Q1 2022 Bioventus Inc Earnings Call

May 10, 2022

Good day, and thank you for standing by.

Turning to the <unk> first quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded.

You require assistance during the conference Please press Star zero.

Now I'd like to hand, the conference over to your Speaker today, Dave Crawford, Vice President of Investor Relations.

Thank you Daniel good morning, everyone and thanks for joining us it's my pleasure to welcome you to the <unk> 2022 first quarter earnings Conference call.

With me. This morning is Ken reality, CEO , and Mark Singleton Senior Vice President and CFO .

Ken will begin his remarks with a review of the first quarter highlights and his thoughts on the current market environment.

I'll conclude remarks with an update on our progress of our 2022 priorities.

Mark will then provide further detail on our first quarter results and conclude with an update on our full year guidance.

We'll finish the call with Q&A.

A presentation for todays call is available on the investors section of our website <unk> Dot com.

Before we begin I would like to remind everyone that our remarks today may contain forward looking statements.

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 risk factors in the company's Form 10-K for the year ended December 31, 2021 as well.

As our most recent 10-Q filed with the SEC.

You are cautioned not to place undue reliance upon 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 the 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.

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 Investor Relations portion of our website at <unk> Dot Com now I will turn the call over to Ken.

Thanks, Dave Good morning, everyone and thank you for your interest in bio Ventas.

We are off to a strong start to the year and continue to build on our momentum was fantastic to see the activity excitement at interest for the new bio Aventis at our booth during the recent American Academy of orthopedic surgeons or double AOS convention in Chicago as.

As we highlighted our expanded portfolio of my Sonics surgical products, along with our peripheral nerve stimulation therapy.

Wired through biomass, which complement our existing call points.

Along those lines, we are extremely proud of the way that our entire organization continues to strengthen our long term outlook and we are looking forward to building on this momentum in 2022.

<unk> has continued to progress against our 2022 priorities Karta he'll receive PMA approval in March and while market conditions last week forced us to cancel our initial funding plan to finance the pending acquisition.

We are pursuing alternative financing options and evaluating the rational feasibility of the acquisition considering these financing alternatives.

There is a difficult financing environment and our goal is to try and find a possible alternatives that will maximize stakeholder value in the near and long term.

We are also very proud of our performance during the quarter as we continued to execute on our strategic goals and drive growth. Despite a number of headwinds.

Which included impacts related to the ongoing hospital staffing shortages as well as omicron related challenges faced by our surgical solutions business in January .

Moving to our results revenue increased 43% during the first quarter to $117 million, including organic growth of 9%. Despite some continued challenges from the COVID-19 pandemic.

Across pain treatments, we saw double digit revenue growth driven by continued market share gains by our single injection <unk> therapy, and our three injection gel some therapy.

We remain well positioned to take advantage of the shift towards single and three injection treatments for osteoarthritis knee pain.

<unk> and <unk>, each represent roughly 20% share of the single and three injection markets, respectively with significant room for additional growth in the coming years for both therapies as they increased market penetration.

In addition, as you may recall last year, the double AOS highlighted that high molecular weight cross linked hyaluronic treatments, such as <unk> showed statistically significant improvement and certainly be osteoarthritis patients.

<unk> possesses the highest molecular weight of single injection therapy is available which produces the longest residence time in the joint.

And an extended half life.

Strengthening our competitive position within the HLA market.

Meanwhile, our five injection therapy Sue parts maintains its leading share of approximately 40%.

As the only company with a portfolio of HVA products across single three and five injection therapies. We have held the number two position in the HOA market and look to become the market leader over the coming years.

As many of you may already be aware reimbursement for HCA may soon shifts from wholesale acquisition cost to average selling price in the coming months.

Given the sales mix of our portfolio. We don't believe that this new pricing dynamic will fundamentally impact our overall growth opportunity.

However, it is possible we may see some variability over the coming quarter or two as customers adjust their ordering patterns.

Turning to surgical solutions as I mentioned omicron related disruptions limited electric procedures early in the quarter, reducing growth to the high single digit range.

These disruptions also impacted revenue from my Sonics during the quarter.

As a reminder, these disruptions only impact approximately 25% of our total business.

That said, we were encouraged by the sequential monthly improvement that we saw over the course of the quarter and finished March strong.

Despite the macro environment challenges, we continue to execute and innovate within surgical solutions as.

As an example, we are very proud of our progress with the launch of Osteo Amp global our injectable allograft bone graft substitute solution.

<unk> remains a contributor to our momentum in this vertical.

We're started therapy revenue generated double digit growth underpinned by them I Sonics wound therapy business and our advanced rehabilitation business, which has continued to perform well since we acquired it last March.

Finally, our international segment grew 82% on a reported basis, driven by our <unk> and <unk> acquisitions.

And 11% on an organic basis, driven primarily by continued strength in <unk>.

Mark will discuss our guidance shortly but even amid improving market conditions and elective procedure volumes.

We continue to see some impact from the ongoing hospital staffing challenges where reports estimate there are nearly 400000 fewer healthcare workers than before the pandemic.

We expect these disruptions to continue over the next few months, but we believe that conditions will begin to trend towards a normal environment in the second half of the year.

Now I'd like to update you on our 2022 priorities.

As I highlighted earlier, we are off to a great start to the year and remain focused on our execution across our key priorities for 2022.

Our first priority is to achieve double digit organic growth for the year through the continued strong execution of our commercial organization during.

During the quarter, we saw progress across all three of our key growth areas and.

In pain treatments, we continued to enhance our market access through contracting with payers and recently signed a new exclusive contract with Cigna for Dura line and as one of two providers for three shot therapy in our case jetson.

