Q1 2021 Bioventus Inc Earnings Call
Yeah.
Good afternoon, and welcome to the first quarter 2021 earnings conference call for a buyer of benches, Inc.
At this time, all participants have been placed in a listen only mode.
Please note that this conference call is being recorded and that the recording will be available on the company's website for for.
For a replay shortly.
Before we begin I would like to remind everyone that our remarks today may 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 Securities and Exchange Commission.
Including item one a of the company's form 10-K for the year ended December 31, 2020, as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission.
You are cautioned not to place undue reliance upon any forward looking statements, which speak only as of the date made although it may voluntarily do so from time to time the company undertakes no commitment to update or revise the forward looking statements.
Whether as a result of new information future events or otherwise, except as required by applicable securities laws.
This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.
The general referred to these as non-GAAP financial measures.
For console Houston said these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor relations of portions of our website.
I would now like to turn the call over to Mr. Ken reality.
<unk> Chief Executive Officer, Sir Please go ahead.
Well, thank you Jessie and welcome everyone to bio Ventas first quarter 2021 earnings conference call.
I'm joined on the call today by Greg angle of him our Chief Financial Officer.
Let me provide you with a brief outline of what we intend to cover.
I'll start by discussing our first quarter revenue performance and business trends, followed by a deep dive into the acquisition of biomass, which we announced on March 30 and.
And we believe represents a great example of how we plan to leverage our inorganic business development strategy to enhance our multiyear growth profile and leverage our significant customer presence across orthopedics broaden our portfolio and increase our global footprint.
After my opening remarks, Greg will provide you with the more in depth review of our financial results for the first quarter 2021 and our financial guidance for full year of 2021, which we updated in our press release this afternoon.
And then we will open the call for your questions.
Turning to a brief review of our first quarter results. We are pleased to report first quarter net sales of 81 $8 million, which represents growth of 4% year over year, which exceeded our guidance expectations and was particularly impressive in light of the.
On your challenges in our external environment as the recovery from the global pandemic continues.
Specifically, we experienced COVID-19 related business disruptions during the month of January as the Spike in cases in the second half of December carried over into the early part of 2021.
We also saw a modest business disruption related the inclement weather winter weather in certain parts of the U S. During the month of February.
Importantly, we saw accelerating sales trends throughout the month of March, culminating with nearly 30% year over year growth on the final month of the quarter.
Despite the ongoing challenges related to the pandemic, we were pleased to see improving growth trends in sales of our HVA products during the first quarter.
Led by 22% growth in global sales of our flagship single injection HVA products Dura line.
We also delivered 33% growth in global sales of our bone graft substitutes products compared to the first quarter of 2020.
We are encouraged by the continued evidence of recovery from the pandemic that we're seeing in our key markets, including a 9% increase in international sales in the first quarter and growth in all three product verticals over prior year in the month of March.
The overall environment continues to improve and we remain confident in the strong growth expectations. We have outlined in our updated guidance for full year 2021, which Greg will walk you through the details later in the call.
We continue to expect measured improvements in the operating environment as we move through 2021.
Fueled primarily by the increasing availability of vaccines and an increasing percentage of vaccinated Americans as well as Canadians and Europeans and we continue to expect the return to normalized year over year growth trends in the third quarter of 2021.
The outlook for Baidu Ventas has never been more compelling and exciting and it is entirely a result of our team's execution of our growth strategy. We.
We are poised to deliver strong organic growth in 2021, and the range of 13% to 16% year over year the.
This organic growth is expected to be fueled primarily by strong global growth in sales of our leading portfolio of PMA approved therapies for OA joint pain, our portfolio of clinically efficacious and cost effective on graph solutions and continuing to build on our minimally invasive fractured treats.
Net franchise.
We are adding to the strong organic profile growth profile with the contributions from our recent acquisition of biomass and together, we expect the drive impressive growth in our total revenue of 23% to 26% year over year and 2021.
While we are pleased with the incremental growth we expect from this acquisition in 2021. We're also encouraged by the fact that we believe the acquisition of biomass is a great example of how we plan to leverage our inorganic business development strategy to enhance our multi year growth profile.
And leverage our significant customer presence across orthopedics, broaden our portfolio and increase our global footprint, leading to consistent double digit growth.
Turning to a discussion on biomass, which I think will shed some light on why we believe the opportunity of combining these two companies is so compelling.
First of a little background on the company. The company was founded in 2000 and for and has grown to more than 180 employees operating out of three locations in the U S Israel and the Netherlands.
<unk> solutions include implantable and external Neuromodulation systems functional electrical stimulation or F E S.
<unk>.
B S products robotic assisted gait safety systems, and software based therapy programs, providing functional and therapeutic benefits for individuals affected by pain central nervous system disorders and orthopedic injuries.
By on S offer six medical devices within its commercial portfolio, which are distributed and sold on five continents and over 25 countries worldwide.
Biomass generated revenue of approximately $40 million and full year 2020 rougher.
Roughly 75% of which was the U S based.
Approximately 85% of their total revenue comes from the advanced rehabilitation business. The original legacy business at biomass with the balance coming from sales of their PFS device called Stim router, a new product area launched several years ago.
