Q2 2024 Bioventus Inc Earnings Call
Speaker Change: Good day and welcome to the Bioventus second quarter 2024 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.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Dave Crawford, Vice President of Investor Relations. Please go ahead.
Dave Crawford: Thanks, Danielle. And good morning, everyone. And thanks for joining us. It is my pleasure to welcome you to the Bioventus 2024 Second Quarter Earnings Conference Call. With me this morning are Rob Claypoole, President and CEO , and Mark Singleton, Senior Vice President and CFO .
Speaker Change: Rob will begin his remarks with an update on our 2024 priorities and our business, and Mark will provide detail of our second quarter results and discuss our updated 2024 financial guidance.
Speaker Change: We'll finish the call with Q&A. The presentation for today's call is available on the Investors section of our website, finalventus.com.
Operator: We'll finish the call with Q&A. Before I begin, I would like to remind everyone that our remarks today contain forward-looking statements that are based on 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 items 1A risk factors of the company's Form 10-K for the year ended December 31st, 2023.
Speaker Change: But before I begin, I would like to remind everyone that our remarks today contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated.
Speaker Change: including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including items 1A risk factors of the company's Form 10-K for the year ended December 31, 2023. As such, factors may be updated from time to time in the company's other filings made with the Securities and Exchange Commission.
Operator: Such factors may be updated from time to time in the company's other filings made with the Securities and Exchange Commission. However, you are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no obligation 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.
Speaker Change: You're a caution not to place undue reliance upon any forward-looking statements. We speak only as of the date made.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We refer to these as non-GAAP or adjusted financial measures.
Rob: Important disclosures about the 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 bioventus.com. And now I'll turn the call over to Rob.
Rob: Thank you, Dave. Good morning, everyone, and thanks for joining our call today. We're off to an excellent start to 2024, thanks to the efforts of our Bioventus team across all functions and geographies.
Rob: In the beginning of this year, we established new strategic priorities and aggressive goals for our team. And they have responded very well with their strong customer focus, agility, and execution, along with a continuous improvement mindset to produce favorable results for the first half of the year.
Rob: And while I'm encouraged by our clear progress this year, I'm even more enthused about the potential of our business for long-term growth and margin enhancement in the years ahead.
Rob: Let's take a look at our performance across the three priorities I introduced at the start of the year.
Rob: accelerating revenue growth, improving profitability, and enhancing our liquidity position.
Rob: With respect to our first priority, accelerating revenue growth, we delivered organic revenue growth of 14% in the second quarter when removing the impact of our wound business divestiture.
Rob: This marks the third straight quarter of double-digit organic growth.
Rob: And because of our first half performance and expected momentum continuing into the second half, we now anticipate delivering double-digit organic growth for the full year.
Rob: I'll share just a few highlights regarding our revenue.
Rob: Starting with surgical solutions, we accelerated our double-digit growth in the second quarter with a strong performance in both ultrasonics and bone graft substitutes.
Rob: We're looking forward to leveraging this powerful combination to drive sustained double-digit growth in the years ahead.
Rob: Simultaneously, our bone graft substitutes team continue to strengthen our commercial execution and growth with both existing and new distributors to further our market share gains.
Rob: We also continue to advance innovation within our VGS portfolio with the recent FDA clearance for osteoamcanula, unlocking new opportunities for future growth in minimally invasive surgery in the spine segment.
Rob: With respect to our HA business for osteoarthritis, the team delivered double-digit growth again in the second quarter, propelled by significant demand for Duralane, our single-injection therapy.
Operator: Moving along, after years of decline, we grew our exogen business for the third straight quarter, and we expect mid-single-digit growth for the year.
Rob: Keep in mind that this business previously generated over 100 million dollars in annual revenue, but a lack of prioritization led to a significant decline.
Rob: Now our team has returned the business to growth, and with their focus on the fundamentals such as medical education, product enhancements, and commercial execution, we have the potential to grow this business back over $100 million.
Rob: Our goal is for the business to be positioned in an environment that enables the higher focus and prioritization it deserves.
Rob: Now I'll shift to our second focus area,
Rob: With our peer-leading gross margin and our accelerated revenue growth, we significantly increased our adjusted EBITDA and operating margin.
Rob: Adjusted EBITDA for the quarter was as high as to date at over $34 million and we drove a 224 basis point increase in our adjusted EBITDA margin compared to the prior year.
