Bioventus Inc (BVS) 2025 Q3 法說會逐字稿

Good day and welcome to the Bioventus Inc third quarter 2025 earnings conference call.

(Operator Instructions)

I would now like to turn the comments over to Dave Crawford, Vice President, Investor Relations. Please go ahead.

Thanks Megan, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2025 third quarter earnings conference call. With me this morning are Rob Claypoole, President and CEO, and Mark Singleton, Senior Vice President and CFO.

Rob will begin his remarks with an update on our business and our 2025 priorities, and then Mark will review the third quarter results and discuss our 2025 financial guidance. We'll finish the call with Q&A.

The presentation for today's call is available in the investors section of our website, bioventus.com.

Before we begin, I'd like to remind everyone that our remarks today contain forward-looking statements that are based on the current expectations of management and evolve 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 1A risk factors of the company's Form 10-K for the year ended December 31, 2024.

As such factors may be updated from time to time in the company's other filings made with the Securities and Exchange Commission. Your caution not to place undue reliance upon any forward-looking statements which speak only as of the date made. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise the forward-looking statements, whether a result of new information, future events, or otherwise, except as required by an applicable securities laws.

This call will also include references to certain financial measures that are not calculated in accordance with US 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 the form of GAAP are available in the earnings release on the investors section of our website, bioventus.com. Now I would turn the call over to Rob.

Thank you, Dave. Good morning, everyone, and thanks for joining our call today. Bioventus has delivered another solid quarter as we continue to make significant progress with our strategic priorities while helping patients recover so they can live life to the fullest. With strong third quarter results and solid growth expected for the fourth quarter, we are reiterating our full year guidance on all metrics while continuing to offset $5 million of tariffs and foreign exchange impacts.

Let's take a closer look at our third quarter and the 3 priorities I introduced at the start of the year. Driving above market revenue growth, continuing to expand our profitability, and accelerating free cash flow generation.

First, third quarter revenue of $139 million advanced 8% on an organic basis, which represents an acceleration of more than 200 basis points compared to our organic growth for the first half of the year.

Our team generated above market growth across each business, achieving mid single-digits to low double-digit organic growth, which reflects the strength and the breadth of our portfolio.

I'll briefly share a few highlights with respect to our progress and momentum.

You may recall that we projected that growth in our pain treatments and surgical solutions businesses would accelerate in the third quarter, which is clearly reflected by our results.

With pain treatments, our leading HA therapies continue to outpace market growth as recent account winds gain traction powered by Durolane's clinical differentiation, the effectiveness of our dedicated commercial team, robust private payer coverage, and significant opportunities for geographic expansion, and our surgical solutions business delivered another solid quarter with growing momentum in Bone Graft Substitutes, as we increase awareness with both existing and prospective customers of our strong clinical and health economic value proposition.

We expect this positive trend to continue into 2026 as we continue to execute our growth strategy.

In addition, restorative therapies organic revenue growth-- excuse me-- restorative therapy's organic revenue grew double digits again thanks to the focus and commercial execution by our great Exogen team.

It's important to note that our performance across HA, BGS, and Exogen, our three largest products, demonstrates the strength of our portfolio, which helps fuel investment for our mid and long-term growth drivers.

Let me provide a little more detail on the exciting developments for two of these growth drivers within our pain treatments business, peripheral nerve stimulation or PNS and platelet rich plasma or PRP.

I'll start with PNS. As a quick reminder, peripheral nerve stimulation helps patients who suffer from chronic peripheral pain, and we believe it represents a very attractive growth opportunity for Bioventus.

The US market of approximately $200 million is expected to exceed $500 million by 2029 and grow above 20% annually, and we believe that the recent acquisition of Nalu by Boston Scientific clearly validates the potential value of the PNS market and could accelerate awareness and adoption.

As you know, at the end of the third quarter, we began our limited launch of StimTrial and TalisMann following the successful FDA 510K clearance, and we looked to expand aggressively.

Although it's early, we're tracking ahead of our expectations on the projected number of StimTrial procedures and the conversion rate to our permanent TalisMann solution.