Within surgical solutions, we have seen a strong reception to the initial rollout of our new bone scalpel access used in minimally invasive spinal surgeries.

And then restored therapies are positive clinical trial results for <unk> skin have helped gain additional payer coverage boosting coverage to three out of the four largest commercial plans, which we'll look to which we will look to further expand.

Our second priority is to complete the integrations of our recent acquisitions, while delivering on our cost synergy commitments and leveraging our enhanced scale to accelerate sales with.

With the biomass integration completed we are making meaningful progress towards integrating my sonics.

As a reminder, the integration is largely focused on corporate functions and manufacturing operations and requires minimal commercial integration.

We remain on track for it to be completed next year and to deliver $20 million in cost synergies by the end of 2023.

Besides the realization of cost synergies are combined commercial teams continue to leverage our enhanced scale and customer relationships to accelerate sales growth.

We already have seen initial wins from cross training, our Masonic sales team on our bone graft substitutes portfolio.

<unk> sales team has historically focused on urban and teaching hospitals, which differs from the <unk> sales approach that is more focused on suburban hospitals in recent months, we have made inroads into major teaching and urban hospitals and expect to further leverage these my sonics customer relationships.

<unk>.

In addition, we recently hosted our first surgical solutions mobile lab event.

We were able to introduce surgeons to the complete bio ventas surgical solutions portfolio.

Our scale enables these enhanced training and marketing efforts to reach potentially new customers for Rmi Sonics bone scaffold.

Our third and final priority for the year centers on the potential acquisition of Carr to heal, which we believe is a revolutionary and game changing device for multitude of patients suffering from me osteoarthritis and <unk> defects.

As I mentioned earlier in my remarks on March 29th car to heal received PMA approval from the FDA.

And on April 4th we exercised our option to purchase the remaining interest in car to heal.

We are now exploring alternative options to finance this transaction.

Given the increase in debt to finance car to heal we will pause on further M&A activity until we return to the upper end of our targeted range of net debt to adjusted EBITDA of three to four times.

We expect to achieve this by the end of 2023, primarily through increased EBITDA achieved through double digit sales growth and margin expansion as well as free cash flow generation.

It is important to note that we feel very strongly about the <unk> business.

Our ability to drive double digit growth for the foreseeable future and create meaningful stakeholder value.

This is the case, whether or not we complete the car to heal acquisition.

In conclusion, we continued to build momentum as we execute on our growth strategy and drive further market penetration across our three customer focused verticals.

I am confident we will deliver on cost synergies from our acquisitions and enhance our growth profile by leveraging scale and commercial infrastructure to deliver consistent double digit growth now.

Now I will turn the call over to Mark.

Thanks, Ken and good morning, everyone.

Let me start by saying that I'm honored to be a part of the bio ventas team.

This is an exciting time for the organization and I have enjoyed getting to know everyone over the last month as I've come up to speed on all of our opportunities in.

In my short time here I've been impressed with the talented team and their dedication to delivering on the company's growth initiatives as well as the commitment to successfully integrating recent acquisitions.

I look forward to partnering with Ken and the rest of the executive leadership team to accomplish our 2022 priorities and execute the strategy in place.

Now, let me begin with a review of our first quarter results.

Revenue of $117 million increased 43% compared to the prior year.

So a nine percentage point increase from organic revenue along with a 34 percentage point increase related to the acquisitions of biomass in the Sonics.

We were able to deliver sales within our original plan Despite hospital utilization being negatively impacted by the omicron variant and the ongoing effects of the staffing shortages, which is a testament to our diversified portfolio and strong execution of our commercial teams.

Our sales performance drove adjusted EBITDA of $7 million.

Across pain treatments, we grew 25% driven by 23 percentage points of organic growth across our Hai portfolio and a two percentage point contribution from our Pms products, which we acquired from biomass.

<unk> and Julson products continued to capture market share across a single <unk> injection therapy, respectively.

In surgical solutions, we grew 68% we saw eight percentage points of organic growth across our bone graft substitutes, which was impacted by the delays in elective procedures due to omicron and staffing issues that I previously highlighted.

First quarter included a 60 percentage point contribution from Masonic surgical portfolio.

Finally across restorative therapies, we delivered 57% growth.

Sales of the biomass advanced rehabilitation portfolio and Masonic wound business contributed 36, and 39 percentage points respectively.

Moving down the income statement adjusted margin of $76.

<unk> was down 320 basis points compared to the prior year.

Decline in gross margin can be attributed to lower gross margins from our recent acquisitions.

Overall, adjusted operating expenses increased $56 million, driven by cost related to biomass and Masonic when compared to the prior year.

In addition, the prior year benefited from a decrease in expenses of $25 million related to the change in fair market value of accrued equity based compensation associated with our IPO closing price.

Now turning to our bottom line financial metrics adjusted EBITDA totaled $7 million.

Compared to $11 million.

The prior year.

Higher sales volume was offset by higher operating costs related to our acquisition of <unk> and a return to more.

More normal travel cadence for our sales teams.

Adjusted operating income decreased $2 million from $33 million in the prior year.

As previously mentioned the decrease in equity compensation drove the reduction.

Adjusted net income totaled $3 million compared to $33 million a year ago, and we earned <unk> of adjusted diluted earnings per share.

Now turning to the balance sheet and cash flow statement.

We ended the quarter with $27 million of cash on hand, and $368 million of debt outstanding which included a $15 million draw on our revolving credit facility at the end of first quarter.

Operating cash flow represented an outflow of $21 million for the quarter.

