Q3 2021 Bioventus Inc Earnings Call
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Ralph White, Vice President of Investor Relations. Thank you. Please go ahead.
Good morning, everyone and thanks for joining us it's my pleasure to welcome you to the <unk> 2021 third quarter earnings Conference call with me. This morning are Ken realities.
And Greg Anglos, Senior Vice President and CFO, Ken will begin with a review of the quarter and encourage environment and then provide an update on our recent acquisitions and Greg will then provide further detail on our third quarter results and update on our 2021 planning outlook.
Finish the call with Q&A.
Presentation for today's call is available on the investors section of our website <unk> Dot com.
Before we get begin I would like to remind everyone that our remarks today contain forward looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicators.
The risks and uncertainties described in the company's filings with the Securities and Exchange Commission.
Including item one a risk factors 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.
Cautioned not to place undue reliance upon any forward looking statements, which speak only as of the date that they are made.
Though 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 reference to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.
We generally refer to these non-GAAP financial measures definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investors portion of our Investor Relations portion of our website at Www <unk> Dot com now.
I'll turn the call over to Kevin Thanks.
Thanks, Dave Good morning, everyone and thank you for your interest in <unk>.
As we enter the final months of a transformational year.
Outlook for bio Ventas has never been more exciting due to the exceptional execution of our growth strategy by our entire team.
I am encouraged by our commercial teams continued performance and resiliency as they delivered another quarter of double digit organic growth and continue to respond to the challenging dynamics brought on by the pandemic.
As we work to integrate biomass and my Sonics, we remain steadfast on returning patients back to their active lifestyle.
I will begin my remarks with a review of our results for the quarter before providing an update on our recent acquisitions.
Revenue increased 27% for the quarter to $109 million. Despite some continued challenges from the pandemic as we were able to more than offset these headwinds with strong execution across our growth initiatives.
Other areas of our diversified portfolio.
We faced some ongoing challenges from the pandemic concentrated in the bone graft substitutes business as elective procedures were interrupted in specific regions of the country during the quarter.
As we moved into October we saw.
Conditions begin to gradually improve and we currently expect to trend closer to a more normal environment by the end of the fourth quarter.
Even with these challenges, we delivered an exceptional quarter up 14% organic growth.
In order to give you a better sense of what the growth looked like against our pre COVID-19 levels.
Organic growth compared to the third quarter of 2019.
Across our three verticals in more detail.
Across pain treatments, we saw double digit growth driven by continued share gains for our single injection <unk> therapy, and our three injection Chelsea <unk> therapy.
We remain well positioned to take advantage of the shift towards single and three injection treatment for osteoarthritis pain.
<unk>, which was the last single injection product launched four years ago now represents roughly 20% share of the single injection market.
Our ability to increase our share is driven by multiple factors.
First our market access strategy of working with private Payors is fueling growth as we further augment the strong reimbursement for the therapy.
Second Geralyn has the highest molecular weight of single injection therapies available, which produces the longest residence time in the joints and an extended half life.
Notably the American Academy of orthopedic surgeons.
<unk> released updated clinical practice guidelines, stating certain knee osteoarthritis patients showed statistically significant improvement from high molecular weight treatments.
Like <unk> <unk>.
It also represents an opportunity to further expand our share.
Johnson also experienced significant double digit growth for the quarter and then that's demonstrated continued share gains.
Third our five injection therapy suite parts continues to maintain its leading share position of approximately 40%.
While <unk> and <unk> are below their share in their respective categories. There is significant room for additional growth in coming years for both products is the increased penetration in their respective markets.
As the only company with a portfolio of products across single three and five injection therapy. We have now consistently held the number two we share position across the entire category.
And look to become the market leader in the coming years.
Turning to our bone graft substitutes vertical we saw mid single digit growth. Despite the interruption in elective procedures I mentioned earlier.
<unk> fuel our momentum has been the recent launch of <unk>, our injectable allograft bone graft substitute solution, which can be used for a variety of procedures, including minimally invasive spinal fusions the fastest growing area in spine.
We are excited by the initial market reaction and feedback from surgeons and we continue to see bone graft substitutes as a double digit growth opportunity.
