Bioventus Inc. ($BVS)

Good afternoon, everybody. My name is Jenny Rabinowitz. I cover U.S. Medtech and Healthcare [indiscernible] at Goldman. And today, I'm thrilled to be joined by Bioventus. To my left, we have Mark Singleton, CFO; and Dave Crawford, VP, Treasurer and IR. Starting off then it would be great to start with the company introduction. The markets serve 3 key segments. One of the key products in all of them.

Great. Thank you for having us. appreciated. Bioventus is a $568 million revenue company as of 2025. Our guidance for 2026 is $605 million. We participate in markets of $6 billion plus. So a lot of opportunity. We've had a lot of success over the last few years, accelerating our revenue, expanding our margins and generating significant amount of cash flow. We've actually taken our margins from early 2022 to 13% EBITDA to greater than 20% in 2025. And so we've increased it by 700 basis points. At the same time, taking our revenue growth from low single digits to mid- to high single digits consistently from a performance perspective. Overall, we've also taken our cash flow from that in the last few years to from a negative cash flow to positive free cash flow. And over the last 12 months, we produced $100 million of free cash flow. And we actually doubled our cash flow from 2025 to 2024. So we think this is a really compelling investment from a portfolio perspective. Today, we really look at our portfolio and what our core products are, what our expansion products are, and what our emerging products are. Our core products, our hyaluronic acid, HA product today. It's although our PRP product, which is a new growth driver or establishing 4 new growth drivers. But from the core product is also BGS and Exogene. So BGS and Exogene actually produce a lot of the cash and profit of our company. Those are the core products, and they feed the emerging product, which is ultrasonic, international markets from an expansion and then the emerging products are PNS and PRP. So overall, those are how we think about our products, but our segments that we have is our pain segment, which is PR PNS and HA. And then we have our Surgical segment, which is ultrasonics business and also our bone graft substitutes business. And then our restorative therapies, which is our Exogene business.

Thinking back to the IPO in 2021, Bioventus did a few acquisitions shortly thereafter to divestitures. So how are you thinking about the portfolio you have today, thinking with it?

Yes. We're really excited about the portfolio that we have today. Again, we have the core products with HA, BGS and Exogene which really fund the actual future product, which is our expansion and our emerging products. And when we think about PNS is a product that we're really excited about in our portfolio. This is one that's got a lot of attention recently. There were some acquisitions made by Boston Scientific and Medtronic, who bought 2 of our competitors, and they had multiples, significant multiples for that business. And if you look at where we think we can take that business, those multiples would result in a more market share than what we actually have for our overall company today. So we have that. PNS is a great product. When we compare ourselves to the competitors, we're actually -- our product is actually designed for the peripheral nerve, whereas our other competitor products were designed for spinal cord. So significantly more specificity in how we go about developing that product and how we're taking it to market. It also generates a lot more power to where -- from that device that can actually reach deeper and larger nerves, so it's much more effective. And then it's also a more smaller wearable device so it's easier for the patient. But this market is for patients that have debilitating pain, the market itself is $250 million opportunity growing at 25%, almost 25% a year. So really a high-growth market, which we feel that we can be really successful in over time.

[indiscernible] how the core products fund the growth. From a broader perspective, though, maybe including external as well. But how do you think about capital allocation beyond that?

Yes. Capital allocation really -- one, it's great to get that question today versus a few years ago, first, second and third question, we're about leverage and what we're doing going to do to reduce our leverage. And we've we brought our leverage down from almost close to 6 turns. And at the end of the first quarter, it was a little bit more than 2 turns. So a significant reduction, and that comes as a reflection of the financial discipline that we put into the company, and the actual cash flow that the business is generating today. So significant turnaround. But we think about allocation right now. We're really focused on paying down debt, which we've reduced our debt at the end of the first quarter, it's close to $250 million. So significant reduction with that, as we've talked about with the leverage ratio. We look at M&A, and we just talked about our portfolio and how we like we really do like our portfolio today. We think there's a lot of potential to make a shift into these high-growth markets and really bring those products to life and ignite the growth drivers over the next few years. We're not going to put our head in the sand and ignore M&A, but it's not going to be our first priority. We really want to focus on the portfolio that we have today and bring it to life. One thing that we'll start to look at is stock buybacks potentially as we get below our 2 turns and we expect to do that in the second half of the year. But really right now focused on paying down debt, and we'll continue to do that in the short term.

Turning to recent results. Can we walk through the drivers that supported a 7% growth in Q1. And can you characterize this performance kind of ex-rate adjustments or any unusual factors?