As we discussed on our prior earnings call cash flow for the quarter was impacted by annual bonus payments to our employees and payment of the majority of our annual insurance premiums, which represented a cash outflow of $18 million.

Neither of these payments will occur again until next year in.

In addition, we had a onetime payment of $11 million to former <unk> employees, which related to our stock plan prior to our IPO.

We anticipate cash flow to be positive for the remainder of the year as earnings accelerate and the large outflows in the first quarter do not repeat.

This pattern is consistent with our historical quarterly phasing.

Finally, let me provide an update on our 2022 guidance.

Just on current trends in our business, we are reaffirming the net sales and adjusted EBITDA guidance, we provided on March 10.

We continue to expect net sales to be in the range of $545 million to $565 million, including biomass and Masonic the.

The midpoint of our guidance reflects reflects double digit organic growth for the year.

For the year, we expect adjusted EBITDA to be between $94 million and $107 million.

Yeah.

As a reminder, we plan to provide you with full year earnings guidance. Once we complete the financing and acquisition of Carr to heal.

In closing I am honored to be a part of bio ventas team and I'm excited to pursue the numerous opportunities across our business. We continue to execute on our growth initiatives and maintain our topline momentum while completing the integration of Masonic.

Operator, please open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from Alex Nowak with Craig Hallum Capital. Your line is now open.

Great. Good morning, everyone. It looks like we have about 9% organic growth. This quarter, just maybe expand on that bridge to get to the double digit growth that you're expecting for the full year. How much of that is in electric procedure recovery how much of that is integrating all of the acquired business together and maybe kind of give us some maybe a highlights on April and May just kind of like to proceed.

Yours are trending.

Sure.

A lot of it is is really the elective procedures that were curtailed in the early part of the quarter that we did see accelerate as we went through the quarter as hospitalizations decline. So we see that.

Historically.

Been a 20% driver of growth for us and we do see that returning as we progress through the year.

That will be <unk>.

Certainly put us over the top on the double digit growth analysis as.

As far as the current trends in the business as mentioned on the call we do see an acceleration.

In our business as we progress through the first quarter.

And that was really all aspects of our business by the way, but but particularly in the surgical solutions area. As you mentioned in your question. We've continued to see that play out as hospitalizations have.

The decrease now, but one aspect to that that we also talked about is the staffing issues in hospitals and that is a real issue.

About 400000 less health care workers.

<unk> are not in the system supporting surgeries and so forth that existed before the pandemic.

We are hopeful and really see that trend improving based on the numbers and we looked at as we progress through the year why does that matter because that aspect of it increases the proficiency of surgeons and the number of cases, they can do on a daily and weekly basis that will obviously drive revenue as well.

So so we look at that as really a function going back to your first question of surgical solutions returning to double digit growth.

That's helpful. We've also seen some shortage notifications come out for Io Hexcel. Another contrast agents just curious in the last couple of weeks here have you been seeing any delay of procedures just due to the shortages.

No we have not seen those kind of delays Alex from our perspective.

That has not impacted our business.

Great. That's good to hear and then just lastly can you maybe expand a bit more on the possible alternatives here for <unk>. Just the conversations you are having with that company and others you seem pretty committed to the deal on the prepared remarks, but also you mentioned.

At least it sounds like you would also be considered campaign. The transaction. If you just can't altogether. So just just curious ultimately expand more on that yes.

Yes look Alex first of all I want to enforce one thing we believe in the bio ventas business and our ability to drive double digit growth with or without car to heal.

We're looking at car to heal and obviously, we're very it's a very compelling technology, we think it's a game changer.

But it's not a finance at all cost situation.

To look at alternatives that we think are going to be best for all of our stakeholders in the short medium and long term.

So those are those are options that we're evaluating now and discussions with with our banks as well as with car to heal and as we progress we'll make the right decision here that we think is the right decision for the bio ventas and for all of our stakeholders.

Excellent I appreciate the update thank you.

Thanks, Alex.

Thank you. Our next question comes from Robbie Marcus with Jpmorgan. Your line is now open.

Hi, this is actually erosion on for Robbie.

I wanted to kind of piggyback off of that question.

Start off.

Would you be able to provide some more detail regarding the metrics that youre looking at specifically are the limits you put in place for the financing. Obviously you mentioned that it is not a finance at all cost situation, but maybe just some more color on that.

What are the considerations are what are your current considerations and then also are there any deadlines.

In place to finance this acquisition and then I have a follow up thanks.

Yes rogen.

I can't get too specific on that.

The color I'll provide you here is look we look at our ability to drive our current strategy and drive our commercial business and double digit growth is priority. One we have to be able to do that and any financing consideration.

And we will not impair our ability to drive.

Significant potential we have with the <unk> business today.

So any options that we look at that is that is the lens and the certainly the filter of how we look at it.

We're not going to get into specifics today on what we're looking at.

But certainly once again all in force, it's a situation where it's not a deal at all costs.

It's a deal that makes sense for <unk> and all of our stakeholders. So we're weighing that very carefully.

Thank you and also just one second question.

I guess given the rise in Covid cases that we're seeing in the present, obviously you mentioned a strong recovery in the back half of the quarter.

Would you be able to maybe talk a little bit about how much of this or any kind of COVID-19 impact that you are contemplating in the low end of the guidance range given the new.

Dynamic right now.

Sure well just to enforce one of the benefits of our business at bio Ventas is we're well diversified only 25% of our revenue comes from elective surgical procedures and what we've seen since the advent of vaccinations as the other 75% of our business as it remains strong.

And a strong growth profile, regardless of case surges that we've seen on again and off again here over the past couple of years.

