Q4 2023 Bioventus Inc Earnings Call
Good day and welcome to the Bio Ventas, Inc. Fourth quarter 2023 earnings Conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Dave Crawford, Vice President Investor Relations. Please go ahead.
Thank you Betsy and good morning, everyone and thanks for joining US It was my pleasure to welcome you to the bio that this 2023 fourth quarter earnings Conference call with me. This morning are Ron.
And Mark <unk>, Senior Vice President and CFO.
Rob will begin his remarks with his initial impressions and learning since joining us CEO and then lay out the priorities for 2024.
Mark will provide detail on our fourth quarter and full year results and outline our 2024 financial guidance, we will finish the call with Q&A.
Presentation for today's call is available on the investors section of our website at <unk> Dot com.
Before we begin I would like to remind everyone that our remarks today contain forward looking statements are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including the risks and uncertainties described in the company's filings with the SEC, including item one a risk factors.
These Form 10-K for the year ended December 31, 2023, and as such factors may be updated from time to time in the company's other filings made with the Securities and Exchange Commission.
You are cautioned not to place undue reliance upon any forward looking statements, which speak only as the date made.
Although it may voluntarily do so from time to time the company undertakes no commitment to update or revise the forward looking statements whether as a result of new information future events or otherwise, except as required by applicable securities laws.
This call will also include references to certain financial measures that are not calculated in accordance with U S generally accepted accounting principles or GAAP.
We generally refer to these as non-GAAP or adjusted financial measures important disclosures about and 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 section of our website.
Common alloy.
I'll turn the call over to Rob.
Thanks, Dave Good morning, everyone and thank you for your continued interest in <unk>.
I'm honored to be part of the Bob as a team and lead an outstanding company focused on helping patients recover and lead acid lives.
Overcoming significant challenges and setting a foundation upon which we can build.
As Dave mentioned I'd like to first share my impressions and early learnings from my first two months as CEO and then discuss our top priorities for 2024.
Over the past two months I've had the opportunity to meet with many team members from around the globe that are different locations participate in each of our national sales meetings visit customers in person for our surgical H, a an accident businesses.
And engage in one on one conversations with key opinion leaders and patients virtually for peanuts and rehab.
And with each meeting and listen and learn.
Firsthand about our current position in the market, our challenges and the future potential of our diverse business.
And it's early in depth engagement with our employees and customers.
Abided me with the following perspective.
I'll, then just as well positioned in large market segments with excellent technology and talented team who is eager to accelerate the company's growth and profitability across each of our businesses.
I'm not sure in this perspective, what do you casually or loosely I've had the privilege of leading various therapeutic categories within med tech with several leading companies over the past 20 years and this experience has provided me with a strong foundation to evaluate the opportunities for Ventas.
Consider this we hold a leadership position across roughly two thirds of our product portfolio. While the remaining one third of our portfolio, we are growing faster than the market.
And we are in markets with favorable demographic tailwind, enabling sustained growth.
In addition, we have started to improve our business processes and.
And we built momentum throughout 2023, as we exceeded our financial objectives.
Mark will tell you all about that in a few minutes.
This combination of healthy market dynamics.
With our business fundamentals and exceeding our objectives is providing our team with the energy and the confidence to further advance our business.
With all this in mind, when I decided to join the company. It was because of a bio ventas is diverse market, leading portfolio and the prospect to create significant shareholder value and I feel even stronger about the potential above that today than I did two months ago.
And there's so many challenges for us to tackle but we will approach every day with a continuous improvement mindset and we cannot wait to show everyone. What bio that does can and will achieve.
First accelerating our revenue growth second improving our operational efficiency and boosting our future profitability.
Third improving our cash flow and liquidity position.
Let me provide further context on these three areas.
First as we have discussed in the past 2024 will be the second year of our plant turnaround with a focus on accelerating revenue growth across our business fueled by increasing growth across our H a in surgical solutions businesses, along with continued above market growth in our international segment.
Across each business, we're going to focus on improving our basic commercial fundamentals to drive stronger execution.
With respect to our a J business, we expect volume growth to remain above market as we leverage the clinical differentiation of Darling along with the shift from multiple injection therapy to single injection therapy.
And we expect that our strong volume growth combined with improving price dynamics will accelerate revenue as the headwinds from the past year and a half subside throughout the year.