Finally, we saw double digit growth across our restorative therapies vertical bolstered by our advanced rehabilitation products acquired as part of the biomass acquisition.
Additionally, we initiated a pilot to utilize our call point access and sales force to further accelerate biomass double digit growth.
Pilot focused on our <unk> III <unk> go product for patients with gait disturbance Leverages, our sales forces relationships with orthopedic surgeons to prescribe the <unk> 300 for individuals who receive a total knee replacement, but experienced si muscle weakness during their rehabilitation.
<unk>.
Additionally, our legacy <unk> business grew mid single digits organically during the quarter. This performance benefited from growth in our international region, which faced an easier comparison in the third quarter, given the impacts of the pandemic and the prior year.
Across our international segment growth of 39% was enhanced by our biomass acquisition, while organic growth for the quarter was 11%.
With close to 10% of our sales coming from international regions, our mix of international sales is below peers.
As we introduce new products across various regions and execute against our go to market strategy, we expect to see international expansion as a catalyst for future growth in the near and midterm.
Now, let me update you on our recent acquisitions and the.
Third quarter <unk> contributed $11 million of revenue and continues to track ahead of our expectations Rep.
Revenue was strong across both advanced rehabilitation products and peripheral nerve stimulation or PFS.
The integration of biomass continues to progress as planned.
With several key milestones having been completed we.
We are realizing planned synergies and reached breakeven and profitability at the end of the third quarter.
As we look ahead to next year, we have identified specific synergy targets and see biomass contributing positive EBITDA.
Our timeline for full completion of the integration remains the first quarter of 2022.
In addition to the financial benefits biomass is providing us valuable experience as we prepare to begin the integration of my Sonics and look to further develop integration as a core competency of bio ventas.
In addition to the <unk> hundred go opportunity I mentioned earlier, we also began a pilot for PFS utilizing our existing sales force.
We are encouraged by the initial results and while a small piece of our portfolio today, we see PFS as a meaningful mid term growth driver for our overall business.
Turning to the recently announced closing of Rmi Sonics acquisition. We are excited to welcome to my Sonics team to bio Ventas and for <unk> and Pat buyer to join our board of directors.
I am also pleased to welcome Sharon <unk>, who has served as COO of my Sonics and will report to me as part of our executive team and the role of senior Vice President of quality and regulatory affairs.
The completed transaction creates a high growth medical device company with a $15 billion total addressable market and the ability to gain significant market share utilizing our nearly 500 person sales force across our three verticals.
The combined business allows us to go deeper with our customers across surgical applications in spinal fusion neurosurgery and wound treatments.
The deal also furthers our strategy of accelerated revenue growth through acquisitions that leverage our existing infrastructure.
We're confident my Sonics will drive substantial shareholder value.
It is expected to be accretive to our organic growth profile, while generating $20 million of cost synergies by the end of 2023.
While we are.
While we were waiting to clear the regulatory hurdles for the acquisition to close we assembled an internal integration team and coordinated with the leadership at my Sonics to develop our integration plan and timeline.
We will kick off the integration of my Sonics and the first quarter.
While both my Sonics and biomass provide us with immediate catalyst for growth.
Our business development activity is also focused on ensuring <unk> is positioned to maintain double digit organic growth in the midterm.
Last quarter I spoke to you about the opportunity we were evaluating whether to preserve our right to exercise our option to purchase car to heal.
As we announced in late August after extensive evaluation.
Place to $50 million into escrow as a deposit.
We plan to finance the remaining portion of the potential acquisition of Carr to heal with additional debt.
While there are still steps that take for carty deal to gain FDA approval further agility implant our due diligence strengthened our belief in the $1 3 billion dollar addressable market opportunity and that it will be a high quality addition to our portfolio.
And coming to our decision we discussed the merits of agility with over 600 healthcare professionals and.
In addition, we engaged over it and private payers to understand the reimbursement landscape for this unique therapy.
Throughout these discussions there was consistent feedback that agility fills a significant unmet need for surgeons and the treatment of patients with cartilage defects and knee osteoarthritis.