As far as elective surgical procedures go.

Something we watch carefully relative to hospitalizations at this point in time, we are not anticipating a significant rise in hospitalizations as we progress through the back half of the year.

We think based on the current climate.

We're seeing with the variance and the vaccination rates across the country that we will be able to get through that we do have in our forecast and our guidance.

A certain amount of headwind there.

And that would be more on the low end of our guidance.

Certainly we are hopeful that between the hospital staffing coming back as the year progresses, and the pandemic continuing to stay in control relative to hospitalizations that we'll be able to get through this.

Great. Thank you so much.

Thanks Robyn.

Thank you. Our next question comes from Kyle Rose with Canaccord. Your line is now open.

Great. Good morning, and thanks for taking the questions. This is Brian on for Kyle I wanted to start maybe with the Cigna agreement how long.

Our expectations in terms of engaging with those accounts and building up the patient funnel, maybe whats the lead time it looked like there.

Secondarily, how significant of a driver could it be within pain treatments over the near to midterm.

Sure sure, Brian well, if we look at United.

And our United contract as a precedent for this generally be the volume increases that we saw were over a period of 12 to 18 months.

So I would say that Cigna first of all the contract doesn't become active till July one.

I would look at it over the next year or year, and a half as reaching its full potential.

Great opportunity for our sales team once again to get into new accounts.

<unk>.

Large part Cigna counts or a certain percentage and then cross sell or to non contracted patients non contracted business. This has worked really well for us.

We do this strategically once again, we're not interested in contracting with every payer, but the right ones that we think opened the door to the largest number of accounts that get us into the ability to cross sell our large portfolio of HVA products into non contracted business as well. So I'd look at the next 12 months to <unk>.

18 months has been a time when we will reach full benefit of the Cigna contract.

Got it that's helpful. Ken Thank you.

Then maybe just as another question with integration and absorption of your acquisitions is the primary focus for 2022, maybe just a refresher on your R&D pipeline for the year more broadly and if we could just get an update on expectations just in terms of products coming down the pike organically.

Sure well as mentioned.

The Australia global has been a great success that was launched in the second half of last year and gets us into minimally invasive spinal fusions. The bone scaffold access which is also used in minimally invasive spinal fusions as in a limited market release today.

And launched earlier this year and we expect that to be in full market launch later this year in the late third early fourth quarter.

For bone scaffold access.

Looking across we have signed a star elite, which is our ablation technology that we expect to launch in the second half of this year again late third early fourth quarter.

We are continuing to work and we will be submitting a PMA supplement on our <unk> technology for <unk> and that will be towards the end of this year.

And then we continue to.

Worked through our phase III study with modus artful central tissue products and that enrollment is going quite well.

And then pro comp a rotator cuff product, we expect to submit for five 10-K clearance by the end of this year. So thats a rundown of some of our near term priorities in terms of research and development and product development.

Great. Thanks, again for taking the questions.

You bet.

Thank you.

Again, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Our next question comes from Amit Hassan with.

Nope.

Okay.

Hi, This is Phil on for Amit.

Thanks, so much for taking the questions I thought I'd follow up a couple on the HR side.

I thought the market share comments were really interesting and impressive for drilling in <unk> interested to hear if you can kind of talk through what sort of kind of structural volume headwinds you are seeing from the rest of the market and the positioning of strength from a market share perspective kind of maybe in the context of the decision by saying that how your discussions with payers are going to do.

<unk> with physicians, what youre seeing kind of from the market from a volume headwinds that are partially offsetting the strength you guys are seeing in market share.

Sure Phil we continue to see a robust market.

And need for HCA, keeping in mind that hyaluronic acid has a very distinct need and the clinical continuum of care for osteoarthritis patients and thats funnel of new patients coming in and continues to grow each year with the aging population. So we have a terrific tailwind there.

And we're not seeing a lot of volume headwinds I would say by any means in fact that that volume of patients as I mentioned continues to grow just based on the sheer demographics, we feel our lineup of HVA products, starting with <unk>, which has the highest molecular weight and along its longest residence time in the knee.

Positions us very well to continue to gain market share in this area keeping in mind <unk> has only been in the U S market. Since 2018. So it is early in its product lifecycle. We feel we can continue to drive from its 20% market share today upwards to 40%, which is traditionally our goal.

Thats.

Product suite parts are five injection has had 40% market share for quite some time with the same type of competitive dynamics. So we feel pretty comfortable stating that in jetson has only been our three injection has only been on the market for since 2016. So once again, we see opportunity for continued market share gains there as well.

We use the payer contracts as a way in the door.

With new accounts, keeping in mind that we have a lot of lot more penetration that we can gain and a contract like cigna gets us into new doors and allows our sales force to penetrate and sell the non contracted business. Besides cigna that.

That strategy worked well for us with United.

It's a delicate balance because we're not trying to contract with every payer.

But those that get us into the most stores and certainly the cigna contract provided that opportunity.

That's great Tim. Thanks, so much the follow up you touched on the potential pricing mechanism change here coming in the second half of the year, hoping you could maybe just provide a little bit more detail on sort of the mechanism of how that pricing change could could affect your business and any quantification you might be willing.

To sort of characterize over over the next 12 months or as you annualize the potential pricing changes.

Sure so to say the way we look at this as well.

We do expect the Asps reporting to happen, it's not 100%, but we think it's likely in the second half of the year.

And that impacts Medicare pricing, specifically to ASP reporting, but on the other side of the equation as our contracted business, where we pay rebates very specifically.