Regarding surgical solutions, we see growth accelerating for this business as well.
We expect our market, leading technology of our ultrasonics platform to continue to produce double digit growth.
And while the work done by the team to strengthen our bone graft substitutes business enabled us to return to above market growth in the fourth quarter, which we expect to maintain in 2024.
And we have a tremendous opportunity to build our international business with expected strong double digit growth.
So overall, our financial plan calls for a meaningful increase in our revenue growth compared to the last two years.
The second focus area of improving our operational efficiency and boosting our future profitability through better prioritization.
Later organizational efficiency and reductions in our operational expenditures.
Regarding prioritization with many different growth opportunities in front of us it's important for us to be very disciplined in prioritizing and funding initiatives that deliver sustainable value to our shareholders.
For the past two months, we've made progress with driving more disciplined strategic focus and reducing our top business priorities.
And that will start to reallocate our resources to maximize the return on our investments.
With respect to organizational efficiency, we're diverse company that has evolved through several acquisitions and while our organization demonstrates fantastic teamwork daily it's clear we have a significant opportunity to better integrate our business processes across functions and locations.
Dreamliner work and drive speed, so that it's easier for our customers to do business with us and so that we can devote more of our energy to generating profitable growth.
With this in mind, improving our organizational efficiency as a key priority.
And regarding our operational expenditures and the team captured material savings last year and will continue to examine areas, where we can reduce our expenses to either invest in more productive initiatives or to drop these savings to our bottom line to accelerate our margin expansion.
As mentioned our third major focus area is improving our cash flow and liquidity position.
This year driving improved cash flow as a metric my leadership team and I have as part of our incentive compensation.
We expect to see a material change in our operating cash flow this year by lowering costs related to our acquisition integrations and debt restructuring. We also plan to drive a reduction in inventories in the second half of the year to further augment our cash flow.
With respect to our liquidity position, we reduced our leverage over this past year by more than a full turn of EBITDA, but it remains above our target range.
The recent amendment to our term loan was an important step in providing flexibility through next year.
Our improved cash generation enables us to reduce our debt throughout the year with the expectation that our leverage is below four turns by year end.
Alright that concludes my remarks about my initial impressions at our priorities for the year.
Before turning it over to Mark let me just add.
And you can go to dive deeper into our financials. Let me just say again, how excited I am to be leading by Ventas, while significant work remains I'm encouraged by our ability to address last year's headwinds and improve our financial results and liquidity and now over the coming quarters, we will focus on steadily improving our business fundamentals and our performance.
As we work to build your confidence in bio ventas.
I'll turn the call over to Mark.
Thanks, Rob and good morning, everyone. Let me start by saying I am proud of our entire organization for the significant improvement across our commercial business and functions.
Only at we solidified our financial position by driving a sizable growth in our adjusted EBITDA through a reduction in our cost structure, which enabled us to remove our going concern disclosure, what we have delivered enhancements to our internal control environment and have remediated our material weaknesses.
Additionally, the visibility into our business and coordination across our teams have significantly advanced enabling us to have confidence as we execute our financial plan for 2024, moving forward being busquets definitely approach our business with a continuous improvement mindset to drive further efficiency across bio ventas.
Now turning to our results for the fourth quarter revenue of $135 million came in above our expectations and represented growth of 8% higher compared to the prior year adjusting for the divestiture of our wound business revenue growth increased 14% when compared to the prior year.
In addition, adjusted EBITDA of $22 million increased $5 million when compared to the prior year. The increase was driven by the increase in revenue.
Ross Payne treatments revenue growth accelerated as sales increased 23% compared to the prior year as we maintained our strong double digit volume growth driven by thoroughly.
Unit volumes were higher for both through parts and Johnson as well, we saw favorable pricing driven by last year's catch up in rebates, which provided a favorable comparison revenue for the fourth quarter finished above our expectations due to higher volume along with lower rebate accruals.
Looking ahead, we expect to sustain above market volume growth given the clinical advantage of drilling combined with the continued shift to a single objective injection therapy.
From a pricing standpoint, there has been no change in our expectations from last quarters earnings calls, we anticipate some headwinds or at least the first half of the year, but expect to see sequential improvement as we move throughout the year overall, we see revenue growth in 2024 to be mid to high single digits.