Likewise medical directors of private payers expressed a willingness to support reimbursement for agility based on the strength of the clinical data, which demonstrates superiority to current surgical standard of care.
While we are excited about the opportunity for agility to receive FDA approval and you acquire kartik deal in the second half of next year, we don't expect the acquisition to drive material growth until a few years after launch as private payers steadily begin reimbursing <unk>.
Let's see.
We will continue to provide updates on the status and timing of the potential acquisition as we gather new wins.
On the approval.
While M&A remains a meaningful part of our long term growth strategy.
And we continue to build new relationships. We are currently highly focused on successfully integrating biomass and my sonics.
In conclusion.
We continue to build momentum across our business.
Executing on our growth strategy and drive further market penetration with our HVA and bone graft substitutes products.
I am confident we have enhanced our growth profile with the acquisitions of <unk> and my Sonics and will leverage our commercial infrastructure to deliver consistent double digit growth, while ensuring we deliver on our cost synergies.
Now I'll turn the call over to Greg.
Thanks, Ken and let me add how encouraged I am by our team's success in the quarter as we continued to execute in a challenging environment, while showing meaningful progress against our growth initiatives throughout the year.
Let's begin with a review of our third quarter results.
Revenue of $109 million increased 27% compared to last year. We saw a 14 percentage point increase from organic revenue along with a 13 percentage point benefit related to biomass. Although hospital utilization was negatively impacted by a new wave of Covid related hospitalizations during the <unk>.
Third quarter, we were able to deliver strong sales as we benefited from our diversified portfolio and the execution of our commercial teams.
Our sales performance drove adjusted EBITDA of $21 million and adjusted diluted earnings per share of <unk> 25.
Across pain treatments, we grew 24% broken down by 21 percentage points of organic growth across our portfolio and a three percentage point contribution from our Pms products, we recently acquired from bonus.
<unk> revenue grew double digits compared to the prior year under <unk> ownership.
As Ken mentioned, we continue to capture market share and our <unk> Lane adjusted products.
There to the same period two years ago drilling revenue has more than doubled in the U S and has nearly doubled globally.
And bone graft substitutes revenue was impacted by increased COVID-19 related hospitalizations that reduced the number of elective procedures. As a result revenue grew 4%, but was up 35% year to date compared to 2020 due in part to the favorable comparison versus prior year, which saw significant impacts from COVID-19.
We estimate the impact from the disruption during the third quarter of this year to be approximately $2 million. Excluding this headwind during the quarter growth would have been double digits consistent with prior quarters condition.
Conditions have begun to gradually improve over the past months.
We currently expect trend closer to a more normal environment by the end of the fourth quarter.
Finally across restorative therapies, we delivered 52% growth organic sales growth from our exited product was six percentage points, while inorganic growth from sales of the biomass advanced rehabilitation portfolio was 46 percentage points.
<unk> and advanced rehabilitation compared to prior year increased double digits.
Moving down the income statement adjusted gross margin of 79% was unchanged compared to last year.
While we've experienced some increased transportation costs due to the global supply chain challenges, we have offset this through improved manufacturing performance as well as a more favorable product.
Mix.
Are all adjusted operating expenses increased $17 million driven by costs related to biomass public company costs.
And the return to more normalized spending patterns when compared to the prior year.
In addition, given the strong sales in the first half of the year, we are electing to make some additional strategic investments in the second half to further bolster our growth strategy and build out our corporate capabilities.
Now turning your attention to our bottom line financial metrics adjusted EBITDA totaled $21 million.
Compared to $23 million in the prior year.
Lower adjusted EBITDA was the result was a result of higher operating costs I, just mentioned, partially offset by higher sales volume.
Adjusted operating income of $15 million was unchanged compared to last year.
Adjusted net income totaled $14 million compared to $13 million a year ago, and we earned <unk> 25 of adjusted diluted earnings per share.
Moving to the balance sheet and cash flow statement.
Our balance sheet is solid and continues to provide us with strategic flexibility as we ended the quarter with $81 million of cash on hand, and $177 million of debt outstanding our revolving credit facility remained undrawn at the end of the third quarter.