With contracts like United and Cigna, we pay rebates with and our contracts with these payers we have very specific clauses to re reduce the rebates based on ASP reporting so when we do our analysis of volume in our business volume of syringes, the actual reduction in rebates offsets any.

The reduction in reimbursement.

Pacifically based on Asps reporting we've run these calculations very carefully and we feel strongly that not only.

Will we be.

Basically neutral through this process.

But we can gain market share as we go forward in the medium term now as I mentioned on the call. We do expect still some.

Volatility.

Based on ordering patterns, changing and what I mean by that.

Is maybe a surgeon going some ordering.

Buying and billing direct.

Hey versus going through a specialty pharmacy, we do think that this type of ASP reporting is going to change certain behavior of certain buying behavior and that could create some near term volatility.

This unfolds, but we don't see this as having a medium term impact on the business whatsoever and in fact, I think it will level the playing field in such a way that leveraging our position our strong portfolio and our large sales force. We can continue to penetrate the market.

That's really helpful and just a follow up on that last point the volatility that you are talking about them potential ordering or buying pattern trends do you expect that to essentially kind of shakeout. This year ended up itself such that a pull from one quarter might be a push to another vice versa.

Yes, I expect it from a timing perspective to be this year in the third and fourth quarter, if we see any volatility it'll be that.

Okay, Alright, that's great. Thanks, so much for the questions again.

Yes, Thank you Phil.

Thank you.

I am showing no further questions at this time I would now like to turn the conference back over to Ken Rally.

Yes.

Well, thank you Daniel and thank you everyone for your continued interest in <unk>, we are off to a strong start to the year and are well positioned to deliver on our 2022 priorities last week bio ventas and our employees celebrated our 10 year anniversary and we are proud of the business we have created.

Look forward to further accelerating our momentum across our short and midterm growth drivers to sustain double digit organic growth expand margins and create stakeholder value through our enhanced portfolio and synergies from our recent acquisitions. Thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Good day and thank you for standing by welcome to the <unk> first quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require assistance during the conference Please press Star zero.

I would now like to hand, the conference over to your Speaker today, Dave Crawford, Vice President of Investor Relations.

Thanks, Daniel Good morning, everyone and thanks for joining us.

My pleasure to welcome you to the <unk> 2022 first quarter earnings Conference call.

With me. This morning is Ken reality, CEO , and Mark Singleton Senior Vice President and CFO .

Ken will begin his remarks with a review of the first quarter highlights and his thoughts on the current market environment.

We'll conclude the remarks with an update on our progress of our 2022 priorities.

Mark will then provide further detail on our first quarter results and conclude with an update on our full year guidance.

We will finish the call with Q&A a presentation for today's call is available on the investors section of our website <unk> Dot com.

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 Securities and Exchange Commission, including.

One a risk factors in the company's Form 10-K for the year ended December 31, 2021, as well as our most recent 10-Q filed with the SEC.

You are cautioned not to place undue reliance upon 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.

As required by the applicable securities laws.

Call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.

Thanks, Dave Good morning, everyone and thank you for your interest in <unk>.

We are off to a strong start to the year and continue to build on our momentum.

It was fantastic to see the activity excitement at interest for the new bio Aventis at our booth during the recent American Academy of orthopedic surgeons or double AOS convention in Chicago as we highlighted our expanded portfolio of my Sonics surgical products, along with our peripheral nerve.

<unk> stimulation therapy acquired through biomass, which complement our existing call points.

Along those lines, we are extremely proud of the way that our entire organization continues to strengthen our long term outlook and we are looking forward to building on this momentum in 2022.

<unk> has continued to progress against our 2022 priorities.

Carter he'll receive PMA approval in March and while market conditions last week forced us to cancel our initial funding plan to finance the pending acquisition.

We are pursuing alternative financing options and evaluating the rationale feasibility of the acquisition considering these financing alternatives.

This is a difficult financing environment and our goal is to try and find a possible alternatives that will maximize stakeholder value in the near and long term.

We are also very proud of our performance during the quarter as we continued to execute on our strategic goals and drive growth. Despite a number of headwinds which included impacts related to the ongoing hospital staffing shortages as well as omicron related challenges faced by.

Our surgical solutions business in January .

Moving to our results revenue increased 43% during the first quarter to $117 million, including organic growth of 9%. Despite some continued challenges from the COVID-19 pandemic.

Across pain treatments, we saw double digit revenue growth driven by continued market share gains by our single injection <unk> therapy, and our three injection gel <unk> therapy.

We remain well positioned to take advantage of the shift towards single and three injection treatments for osteoarthritis knee pain.

In addition, as you may recall last year, the double AOS highlighted that high molecular weight cross linked highly ironic treatments such as <unk> showed statistically significant improvement in certain be osteoarthritis patients.

<unk> possesses the highest molecular weight of single injection therapy is available which produces the longest residence time in the joint and an extended half life.

Strengthening our competitive position within the HLA market.

Meanwhile, our five injection therapy Sue parts maintains its leading share of approximately 40%.

As the only company with a portfolio of HVA products across single three and five injection therapies. We have held the number two position in the HLA market and look to become the market leader over the coming years.

As many of you may already be aware reimbursement for HCA may soon shift from wholesale acquisition cost to average selling price in the coming months gives.

Given the sales mix of our portfolio. We don't believe that this new pricing dynamic will fundamentally impact our overall growth opportunity.

However, it is possible we may see some variability over the coming quarter or two as customers adjust their ordering patterns.

Turning to surgical solutions as I mentioned omicron related disruptions limited elective procedures early in the quarter, reducing growth to the high single digit range.