This confirms our hypothesis about the strategic importance of adding a trial lead to our PNS portfolio.

Equally important, we are receiving very encouraging feedback from physicians and patients regarding our differentiated technological design, including the power, size, and ease of use.

It's an exciting time for Bioventus to be launching this game changing technology, and we're just getting started with expanding our commercial organization, educating physicians, and increasing our overall presence in this rapidly growing segment. So while it's early, we're looking forward to the significant growth opportunity ahead of us.

And with respect to our new PRP system XCELL, we have also received positive customer feedback about this addition to our portfolio. As you may recall, the XCELL system reduces procedural time and provides a customizable treatment solution for different patient applications.

We recently progressed from our limited launch to training our entire HA sales team, and consequently we expect sales to steadily increase over the remainder of this year and throughout 2026.

We believe the combination of PNS and PRP is a significant expansion for Bioventus and will provide at least 200 basis points of profitable growth in 2026 and shifts our overall portfolio towards markets with higher growth potential.

Longer-term, we believe both of these innovative technologies will deliver sustainable growth and become meaningful drivers of significant value for Bioventus.

Turning to our second focus area, expanding profitability, our third quarter adjusted EBITDA increased by 13%, with our adjusting even a margin expanding by over 200 basis points.

This performance further demonstrates the powerful combination of our above market organic revenue growth, pure leading gross margins and operational efficiencies. A combination that enables us to not only drive operating leverage but also simultaneously invest in our future growth.

We remain on target to achieve our previously communicated 100 basis points of adjusted EBITDA margin expansion for the year, and the increased profitability in Q3 combined with our reduced interest expense generated a 200% increase in adjusted earnings per diluted share as we delivered $0.15 per diluted share in Q3.

And with respect to our third focus area, we continued to significantly accelerate cash flow, as cash from operations in the third quarter nearly tripled versus the same period last year, and we drove a cash conversion ratio of over 100% in the quarter. Year-to-date, cash from operations is up 88%, and we are on pace for a full year cash from operations to nearly double compared to last year.

In conclusion, thanks to our highly engaged team members across the globe, we made significant progress this quarter to deliver on our three priorities, and we're primed to close out a strong 2025.

Bioventus has entered a new phase of our transformation, and we are well positioned to drive above market profitable revenue growth along with strong consistent cash flow on an annual basis, as we aim to become a $1 billion high growth, high margin, high cash flow company that creates significant value for our shareholders.

I'll turn the call over to Mark.

Thank you, Rob, and good morning, everyone.

Let me begin by saying that I am proud of our team's hard work and dedication to transform Bioventus. Over the last 8 quarters, we have generated at least mid-single-digit organic revenue growth, significantly improved profitability, and strengthened our balance sheet. But this is just the start of what we can achieve.

I'm confident that with strong focus and disciplined execution, we will continue to advance our business and create significant shareholder value.

Turning to our headline results for the third quarter, revenue of $139 million was unchanged compared to the prior year due to the impact of our advanced rehabilitation divestiture at the end of last year. 8% organic revenue growth was a result of strong performance across all areas of our portfolio.

Adjusted EBITDA $27 million was $3 million higher than the prior year and represented an increase of 13%.

Again, foreign currency exchange rates had an unfavorable impact for the quarter as we incurred an unplanned loss of nearly $0.5 million. For the year, we've now absorbed more than $2.5 million in unplanned impacts from FX rate movements.

Adjusted EBITDA margin of 19% expanded 220 basis points compared to the third quarter last year. This was the result of higher gross margin and discipline spending.

Now let me provide some additional commentary on our quarterly revenue.

In pain treatments, revenue accelerated from the first half and advanced 6% in Q3, as growth in HA benefited from strong volume growth of Durolane and recent account winds which we previously highlighted.

Surgical solutions revenue grew 9%, driven by growth in Ultrasonics as we broaden awareness of our value proposition of enhanced precision and control for surgeons, reduced patient blood loss, and increased operating room efficiency. In addition, as Rob mentioned, we saw improved growth this quarter in BGS and expect further acceleration in the fourth quarter.