When factoring in the close of my Sonics, which occurred subsequent to quarter end debt now stands at $376 million in cash on hand is in excess of $50 million.
Operating cash flow represented an inflow of $11 million for the quarter.
As Ken highlighted we exercised our option to purchase Carty Hill with a $50 million deposit and made an additional financial investment during the quarter and Trice medical.
We continued to generate strong and consistent cash flow, which provides us with the capability to quickly delever when taking on higher debt levels for short periods of time.
Finally, let me review, our 2021 guidance, which has been updated to reflect the performance of our business in the third quarter, our fourth quarter expectations and the closing of Sonics.
Yes.
We now expect 2021 revenue to be $425 billion to $430 million, an increase from our previous guidance of $405 million to $415 million. The increase in revenue guidance contemplates two months of my Sonics revenue. Following the October 2000 Nine's closing.
Our guidance for adjusted EBITDA is unchanged from previous guidance of $77 8 million to 82.0 million.
However, the guidance now reflects stronger than anticipated adjusted EBITDA generated from legacy bi vendors and the biomass acquisition.
Offset by the inclusion of <unk> into our guidance.
In closing, we continue to execute on our growth initiatives across our business I am confident in our ability to maintain our top line momentum, while we complete the integration of biomass in the coming months and begin to integrate <unk> operator. Please open the line for questions.
As a reminder to ask a question you will need the breadth star one on your telephone to withdraw your question press the pound please stand by.
Thank you and thank you Ross.
Your first question comes from the line of Kyle Rose from Canaccord.
Your line is open.
Great. Good morning, everybody and thank you for taking the question so.
Congrats on a strong quarter here I wanted to see if we could just touch first on the.
<unk>.
The pain.
Joint Preservation section here I'm, just wondering obviously, we saw some surges of the Delta variant and I realize that that impacted your book Bgs business, but I'm wondering.
Over the course of last 18 months and it was particularly in the Q3 have you seen a benefit there in your pain treatment just as people might be pushing out.
<unk> joint procedures, they might be getting more injections is that a dynamic that youre seeing here or is it really just solely reimbursement access.
Yes, Kyle and good to hear from you.
I would say what is.
What it's created more than anything with the pandemic is more choppiness as we see ebbs.
Ebbs and flows of elective procedures that can create choppiness in their use of hyaluronic acid therapy for instance.
But as we've always said as long as patients feel comfortable going to the doctor's office and even with the Delta variant that was the case. It was more of the elective procedures that were impacted due to hospitalizations of patients with COVID-19.
We're in good shape with that particular product line.
So from our perspective.
It's really not reimbursement driven as much I mean, our reimbursement strategy certainly AIDS in our market access strategy more to our market penetration.
Then anything but it really comes down to access to the physicians and we certainly did not see that get curtailed at all in the third quarter.
Okay. That's very helpful. And then you talked about yes.
I guess the early initiatives.
To help drive the <unk> acquisition, I think you've talked about.
The pilots for using the existing sale.
Salesforce.
PFS.
And I, just kind of trying to understand maybe when we should expect to see some of those cross selling synergies really start to play out into the model I mean, I understand it's still early days, but maybe just help frame what that cross selling tailwind should look like in 2022.
Sure Kyle I mean, starting with peripheral nerve stimulation in our focus as a reminder, as on post surgical pain, we really view products like the stim router.
<unk> device that we sell today as being in used used in lieu of opioids and prescribing opioids.
<unk> pain control.
Post surgical pain control. So that initial pilot is going quite well for us.
There is a dedicated pnm's team that we inherited from biomass does a fantastic job and works with our team in this pilot to generate leads.
Do see that expanding to our more broad sales team in 2022. So we expect to see increased sales synergies revenue synergies as we go through 2022 now on the L. 300 go our focus and this is a pilot that just started as gate.
<unk> post total knee procedure and these are patients that have a weekend quadricep muscle, which is fairly common when you have osteoarthritis and your rehabilitating from a total knee.
Our device the <unk>.
Biomass L 300 go our device can restore that gauge through a series of gyroscopes and stimulation of the muscle.
So this initial pilot we're pretty excited about.
