Bioventus Inc. (BVS) Earnings Call Transcript & Summary

Good morning, everyone. Welcome. Thank you for joining us. My name is Dawit Ghebremedhin, I'm an associate on health care team at JPMorgan. And today, I have the pleasure of introducing the Bioventus team. Joining us today is CEO, Rob Claypoole; and CFO, Mark Singleton. Just a quick reminder on format. This will be a 20-minute presentation followed by 20 minutes of Q&A. So please save any questions until the end of the presentation. And with that, I'll pass it off to Rob. Thank you.

All right. Thanks for the introduction, Dawit, and good morning, everyone. Appreciate you joining us today. At Bioventus, our mission is to help patients recover and live life to the fullest. I'm entering my third year as CEO and over the next few minutes, I'd like to do 2 things. First, highlight the significant changes and the strong performance that we've driven over the past few years. And second, show you that Bioventus is now at a very exciting inflection point, where we're focused on igniting 4 powerful growth drivers while continuing to expand profitability increase cash flow and drive shareholder value. But before we dive into it, a slide that you're all familiar with. My remarks today will include some forward-looking statements and also reference non-GAAP metrics. The forward-looking statements may differ from actual results and involve the risks that are outlined in our recent filings with the SEC, which are also available on our website. Okay. With that behind us, let me provide you with a brief summary of who we are and why I believe Bioventus is such a compelling investment opportunity. We operate across 3 businesses: Pain Treatments, Surgical Solutions and Restorative Therapies. We're generating over $550 million in annual revenue in markets that provide us over $6 billion worth of opportunity. And across our portfolio, we are either a category leader or a growth leader as we help patients with debilitating pain and musculoskeletal challenges with our differentiated energy and orthobiologic solutions. Now our unique portfolio provides us with multiple paths to future value creation, including accelerating revenue, continuing to expand profitability and driving significant cash flow. And I'm happy to say that we're executing on all three. And that's because the past few years of Bioventus represent a clear transformation of the company. Bioventus has had strong assets in the past, but wasn't realizing its potential due to lack of prioritization, some inconsistent execution and constraining leverage. And we've addressed all of that by first, advancing our portfolio through development and innovation in order to create powerful new growth drivers and also by divesting non-core assets. We've also significantly sharpened our commercial execution. And we've instilled a disciplined financial mindset across our company, which has included reducing our leverage ratio by more than half. And from all of that, we've generated revenue growth well above the market. We've sustained our peer-leading gross margin in the mid-70s. We've also expanded our EBITDA margins by roughly 700 basis points. And in the last 2 years alone, we've delivered over $100 million in operating cash flow. But that's not the end story, of course. This just sets us up for what we're about to create. With this strong foundation, we're entering this exciting new phase where we're going to ignite the poor growth drivers that I mentioned to accelerate our future growth. And our mission is clear. Our ambition is to create a leading med tech company that's over $1 billion in size with strong durable revenue growth, high margins and significant cash flow. And we are confident that the building blocks are now firmly in place to achieve these goals. It starts with our portfolio. The portfolio that we've built across our 3 growth platforms, our core, our expansion platform and our emerging growth drivers. I'll briefly touch on all 3, and then I'll go into a little bit more detail on the next slide on both the expansion and the emerging platforms as they represent the 4 growth drivers that I mentioned, and it's also where we will invest disproportionately. The first, our core, it's comprised of HA, bone graft substitutes and fracture care. And these legacy businesses account for the majority of our revenue today and because of their differentiated products and their leading market positions, they carry very high margins, and they generate significant cash flow for Bioventus. And while our core isn't growing as fast as our expansion and our emerging platforms, it is consistently growing above the market, and it generates significant profit for Bioventus. Next is our expansion platform, and that includes the first of the 2 growth drivers that I mentioned, ultrasonics and international. And these are already providing strong growth to Bioventus with near-term growth acceleration expected. And overall, we expect these 2 to become a more meaningful part of our overall revenue profile in the years ahead. And then we have our emerging growth platform, peripheral nerve stimulation or PNS, and platelet-rich plasma, PRP. These are early-stage businesses for us, and we're also confident that they're going to turn into major growth drivers for Bioventus in the years to come. The key is this. Our core funds our future, allowing us to invest in our expansion without sacrificing profitability or balance sheet discipline. All right. Let's go into a little bit more detail on the 4 growth drivers. And let's start with peripheral nerve stimulation or PNS. This is an exciting space, getting a lot of attention, over $250 million in size, growing very fast at around 24%. We recently received FDA clearance for our TalisMann and StimTrial technology, and we're just now entering into the full launch with that new PNS platform. And our platform has several distinct advantages. First, it is the only technology on the market that was designed from the start for peripheral nerves. It also uses a more powerful and effective form of energy and because that has the potential to reach deeper and larger nerves. And on top of all of that, it's the smallest wearable on the market. So as you can tell, we're really excited about what we can do with this business. We're excited to get going and to turn it into a major growth driver for Bioventus. Next up, platelet-rich plasma, PRP, another exciting space. I'm guessing everybody in the room here knows somebody that has had a PRP treatment recently. It's about $400 million in size, growing over 10%. We recently entered the space towards the end of last year. And our technology has several advantages, including that it works in a single centrifuge spin versus requiring multiple spins. And that saves both the physician and the patient's valuable time. It also allows physicians to precisely and easily customize the treatment to address a wide variety of patients and