The biomass acquisition gives bio ventas access into two large and growing markets the peripheral nerve stimulation for PNM market and the advanced rehabilitation market.
We estimate their medical devices address total global market opportunities approaching $8 billion per year more than half of which is in the U S.
We believe both of these markets offer attractive growth opportunities driven by demographic trends and the need for safe effective non surgical treatment options for the many patients suffering from post surgical pain stroke multiple sclerosis traumatic brain injury spinal.
Cord injury and cerebral palsy.
We expect the drive above market growth given the highly synergistic nature of the biomass business with bio Ventas current call points.
<unk> customers and the overall business scale on structure debt bio ventas can provide.
With respect to their advanced rehabilitation business.
<unk> is the recognized leader in the advanced rehabilitation products with five FDA approved commercialized and clinically supported devices focused on restoring extremity utilization for neuro and ortho patients through FBS products robotic assisted gait.
Safety systems and software learning platforms.
The advanced rehabilitation market represents an estimated $1 $75 billion global market opportunity and more than $1 billion of which is in the U S with the global CAGR projected in the low to mid single digits.
The <unk> franchise advanced rehab products is the L 300 go.
Sophisticated device consisting of stimulation and gyroscopes that apply to of patients leg to restore of patients' normal gauge to walk normally this.
This is the best in class products with the dominant market position in the MBS market today, serving the many patients suffering from gait disturbance caused by stroke head injury or other diseases.
Biomass advanced rehab product portfolio also includes an upper extremity solution called the <unk> hundred wireless.
The robotics safety gate system called the vector and the platform learning solution called the biomass integrated therapy system for balance or bps.
Which uses proprietary hardware and software programs to track movements, allowing clinicians to challenge of SaaS and track patient balance throughout the treatment continuum.
<unk> does business with 17 of the top 20 rehab facilities in the U S. Today with the team of 35 direct sales representatives.
We believe there are multiple synergistic opportunities for bio ventas to enhance the market penetration and long term growth vial profile of biomass advanced rehab product portfolio.
Including number one a broader footprint and access to many more rehab facilities, including those that are adjacent to orthopedic offices.
<unk> has an existing connections the rehab market already at 80% of orthopedic offices have of rehab facility associated with or adjacent to such offices.
Patients seen orthopedists in these offices are often referred to the rehab facilities for advanced treatment pre and post surgery.
We think there is a significant opportunity with the adjacency and call point given there are so many rehab facilities located in close proximity to orthopedic offices, which is bio ventas primary call point today.
Allowing us to leverage our larger sales channel to expand their rehab products in those facilities.
Number two in addition to driving market penetration into advanced rehab facilities. We believe there is an even more compelling opportunity to enhance <unk> long term growth rate into the low double digits per year.
For example, <unk>.
<unk> has the number two market share in HCA for patient suffering from osteoarthritis and we expect the drive penetration of products such as the <unk> 300 go into orthopedic offices to serve OA patients.
We also see potential incremental growth opportunities and targeting pre and post total knee patients suffering from gait disturbance due to weakening of the quadriceps muscle.
The number three there is business model of synergy as products like the L. 300 go are durable medical products like ex adjourn and will allow us to leverage the significant infrastructure. We have created from an order management in order to cash perspective.
In the medium and longer term, we also see opportunities to leverage <unk> reimbursement expertise to expand commercial payer coverage.
<unk> has been an advanced neuro rehabilitation focused company for many years.
We expect to enhance their growth by transitioning them to an advanced neuro and orthopedic rehabilitation focused company going forward.
Turning to the peripheral nerve stimulation business.
While the prospects for above market growth in the advanced rehab business are compelling we believe the potential growth opportunities that PFS business offers are even more significant.
We believe the total addressable market for PNM products is more than $3 billion in the U S alone.
Driven by the estimated seven to 8 million extremity surgeons each surgeries each year.
And the related post surgical pain.
This acquisition affords us a unique opportunity to grow faster than the overall PFS market, which is projected to grow at attractive rates per annum fueled by the opioid crisis and the quest for locally based solutions for treating post surgical pain.
<unk> peripheral nerve stimulation products Stim router is a recognized technology leader in PFS and its next generation less invasive implantable <unk> product candidate Talisman gives bio ventas another growth lever following FDA clearance.
In 2022.
Biomass patent protected <unk> technology is ideally suited to treat post surgical pain in the periphery.
Stem router has been implanted in over 3000 patients since 2017 is sold in more than 10 countries, including the United States.
It's the only PFS device backed by a randomized controlled trial.
Importantly, stim router has synergistic call points with our H E and <unk> businesses as sports Medicine, total joint foot and ankle and Podiatric surgery are key call points for Stim router. In addition to pain physicians.
While buyer on that stim router and talisman products offer compelling solutions for the overall post surgical pain market. We believe the initial addressable market opportunity is really the targeting orthopedic procedures, including total knee procedures rotator cuff injuries as well as some foot.
And ankle procedures.