Rob: We now have an opportunity to invest selectively in high-potential areas to drive long-term profitable growth, including areas like R&D, medical education, commercial productivity, and our supply chain in the second half of the year.
Rob: We believe this level of annual margin improvement is sustainable as we capitalize on revenue acceleration, preserve our high gross margins with supply chain improvements, and reallocate or reduce operational expenditures to invest in higher ROI initiatives or drop the savings to the bottom line.
Rob: And now I'll turn to our third major focus area, improving our liquidity position.
Rob: Given our progress, we're confident we can reduce our net leverage ratio to below three times before we exit 2025.
Rob: That concludes my update on our three priorities. Before turning it over to Mark to dive deeper into our financials, I'll mention that since joining Bioventus just seven months ago,
Mark: I've had the opportunity to continuously engage with many employees, customers, and shareholders, and I want to take a moment to express my appreciation to all of our stakeholders.
Rob: With your help, we're transforming Bioventus, and I'm confident that the work that's taking place across our organization to improve our fundamentals and unlock new long-term growth will advance our business and create significant shareholder value.
Rob: Now I'll turn the call over to Mark.
Mark: Thanks, Rob, and good morning, everyone. Let me begin by saying that I am encouraged by the sustained improvement exhibited throughout our business over the past several quarters, and we are well positioned to enhance our growth profitability and cash flow for the remainder of the year and into the future.
Rob: Now turning to our results for the second quarter, revenue of $151 million increased 10% compared to the prior year.
Rob: Adjusting for the divestiture of our wood business, organic revenue advanced 14 percent. We maintained our momentum across all three of our businesses as we achieved results ahead of our expectations.
Rob: In addition, adjusted EBITDA of over $34 million increased $6 million and represented a 22% increase compared to the prior year.
Rob: Year-to-date adjusted EBITDA is up 27% compared to the prior year. The increase in the second quarter was driven by higher revenue and gross margin expansion.
Rob: Adjusted gross margin of 76%, improved 180 basis points compared to the prior year. This is a result of favorable revenue mix given robust growth from the higher margin HA and surgical solutions businesses.
Rob: Lower private payer rebates for our HA business and the impact from the divestiture of the lower margin wound business.
Rob: Looking more closely at our revenue performance for the quarter, surgical solutions revenue accelerated by 16% as both ultrasonics and BGS continue to generate double-digit growth.
Rob: Through the diligent work of our product supply and commercial teams, we successfully navigated the recent supply challenge and drove growth above our expectations.
Rob: In pain treatments, revenue increased 17% compared to the prior year as we maintained double-digit growth for the third consecutive quarter.
Rob: driven by Dural Edge brand recognition and the strength of our team's commercial execution. In addition, revenue is enhanced by a few million dollars from favorable mix shift, lowering our private payer rebates.
Rob: We expect to maintain our strong execution in the second half and now project driving double-digit growth for the year.
Rob: Shifting to restorative therapies, sales fell 9% driven by the impact of our wound business divestiture which accounted for 14 percentage points of the decline. On an organic basis, restorative therapies increased 5 percentage points driven by exigent.
Rob: We are encouraged by Exigent's turnaround resulting from our efforts to improve the Salesforce execution and the impact of additional resources to assist our sales team.
Rob: Finally, our international segment grew 4% compared to the prior year driven by deraillance. We expect growth to accelerate for the remainder of the year as we recover from delayed shipments for ultrasonics earlier this year.
Rob: along with sustained double-digit growth for DERL-A.
Speaker Change: Moving down the income statement, adjusted total operating expenses were nearly ten million dollars compared to the prior year. The increase was primarily related to higher sales commissions from revenue growth and higher employee compensation
Speaker Change: Now, turning to our bottom-line financial metrics, adjusted operating income increased 12% to $31 million from $28 million in the prior year, while our adjusted operating margin of 21% increased 40 basis points compared to the prior year period.
Speaker Change: Adjusted net income totaled $15 million, up 37% compared to the prior year. Adjusted earnings per share were $0.19 for the quarter, ahead of our expectations.
Speaker Change: As Rob mentioned, we saw a significant sequential increase in cash flow this quarter.
Speaker Change: With our expected reduction in debt and an increase in EBITDA over the remainder of 2024 and into 2025, we now expect our net leverage ratio to be below 3 times before exiting 2025.