Shifting to Restorative Therapies, revenue declined 29% due to the divestiture of our Advanced Rehabilitation Business. Excluding the impact of the divestiture, organic growth was 11% as the EXOGEN team delivered another strong quarter.

Finally, revenue from our international segment decreased 4% compared to the prior year while organic growth climbed 10%. Our international segment is on target to deliver double-digit organic growth in 2025. We believe this positive trend can continue given our new leadership, market expansion opportunities, and enhanced commercial execution.

Moving down the income statement, adjusted gross margin of 75% was 50 basis points, higher than the prior year period, as favorable product mix offset the impact of tariffs.

Adjusted total operating expenses and R&D expenses declined by $3 million, as increased investment in our growth initiatives was more than offset by direct expense savings related to the divestiture of our advanced rehabilitation business.

Now for the detail on our bottom line financial metrics, adjusted operating income increased $3 million compared to the prior year to $24 million. Adjusted net income of $13 million nearly tripled compared to the prior year period. This growth is a result of our increased gross margin, decreased operating expenses, and lower interest expense. And finally, adjusted earnings of $0.15 per share for the quarter, an increase of $0.10 compared to the prior year.

Now shifting to the balance sheet and cash flow statement,. Consistent with our planning assumptions, we generated significant cash flow for the second quarter, second straight quarter. Cash flow from operations totaled $30 million representing an increase of $20 million compared to the prior year.

The stronger cash flow was driven by higher profitability, lower interest expense, and a significant reduction in one-time cash cost. We ended the quarter with $42 million in cash on hand and $323 million in outstanding debt, which included $25 million drawn on a revolving credit facility.

During the quarter, debt decreased $19 million and we expect to repay the remaining $25 million outstanding under the revolving credit facility by the end of this year.

As a result of a lower debt outstanding, our net leverage ratio declined to below 3 times at the end of the quarter. We are confident our projected strong cash flow, an increase in adjusted EBITDA, will drive our year-end net leverage below 2.5 times and our debt outstanding to under $300 million. We believe this reduction in our net leverage and debt will drive additional interest expense savings and enable greater optionality for capital deployment moving forward.

Finally, as Rob mentioned, we are pleased to reaffirm our 2025 financial guidance which we initially provided on March 11.

This includes organic revenue growth of 6% to 8%, adjusted EBITDA of $112 million to $116 million and EPS of $0.64 to $0.68. Our guidance does incorporate the full year impact of $5 million of the current expectation of tariffs in 2025 and the year-to-date impact related to foreign exchange rates.

Our guidance does not assume additional impact from the US dollar fluctuation in the final quarter of the year.

In closing, we continue to execute our business plan and believe we are well positioned to create shareholder value through strengthening our growth, profitability, and cash flow this year and over the long-term.

Operator, please open the line for questions.

(Operator Instructions)

Chase Knickerbocker, Craig-Hallum.

Good morning. Thanks for taking the questions. Rob, maybe just to start on pay and growth. Can you just give us an update on kind of market performance in Q3, and then, if you get your Durling growth specifically, I think that would be helpful. Question there is just, is DUROLANE kind of driving all of the growth, what are you seeing out of the more legacy 3 and 5 shop businesses just kind of the puts and takes within pain.

Yeah thanks, Chase. I'll start off and turn it over to Mark for some of the numbers there. It's yeah, I think what you saw in the third quarter here is start paying business overall accelerating backed by our HA therapies and DUROLANE in particular and feel really good about executing on our growth plan for the back half of the year as we continue to. To gain additional volume, particularly in large accounts, as for the market, the market's going to fluctuate on a quarterly and yearly basis, within the HA space, but it remains a key part of the OA treatment curriculum continuum, and our focus, as is always going to be to grow our volume above that market growth regardless of where it's at while maintaining a lot of price discipline. So, excuse my voice today, but, and we believe that we're very well positioned to do that, to keep growing above the market, given our clinical differentiation and private payer contracts and large dedicated sales teams. So, I feel good about growing the business in that market, even if there's some fluctuation, and then like I said, I'll turn over to Mark to get into some of the details on DUROLANE and the rest of the portfolio.