We estimate there are more than one 5 billion of these procedures in the U S. Each year, where there is a significant unmet need.
Representing an estimated addressable market opportunity approaching $1 billion annually in the U S alone.
Today post surgical pain relief for orthopedics is dominated largely by opioid prescriptions and to a lesser degree cold therapy.
20% to 30% of these surgical patients or those with prior opioid use making them ideal candidates for pnm's utilization.
Peripheral nerve stimulation is an understood and well recognized alternative to opioids cold therapy, as well as spinal cord stimulation.
DNS is less invasive than other alternative therapies.
Io Ventas will look we will work closely with the existing biomass PNM sales force to quickly expand the market penetration of stim router through our larger sales team and market access team.
And also prepare the market for the lesson base of fully implantable Talisman Pms device expected to be coming next year based on potential FDA clearance in 2022.
Biomass Neuromodulation technology is highly differentiated patent protected.
And ideally suited to treat pain and the periphery.
With established reimbursement coding the stim router is the only tnf's devices today with an RCT and is well positioned as it is a lesson base of alternative to other modalities such as cold therapy, while also avoiding the negative effects of opioid use.
The similar customers, including total reconstruction sports medicine, and general orthopedic surgeons that utilize our H E products for OA pain can take advantage of the pain relief offered by stim router for their patients, which allow us buyout ventas can be involved in more steps and the patient journey.
Especially for total knee arthroplasty patients, who may get a J injections prior to progressing to surgery.
In summary, we believe the acquisition of biomass checks many boxes as it relates to what we believe to be an ideal inorganic business development opportunity. It is the substantial commercial business, serving large global and growing market opportunities.
<unk> offers products solutions that align perfectly with bio of ventas existing product portfolio, which we are most often used to delay or replace the need for an electrical elective surgical procedure.
Relieve pain and are focused on reaching patients early on in their treatment paradigm.
We believe this acquisition will allow us to leverage our significant competitive advantage of our expansive direct sales and distribution channel, which provides us with broad and differentiated customer reach and allows us to serve physicians spanning the orthopedic continuum, including.
The sports Medicine, total joint reconstruction and in upper extremities foot and ankle podiatric surgery trauma spine, neurosurgery desire tryst and pain physicians.
We also see opportunities to leverage our significant experience commercializing high value durable medical products and <unk>.
Our reimbursement team to drive improving reimbursement in order to cash performance for the biomass business in the years to come.
Clearly, we view the biomass acquisition as a great fit and one that is accretive to our long term growth profile and leverages, our significant customer presence across orthopedics broadens, our portfolio and increases our global footprint.
Importantly, we look forward to potential acceleration in our multi year growth profile fueled by continued progress on our clinical product development and new product pipeline and continued pursuit of our inorganic business development strategy.
One more item I would like to call out before turning the call of the Greg.
We spent time on our Q4 call discussing bio ventas three verticals OE joint pain treatment and joint preservation minimally invasive fracture treatment and bone graft substitutes.
As a result of the biomass acquisition, we have updated and renamed our three primary verticals as follows.
Pain treatments and joint preservation.
Which includes the legacy bio of Ventas, OE joint pain treatment and joint preservation products, plus the peripheral nerve stimulation products sold previously by biomass.
Restorative therapies.
Which includes the legacy bio ventas minimally invasive fractured treatments.
All of the advanced rehabilitation products sold previously by biomass.
And our third vertical bone graft substitutes remains unchanged.
We believe these three verticals offer of total addressable market opportunities of more than $12 billion per year, and we believe we have the right strategy.
Differentiated product portfolio, and an exceptional team, which has us well positioned to drive strong growth as we penetrate this compelling market opportunity in the years to come.
With that let me turn the call over to Greg for a detailed review of our financial results on the first quarter 2021, as well as a review of our updated 2021 guidance.
Thank you Ken.
Before we begin I would like to highlight a few items for analysts and investors to bear in mind. During my prepared remarks. This afternoon to avoid confusion when evaluating our reported results for.
When reviewing our historical financial results and SEC filings.
First as indicated in our press release this afternoon and further detailed in our 10-Q to be filed with the SEC.
Of the historical results for the first quarter of 2020 periods presented are those of bio Ventas LLC the predecessor of <unk>, Inc. For financial reporting purposes.
On February 16, 2021, the company successfully closed on 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.
Subsequent to the IPO and related transactions that occurred in connection with the IPO. The company has the sole managing member of Bioventures LLC and owns 72, 2% of <unk> LLC the.
The company has a majority economic interest the sole voting interest in and control of the management of <unk> LLC.
Accordingly for the period post IPO February 16, 2021 to quarter end on April <unk> 2021, our reported results reflect the attribution of net income to Noncontrolling interest related to the 27, 8% interest held by Smith <unk> nephew.
Second for the avoidance of doubt and unless otherwise noted my commentary will focus on the company's GAAP results for the first quarters of fiscal year 2021 and 2020.
For all non-GAAP references we have included full reconciliations from our GAAP reported results to the related GAAP to the related non-GAAP items in our press release this afternoon.