Operator: Finally! and over 12% growth for the full year. For the year, we expect adjusted EBITDA to now be between $104 million and $107 million. This represents a $9 million increase in the midpoint compared to our prior guidance of $94 million to $99 million.
Speaker Change: Finally...
Speaker Change: Given the accelerated momentum in our business and increased expectations, let me update our 2024 financial guidance.
Speaker Change: This represents a $19.5 million increase in the midpoint compared to our prior guidance of $535 million.
Speaker Change: From an organic growth perspective, the midpoint of the guidance range reflects an expected revenue growth of 10 percent in the second half of the year and over 12 percent growth for the full year.
Speaker Change: For the year, we expect adjusted EBITDA to now be between $104 million and $107 million. This represents a $9 million increase in the midpoint compared to our prior guidance of $94 million to $99 million.
Speaker Change: Finally, our guidance for adjusted earnings per share is now expected to be $0.36 to $0.42. This represents a $0.10 increase compared to the midpoint of our prior guidance of $0.25 to $0.33.
Speaker Change: In closing, we are excited about our performance through the first half of the year and will remain diligent in our efforts to further enhance our revenue and adjusted EBITDA growth and drive improved cash flow. Operator, please open the line for questions.
Speaker Change: The first question comes from Chase Knickerbocker from Craig Hallam. Please go ahead.
Chase Knickerbocker: Good morning, Rob and Mark. Congrats on another really nice quarter here.
Chase Knickerbocker: Maybe Rob, just to start, what did you see, I guess, since the May update, you know, kind of in the recent quarter that led to the decision to divest restorative? You know, the team historically is pretty consistent that that, you know, is a nice kind of bottom line business.
Speaker Change: had never really committed to whether or not to divest. Kind of talk to me about what you saw kind of in the last quarter that kind of led to this decision. Thanks.
Speaker Change: Thanks, Chase, for the question.
Speaker Change: I'll start, Chase, by just saying I have a lot of respect for this business, and for the team, and for the many patients who benefit from the life-changing technology. One of the harder things to do is to divest a business, or choose to divest a business,
Speaker Change: You respect so much, but it's the right thing to do for our stakeholders. And when we made this decision, it was with that in mind, because our goal is to put the business in an environment that enables the higher focus it deserves.
Speaker Change: And so the decision was really driven by this business is fantastic, it has amazing technology, and it has more potential than it's realizing today.
Speaker Change: And at the same time, the potential divestiture allows Bioventus to better focus on execution within our core businesses, where we have so much potential, and to continue accelerating our profitable revenue growth, and as you know, it also enhances our liquidity.
Speaker Change: So that's really what drove the decision, Chase.
Speaker Change: Yeah, Chase, this is Mark. I'll just add from an overall financial, you know, accretion dilution perspective, it's really immaterial. I mean, that actually, you know, is a lower growth business, a lower margin, but overall, I'd say, you know, immaterial to the financials.
Speaker Change: But it does, obviously, reduce our death levels.
Speaker Change: Make sense. Got it. Maybe just shifting to pain
Speaker Change: A lot better than I think anyone had expected. Can you help me a little bit with the drivers as far as kind of year over year? Was it mainly driven by volume? Did we start to see a fairly meaningful pricing benefit? Just kind of walk me through the drivers of a really strong organic growth number there.
Speaker Change: Yeah, Chase, thanks. I mean, this is, again, really...
Speaker Change: continued strong execution from our teams, and the sales team has done a great job of selling around all the
Speaker Change: the contract positions that we have and you know obviously with Duralane being clinically differentiated so I think it's really a continuation of what we've talked about for the last three quarters.
Speaker Change: we're starting to get into new areas like the VA and executing a lot better in the IDNs and you know being a lot more targeted with that but the sales team's really done a great job.
Speaker Change: over the first two quarters of selling around the contracts that
Speaker Change: The market's continuing, you know, to expand with a number of lives and opportunities, but
Speaker Change: You know, we've talked about price a lot, really, you know, and 2Q is mainly driven by all volumes, you know, it's really the driver of this, and so feel really good about our performance there heading into the second half where we talked about, you know, continuing to see double-digit growth for that business.
Speaker Change: Got it. And then just lastly, on surgical, and then a quick cross-margin question.