Surgical solutions revenue growth accelerated as we grew 12% and ultrasonics maintained double digit growth growth was bolstered from higher than adjusted anticipated generate ourselves at the end of the year. Additionally, bone graft substitutes grew high single digits as volume from the new distributor relationships added.
In the previous two quarters ramp ahead of our expectations.
In addition, the structural changes to our bgs selling efforts announced last quarter to drive dedicated focus on ultrasonics and bgs helped to minimize distributor turnover.
Moving forward, we remain excited about the momentum and ultrasonics, giving our leading technology at small market share. This view is reinforced from the recent feedback from customers, who referred to all our ultrasonics portfolio as revolutionary.
When right Robin I spend time in the field earlier this year. Additionally, given the recent changes bgs, we feel the business is poised to return to more consistent growth in 2024.
Combined we expect our surgical solutions business to grow between high single.
Double digit in 2024.
Shifting to our restorative therapies sales fell 16% driven by the impact of our wound business divestiture, which accounted for 20 percentage points of the decline on an organic basis restorative therapies increased four percentage points growth was driven by <unk>, where we continue to see improved stabilization that revenue in the U S maintain.
Growth, excluding the impact of our wound divestiture, we anticipate low single digit growth in 'twenty 'twenty four for restorative therapies.
Finally, as we previewed on our earnings call last quarter, our international segment fell 4% with constant currency growth down 6% for the year. Our international segment grew 10% and it is expected to maintain double digit growth in 2024 growth was impacted by prior year comparison for above normal volume.
As back orders were filled for products and advanced rehabilitation.
Italy offsetting this headwind was continued strength across our surgical solutions business moving.
Moving down the income statement adjusted gross margin of 71% increased 20 basis points compared to the prior year gross margin came in below our expectations due to transitory inventory write offs overall adjusted total operating expenses were at a similar level compared to the prior year.
The expense reductions, resulting from our restructuring and wound business divestiture were offset by higher commissions related to revenue growth this year and employee incentives, which were not accrued in the prior year.
Now turning to our bottom line financial metrics adjusted operating income increased to $20 million from $13 million in the prior year, while adjusted net income totaled $6 million.
Compared to a loss of $6 million a year ago.
Adjusted earnings per share were <unk> seven for the quarter compared to a loss of <unk> <unk> from the prior year.
For a brief recap of our full year results net sales of $512 million were even compared to 2022 organic sales increased 4%, while adjusting for the impact of our wound divestiture for.
For the year, adjusted EBITDA totaled $89 million, which represented a 30% increase compared to the prior year.
Adjusted gross margin for the year was 74% compared to 75% a year ago. Our 2023 adjusted gross margin reflects the impact of lower average selling price for the year in our 8-K franchise.
Adjusted operating income for the year totaled $81 million compared to $51 million in 2022, lower operating expenses from our focus throughout the year on reducing spending and benefits from our restructuring drove the increase.
Now turning to the balance sheet and cash flow statement, we ended the quarter with $37 million of cash on hand, and $395 million of debt outstanding.
$18 million drawn on our revolving credit facility at the end of the fourth quarter operating cash flow represented an inflow of $10 million as higher net income drove the improvement compared to the prior year.
From a liquidity perspective, our adjusted EBITDA for 2023 exceeded our expectations and we are well within compliance with our leverage and interest coverage covenants at the end of the fourth quarter. Additionally, we recently engaged our banking partners and amended our credit agreement to provide additional headroom on our leverage and interest coverage covenants through the third quarter.
<unk> of 2025 without impacting the spread of our term loan.
As we project forward, we anticipate cash flow in 'twenty 'twenty four to be significantly higher than 2023 and allow us to pay the amortization on our term loan.
With the reduction in debt, we forecast our net leverage to be below four times by the end of the year.
Finally, let me lay out our 2024 financial guidance based on current trends in our business. We expect net sales to be in a range of $520 million and $535 million for.
For the year, we expect adjusted EBITDA to be between $89 million and $94 million.
Finally, our guidance for adjusted earnings per share is expected to be 12 cents to <unk> 20 cents.
Similar to prior years, we expect our first quarter revenue and adjusted EBITDA to be the lowest for the year and the fourth quarter to be the highest for the year with the second and third quarters looking fairly similar.