Third my commentary regarding our financial results for the first quarter of 2021 were driven by the legacy <unk> business only as the acquisition of bonus did not materially impact our first quarter 2021 financial results My commentary regarding updated financial guidance for full year.
Year 2021 includes the contributions from our acquisition of biomass post closing.
Turning to a review of our first quarter financial results.
Net sales increased $3 1 million or 4% year over year on a reported basis and increased three 5% on a constant currency basis.
The year over year change in net sales by geography was driven by a $2 $6 million increase or 4% year over year in U S. Net sales and is zero point $6 million increase in international net sales.
The first quarter net sales to international customers increased eight 5% year over year on a reported basis and two 5% on a constant currency basis.
The year over year change in net sales by vertical for the first quarter of 2021 was driven by a 33% increase in global net sales of Bgs products and 0.6% increase in global net sales of pain treatment and joint preservation products offset.
Partially by a 7% decrease in global net sales of restorative therapies products.
Gross profit increased $2 $3 million or for 1% year over year to $59 6 million.
Resenting approximately 73% of sales unchanged from the prior year period.
Our cost of goods line item includes non cash amortization expense of $5 $2 million for the first quarter of 2021 compared to $5 $3 million last year.
Excluding non cash amortization, our non-GAAP gross margin was 79, 2% compared to 79, 5% last year down 30 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 decreased $6 7 million or 15% year over year to $37 $6 million.
The change in total operating expense by line item was driven by a $5 $6 million decrease or 14% year over year, and SG&A expense and to a lesser extent, a $1 $2 million decrease or 56% year over year in R&D expense.
The largest contributor to the year over year decrease in first quarter operating expense was a net decrease of $17 4 million in stock compensation expense relating to fair market adjustments of the related pre IPO stock compensation liability.
Keep in mind that our GAAP operating results I'm, sorry, operating expenses include non cash amortization expenses of which approximately $1 $3 million is non cash intangible amortization expense for the first quarter of 2021 compared to $1 $6 million last year.
We exclude noncash amortization from our non-GAAP operating expense in the non-GAAP reconciliation tables detailed in our press release this afternoon.
In addition to the aforementioned noncash amortization expense first quarter GAAP Opex included approximately $4 3 million of expenses that have been added back for non-GAAP purposes.
$3 2 million of which was driven by acquisition costs related to the biomass transaction announced on March 32021.
Excluding these items, our non-GAAP operating expense was $31 9 million compared to $41 9 million down.
Down $10 million for 24% year over year.
Operating income was $22.01 billion compared to operating income of $13 1 billion for.
For the first quarter of 2020, an increase of 9.0 million for 69% year over year.
Non-GAAP operating income was $32 9 million compared to $20 6 million up $12 2 million or 59% year over year.
Non-GAAP operating margin was 42% of net sales compared to 26, 2% of net sales for the first quarter of 2020.
Total other income was $2 5 million.
Compared to total other expense of $2 $5 billion for the first quarter of 2020, a year over year change of $4 $9 million, primarily due to the settlement of our equity participation right liability in connection with our IPO, which resulted in interest income of $2 9 million.
Yeah.
In addition, the change in the fair value of our interest rate swap resulted in interest income of $1 6 million compared to interest expense of $1 1 million for the first quarter of 2020, a year over year change of $2 $7 million the.
These year over year increases in interest income were offset partially by zero point $5 million and net losses related to our equity investment in cardio heal.
GAAP net income was $24 5 million compared to GAAP net income of $10 $5 million last year.
Non-GAAP net income was $35 4 million compared.
Compared to $18 $1 million last year.
Adjusted EBITDA was $11 1 million down 22% year over year, driven primarily by public company costs and higher selling expenses related to the better than expected sales in the first quarter.
As detailed in the non-GAAP reconciliation table in our press release adjusted EBITDA excludes the impact of stock compensation expense and other noncash or nonrecurring items. We believe this provides supplement of supplemental information about the underlying operating performance of our business.
Turning to the balance sheet.
As of April three 2021, the company had $124 $2 million in cash on cash equivalents, and $184 7 million and debt obligations compared to $86 $8 million in cash and cash equivalents and $188 4 million.
And debt obligations as of December 31, 2020.
As of April three 2021, we had approximately $50 million of available borrowing capacity on our revolving credit facility.
Turning to a review of our fiscal year 2021 that revenue guidance, which we updated in our press release this afternoon.
For the 12 months ending December 31, 2021, the company now expects.
Net sales of $394 million to $406 million up approximately 23% to 26% year over year.
This compares to our prior guidance range introduced in our <unk> acquisition press release on March 32021, which called for net sales of $390 million to $402 million.
The increase in our net sales guidance range is driven by the stronger than expected sales results in the first quarter of 2021 and.
Net sales from the acquisition of biomass. Following the closing date of March 32021 of approximately 30 million to $32 million.
With respect to our profitability guidance, we now expect net income of $12 million to $19 $2 million.
Compared to net income of $14 7 million.
For the 12 months ended December 31 2020.
This compares to our prior guidance range, which called for net income of approximately $13 five.
To $17 $5 million, excluding the impact of non controlling interest of approximately $1 $5 million.