Speaker Change: It's kind of tough to peel apart kind of BGS versus ultrasonics, but you know BGS continues to really
Speaker Change: you know, kind of outperform certainly market growth rates. Can you just speak to, is this just a continuation of kind of the distributor model being the right go-to-market strategy here?
Mark: Just got a lot of distributors who are excited about OsteoAMP. And then just on gross margins, Mark, I know we talked about last quarter, things kind of going back to 74%, 75%, kind of mid-70s, kind of more consistent from Q1. Is this a product mixture we should expect going forward or, you know, same kind of commentary as last quarter?
Mark: Yeah, on the VGS
Speaker Change: Last, I'll take the margin question first. From a margin perspective, again, you know, peer-leading gross margin is really a great asset for a company and
Speaker Change: You can see the leverage that we drove in 2Q with that, you know, driving.
Speaker Change: Double-digit revenue growth, and you see the margin dropping through, but from a second-half perspective, you know, we really benefited in the first half from a really, really strong mix in surgical solutions in our ATA business, with both really high-margin businesses, where we saw our growth.
Speaker Change: But in the second half, we'll see a slightly lower margin than the first half, really, as we start to get our international business back to the level of growth that we expect there. So that'll bring the margin down a little bit in the second half from the first half.
Speaker Change: From a BGS perspective, again, really good story overall in surgical solutions. Ultrasonics, as you know, Rob had mentioned in our prepared remarks, continues to perform. We doubled the amount of generators that we sold last year, which is the leading indicator for disposables that are going to come, so really did a strong performance on ultrasonics. From a BGS perspective, it's really two things. One, we're seeing a lot better performance from our legacy distributors, which our sales team has done a great job of executing with, and I would just add that
Speaker Change: The growth that we're seeing there, even with the supply challenges that we've had, I mean, that just says that we can really even perform better as we work through the supply challenges as those stabilize in the second half. But the other thing is we did a really strong...
Speaker Change: It's really a nice job of adding new distributors in the second half of last year. So it's really a combination of the legacy distributors, you get a better performance out of them, and then also the kind of new groundwork that the team laid in the back half of last year. So really feel good about that as a growth driver in 2024 and, you know, and into the future. Our share there is really low and really looking to, you know, still a lot of opportunity in front of us. Thank you.
Speaker Change: Got it. Congrats again, guys.
Speaker Change: The next question comes from Robbie Marcus from J.P. Morgan. Please go ahead.
Lily: Hi, this is actually Lily on behalf of Robbie. Thanks for taking the question and congrats on the good quarter. You raised the top line by more than the beat. So can you talk through how you're thinking about the back half of the year and where that incremental upside is coming from?
Lily: Hi, this is actually Lily on for Robbie. Thanks for taking the question and congrats on the good quarter. You raised the top line by more than the beat, so can you talk through how you're thinking about the back half of the year and where that incremental upside is coming from?
Rob: Sure, maybe I'll make a, this is Rob, I'll make a general comment about back half of the year and then, you know, Mark can chime in and that's just, you know, we had this really strong first half of the year and for the back half, feel good about, again, driving double-digit growth top line and bottom line.
Lily: And what this means for the full year is not just growing double digits, both top and bottom, but actually growing the bottom line almost 2x the top line. So with that, I'll let Mark talk a little bit more about the details there.
Mark: Yeah, we feel good about it. I mean, you know, double-digit growth in the in the in the back half of the year while it's You know slightly less than what we saw on the first first half We feel really good about a double-digit growth on the top line double-digit growth on the bottom line. So really managing the P&L You know from an overall revenue perspective it's in line with the seasonality that we've historically seen after you kind of remove some of the One-time benefits that we mentioned in our prepared remarks around some of the private payer dynamics So we think that the you know, first half the second half makes sense on the on the on the top line And again, you know still growing double digits very healthy very healthy growth from a bottom line perspective. We're
Lily: We're still growing double digits as well while we are also investing back into the business and things like medical education, you know, strengthening our commercial execution.
Lily: and really starting to put money into R&D as well. I mean, if you think about where this business has been over the last 12 to 18 months, we've pretty much starved it and haven't been able to make these key investments.
Lily: And we believe that these, you know, investments are going to, you know, help us in the back half, but also get us off to a really strong start in 2025 and start to fuel some of the growth drivers that we have in our international business and, you know, continue to accelerate our ultrasonics growth. So, I feel really good about the guidance that we have in the second half.