Because it allows surgeons to prescribe this and get a patient back to walking normally more quickly than they normally would with the aid of BL 300 go.
We would expect that pilot to continue here through the end of the year and into the first quarter, but see more significant revenue synergies there as well probably more in the second half of 2022.
Okay, great. Thank you for the additional color here.
Thanks Kyle.
Thank you. Your next question comes from the line of Robbie Marcus from Jpmorgan. Your line is open.
Hey, guys. This is allen on for Robbie.
Just starting off with the kind of trends that youre seeing.
Sort of piggybacking off the question that was previously is that it seems that you guys are definitely holding in a little bit better than some of your other surgical and orthopedic exposed peers.
Sure.
Some of that.
Based on where you are kind of in the treatment paradigm, but can you just talk about why that might be the case.
On your own view, why youre holding up a little bit better.
In light of COVID-19 trends in third quarter, why you have so much more confidence in kind of this normalization over the course of <unk>. When we're hearing some other peers talk about an extension maybe even into 2022.
Yes, great question Al and look it starts and ends with our team and our people.
We have a resilient dedicated.
Group at <unk>.
And that goes across our business from our sales team to everyone that supports our sales efforts.
That dedication coupled with our strategy translates into what Youre seeing today now to Peel that back a little further.
If we start with our joint pain treatments are products itself that is normally a first line of defense.
As we've talked about as long as patients feel comfortable going to the doctor's office for treatment. We're in good shape with that therapy, we have excellent reimbursement. We're the only company with a single <unk> injection, we've certainly seen the single injection through the pandemic continue to accelerate and usage and we.
With our <unk> product, which is the highest molecular weight HVA product on the market today, we'll continue to see penetration of market share with that product. The product is that good and with jetson are three injection, which is still a small overall relatively small percentage of the.
Three injection market, we expect to see continued market share gains there as well.
When you look at our other products, we are very diversified and broad we cut across a large swath of orthopedics, we deal with thousands of orthopedic surgeons on a monthly basis and that really lends that diversity to the balance and the growth that you consistently see from bio ventas.
Even with advanced rehabilitation, we've seen terrific things from the biomass team in that area, where their call point is largely post stroke patients.
With the gate restoration device I mentioned the pilot deal 300 go and Thats been a huge success. This year, we continue to see good things from exigent and even with the headwinds with bone graft substitutes, we saw 4% growth when large areas of the country, where we're highly penetrated curtailed elective procedures.
And once again that goes down in bone graft substitutes to our strategy of being agnostic to spinal hardware.
Being able to work with every spine surgeon no matter, what spinal implant they use and be able to offer a superior product and a very dedicated sales team that sells that product. So at the end of the day as I started out it comes down to our people. It comes down to our culture and certainly the ability to execute that type of strategy.
Diversified setting that we have.
Got it and then I guess just as a quick follow up when I look at kind of the my Sonics portfolio. It does look like currently.
Correcting for Bryan maybe a bit more.
Intervention on nature. So how has that portfolio really held up I would say that your updated guidance is roughly in line with what we were contemplating for my Sonics, but just in terms of the recovery trends for that business and whether or not thats influencing your decision to start the integration of kind of a quarter later after close thank you very much.
Yes Alan.
It's continued to hold up I would say like a lot of elective procedure based technologies that has had some headwinds in certain parts of the country like we saw with our bone graft substitutes, but that's balanced by the wound business, which is less related to elective procedures.
There are a balanced portfolio as well.
A foot in both elective surgical procedures in spine, largely and then wound treatments as well. So that team has continued to execute and grow that business. So we're pretty pretty excited about that and once again see tremendous synergies there with our combination and bone graft substitutes bolt.
Technology is the bone scalpel as well as our bone graft substitutes being agnostic to spinal hardware, we see the ability to execute with a combined sales team and penetrate the market more quickly than we are that both companies are doing solo today, and then with the wound products will continue to sell.
To the wound centers and the hospitals, but add in our office call point there as we go forward with the wound products, where a lot of wounds with the pandemic are being treated in the office, which offers a great opportunity for expansion of their wound business.
Yeah.