The decrease in our net income guidance range is driven by net loss from the acquisition of biomass Inc. Following the closing date of March 32021 of approximately 22 million to $19 million, partially offset by the stronger than expected financial results for legacy <unk> in the first quarter of 2021.
On.
We now expect non-GAAP net income of $59 7 million to $65 2 million.
Compared to 47 $4 million for the 12 months ended December 31 2020.
The decrease in our non-GAAP net income guidance range is driven by the acquisition of biomass. Following the closing date of March 30, <unk> 2021, which is expected to be of loss of approximately $9 3 million to $6 5 billion partially.
Offset by the stronger than expected financial results for legacy <unk> in the first quarter of 2021.
We now expect adjusted EBITDA of $73 9 million.
To $80 9 million compared.
Compared to $72 $4 million for the 12 months ended December 31 2020.
This compares to our prior guidance range, which called for adjusted EBITDA of approximately $79 million to $83 million as provided in our Q4 2020 earnings release.
The decrease in our adjusted EBITDA guidance range is driven primarily by the acquisition of <unk>, Inc. Following the closing date of March 32021 of approximately $7 3 million to $4 $5 million.
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 2021.
First our full year 2021, net sales guidance range assumes the following for net sales growth by geography.
U S net sales growth in the range of 21% to 24% year over year and international net sales growth is expected to be in the range of 40% to 53% year over year on both the reported basis and the constant currency basis.
These ranges assume U S sales growth on an organic basis in the range of 13% to 16% year over year and contributions from our acquisition of biomass and international sales growth on an organic basis in the range of 13% to 24% year over year as well as contributions.
From our acquisition of bonus.
For net sales by vertical our full year 2021 guidance now assumes.
High teens to low 20% growth in global sales of pain treatments and joint preservation products driven by organic growth in the mid teens as well as contributions from bonus.
Low to mid 30% growth in global restorative therapies business driven by organic growth in the low to mid single digits and contributions from buy on us.
And low to mid 20% growth in global sales of Bgs products.
Second we expect to see measured improvement in the operating environment as we move through 2021 fueled by the increasing availability of vaccines and the increasing percentage of vaccinated Americans Canadians on European.
That said, our full year 2021 guidance assumes no material improvement in COVID-19 related headwinds, including sales rep access an elective procedure trends over the first half of 2021, and a return to normalized year over year growth trends in the third quarter of 2021.
To that end, while it is not our standard guidance practice and we do not expect to provide quarterly guidance in the future given the significant impact of the COVID-19 pandemic in the second quarter of 2020, and the related benefit to our Q2 'twenty one year over year growth rate, we expect our total net sales in the second quarter of 2000.
<unk> 21 to increase approximately 67% to 74% year over year on a GAAP basis, and the constant currency basis.
Finally, with respect to our expectations for financial performance in 2021, we would like to provide some of our assumptions to help evaluate our full year 2021 guidance for GAAP and non-GAAP net income.
For the full year 2020 period, we expect non-GAAP gross margins of approximately 77, 8% to 78, 1%, which exclude non cash amortization and depreciation of approximately 29.0 to $29 5 million.
GAAP operating expense growth in 18% to 20% range year over year, driven primarily by the incremental operating expenses related to our acquisition of bonus and approximately low single digit growth in legacy Bioventures operating expenses compared to 2020.
Total interest and other expenses of approximately $3 5 million to $4 million, including $2 million of interest expense related to the contingent consideration related to the <unk> acquisition.
Non cash depreciation and amortization of approximately 39 million to $40 million.
Noncash stock comp income of approximately $3 million.
And weighted average diluted class a shares of approximately 41 million to 43 million shares.
With that I will turn the call back to you Ken.
Thanks, Greg.
Before opening the call for Q&A.
To reiterate some of the finer points of the buyout of Ventas growth strategy.
Number one we are confident in our multiyear organic growth, which is compelling and fueled by our market penetration strategy with our HVA and bone graft substitutes and expanding our indications and the minimally invasive fracture treatment area.
Number two our product pipeline is robust and is expected to fuel accretive growth in the medium term with products like agility by car to heal modus and pro Cup as well as the injectable version of Osteo AUM.
Talisman, the implantable lesson base of the PFS device from biomass.
Number three our M&A strategy is designed to bring on the acquisitions that are expected to bring accretive growth to our business such as biomass and leverage our strong commercial infrastructure to bring about consistent double digit growth.
Number for operationally, we are focused on continuous improvement to positively impact our margins, including cost savings initiatives from a manufacturing and supply chain perspective, while also enhancing our quality programs to meet ongoing changes in our regulatory.
The environment.
And number five most importantly, our strategy is backed by our highly engaged results driven culture that is fueled by an employee driven mission to improve the lives of the thousands of patients that are treated each day by one of our medical devices.
Returning them to active lives.
With that we will open the call up to take questions Jessy.
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Yes.
Speakers first question is from the line of drew renewing of Morgan Stanley. Your line is now open.
Hi, Kevin Gregg Thanks for taking the question.
Theres a lots of impact here in the quarter and I appreciate all of the.