These disruptions also impacted revenue from my Sonics during the quarter.

As a reminder, these disruptions only impact approximately 25% of our total business.

That said, we were encouraged by the sequential monthly improvement that we saw over the course of the quarter and finished March strong.

Despite the macro environment challenges, we continue to execute and innovate within surgical solutions.

As an example, we are very proud of our progress with the launch of Osteo Amp Global our injectable allograft bone graft substitute solution, which remains a contributor to our momentum in this vertical.

We're sort of therapy revenue generated double digit growth underpinned by them I Sonics wound therapy business and our advanced rehabilitation business, which has continued to perform well since we acquired it last March.

Finally, our international segment grew 82% on a reported basis, driven by our biomass and <unk> acquisitions.

11% on an organic basis, driven primarily by continued strength in <unk>.

Mark will discuss our guidance shortly but even amid improving market conditions and elective procedure volumes.

We continue to see some impact from the ongoing hospital staffing challenges where reports estimate there are nearly 400000 fewer healthcare workers than before the pandemic.

We expect these disruptions to continue over the next few months, but we believe that conditions will begin to trend towards a normal environment in the second half of the year.

Now I'd like to update you on our 2022 priorities.

As I highlighted earlier, we are off to a great start to the year and remain focused on our execution across our key priorities for 2022.

Our first priority is to achieve double digit organic growth for the year through the continued strong execution of our commercial organization during.

During the quarter, we saw progress across all three of our key growth areas and.

Within surgical solutions, we have seen a strong reception to the initial rollout of our new bone scalpel access used in minimally invasive spinal surgeries.

And then restore to therapies are positive clinical trial results for <unk> skin have helped gain additional payer coverage boosting coverage to three out of the four largest commercial plans, which we'll look to which we will look to further expand.

Our second priority is to complete the integrations of our recent acquisitions, while delivering on our cost synergy commitments and leveraging our enhanced scale to accelerate sales with.

With the biomass integration completed we are making meaningful progress towards integrating my sonics.

As a reminder, the integration is largely focused on corporate functions and manufacturing operations and requires minimal commercial integration.

We remain on track for it to be completed next year and to deliver $20 million in cost synergies by the end of 2023.

Besides the realization of cost synergies are combined commercial teams continue to leverage our enhanced scale and customer relationships to accelerate sales growth.

We already have seen initial wins from cross training Rmi Sonic sales team on our bone graft substitutes portfolio.

<unk>.

In addition, we recently hosted our first surgical solutions mobile lab event.

Where we're able to introduce surgeons to the complete bio ventas surgical solutions portfolio.

Our scale enables these enhanced training and marketing efforts to reach potentially new customers for IMI Sonics bone scaffold.

As I mentioned earlier in my remarks on March 29 car to heal received PMA approval from the FDA.

On April 4th we exercised our option to purchase the remaining interest in car to heal.

We are now exploring alternative options to finance this transaction.

Given the increase in debt to finance car to heal we will pause on further M&A activity until we return to the upper end of our targeted range of net debt to adjusted EBITDA of three to four times.

We expect to achieve this by the end of 2023, primarily through increased EBITDA achieved through double digit sales growth and margin expansion as well as free cash flow generation.

It is important to note that we feel very strongly about the <unk> business.

Our ability to drive double digit growth for the foreseeable future and create meaningful stakeholder value.

This is the case, whether or not we complete the car to heal acquisition.

In conclusion, we continue to build momentum as we execute on our growth strategy and drive further market penetration across our three customer focused verticals.

Im confident we will deliver on cost synergies from our acquisitions and enhance our growth profile by leveraging scale and commercial infrastructure to deliver consistent double digit growth.

Now I'll turn the call over to Mark.

Thanks, Ken and good morning, everyone.

Let me start by saying that I'm honored to be a part of the Bioventures team.

This is an exciting time for the organization and I have enjoyed getting to know everyone over the last month as I've come up to speed on all of our opportunities in.

I look forward to partnering with Ken and the rest of the executive leadership team to accomplish our 2022 priorities and execute the strategy in place.

Now, let me begin with a review of our first quarter results.

Revenue of $117 million increased 43% compared to the prior year.

<unk> nine percentage point increase from organic revenue along with a 34 percentage point increase related to the acquisitions of biomass in the Sonics.

We were able to deliver sales within our original plan Despite hospital utilization being negatively impacted by the omicron variant and the ongoing effects of staffing shortages, which is a testament to our diversified portfolio and strong execution of our commercial teams.

Our sales performance drove adjusted EBITDA of $7 million.

Across pain treatments, we grew 25% driven by 23 percentage points of organic growth across our portfolio and a two percentage point contribution from our pms products, which we acquired from biomass.

<unk> and <unk> products continue to capture market share across the single and three injection therapy, respectively.

In surgical solutions, we grew 68% we saw eight percentage points of organic growth across the bone graft substitutes, which was impacted by the delays in elective procedures due to omicron and staffing issues that I previously highlighted.

First quarter included a 60 percentage point contribution from the Sonics surgical portfolio.

Finally across restorative therapies, we delivered 57% growth.

Sales of the biomass advanced rehabilitation portfolio and Masonic wound business contributed 36, and 39 percentage points respectively.

Moving down the income statement adjusted margin of 76.

<unk> was down 320 basis points compared to the prior year.

The decline in gross margin can be attributed to lower gross margins from our recent acquisitions.

Hi.

Overall, adjusted operating expenses increased $56 million driven by costs related to biomass and Masonic when compared to the prior year.

In addition, the prior year benefited from a decrease in expenses of $25 million related to the change in fair market value of accrued equity based compensation associated with our IPO closing price.