We're getting into the acceleration of name in EBITDA and earnings throughout the year will be a fairly consistent level of operating expenses each quarter.
In closing the execution of our business plan in the past year has significantly strengthened our liquidity position.
And with our improved processes and controls our visibility into our business has increased leading to what we believe will be improved predictability as we start the new year, we plan to enhance our revenue growth and cash flow, while we maintain spending discipline.
Operator, please open the line for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Chase Knickerbocker with Craig Hallum Capital Group. Please go ahead.
Good morning, guys congrats on the results.
Pretty impressive results relative to expectation certainly and welcome Rob maybe the first one for you.
You know as you kind of looked at opportunities what kind of sealed the deal for <unk>, particularly with kind of the situation that we're in now kind of you being able to kind of continue this turnaround.
Certainly started and showed up in Q4 results, maybe kind of go into a little bit more color there.
Thanks Chase looking forward to meeting you.
There are a few factors I touched on them upfront, but.
I was looking at different opportunities by Ventas is in large growing market segments, we have excellent world class technology.
Favorable share positions.
Customers, who understand our value you know when I'm out in the field with Mark.
Not just that our customers are.
Understand the.
The benefits of our technology for their patients and for them, but also the reasons behind it that it didn't get a real feel for until after I joined but I was familiar with the technology for them and that combination.
The market segments, we're in the technology and the favorable shares physicians really spoke to the potential of the company and then talking to the board and the management team. It was clear to me that some of the headwinds that the company has faced were temporary.
But those are some of the reasons that made it a really attractive moves from a chase.
Yes makes sense.
Maybe digging in a little bit more on pain.
On the <unk> side.
Both on a volume perspective continues to be pretty strong year over year in our checks.
As we start to see Asp's approved improved sequentially kind of talk through the kind of the drivers of above market volume growth and kind of being able to have that above market volume growth off of some pretty.
Tough comps from a volume growth perspective in 2023.
Yeah Chase this is Marco.
Good question, Don you again talk about the related to me.
We take the first three quarters of really continue that momentum into <unk> through the clinical differentiation that we have in that product I think also the market is moving to the single injection and so were favorable there with our clinical pepperidge differentiation as the market moves.
As we've talked about before as well we have a really strong contract position with several unitedhealth with Aetna and Cigna. Some of these contracts come into play in 2023 that drove a lot of the growth will be a comparison for us in 2024, but.
So strong contract position that we have is really driving a lot of the volume growth, but what we're also executing really well on with our sales team is the pull through around those contracts and we got the contracts in place and really the sales team.
Okay.
Whenever you got to give a shout out to them that they really doing a great job of executing around these contracts and pulling in the other volume more profitable volume around the contracts that are are really having us hit that and we expect that to continue into 2024 and with us pull pull through is much more profitable.
And then maybe how should we think about volume growth for Jefferson.
This year as you kind of talked about there is that kind of headwind as things continue to transition to single injection products and then just lastly for Rob.
If we think about that kind of that transition that we kind of talked about last quarter, bringing bone graft substitutes back to distributors largely at least that being the focus Rob do you think that that's Q.
Q4 results kind of prove that that's kind of the rate structure of the sales force ultrasonics to the internal field reps and kind of leveraging relationships from distributors on the bone graft side, maybe or harvesting more modest synergies between the two.
Yeah I'll take the first one I'll have Justin I think that we continue to expect to drive growth in 2024 on Johnson as well.
The market is moving to drill languages, where we have a favorable contract position, but that doesn't mean that gel. So again, a decline I think we're well positioned well that you know obviously, it's a low price point, but we're continuing to have success in driving volume there as well.
Yeah.
Yeah Chase out the bone graft substitutes side.
You know our our volume accelerated ahead of our expectations and in part that's due to the change that we made and the reduction in distributor turnover. So we feel good about that change and over time, we're going to scale, the surgical solutions business with but the structure that we put in place.
Great. Thanks for the questions and again, congrats on a great quarter.
Thanks, guys.
The next question comes from Robbie Marcus with Jpmorgan. Please go ahead.
Hi, This is actually Riley on for Robbie Thanks for taking the question.
Maybe just on guidance.
Revenue and EBITDA guidance came in better than what the street with banking, but EPS fell short. So can you talk about any dynamics below the line that might be driving that shortfall and if theres any specific headwinds are telling us we should be keeping in mind as we think about forecasting EPS this year.