Commentary on borrowing us, but just to start on guidance for a moment you raised the bottom end of your organic guidance on the heels of the first quarter outperformance and can you really sounded positive from recent trends and Greg you kind of positive recent trends on underlying growth, but is there anything that's giving you a particular pause in your channels as you kind of look through the rest of the of the year.
And maybe you could just help us kind of better under appreciate better appreciate what gets you to the upper end of the range of the organic growth range. Thank you.
Thanks drew for joining the call.
The trends we saw on March were very encouraging as we mentioned the 30%.
The growth year over year in March.
Across all three verticals.
Was extremely encouraging for us.
The way we've looked at our guidance certainly as continued headwinds here in the first half of 2021 and things getting back to normal in the second half of 2021 predicated on the current trends externally relative to vaccinations in cases across the United States.
Canada and Europe.
So from our perspective, just continued execution.
And continued good things coming from the vaccination world.
And the pandemic slowly waning those are all key things for us to drive our business back to normalized growth, which is what we're anticipating in the second half of 2021.
Got it. Thank you and then just shifting gears to one of two of the day I mean, what's your first transaction done at the public company. Just how are you thinking about M&A for the rest of 2021 do you need to digest. The deal first are you kind of actively on the the hunter at another of complementary business and then just kind of a win.
<unk> I mean, the clearly opens up the business to expanded market opportunities, but I mean, where could you go next to further leverage your customer base. Thank you.
Yes, sure drew first of all on the M&A side.
Look we are constantly looking at our pipeline, adding new opportunities subtracting things. After we've looked at them more closely of course and the name of the game for US is opportunities that drive accretive revenue growth getting us to consistent double digit growth debt leverage our commercial infrastructure and our overall infrastructure.
<unk>, so if we find things that fit that.
That's not going to stop us relative to.
Where we are with the <unk> integration. So we will continue to look at things appropriately and if they're the right fit certainly.
Pursue them more aggressively as far as <unk> goes we see terrific synergy here across the business as I talked about with the advanced rehab business for the adjacency of rehab facilities to the orthopedic offices, the ability of us to sell the <unk> 300 go particularly for <unk>.
<unk> strengthening.
Post total knee procedure are very compelling opportunities to expand that business.
Beyond where they are today and today they are the market leader in this space in a very sophisticated device world that they sell into to make these patients better.
We also are very excited by the peripheral nerve stimulation PNM business, we see great synergy across our key call points and sports medicine, total reconstruction foot and ankle and Podiatric surgery on.
All of these areas are areas of struggle with pain.
Especially post surgical pain.
The opioid crisis has really opened the door for devices like this that work on the periphery true relieve pain without a prescription.
It is where we were appointed the.
The team at <unk> has done a great job building. The foundation, we look forward to working closely with them here as we integrate that into our business and look forward to stem router and then eventually talisman fully implantable pnm's device net <unk>.
Launching that in 2022.
Alright. Thank you I heard you mention just as the housekeeping question.
Just drilling in growth in the quarter on a worldwide basis was 22% did I Miss.
The growth rate. Thanks, so much.
No.
We just cited the global growth rate there drew certainly.
We continue to see great things in the U S as well as that market continues to evolve in the U S. Two of single injection, we saw that accelerated somewhat with the pandemic.
But <unk> is of flagship product, we're extremely excited by Dura line and its potential for continued growth in the market keeping in mind. It was just launched in 2018.
Bill has a I would call a mile of the market share for a product of its caliber.
And we're extremely bullish on its continued growth in the U S market here in the years to come.
And I would also add debt the majority of revenue with <unk> keep in mind, our Hai revenue International's only about 10% of our total revenue so that puts the growth perspective.
I think for the U S market out there as well.
Thanks again.
Next question is from the line of Robbie Marcus of Jpmorgan.
Your line is now open.
Hi, guys. This is actually Allen on for Robbie I had a few quick ones, but the starting with the quarter itself really good kind of top line performance, but then when you kind of adjust for all of the one timers you were a little bit better than we had expected on EBITDA, but still didn't seem like we saw the kind of the full drop through so what drew.
The kind of the top line, but then was offset on EBITDA, specifically looking at net and.
Gross margin for Opex.
Sorry ounce of put part of your question was what drove the top line I think I'll come back to that in the second but part of it was on the fall through we certainly have some of the top line growth fall through the Opex I think the two things that sort of offset the little little bit in the quarter as I said in our prepared remarks was we had some pub.
The company costs during the quarter.
As well as some higher than expected selling costs really driven from the higher than expected sales and so we didn't quite get the the <unk>.
All three of that you might have expected, but it's really those two things.
Got it.
And then kind of looking at the M&A question. When we look at biomass, there's obviously going to be a bit of dilution. This year, how accretive should we really be thinking about it in 2022 pricing some of Thats, probably upfront investment this year that should fall off next year. So how should we think about the.
The accretion next year, giving you that day I think you are.
One it would be accretive to net income.
Correct and at this point, we're not we're not given for 2022 guidance yet.
