 40% year over year to $16 $4 million.
And again GAAP net income attributable to unit holders is the equivalent P&L line item that the public company <unk>, Inc will compare to and our financial statements beginning in the first quarter of 2021 on.
On and as converted basis, reflecting the recapitalization and IPO, we would expect approximately $56 8 billion common shares outstanding and the first quarter of 2021.
Non-GAAP net income attributable to common unit holders was $37 1 million compared to $28 $6 million last year.
Non-GAAP net income attributable to unit holders increased 36% year over year to $49 1 million.
Note. This excludes the aforementioned impact of accumulated and unpaid preferred distributions and net income allocated to participating shareholders totaling $12 million for the 12 months ending December 31, and 2020 and as the equivalent non-GAAP P&L item that the public company <unk>, Inc will compare to beginning.
And the first quarter of 2021.
Adjusted EBITDA increased 9% year over year to $72 $4 million.
Representing 22, 6% of net sales compared to 23, 3% last year.
Turning quickly to the balance sheet.
As of December 31, and 2020, the company had $86 $8 million in cash and cash equivalents and $188 $4 million and debt obligations compared to $64 $5 million and cash and cash equivalents at 198 zero million and debt obligations.
And as of December 31, and 2019.
As of December 31, and 2020, we had $49 $9 million of available borrowing capacity on our revolving line of credit.
Turning now to a review of our fiscal year 2021 revenue guidance, which we introduced and our press release this afternoon.
For the 12 months ended ending December 31, and 2021 the company expects.
Net sales of $360 million to $372 million up approximately 12% to 16% year over year.
Net loss attributable to common shareholders of $15 million to $19 million compared to net income of $16 4 million and the 12 months ended December 31 2020.
Non-GAAP net income attributable to common shareholders of $43.0 million.
Compared to $46.01 million.
Compared to $49 $1 million for the 12 months ended December 31 and 2020.
Adjusted EBITDA of 79 million to $83 million compared to $72 $4 million for the 12 months ended December 31 2020.
In addition to the formal financial guidance provided in this afternoon's release, we would like to provide some key assumptions to bear in mind, when evaluating our growth expectations for 2020 one.
First our full year 2021, net sales guidance range assumes the following for net sales growth by geography.
U S. Net sales growth is expected to be in line with total company net sales growth and international net sales growth is expected to be in the mid to high teens year over year on both a reported basis and a constant currency basis.
For net sales by vertical and our full year 2021 guidance assumes low single digit growth and sales and mid to high teens growth and both OE and bgs sales.
These underlying assumptions are expected to result, and the largest contributor to our total.
Company net sales by geography to be growth and U S sales and by vertical and the largest contributor will contributor to total company net sales is expected to be growth and sales of our OE products.
Second we expect to see measured improvement and the operating environment as we move through 2021 fueled by the increasing availability of vaccines and an increasing percentage of vaccinated Americans that said, our full year 2021 guidance assumes no material improvement and COVID-19 related headwinds, including sales rep access.
<unk> and elective procedures trends over the first half of 2021, and a return to normalized year over year growth trends in the third quarter of 2021.
Third by way of reminder, like many med tech companies, our business experiences modest seasonality during the calendar year with the strongest quarter being Q4, and the smallest percentage of full year revenue coming in Q1, each calendar year.
In addition to the normal seasonal slowdown from Q4 to Q1, our first quarter of 2021 results to date have been further impacted by the ongoing challenges related to the Covid pandemic and our primary markets around the world as such our full year guidance includes the assumption that our Q1 'twenty one total company net sale.
<unk> will decline and the range of 1% to 2% year over year on a reported basis and constant currency basis.
Finally, with respect to our expectations for financial performance and 2021, we would like to provide some considerations for modeling purposes to help evaluate our full year 2021 guidance for GAAP and non-GAAP net income.
For the full year 2021 period, we expect non-GAAP gross margins of approximately 79%, which exclude non cash amortization of approximately $22 million.
GAAP operating expense growth in the mid teens year over year, driven by a normalization of operating expense spending compared to 2020, plus incremental stock comp expense of $11 million incremental anticipated changes in connection with potential strategic investments of approximately $4 million to $5 million.
And other incremental costs, including those related to being a public company.
For non-GAAP purposes, we expect our GAAP operating expenses to include approximately $5 9 million of noncash amortization.
Total interest and other expenses of approximately $3 million to $4 million.
Non cash DNA of approximately $30 million.
Noncash stock comp of approximately $22 million and weighted average diluted common shares of approximately 57 to 59 million shares.
With that I'll turn the call back to you again thanks.