patient conditions versus requiring different systems to do that. And I should also mention that it's a highly synergistic opportunity for Bioventus as it leverages our established HA sales force. And that's because the majority of surgeons who are using HA in their practice are also using PRP. Now if we go to the next one, which is Ultrasonics, another major growth driver. I'll touch on one thing actually back on this first. Even though those are both early stage with PNS and PRP, in 2026 alone, we expect them to contribute 200 basis points of growth to Bioventus together. And that -- I'd point that out because even though they're early-stage businesses, they're already going to contribute in a meaningful way this year. So next, I'll go on to our third growth driver, Ultrasonics. Ultrasonics has already been our fastest growth driver over the past few years. And that's driven by our state-of-the-art technology, which is predominantly used in spinal surgery for bone cutting. And we are convinced that we have the potential to make our technology the standard of care in this space. And that's because it provides exceptional precision and control to surgeons. It also allows for tissue-sparing bone resections and it enables safer and more controlled surgical outcomes. Surgeons that I've met with personally have also said that it's so much easier and gentler on their hands that it's allowing them to extend their careers. So while spinal surgery will remain the main focus for us with Ultrasonics, I'll also point out that we'll leverage our platform, our Ultrasonics platform for select neurosurgery and general surgery procedures, which will further enhance our future revenue profile. And last, but certainly not least, international. This is another very compelling growth opportunity for us, a huge market, over $2 billion in size, which means that we have significant untapped potential. So historically, Bioventus has been a U.S.-focused company. And we simply didn't have the resources or the capability to go after the international segment. But that's changing this year. We're starting with much stronger strategic focus and prioritization with international. We've also established new leadership, proven leadership that knows how to drive everything from strategy down to execution. And we have a very targeted plan with substantial new investments in order to win market share internationally. So again, very excited about our expansion and emerging platforms. And today, they make up less than 25% of our total company, which contributes to a low single-digit weighted average market growth rate, or WAMGR, for the company. Now naturally, we've been growing well above the market, but the bigger transformation takes place as we execute on these growth drivers and we start to shift towards these higher-end growth markets. In fact, we expect that in the future, half of our portfolio will be comprised of our expansion in our emerging businesses. And that will naturally increase our WAMGR, which will further sustain the long-term growth profile of Bioventus. And that's why we're investing disproportionately starting this year in expansion and our emerging growth platforms. Our investment priorities include milestone-based expansion of our expansion of our PNS sales organization. We're very excited to scale that business, targeted increases in our international sales resources and then powerful new marketing to raise awareness of our differentiated clinical and economic benefits of our portfolio. And we'll also continue to invest in product innovation, specifically with ultrasonics and PNS. With our outstanding R&D team, we're determined to keep building the best and most complete portfolio for those businesses. And everything that we do will be done through a strict ROIC lens to make sure that we -- everything we're investing, we're getting the highest return on that investment. All right. So you can tell that we're very excited about our growth profile across our portfolio with our core, expansion and emerging platforms. But growth alone does not maximize shareholder value. That requires financial strength and discipline as well. And we're very proud of our peer-leading gross margin in the mid-70s. When you take a peer-leading gross margin in the mid-70s and you combine it with above-market growth, while it gives us the flexibility to continue to invest in our future growth while continuing to expand profitability. But we're not resting on our laurels. We expect our earnings and our overall profitability momentum to continue. While we're not giving guidance here, we'll wait until our fourth quarter call to do that. I will point out that in addition to the very significant increase that we saw in our EPS in 2025, we expect our adjusted EPS for this year to grow 2 to 3x faster than revenue, and that's financial strength. So before we wrap up, I'll touch on one other part of our value creation, and that is our strong and increasing cash flow. Over the past few years, we've significantly increased our cash flow. And we've used that cash to pay down our debt, which is now below $300 million and in turn, has reduced our leverage ratio by -- to below 2.5x. In 2025, we've messaged that the increase in our cash flow equates to nearly double what it was from the prior year. And so as we go forward and we have this significantly increased cash flow with significantly reduced leverage ratio. What that means is that it gives us substantial optionality for our future capital deployment. And as we look at that capital allocation today, our top priority is to continue to pay down our debt with a clear line of sight to reducing it below 2x. We'll also consider M&A, of course, and we'll always be on the offense with it, but we have a very high bar for M&A because we truly believe in the growth potential of our current portfolio. So we need to be highly synergistic tuck-in and meet our strong financial metrics. And of course, it's always responsible for us to consider returning cash to shareholders versus a share repurchase. The key to it is this is that we, with our increased cash flow and our reduced leverage, we have significant optionality for our capital deployment moving forward. Okay. I'll wrap up by reiterating that Bioventus is a very different company today. Our transformation has strengthened our foundation and we believe we are very well positioned to ignite our expansion and emerging growth platforms to further accelerate our future growth. And to continue expanding our profitability and our earnings power overall and to also generate significant cash flow, which in turn, will further increase our future capital deployment optionality. That combination is rare and valuable. And we're confident that we have built the right portfolio and the right strategic growth plan and the right team to achieve our goals. Thank you very much for your interest in Bioventus, and we look forward to your questions.