Yeah, thanks, Chase for the question and thanks Rob. Overall, our growth in the third quarter, DUROLANE did, lead the growth of our portfolio, but that's, with the differentiated product that we have there and the strong sales force and contract positioning we have, that's what we expect and also as the market. It moves towards a single injection overall. GELSYN, did have some volume growth, but there's a little bit more price pressure there, as we all know about, for a while and in the market, but overall, I feel like it was a good quarter and delivered on what we had committed to in our second quarter.

Thanks, and then, maybe just on surgical, you know, guide implies some acceleration into Q4, I think in that surgical business. Can you just speak to kind of what you're seeing so far in October and if those you know distributors that have ramp that are going to kind of support that that Q4 results, can you just kind of speak to how productive they've been as they've gotten up to speed.

Yeah, Chase, I'll-- I won't get too specific about October but let me reply and let me know if you have any follow-up questions on it. So again, sorry about my voice this morning, but first what you're referring to there is bone graft substitutes, and we mentioned in our previous calls that our back half acceleration for Bioventus overall will be driven in part by BGS, and you see that clearly reflected in our Q3 results and. That's thanks to our distributor partners and also because we bring a really strong clinical and economic value proposition to that to the $1 billion market that we're targeting, and I think what you see in the numbers is that we're getting better every day with raising awareness of the total value that we bring to our customers and that's gaining traction with clinicians and with supply chain leaders. So, for your question there, we're going to keep stepping up our commercial efforts and we're looking forward to building on our momentum with BGS in the quarters and the years ahead, and we remain very confident about the other part of surgical business with ultrasonics. It's, we're well into the double-digit growth staged this year-to-date and we expect that to continue next year and beyond and again for that one that's because of our game changing technology where we continue to believe we have the opportunity to change the standard of care in this space. So, for surgical overall we remain very positive and that includes for both BGS and for Ultrasonics.

Just last for me, if we think about what's needed with TalisMann to make that offering competitive in the market, I guess what does it take to make that business kind of take off? Do you need to generate some data sets, is it just kind of commercial execution? I mean, maybe just speak to kind of what you're going to do on the clinical data side to prove out that platform.

Yeah, thanks. Well, just for everybody's perspective, launch, as I mentioned, is going very well, the pilot launch, and we're receiving a lot of positive feedback from customers about first having a trial lead in our portfolio and also about the power and the size and the ease of use of our firm technology. So, you know in terms moving forward, the real key to success is scaling this business commercially. Keep in mind that you know it's the business is extremely and team has been extremely small for us. We were holding back for the launch of both StimTrial and TalisMann, and now that we have those exciting that exciting technology in our portfolio, we're building up that commercial organization. So that is really the key along with increasing awareness of our technology across the market, and that's what you're going to see us doing much more aggressively in the months ahead and of course we'll keep you updated on it, but overall, we're really looking forward to the path forward with this big growth driver for Bioventus.

Thanks, Rob.

Thank you.

Ross Osborn, Cantor Fitzgerald.

Hi, good morning and congrats on the progress here. So, starting off with Ultrasonics, what levers do you have there to drive penetration within the spine opportunity and how are your medical affairs efforts progressing?

Yeah, thanks Ross.

For Ultrasonics, I touched on it before there, but it's, we, I'll reiterate, we really have phenomenal technology in the space and it's because our technology it provides control to the physician and it saves time and it delivers many patient benefits and and so our greatest lever with this high growth business for us is raising awareness.

About the value that our technology provides, and you know we can do that through a number of different ways through a commercial organization and also as you alluded to through medical affairs and what we're doing is stepping up in a significant way our medical education efforts and that includes bringing on new talent into our organization over the last quarter, and significantly improving the targeting and the content and the frequency of that medical education again so that we can help customers understand the value that our technology brings, and that's the biggest key to continuing to penetrate that fine space and beyond.