Thanks, Greg.
Before opening the call for Q&A I want to reiterate some of the finer points of the bio <unk> growth strategy.
Number one.
Our organic growth of high single digits, we feel we can continue for the foreseeable future.
As we continue our market penetration strategy with our HVA products bone graft substitutes and expand our indications and the minimally invasive fracture treatment area.
Number two our.
Our product pipeline is robust and will fuel accretive growth and the medium term with products like a jealousy by car to heal modus and pro Cup as well as the global version of Osteo Ammar.
Number three.
Our M&A strategy is designed to brain and acquisitions that will bring accretive growth to our business and leverage our strong commercial infrastructure to bring about consistent double digit growth.
Number four operationally, we are focused on continuous improvement to positively impact our margins, including cost savings initiatives from a manufacturing and supply chain perspective.
Also enhancing our quality programs to meet ongoing changes and our regulatory environment and.
And number five and most importantly, our strategy is backed by a highly engaged results driven culture that is fueled by and employee driven mission to improve the lives of thousands of patients that are treated each day by one of our medical devices returning them to active lives.
With that we'll open the call to take questions.
Carmen.
Thank you.
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Our first question comes from David Lewis with Morgan Stanley.
Hi, Ken and Greg, It's drew and Aerie on for David Lewis and I. Congrats on your first quarter as a public company and thank you for taking the questions.
And I wanted to start on 'twenty, and 'twenty, one guidance and and just a couple of questions here. It looks like its frame and current consensus but can you give us a little bit more detail on what you expect the U S O a joint business to do maybe specifically <unk>. Just how are you thinking about the how are you thinking about gaining market share.
And mix shifts and the single injection market and the second component here is just on the first quarter 2021 guidance.
Also looks like it's reflecting consensus but can you give us a little bit more sense of the recovery trends youre seeing so far and the first quarter now that we're almost fully through March.
Thanks Drew for your question first of all on the OE market in particular.
We continue to be very bullish and this market as we move through 2021.
As we talked about and the script.
And highlighted <unk> continues to be the growth leader. This is a product that we launched just in 2018 and we feel has a lot of runway to continue to gain market penetration within the single injection market, which is the fastest growing market and the HSA area.
As far as the overall trends and.
In Q1.
We've continued to see as we reflected in the script as well headwinds and the business relative to the pandemic and.
And we expect a return to normal cadence and our business and the second half of 2021.
And that our guidance is really predicated on on that true.
Got it and then can you talk about your excitement in your prepared commentary about M&A opportunities across the portfolio, but can you provide any additional comments on the potential acquisition that you disclosed and earlier filings.
And and maybe from a business development standpoint.
Are you focused on getting this deal done or is or are you also open to doing a continued active M&A and the near term until that closes.
Well, we have no further comment on that particular acquisition. So no no change at this point in time as far as other M&A. We are actively and we will continue to actively look at all opportunities that we feel strategically fit where we want to go once again, leveraging our commercial channel lever.
AG and our infrastructure as we talked about on the script and ultimately driving accretive growth getting the company as a bridge to double digit growth and leveraging our high single digit growth of our organic business.
Thanks, Thanks, Kevin I appreciate the color.
Our next question comes from Robbie Marcus with JP Morgan.
Oh, great and thanks for taking the question again, congratulations on the first quarter public.
Maybe if we dive into some of the product lines here and you think about the recovery trends in 2020 one.
How do we think about maybe exit Jan and that business, which had a nice fourth quarter versus sports med and.
On.
You know as there was obviously something on Ics.
Arthritis, but sports med component.
Might take a little longer as people.
Play sports and and then visit their.
Orthopedists. So how are you thinking about.
And the different markets progressing you know you you gave us good color on the year, but just trying to dive into a product level.
Yes, Robbie thanks for.
The question as far as <unk> goes we saw a nice progression through the second half of the year with oxygen on a revenue perspective, Q3 and Q4.
And that was not by accident when.
The shutdown of cured occurred in Q2 that we all lived through there was a lot of reduced activity for everybody.
And that reduce trauma hot trauma and a lot of dramatic fractures were reduced as well so estrogen and took some time to recover.
But we did see consistent growth through the year, reflecting a return to activity around the mid to late may timeframe, and if you do the math on oxygen a lot of our our fractures that are treated with oxygen are three to six months old. So you can see why if people start being active again and gaining fractures.
You see that trend line continuing to grow we went through a significant change as well with extra Gen last year and our order management process that we feel is going to continue to drive.