Thank you, Rob. I could kick it off with a couple of questions here. First, it's been great to see the turnaround of Bioventus had in the past couple of years. I think the acceleration in organic growth really highlights that. I'm curious to hear what opportunities you're most excited about that maybe investors might not fully appreciate or understand.

Thanks for the question, Dawit. It's -- what I mentioned during there is that powerful combination of being able to increase growth and expand profitability and drive cash flow simultaneously. And that's not just what we've done over the past few years, but that's what we're going to do moving forward. With our 4 drivers, we're really excited about igniting the -- investing in them, igniting them to accelerate our future growth profile with our peer-leading gross margin when we have that strong growth with the peer-leading gross margin, it allows us to invest while expanding profitability and cash flow, as I mentioned, just given the mechanics of our business, we have very strong cash flow. . And I think as investors take a closer look at our company, they will be very impressed with the power of that combination. That's -- we're excited about that, and I think investors will be too as they take a closer look at our company.

Delving into growth drivers, and starting with PNS, there's been like a lot of M&A activity and growth, for example, the acquisition from Boston Scientific. I'd be curious to hear how you guys are going to position yourself in this market. And I'd love to hear more about the recent pilot launch.

Yes. Great. Well, I'll start with the last part. The recent pilot launch. It's gone very well. The market feedback has been extremely positive, and we're really excited now to start moving into the full launch. And really, that's because of the distinct advantages of our technology. Mark and I have the opportunity to be in the field last month with a wide variety of patients. And it's -- it is truly remarkable what our technology does to help these patients with their debilitating pain. And so we're just really excited to get going with that business. In terms of -- the space has gotten a lot of attention recently. We welcome Boston Scientific entering the space. I think that validates how attractive this market is. And it also implies the very high valuation of this space. And also a lot of respect for Boston Science. I think that when a leader like that comes into the space, it will further increase the awareness of it and drive adoption of PNS in this relatively young market. So -- but having said that, we're also very excited to compete against anyone and everyone with our technology. So it will be a fun path ahead.

Great to hear. Pivoting to ultrasonics. There's been -- it's another place where there's been a lot of significant growth. I'd love to hear about how you're taking the next steps to make it the standard of care for response treatment.

Yes, thanks. It's -- so it's exceptional technology. It has the potential to be the standard of care. And this is really about doing all of the fundamentals. If any of you have been around med tech businesses before, where they go from less known to becoming the standard of care. First, it starts with raising awareness through both education and through marketing of why this technology is so special. And then, of course, there's an expansion of the commercial resources and doing all of the things that raise our overall presence and profile of that business. And we're going to continue to invest in the product innovation as well to make it the broadest and most impactful technology platform for surgeons. So I think as we do those different things, raising the training and education behind it, the marketing behind it, expanding the commercial resources and continuing to invest in product innovation, all of those, by the way, in ways that we haven't done before with this business that it will accelerate its path to becoming the standard of care.

Moving to another pilot launch, which you guys have done, PRP. I'd love to hear more about that and how you see yourselves against the competition.

Yes, it's a fun space. As I mentioned, $400 million, growing above 10%. We really like our platform because of the single centrifuge spin. Time is valuable out there today. With time and ease of use. And patients with ours, they can stay there for a short period of time and get the procedure versus needing to come back hours later in order to get it. So the overall convenience and time factor is key. And then I touched on it briefly in the presentation, but I'll elaborate on it. So the overall orthobiologics using the patient to heal the patient with PRP, it's not just one type of PRP that works for every patient and every condition. So we need to provide physicians with the ability to precisely customize that treatment based on different conditions in different patients. And ours does that within 1 system. And we believe that's the future of PRP. So that's where we're really excited to go out and educate the market about that. and to grow this business for years to come.