We do absolutely feel strongly that the business will be accretive to non-GAAP income beginning one year. After close we're continuing to work through integration and synergies and continuing to build that case. So we feel very good that it will move to being accretive we have long term goals in turn.
Of continuing to improve our.
EBITDA margins and we feel good about that in lieu of that but beyond that it's hard to say with the specificity right now as we get closer to 2022, certainly we will give you more information on that.
And then the final kind of the strategy question. When we think and this is kind of linking to the previous questions that were asked of them. When we think about your M&A strategy going forward.
How should we think about your prioritization of bringing in this really attractive kind of top line of assets, but at the same time balancing dilution should we think of bound as the kind of an acquisition net like emblematic of what is kind of an acceptable amount of dilution or do you think you could like maybe pushing on them more or in the future of would you prefer to have it be less diluted just your thoughts.
On that thank you very much.
Yes, drew look robby or Alan rather.
Alright.
Alan I think it's all of the above we're going to continue to look at every.
Opportunity in isolation.
And really the profile. We're looking for is strong adjacencies to where our business is today that leverage our commercial channel our commercial call points are broad expanse into orthopedics, certainly leverage our infrastructure and ultimately accretive growth over many years to come.
Getting to consistent double digit growth. So from our perspective that is the recipe now the type of deals that that comes in can be of full gamut and certainly being public allows us to look at many types of deals from private to public companies.
I do want to shift gears to go back to your original question Alan on the growth drivers for the company in Q1, because it is very compelling and it does start with our bone graft substitute business, which grew 33% over the prior 2020 quarter. We're very proud of that we're very proud of the <unk> growth at 22%.
Net.
The continued growth in our overall <unk> portfolio, where we are now the number two player in the HSA business and the return to growth of oxygen.
In our minimally invasive fracture treatment area in the month of March all of those were huge drivers. In addition to the international business, which also saw growth for the first time since the start of the pandemic. So really clicking on many levers for growth and certainly a terrific quarter.
I want to make sure we highlighted that for you.
Next question is from the line of Amit <unk> of Goldman Sachs. Your line is now open.
Thanks, Hey, good afternoon folks.
I'll start with <unk> and just to make sure. We've got this clear with regard to your sales guidance for the year. So you talked about I think the the run rate for the last year 2020 was about $40 million, you're guiding to roughly 30 for these three quarters. So.
Help us out just under just to understand it.
We see a growing business so just to understand what happened there.
There if that's the kind of some of the materiality in Q1 or just kind of bridge that for US if you will.
Sure happy to do that.
As you said, we've put out that they did $40 million last year.
Our guidance is 30% to $32 million for the period post close for us.
At <unk> $9 6 million in the first quarter and.
So thats the right there on that.
Of that sort of let you back into what we see the rest of the the.
Year going forward again like any business they were certainly impacted by COVID-19 as well.
Waiting to see the impacts of how it comes out of COVID-19. They had a very similar story that we did with respect to through the first quarter in terms of March was much better than January and February.
And so we certainly need to see that business, a little bit longer before we get per.
A form of debt level, a little bit more before we get more bullish on what it perhaps it could do.
Okay. Thanks.
I would just.
Just highlight historically the business has been of double digit performer prior to the pandemic.
So certainly we look at it both ways.
Okay. That's helpful and just on Hey, just thinking through guidance and really the next few months and into the your comment on the third quarter first of all I Wonder if we can push it a little bit on the March commentary and just see if you can give us a little bit of color of how things have gone in April on main weather, we've seen that.
Kind of growth sustained and then just as we get to know you and how you would describe things in your <unk> commentary about kind of the quote unquote normalization just help us out in understanding what that actually means for you what kind of growth does kind of a normal environment mean, if you can define that better for us. Thanks.
Sure.
Try and address both of those.
I guess first.
With respect to the second quarter, certainly we hope to continue to see the trends that we had in April.
We're not going to necessarily provide you with each of each monthly trend, we feel pretty good that with the trends we've seen so far in April we feel good about the number we gave you for second quarter growth of 67% to 74%.
And so we'll just stick with that from a growth perspective in the second quarter.
And then you also asked about.
Q2.
Sorry Q3.
<unk>.
Okay guidance, sorry, the sorry.
Sorry of mid I'm, just I lost your question for just the second.
No problem.
Yes go ahead.
I'm just going to the interest that normalization comment just to better define it in the third quarter. We got yet means gotcha. We we mentioned that we expect normalization for the second half of the year. Thank you.
Again, historically in our legacy business.
<unk> been of mid to high single digit grower.
So thats certainly part of the normalization.
And then you would certainly layer of the bio ventas growth on top of that to get to the our full year guidance range that we've provided to you of.
Getting to the.
What is it the $3 $93 80.
$384 to $406 million for the full year.
Okay.
And then just last one from me of you mentioned a couple of times now, but the bgs growth.
Was a lot better than last quarter I don't know if thats just the comp thing or just curious about the acceleration.
There if you can just add a little bit more color as to what you think might be going on in that market or for your products in particular, yes.
Be clear on that 33% growth there is absolutely zero stocking and that growth. These are cases all of our all of our inventory is either held by us or held in consignment at the hospital before of case.