<unk> penetration of our <unk> business. The order management process is basically done through a additional parallel team to our sales force, which allows our sales team to focus on selling estrogen and our order management team to process. The significant paperwork that exigent involves is a durable medical.
So we're pretty excited about where that can go going forward.
The other thing I would keep in mind relative to to the OE products versus extra Gen. As you are talking about two different patient populations the oxygen patient population tends to be younger.
Certainly a more active patient group overall.
And the OA population and what.
Which was particularly impacted and the fourth quarter tends to be an older population and that is where with the surge and cases, we saw with COVID-19, and the fourth quarter. Some of those patients stayed home from the Doctor's office because of their age and they're higher risk factors and that certainly was one of the causes and the headwinds.
We feel and our osteoarthritis business and the fourth quarter. So those are some of the dynamics at play that we saw with both products, but looking at OE going into 2021.
The trends that we're projecting or a return to normality and the second half of this year.
Which will certainly with the vaccinations underway allow patients to be comfortable fully reserved resuming their visits to the doctor's offices on a consistent basis, where they do get the knee injections, whether it be dura line gels, and our three injection or five injection regimen and sue parts FX.
Great and I know, it's still we're on our fourth quarter earnings call, but obviously everybody is looking forward to the future here. So I was wondering if you'd be willing to share what you're hearing from the field and.
In terms of how bookings look and doctor visits and scheduled procedures.
Sometimes we could see six to eight weeks out from here are you seeing a turn at all and the environment and how patients are starting to book procedures.
You know Ravi, we're watching that carefully and it's as the vaccinations play out it's wonderful to see people getting vaccinated.
It's still too early for us to really make a comment on the material impact that's having on the business.
But we will certainly look forward to talking about that further and our Q1 call.
Great and and maybe last one for me on that.
And Covid, obviously presented some opportunities for cost savings last year Youre now going into 2021.
And with some public company costs that we layer in and you gave the EBITDA guidance, which is really helpful. So how do we think about some of the incremental costs coming on.
Related to <unk>.
The IPO and public company costs going forward offset by some of the cost savings you might get.
Going forward or you know costs that were deferred from last year and to this year, just maybe a little better picture into the spending mix and how we ended up where the guidance is.
Sure Rob It's Greg let me take that one for you.
It's interesting we have both some COVID-19 cost savings, which you mentioned, we also have some nonrecurring costs.
Which are part of our EBITDA add backs.
And ironically, both of those relatively offset them selves and about $9 million go on each direction.
In addition to that as we as we listed in our prepared remarks, we're expecting additional equity comp and was around $11 million, we're expecting additional strategic investment costs of $4 million to $5 million and then we think there's probably about another $6 billion ish six to 7 million and public company cost.
Yes.
That will incur in 2021 and beyond that it's just some really slight sort of cost.
Cost of living and inflationary costs, and our cost structure and 2021.
Great. Thanks for taking the questions.
Yes.
Our next question comes from Amit <unk> with Goldman Sachs.
Hi, This is Phil on for me and definitely Echo drew and Robin's comments congrats on the first quarter on the box.
Like to start maybe with a question that could help alleviate some of some of the concerns around around key risks. So the first one is any update you can provide on the down classification that was proposed by FDA last year, and then speak to your outlook on the impact that that might have on your competitive competitive positioning with oxygen.
Yes.
And Phil Thanks for the question.
No nothing about the down classification and other than what's been communicated publicly.
I think the latest was in the late third or early fourth quarter last year.
As we reflected in our script, we submitted a PMA supplement for fresh fracture at risk for the metatarsal indication and December late December and hope to get approval on that and the second half of this year.
We are pretty excited about the growth prospects for extra gen. Regardless of the down classification and I'll tell you why.
We have a pretty significant presence and this market and many ways not just our sales force, but also our payer contracts are published clinical data and our continued evolution of our published clinical data such as the bones clinical study that I highlighted in the.
Gripped today, so we feel the barriers to entry are significant whether it's a class III or class II device.
From our perspective also there could be advantages as a class II device, which would allow us to more rapidly advance the <unk> technology.
Not only the unit itself with improvements, which is a PMA product takes significant regulatory time, but also the clinical indications and allow us to more rapidly already being in the market more rapidly advance those clinical indications than any other competitor that would want to.
Joining us and this area.
That's great and thanks, and and maybe touch on the <unk> settlement, we were where we are today and and any outstanding resolution that needs to occur there.
Yes. There is we are completely done that that issue is behind US. There is no ongoing impacts of it whatsoever, we did record in the fourth quarter.
And just under $2 million of settlement charges those were paid early in the first quarter.
Once we finalize that settlements.