Now turning to our bottom line financial metrics, adjusted EBITDA totaled $7 million compared.

Compared to $11 million.

From the prior year.

Higher sales volume was offset by higher operating costs related to our acquisition of <unk> and a return to more.

More normal travel cadence for our sales teams.

Adjusted operating income decreased $2 million from $33 million in the prior year.

As previously mentioned the decrease in equity compensation drove the reduction.

Adjusted net income totaled $3 million compared to $33 million a year ago, and we earned <unk> of adjusted diluted earnings per share.

Now turning to the balance sheet and cash flow statement.

We ended the quarter with $27 million of cash on hand, and $368 million of debt outstanding which included a $15 million draw on our revolving credit facility at the end of first quarter.

Operating cash flow represented an outflow of $21 million for the quarter.

Neither of these payments will occur again until next year.

In addition, we had a onetime payment of $11 million to former <unk> employees, which related to our stock plan prior to our IPO.

We anticipate cash flow to be positive for the remainder of the year as earnings accelerate and the large outflows in the first quarter do not repeat.

This pattern is consistent with our historical quarterly phasing.

Finally, let me provide an update on our 2022 guidance.

Based on current trends in our business, we are reaffirming the net sales and adjusted EBITDA guidance, we provided on March 10.

We continue to expect net sales to be in the range of $545 million to $565 million, including biomass and Masonic.

The midpoint of our guidance reflects reflects double digit organic growth for the year.

For the year, we expect adjusted EBITDA to be between $94 million and $107 million.

Okay.

As a reminder, we plan to provide you with full year earnings guidance. Once we complete the financing and acquisition of party heal.

In closing I am honored to be a part of bio ventas team and Im excited to pursue the numerous opportunities across our business. We continue to execute on our growth initiatives and maintain our top line momentum while completing the integration of Masonic.

Operator, please open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please.

Please standby, while we compile the Q&A roster.

Our first question comes from Alex Nowak with Craig Hallum Capital. Your line is now open.

Great. Good morning, everyone. It looks like we have about 9% organic growth. This quarter, just maybe expand on that bridge to get to the double digit growth that you're expecting for the full year. How much of that is in electric procedure recovery how much of that is integrating all of the acquired businesses together and maybe kind of give us some maybe a highlight on April and May just how electric procedures are.

Trending.

Sure well a lot of it is really the elective procedures that were curtailed in the early part of the quarter that we did see accelerate as we went through the quarter as hospitalizations decline. So we see that.

As historically.

Been a 20% driver of growth for us and we do see that returning as we progress through the year.

That will be certainly put us over the top on the double digit growth analysis as.

As far as the current trends in the business as mentioned on the call we do see an acceleration.

In our business as we progress through the first quarter and.

Decrease now, but one aspect to that that we also talked about is the staffing issues in hospitals and that is a real issue.

400000, less healthcare workers that are not in the system supporting surgeries and so forth that existed before the pandemic.

We are hopeful and really see that trend improving based on the numbers. We looked at as we progress through the year why does that matter because that aspect of it increases the proficiency of surgeons and the number of cases, they can do on a daily and weekly basis that will obviously drive revenue as well.

So we look at that as really a function going back to your first question is surgical solutions returning to double digit growth.

That's helpful. We've also seen some shortage notifications coming out for Io Hacksaw. Another contrast agents just curious in the last couple of weeks here have you been seeing a delay of procedures just due to the shortages.

No we have not seen those kind of delays Alex from our perspective.

That has not impacted our business.

Great. That's good to hear and then just lastly can you maybe expand a bit more on the possible alternatives here for Carty deal just the conversations youre, having with that company and others you seem pretty committed to the deal on the prepared remarks, but also you mentioned or at least it sounds like you would also be considered cam from the transaction. If you just can't altogether. So just just curious.

Expand more on that.

Yes look Alex first of all I want to enforce one thing we believe in the <unk> business and our ability to drive double digit growth with or without car to heal. So we're looking at car to heal and obviously, we're very it's a very compelling technology. We think it's a game changer, but it's not a finance at all cost.

<unk>.

We're going to look at alternatives that we think are going to be best for all of our stakeholders in the short medium and long term. So those are those are options that we're evaluating now and discussions with with our banks as well as with car to heal.

And as we progress we'll make the right decision here that we think is the right decision for bio ventas and for all of our stakeholders.

Excellent I appreciate the update thank you.

Thanks, Alex.

Thank you. Our next question comes from Robbie Marcus with Jpmorgan. Your line is now open.

Hi, this is actually growing on for Robbie.

I guess I wanted to kind of piggyback off of that question.

To start off.

What are the considerations are what are your current consideration and then also are there any deadlines.

In place to finance this acquisition and then I have a follow up thanks.

Yes rogen.

Can't get too specific on that.

Not and will not impair our ability to drive.

Significant potential we have with the <unk> business today.

So any options that we look at that is that is the lens and certainly the filter of how we look at it.

We're not going to get into specifics today on what we're looking at.

But.

Certainly once again I'll enforce its a situation where it's not a deal at all cost its a deal that makes sense for <unk> and all of our stakeholders. So we're weighing that very carefully.

Thank you and also just one second question.

I guess given the rise in Covid cases that we're seeing in the present.

You mentioned, a strong recovery in the back half of the quarter.

Would you build that maybe talk a little bit about how much of this or any kind of COVID-19 impact that you are contemplating in the low end of the guidance range given the new <unk>.

<unk> right now.