And our next question comes from the line of Robbie Marcus with Jpmorgan.
Our next question comes from the line of drew Ranieri with Morgan Stanley.
Hi, Thanks for taking the questions.
And I'm, sorry, if I missed this but just with with <unk> now in the bag Masonic has closed.
How are you thinking longer term about the gross margin.
The growth profile of <unk> and the margin profile going forward.
Yes.
Look when we look at opportunities like this drew and thanks for the question.
Number one is to drive accretive growth.
Our goals are consistent double digit growth in our business and certainly we look at both biomass.
And my Sonics as technology, it's that have a lot of that growth profile left in them to drive that consistent double digit growth that is accretive to bio ventas as.
As far as the margin profile largely those are in line with what we've done historically, we certainly look at that very carefully when we do any M&A and understand what the margins are what increased volume can do to impact margins and certainly what reimbursement looks like as well and what that can.
Looked like in our hands.
Margin wise as we move forward so both of those areas accretive growth and margin.
Our critical components, and certainly biomass semi sonics check those boxes for us.
Got it and then just on international I know, that's only roughly 10% of total sales but.
Growth continues to be strong heading heading out of international but can you talk more about some of your initiatives against that you have.
Added to the portfolio, maybe go into a little bit more detail about your go to market strategy and what you.
Can you put any framework in place of where international to be in the next 12 to 24 months as a percent to your total sales.
Well as we mentioned drew today, it's about 10% of our revenue and that's that's below average compared to our peers.
And certainly that's something we think with a broader portfolio with biomass and now my Sonics. We can leverage we are direct we have direct sales organizations in Canada, the UK and Germany.
Terrific International office in Amsterdam, and we think we can leverage those qualities those attributes that infrastructure that we have to grow international hopefully at a faster clip than our double digit growth and we do see that happening over the course not just the next 12 to 18 months, but certainly over.
345 years, and I would see international I'm, not going to put a prediction out there on the percent of revenue, but I would see certainly climbing above the 10% that it is today.
We see that kind of opportunity keeping in mind that both biomass and my Sonics did not have direct selling organizations.
Went through largely distributors. So the combination of our direct organizations our international infrastructure will allow us we think to continue to penetrate markets more fully.
The biomass semi sonics, we're able to so that certainly will lead to enhanced growth.
Growth that will probably be above what the.
Total company growth will be so we're pretty excited about that we also see the APAC region.
The World is another opportunity for us and we'll be looking at that more closely as we go forward and taking advantage of opportunities there as they come forward.
And then just one last question just on drilling for a moment you called out it's the highest molecular weight and I think coming out of the double AOS. There was maybe some positive podium presentations.
For a discussion about.
Molecular weight HCA, but what's been the feedback from clinicians after hearing that data.
Are you seeing that in the field. Thank you.
Yes drew it's a net positive.
The double AOS comments on H, a coming out of the meeting in September where an improvement we feel and I think others would agree over.
Somewhat tepid.
Attitude towards H a back when they last reviewed this in 2013 now despite that the business overall has continued to grow at 3% to 5%.
But the fact that <unk> has the highest molecular weight and they certainly correlated strong clinical results with high molecular weight.
Of course, Sterling was not called out, but we know based on our data.
That is the highest in molecular weight and this is peer reviewed data.
Feel very good about that position, we feel very good about <unk> ability to continue to penetrate the single injection market keeping in mind, it's only been on the market for four years today, it's about 20% of the single injection market and we think we can double that here over the coming years.
If we use suite parts as kind of a predicate for that which is 40% 40% of the five injection market. We think we can get there with <unk> in the years to come and we're very excited about that and certainly the impact it has on patients and they are in their osteoarthritis pain, which continues to be a growing.
Graphic trend.
Thank you.
I'm showing no further questions so with that I'll turn the call back over to CEO, Ken really for any closing remarks.
Thank you.
Thank you all for your continued interest in <unk>, while we continue to execute well in this uncertain environment, we remain committed to creating shareholder value I.
I am confident in our growth strategy and in the ability of our diversified market leading portfolio to sustain double digit organic growth while successfully integrating our recent acquisitions.
Have a great day.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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