But beyond that.
Feel very happy to say that was behind us.
That's great Greg one more for me if I could on <unk>.
And a little more positive note.
And any additional milestone details you can give timelines around trial enrollment or even though longer dated.
On BLA submission timeline. Thanks.
No.
At this point, Phil we're not we're not providing that we are so excited about modus and we're excited we've start enrolling and our first IND clinical study and that puts us on the pathway for a BLA approval.
We are continuing to sell the product as well as a cash product within the tissue regulations and it is a great synergy with our HMA portfolio.
And as we said in the script.
On a product that is used earlier earlier onset osteoarthritis.
It can reduce inflammation and potentially have disease modification possibilities and thats something we will be studying.
We'll provide updates as we progress through that development cycle.
That's great. Thank you for taking all the questions Congrats again.
Thanks.
Thank you and ladies and gentleman that is star one to get into queue. If you have a question.
Our next question is from Kyle Rose with Canaccord.
Great. Good evening, everyone and thank you for taking the questions.
And congrats on the on the first quarter here so.
Wanted to kind of dig into just some of the moving pieces.
You talked about somebody encourage and growth and DHA side, particularly <unk> wondering if you could just help frame that for us with.
With respect to the underlying market.
And you think about your dearly and growth and your H a business unit growth are you seeing.
Better utilization among existing customers. So it's kind of like same store sales are you seeing.
Increased growth from new customers, and then kind of within <unk>, specifically is that cannibalizing underlying sales and to cannibalize the taking share from other single injection and just help us understand the puts and takes are.
That business unit.
Kyle.
We talked about and the script, we're pretty excited about <unk>. We think it's a very special product. It's got a great safety profile going back 15 years.
And just launched and the U S really just in 2018, so very early and its product lifecycle. We think it's got a lot of ground to continue to grow and.
And as we know the single injection market is the fastest growing market and the HSA area for obvious reasons.
We can't speak to the dynamic between the single three and five injection that is not something we're getting into in terms of that dynamic. It's a hard one really to understand.
As far as our growth profile for many reasons, including competitive reasons, we want to be careful how much we share on our growth we get our growth in many ways.
Through of course, all the things you mentioned from further penetration in existing accounts to new accounts. Our sales reps are focused on all of that and driving consistent growth and to get consistent growth you have to have all of those elements you have to continue to penetrate and existing account with new physicians that may.
We are using competitive products and then you have to open up new accounts, but that's not something from a <unk>.
Perspective of providing content or detail, we're prepared or are willing to give at this point and time.
Okay.
And then just.
And one on the bones.
So submission for the fifth metatarsal.
Talked about.
Approval and the second half of the year, maybe just help us understand.
Historically or with the experience and the past how you expect payer coverage to play out.
How long should we expect that Youll post approval to start maybe impacting.
Top line growth and and is there any revenues from that and expanded indication and the 2021 guidance, we'd see today.
Well there is very little revenue.
The bones trial, and the 2021 guidance.
But we do expect.
The clinical data have an impact over the medium term.
On the payer contracts as I highlighted in the script.
This is new data it has compelling data.
And we feel it will lead to a PMA supplement approval and the second half of this year.
We do have many payer contracts in place today and.
And certainly leveraging those contracts with new data doing addendums to those contracts.
We will be part of the strategy, but at this point, that's going to take some time to play out which is why we're not projecting and any impact to revenue from the bones clinical study in 2021.
Okay and then last question from me is.
On international maybe just a little bit more commentary on on what you're seeing and the trends and the international markets and then any expectations for any new product launches internationally or new market entrances that we should keep in mind when we're thinking about execution. This year, yes.
Yes, thanks for the question Kyle and on International.
We continue to see international lagging the U S, which many companies have reported and our 2020 results and the fourth quarter results certainly reflect that.
It's been more challenging and markets, where we are direct such as the U K.
And we certainly are hoping as the vaccinations rollout that by the second half of this year, we will see international return to a normal environment.
And that is something we're driving too I know our sales team over in Europe and.
And Canada are excited to get back to normal as well so.
At this point those trends, we expect to improve by the second half of this year.
We are also focused on the Asia Pacific area, and as we announced.
Earlier, we hired general manager for the Asia Pacific market, that's based in China, and we will be looking to grow and that area as we build our product portfolio, but at this point and time. There is no further updates on additional products or product launches internationally.
And certainly we will be updating you as that happens.
Great. Thank you very much for taking the questions.
Thank you Kyle.
Thank you and we are currently showing no additional participants and the key and that does conclude our conference call for today and thank you for your participation.
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