Sure well just to enforce one of the benefits of our business at <unk> is we are well diversified only 25% of our revenue comes from elective surgical procedures and what we've seen since the advent of vaccinations as the other 75% of our business has remained strong.

<unk> and a strong growth profile, regardless of case surges that we've seen on again and off again here over the past couple of years as.

As far as elective surgical procedures go.

We watch carefully relative to hospitalizations at this point in time.

We are not anticipating a significant rise in hospitalizations as we progress through the back half of the year.

We think based on the current climate.

We're seeing with the variance and the vaccination rates across the country that will be able to get through that we do have in our forecast and our guidance.

A certain amount of headwind there.

And that would be more on the low end of our guidance.

Certainly we are hopeful that between the hospital staffing coming back as the year progresses, and the pandemic continue to stay in control relative to hospitalizations that we'll be able to get through this.

Great. Thank you so much.

Thanks Robyn.

Thank you. Our next question comes from Kyle Rose with Canaccord. Your line is now open.

Great. Good morning, and thanks for taking the question. This is Brian on for Kyle I wanted to start maybe with the Sigma agreement how long.

Our expectations in terms of engaging with those accounts and building up the patient funnel, maybe whats the lead time look like there and.

Secondarily, how significant of a driver could it be within pain treatments over the near to midterm.

Sure sure, Brian well, if we look at United.

And our United contract as a precedent for this generally.

The volume increases that we saw were over a period of 12 months to 18 months.

So I would say that Cigna first of all the contract doesn't become active till July one.

I would look at it over the next year year, and a half as reaching its full potential.

Great opportunity for our sales team once again to get into new accounts.

<unk>.

Large part Cigna counts or a certain percentage and then cross sell or to non contracted patients non contracted business. This has worked really well for us.

We do this strategically once again, we're not interested in contracting with every payer, but the right ones that we think opens the door to the largest number of accounts that get us into the ability to cross sell our large portfolio of HVA products into non contracted business as well. So I'd look at the next 12 months to <unk>.

18 months has been a time when we will reach full benefit of the Cigna contract.

Got it that's helpful. Ken Thank you.

Sure well as mentioned.

And launched earlier this year and we expect that to be in full market launch later this year in the late third early fourth quarter.

For bone scaffold access.

Looking across we have signed a star elite, which is our ablation technology that we expect to launch in the second half of this year again late third early fourth quarter.

We are continuing to work and we will be submitting a PMA supplement on our <unk> technology for <unk> and that will be towards the end of this year.

And then we continue to.

Work through our phase III study with modus are full central tissue products and that enrollment is going quite well.

Great. Thanks, again for taking the questions.

You bet.

Thank you.

Again, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Our next question comes from Amit <unk> with.

Hello.

Yes.

Hi, This is Phil on for Amit.

Thanks, so much for taking the questions I thought I'd follow up a couple on the HR side.

I thought the market share comments were really interesting and impressive for drilling and for Delta and interested to hear if you can kind of talk through what sort of kind of structural volume headwinds you are seeing from the rest of the market and the positioning of strength from a market share perspective kind of maybe in the context of the decision by Cigna.

Discussions with payers are going discussions with physicians, what youre seeing kind of from the market from a volume headwinds that are partially offsetting the strength you guys are seeing in market share.

Sure Phil.

We continue to see.

A robust market.

And need for HCA, keeping in mind that hyaluronic acid has a very distinct need and the clinical continuum of care for osteoarthritis patients and that funnel of new patients coming in and continues to grow each year with the aging population. So we have a terrific tailwind there.

Positions us very well to continue to gain market share in this area keep in mind <unk> has only been in the U S market. Since 2018. So it is early in its product lifecycle. We feel we can continue to drive from its 20% market share today upwards to 40%, which is traditionally our goal.

That's a product suite parts of our five injection has had 40% market share for quite some time with the same type of competitive dynamics. So we feel pretty comfortable stating that in jetson has only been our three injections has only been on the market for since 2016. So once again, we see opportunity for continued market share gains there.

There as well.

We use the payer contracts as a way in the door.

With new accounts.

Keeping in mind that we have a lot of lot more penetration that we can gain and a contract like cigna gets us into new doors and allows our sales force to penetrate and sell the non contracted business. Besides cigna that strategy worked well for us with United.

It's a delicate balance because we're not trying to contract with every payer.

But those that get us into the most stores and certainly the cigna contract provided that opportunity.

To sort of characterize over over the next 12 months or as you annualize the potential pricing changes.

Sure.

So the way we look at this is we do expect the asps reporting to happen, it's not 100%, but we think it's likely in the second half of the year.

And that impacts Medicare pricing specifically.

Asps reporting, but on the other side of equation as our contracted business, where we pay rebates.

Specifically.

Reduction in reimbursement specifically based on Asps reporting we've run these calculations very carefully and we feel strongly that not only.

Will we be.

Basically neutral through this process.

But we can gain market share as we go forward in the medium term now as I mentioned on the call. We do expect sales some.

Volatility.

Based on ordering patterns, changing and what I mean by that.

Is maybe a surge in going from ordering.

Buying and billing direct.

That's really helpful. Ken just a follow up on that last point the volatility that you are talking about a potential ordering or buying pattern trends do you expect that to essentially kind of shakeout. This year ended up itself such that a pull from one quarter might be a push to another vice versa.

Yes, I expect it from a timing perspective to be this year in the third and fourth quarter, if we see any volatility it'll be that.

Okay, Alright, that's great. Thanks, so much for the question again.

Yes, Thank you Phil.

Thank you.

I am showing no further questions at this time I would now like to turn the conference back over to Ken Rally.

Yes.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 Bioventus Inc Earnings Call

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