Lily: and, you know, look forward to executing and delivering that.
Lily: And Lily, this is Rob again. I'll just chime in. I think you may have mentioned, you know, what will contribute to it from a business standpoint.
Lily: You know, in the first half of the year, it was broad-based overachievement across our business, and we expect very strong performance across the business again for the second half.
Lily: Got it. That's helpful. And then just following up on that, you know, similarly, you put up really good
Speaker Change: EPS and adjusted EBITDA results, but I think guidance implies a step down over the back half of the year on the bottom line and on margin. So is that just conservatism, or are there other dynamics that we should be thinking about in 3Q and 4Q? Thank you.
Speaker Change: Yeah, I guess I'll just reiterate, if you look at, you know, in the second half, where even with the step down that you're referring to from an absolute perspective,
Speaker Change: We're still growing our bottom line EBITDA, you know, 10%, double digits, and we're growing revenue.
Speaker Change: 10% on our midpoint of our guidance. We're going EBITDA at 10% on the midpoint of our guidance. And, you know, the step-down really coming from those key investments that we talked about and starting to really take a disciplined approach and
Speaker Change: And we've been very disappointed over the last 18 months from an organization perspective of managing our expense really, really well, as our results speak for themselves with that.
Speaker Change: But we are going to start to look at strategic investments that are going to drive
Speaker Change: start to drive growth in the medium and long term, and R&D, medical education, commercial execution. So, you know, from a step-down perspective, that's really what's driving it.
Speaker Change: Again.
Speaker Change: Through the first half of the year, we've grown our revenue 14% to 15% and grown our bottom line 28%. So we're going to start to use some of that money in a really disciplined way and thoughtful way to make sure we have the ROI on these investments that we're going to put back in in the second half that's really going to fuel the business, you know, in the back end, but also for the long term.
Speaker Change: Great, thank you.
Speaker Change: The next question comes from Caitlin Cronin from Canaccord. Please go ahead.
Speaker Change: Hi Rob and Mark, it's John. I'm for Caitlin this morning. Congrats on the quarter and thanks for taking our questions.
John: This one is starting the hyaluronic acid business, you know, the sales force. Could you talk about any continued progress made here as you look to target larger accounts? Have you been taking shares of other players that de-emphasize their sales organization in this segment?
Speaker Change: I'll start off, John , thanks for the comment.
Speaker Change: And also the question, yeah, we continue to see success with our AHA portfolio, in particular Duralane.
Speaker Change: with a strong performance above market growth, which means taking share from others. And a source of that growth is through the larger accounts that...
John: that we previously mentioned and that you just touched on there.
Speaker Change: feel really good about this. I mean, what's happening is that the clinical differentiation of Duralin in our overall portfolio is being recognized on an increasing basis.
Speaker Change: And that dedicated commercial team that we have means that we live and breathe this business every day, very focused on it.
Speaker Change: and that's driving our success above market as well, but then also the combination of this private payer coverage and the opportunity for geographic expansion, not only driving some short-term results, but also sets us up for success over the coming years.
Speaker Change: Great, thanks. And then just any update on Talisman and the Purple Nerve business?
Speaker Change: Yeah we mentioned you know previously that we're really excited about the technology. We don't expect any impact from Talisman this year, any significant impact this year. It's still going through the FDA clearance.
Speaker Change: And once we have...
Speaker Change: Additional information, not just on that, but also on the launch ahead, we'll be sure to include it.
Speaker Change: in our earnings call or in separate conversations, but really excited about it. Overall, you know, when you take the P&S business, we have across Bioventus such a great mix of areas where we can grow above market to take market share.
Speaker Change: and other areas where we can grow the overall category with our technology and our approach within P&S with Talisman is both. We have both the opportunities we come out with it to take share and to grow the overall category. So stay tuned and we'll tell you more about that in the coming quarters.
Speaker Change: Great, thanks Caitlin for the questions.
Caitlin Cronin: Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Rob Claypoole for closing remarks.
Rob Claypoole: All right, thanks everyone for your interest in Bioventus. As you know, we delivered significant improvements across our business in the second quarter, and we look forward to building on our momentum across our three priorities of accelerating revenue growth, improving profitability, and enhancing our liquidity position to create significant shareholder value.
Speaker Change: Thanks, and have a good day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.