Yeah, I think we feel good about our revenue growth I think you know coming out of fourth quarter into first quarter and looking forward to return.
So focusing on growing the topline and the bottom in 2024, you look at the bottom end of our guidance is roughly 4% growth at the top end dropped by 7%.
From an EBITDA perspective.
We told you in our third quarter call, we're not expecting a significant increase in EBITDA in.
In 2024, mainly just back to the two year recovery that we've that we've talked about.
But over the long term certainly expect to try to focus on and expect to be driving the bottom line faster than the top line as we continue.
Continue to work through 2024.
Got it that's helpful. And then just maybe as a follow up to that I think gross margin has seen some fluctuation in headlines from some of these reimbursement challenges. So how should we be thinking about margins progressing from here.
What headwinds tailwind should be keeping in mind that say at the air models.
Yes, if you look at our gross our gross margin from 2023 to 2024 expected to be even year to year. So don't expect a significant change if you look at fourth quarter, specifically, we had a write off that impacted the fourth quarter margin that is really a one time write off that was related to our.
Our ultrasonic portfolio and really a product transition where we evaluated.
The old inventory that we had and the potential disruption for <unk>.
Customers that we wanted to avoid and looked at the excess inventory and took a onetime write off in <unk> that should not repeat but from an overall 23 to 24, we won't we don't expect any significant.
Significant changes in margin.
Great. Thanks, so much.
As a reminder, if you would like to ask a question. Please press star one to enter the question queue.
The next question comes from Caitlin Cronin with Canaccord Genuity. Please go ahead.
Problem Congrats on a great quarter I just.
Sure.
In personal care.
<unk> score in 'twenty 'twenty score, that's most of the close rate driven.
Kevin Carroll Lane, that's good for all three product lines to really drive that mid to high single digit growth.
Thanks, Kaitlin I appreciate the question.
Again, we were the only company out there with a with a full portfolio of the one three and five injections, we feel really good about the clinical differentiation that we have in Berlin, and certainly growth percentage wise Darling will definitely lead the way, but we will continue to expect Johnson to grow as we've talked about earlier and <unk> is a great story.
Haven't had great expectations without I'd say over the last few years, but it continues to outperform our expectations. So we would look to that to be a low single digit grower. So the portfolio really led by neuro laying back to the great contract positions, we have in the market and with the execution on pulling through volume.
Our sales team, which we're really proud of where you expect that to continue into 2024, but the whole portfolio.
We would expect to grow volume wise and as we mentioned in the prepared remarks about having some pricing headwinds related to CMS from year to year perspective in the first half of the year, but expect that that will sequentially improve as we go through 2024.
Got it Okay, and then just turning to oxygen you noted continued improvement in the U S.
Sure.
How did that perform globally in Q4, and then what are your growth expectations.
'twenty 'twenty four for airports.
Yes.
<unk> agenda.
Significant opportunity for us.
We've been disappointed over the last few years.
They have had that product declining.
And it started to return back to you know at least being even in a slightly positive growth in the fourth quarter.
When we look at this product over the long term you know really look at it from a low single digit grower. The team has spent a lot with a lot of time. They say that you know management team myself or Rob early on and in the <unk>.
Readers of that organization really getting into this business and trying to figure out how are we going to increase this and maintain and sustain the growth that we've started I mean this is another situation you know Robyn I went into the view and spend some time with some sales reps well learned a lot about the details of this.
Some of our sales reps and so when we look into the future.
Again.
Confident that we can return this back to small single digit growth in it.
Great.
<unk> done a lot of positive feedback from physicians and.
And the people.
And Caitlin I'll, just echo what Mark said I mean, it's a S.
Probably now a fantastic proven technology.
It is an excellent brand recognition and just like Mark said the customer feedback during our visits.
It has been extremely positive so we're bringing back the appropriate level of focus to the business.
We're going to address some operational inefficiencies along the way in order to return the business to growth.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Rob Claypool for any closing remarks.
Thanks, Betty and thanks again, everyone for your interest in <unk>, we drove a significant improvement across our business in 2023.
And now we look to build on our momentum with stronger execution as we focus on our mission on accelerating revenue growth and cash flow and on creating shareholder value. Thanks for joining our call today and have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].