I guess staying in team with growth drivers. You mentioned international expansion. I have to hear more about that and maybe any regions you'd like to specifically highlight.

Yes. That's a truly is a huge untapped opportunity for us. I would say that across my 2 decades plus in med tech, most of the companies have been with had pulled the international lever a while ago. Not that there still isn't growth there, but Bioventus hasn't done that yet. It represents a very small portion of our overall company's profile today. $2 billion market, and there's no reason why we can't go into these spaces and help patients and doctors and win market share. So we're really excited about going after that. Big focus is in EMEA and APAC. But I'd say across international, the key for us is that we're going with a really targeted approach. What we're not going to do is go to all countries with all of our portfolio because that's not the best way to drive efficient growth. So we have select countries based on our market analysis that we're going to, and we know how to go to the market in those and we know what investment we need behind it to drive significant growth over the coming years. And then after we establish a foundation in those markets and steady growth then we'll consider expanding to the next set of countries internationally. But I just want to emphasize that, that we have a -- we're really excited about it, and we're also very targeted and disciplined in terms of how we're going to grow that international business.

That's awesome. Shifting to capital allocation. I know you guys made it clear that you want to invest to drive growth. I'd love to hear how you're balancing that with continuing to deleverage the balance sheet in general?

Yes. It's -- so overall -- and I'll let Mark chime in here, too, just so he doesn't get too bored at the table, but it's -- we have this -- again, this combination of peer-leading gross margin and above-market growth and we're generating significant cash flow and we have the lower leverage and we have this increased capital allocation. This is a wonderful combination to have. And so we have the ability to do a lot with that. But our first focus is on continuing to pay down debt. And that's an easy decision for us because we believe so much in our current portfolio. Of course, it's responsible for us to always consider what are high synergistic M&A opportunities and whether it ever makes sense to provide cash back to shareholders versus a repurchase. But right now, with our capital allocation, the top priority is to keep paying down the debt. Anything to add?

Agree. .

Awesome. I know you're not giving guidance, but your cash flow doubled in 2025, are you curious to hear is there room for further growth? .

Yes. The short answer is yes, and I'll let Mark take expand on that.

For cash flow, we think this is a really underappreciated part of the Bioventus story, and Rob mentioned in his presentation, but from a '24 to '25 through our guidance and what we talked about throughout the year, we expect to almost double our cash which has turned around from negative cash flow for a few years ago. So really impressive. When we look into 2026, we continue to see further acceleration of that coming from 2 places. One from the -- talking about paying down debt. So our interest expense should be less from having lower debt. And then earlier in the year as well, we refinanced our term loan and got better interest for that. So that will definitely contribute further acceleration in 2026. And then in addition to that, we're will continue to increase our operating profit in '26 over '25. And again, from a cash flow perspective, we'll -- just like we always focus on growing our EBITDA faster than we do our revenue, we expect cash flow to grow and accelerate more than our revenue growth in 2026 as well.

Thank you. I guess last one for me here. Taking a step back and looking forward with regard to the macroeconomic environment, what assumptions are you building into your plan in 2026 in regards to things such as FX and tariff or headwinds?

Yes. I'll take that. And I think if we -- for those of you not familiar with the story and in 2025, obviously, everybody is aware of the very fluent and dynamic headwinds that were in the macroeconomic environment, whether it be tariff or FX challenges. But we set our guidance in the beginning of the year, and we had $5 million of headwinds in 2025 between tariff exposure and as well as FX. So that was a $5 million that we were able to overcome and manage the business, just like Rob talked about in his presentation from an overall disciplined approach from a financial perspective, and still are reiterating our guidance in the third quarter for the full year and our last earnings request of meeting that guidance despite those headwinds. So we feel that between our management system, our leadership in the company that we were able to overcome those headwinds. When we look into 2026, we have $1 million to $2 million of tariffs that were previously announced. And obviously, things could change tomorrow. But when we look into '26, those are the tariff exposure that we are planning for and we'll manage the company that way from an overall FX perspective. Obviously, we all can't accurately predict the impacts of FX, so our planning rates from an FX impact in 2026 or that the dollar will stay where it is today. So -- but again, we've demonstrated the ability to overcome these in the past, and that's what we'll do in the future if we experience any of that in 2026.

Thank you. Let's open it up to the audience in case any questions. It looks like no questions. Thank you, guys. Thank you, Rob and team. Have a wonderful rest of your day.

Thank you, Dawit. Thanks, everybody, for joining.