Okay, great. Thanks for clarifying there. And then, when thinking about probability for the company, is this a good base level, to start thinking about your model? I'm just curious how you're pairing, growth with savings as you try and put trade and develop new markets such as PRP.

Could you just repeat the questions on we're comparing growth--

I didn't--

Yeah, I hear your balancing growth with profitability, especially as you're developing new markets.

Yeah, thanks for clarifying, Ross. Yeah, overall, I mean, we in our guidance committed to expanding our margin by 100 basis points, and that's what we're still committed to do for full year 2025, and over the medium and long-term. I mean, that's something that, with our peer leading gross margin of 75%, we get the really good growth that we're capable of and then really it's up to you know the opportunity we have to invest in products and also delivering expansion back to investors and so that's been part of what we've done over the last few years. That's part of what we'd look to do over the medium and long-term. We look into 2026. That's our intention to do that as well, but we're also going to balance that commitment to expand margin with investments, and then great opportunities to invest like Ultrasonics that we just talked about, like PNS that we talked about and also our international business. So, those are exciting investment opportunities for us, but we're also still committed to balance that margin expansion with being smart about investing while we have a great opportunity in the market to do so.

Great, thanks for taking our questions.

Caitlin Roberts, Canaccord Genuity.

Hi. Thanks for taking the questions. You know, I guess just to start off on the guidance philosophy, just some color on why you decided to maintain the guidance, into the Q4 and then any color into dynamics and expectations, going into 2026.

Thanks Caitlin.

Overall, we set our guidance in March early on, and we've been consistent with that throughout the year, and when you look at the midpoint of our guidance, it implies a slight acceleration in the fourth quarter from what we've delivered to date, and we feel good about that commitment, and so that was the decision behind keeping the guidance the same and feel like that's a good you know the range that we set at the beginning of the year was a little tighter than we normally would. So overall we still feel good about our guidance for 2025. We look into 2026, at this point in time we're really excited about 2026, we talked about our growth opportunities in PNS and ultrasonics and international, but we're not going to give guidance for 2026 right now, but we do have some exciting opportunities as we've talked about throughout the call and look forward to sharing our thoughts on 2026 and the March earnings call.

And I'll just add on to that, Caitlin, I think what you're seeing in the third quarter here is just the power of our business, we achieved what we said we'd do, grew the business by 8%, we increased the margin by 200 basis points, generated $30 million in cash, and we're carrying that momentum into the fourth quarter and into 2026. So, like Mark said, we're not giving guidance, but you know it's our growth strategy is in full action, we really feel like we've entered a new phase here and we're leveraging our core businesses, which are driving that involve market profitable growth to invest in and drive our faster future growth businesses with the Ultrasonics, PNS, PRP, and international. So, we'll give you a lot more detail on that when we provide our guidance for next year, but we feel good about the path ahead.

Great, and then, just with EXOGEN, you know, continues to be strong.

Will the same dynamics going on with commercial execution that really drove the strength this quarters in prior quarters or was it something else?

Yeah, it's consistent with what we've shared in the past, this is how we've generated double-digit growth and restorative therapies for two quarters in a row, and it validates the positive combination of focus, fantastic leadership and team, the right strategy, smart investments, and stronger execution, and which in turn is demonstrating a favorable ROI on our investments. So it's, can't say enough about a great team and what they're doing with that business and you know it's what you're seeing is sustainable growth for EXOGEN after five years of decline and we believe that we can grow this business to over $100 million with that combination that I mentioned, thanks to the dedicated team and our proven technology which truly helps patients recover so they can live life to the fullest.

Great. Thanks for taking the questions.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Rob Claypoole, any closing remarks.

All right, thanks everyone for your interest in Bioventus. Once again, we delivered a solid performance throughout our business in the third quarter, and we are confident in our ability to build on our momentum to deliver above market revenue growth, improve profitability, and accelerate our cash flow to create significant shareholder value.

Thank you.

The conference is now concluded.

Thank you for attending today's presentation. You may now disconnect.