That is just driven by pure market share gains.
A terrific job on execution by our team.
And a compelling product line and the compelling strategy, where we continue to gain new customers as well as whole hospital conversions with our strategy of a superior product line and the cost savings opportunity. They can save on bone graft substitutes I'll say once again being agnostic to spine.
Hardware is a true advantage, we have because we can go in and really just look at that line item, which is significant for spine surgery spinal fusion surgery and offer a win win opportunity that also works great for the for all of the surgeons because they love our product.
They loved the way it handles so that's what's driving that is pure growth and.
Certainly the return of elective procedures as the quarter moved forward was the big advantage for us as well and that is something we look forward to as we continue to unfold in 2021 is that continued strong growth.
Thanks, so much for all of the claim.
Thank you Amit.
Again participants if you'd like to ask the question. Please signal by pressing star one on your telephone keypad.
Next question is from the line of Kyle Rose of Canaccord. Your line is now open.
Great. Thank you very much for taking the question the.
A lot to unpack from for the quarter here I Wonder if we could just start from a high level. I mean, obviously you see you saw great progression through the Q1, particularly in March you're talking positively about the Q2 I'm. Just wondering are you seeing any sort of pent up demand in the channel from a from a procedural standpoint.
Obviously seen something like like the 33% execution on the bone on the Bgs side I mean, that's exceptional.
Trying to understand how much of that is maybe from some catch up and that will normalize a little bit.
How we should think about just some of the some of the pent up demand.
Yeah, Kyle I think we should break it down by vertical to really understand that first of all in our our joint preservation area of the HSA area clearly there was some <unk>.
<unk> two returned the doctor's offices, particularly in the early part of the quarter.
On the strength of the pandemic the number of cases, and what's happened because the priority and the vaccinations was older people, who are our primary HMA customers as they got vaccinated. They return to some normalcy getting there a J injections for instance, visiting their doctors.
So that progress through the quarter. So that was the story of strong progression all the way through.
<unk> the <unk>.
Minimally invasive fracture treatment vertical a little bit different.
Because ex adjourn.
Impacted less than the beginning of of the pandemic, but more as we went through the pandemic and a lot of that is driven by the the.
Time from the incident that it occurs the actual fracture incident to win accident is required and that can be anywhere from three months to 12 months post injury when you'd use the extra gen device. So we've seen steady improvement in ex adjourn through the course of the pandemic and that was really culminated.
By a breakout in March where we saw some really solid growth.
And I think Thats somewhat returned to normalcy not just in March of course, but you've got a rewind six months and look at look at where the country wise.
I don't feel that.
The the surge that we saw on the fourth quarter, we will have as dramatic of an impact down the road on ex adjourn because certainly a lot of people continued activities that wasn't a shutdown like we experienced in March and April and May of last year.
And then the bone graft substitute business I think there was some pent up demand certainly from the December and early January timeframe and even some of the winter weather that we had in February so bone graft substitutes was definitely impacted and we saw a great return there and strength.
Increasing through the quarter through quarter, one and again on the bone graft substitute business. We expect as we said low to mid 20% growth overall for the year. So that should give you an indication as well.
Okay.
That's very helpful.
And then I've just got two more I'll ask them upfront.
You've got some from new products launching but then also.
Some of some products before the FDA for review of just wondering if you could give us an update on the pipeline when we think about the rollout of modus and as well as the submission for the fifth metatarsal on the Exigent system and then the second second one is you talked a lot about biomass and spent the time to helping us understand that debt acquisition and the opportunities.
How long do you see some of those commercial synergies playing out before you really start leveraging both sides of the business to drive incremental growth.
Yes.
Excellent question why don't why don't we start by by motives.
The phase II trial with the modus the IMD trial continues to enroll patients so great progress there towards the eventual BLA.
Hi.
As far as <unk> goes we did receive of deficiency letter from FDA just a couple of weeks ago here in April and we are going to be addressing that with FDA. There is a potential delay on timing of the.
The bone study PMA supplement approval, but we really can't weigh in on that until we have further information and we have further discussions with FDA. These deficiency letters on our PMA are somewhat complex and it does take.
Some discussion time with FDA to work through the actual action plan so more to come on that and then the talisman we expect.
Five 10-K clearance on that particular product.
In 2022, and the launch of that product in 2022 as well.
Whats going on now from.
The adjacency or integration perspective is we are training and starting a pilot on stem router with our <unk> sales force and actually.
That is going on as we speak.
Where we're getting our sales reps who were extremely excited.
Working with the biomass stim router team.
And we're going to start that process here. This quarter. So very excited about that we continue to work through the integration on the advanced rehabilitation area.
Excited once again to get the <unk> hundred go and look at the orthopedic opportunities of the bat presents as well so a lot of levers here Kyle for growth.
Both with our pipeline as well as with the integration ongoing integration with biomass.
Since we are currently showing no additional participants in the queue that will conclude our conference call for today.
Thank you all for participating.
You mean, thank you Anthony Thank you everybody.
Okay.
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Okay.
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