Yes. So yes, we -- our first quarter without the rebate was in line with our expectations, so 7% growth on the top line. And again, as we expected overall in the first quarter without the rebate from a overall company [indiscernible] we'd be in the 3% to 4% range. So good quarter overall from our expectations, and we think about our Surgical business was in the 7% growth range. Our expectation for that is higher than that for the rest of the year, but that's more of a as we sequence through the year, we expect that business to accelerate. But overall, a good performance. When you look at from a profitability, we actually grew our EBITDA by close to 25% year-over-year in first quarter, and we grew our EPS 100%. And so those would be a little bit less without the rebate, but still an overall excellent performance from a profit perspective, gets into the expense management and also some of our growth investments that we're making into our growth drivers of $13 million investments that we've talked about making are going to be accelerating as we go through the year as well.

The other thing I'd hit on is cash flow. So significant $28 million increase in cash flow in Q1. As Mark talked about, that's been a big turnaround part of the story. We continue to see that momentum build as we've gone throughout the year.

On that subject, can you walk through the dynamics that led you to hold the organic growth guide, but you did raise the EPS and free cash flow guide. So maybe a bit more on the profitability [indiscernible].

Right. When we think about the first quarter performance, as we just talked about, both EPS and cash flow were ahead of our expectations, much more significantly than the revenue. Again, EPS, 100% increase year-over-year. That's a reflection of overall good P&L management, but it's also a reflection of the lower debt that we've been paying down with the excellent cash that Dave just referenced. We Were able to pay down the debt that has less interest expense going into the P&L. So year-over-year, a lot of improvement driven just purely on interest expense, but also good management to really further ahead on those 2 from a cash perspective and from an EPS perspective, than we were on revenue. And from a revenue perspective, still 3 quarters left over the year. So we -- our decision was to maintain that.

Since you reported earnings, there's been some news flow as it relates to CMS reimbursement for bone growth stimulators, but you guys held the guide. Can you walk through the kind of math or how you framed it that helps you get comfortable maintaining your guide in light of this change?

Yes, I think we really just focused on the impact that, that has on our business, and it really affects 50% of our business, this new news on the reimbursement. So when you look at the amount that was impacted from a full year perspective, it was really immaterial. When you also look at our competitors who are also impacted, they had some significant reductions in their revenue and profit that they adjusted with the news of this and they're much more significantly impacted than what we are. And so again, we have -- this business is only a small part of the actual half of the business of our Exogene business is impacted by this. The other half is not.

I'd also add, when you think about last year, we had some headwinds related to currency and tariffs that we were able to offset. We see this as something similar. We'll have to make some tough decisions, but that's why we felt comfortable maintaining the guidance.

As it relates to your competitor, are you less exposed just because as a percentage of sales? Or is your product portfolio for BGS difference?

We're definitely less exposed. And they have some -- we compete head-to-head with them, but this is a bigger part of their portfolio, and they also have other -- they also treat other conditions with their products that we don't.

Okay. I guess where else in your portfolio do you see reimbursement risk or maybe benefit? Like is there anything else you know that CMS is evaluating maybe.

Yes, we always stay on top of that from a day-to-day perspective and focusing. But there was significant changes to HA reimbursement in 2022 that impacted the company, but that has been stable since then. And we don't have any information that would lead us to believe that there would be any future or negative impacts to reimbursement at this point in time.

Turning to the segments and starting with the core in HA, how has Sterling been impacted by the market-wide shift towards single injections and away from multi-injection.

Yes, DUROLANE has been positively impacted by that. We feel that this is within the HA space, as you said, it's a single injection. It's clinically differentiated versus our competitors. We're -- we have a really strong sales force with HA that is in the field, selling this all day every day. We also come out this business with our contract position that we have with different payers as well. And so we have a payers. And if you have [ UnitedHealthcare ], for example, and they have DUROLANE. And if you're UnitedHealthcare, you're going to get DUROLANE through your insurance. So we really feel good about that. And even despite -- you just mentioned some of the CMS reimbursement items, from '22 all the way through 2025, there have been strong volume growth. That's really what we focus on with this space. We're going to be responsible with price. But we've seen a lot of volume growth given our great sales force out there that drives us every day and a combination of them working also with the contracts and the areas that we have in place. So we really feel we have a powerful combination from an HA perspective. And as the market moves towards single injection, we're there to really benefit from that and take advantage of it.

What do you think is driving the market towards single injection? Is it mostly patient preference, physician preference, [indiscernible] You kind of touched on?

I think it's a little bit of both, and it's less trips to the doctor with a single injection, but I think that there's more clinical differentiation with that product as well. And so overall, I think it's a natural shift. And just -- I think it's the physicians, it's a little bit of both in all of them, but they're still -- we have also have a broader portfolio than just DUROLANE and we still -- we sell our 3 injection product, [ Gelson ] [indiscernible] 5 injection [indiscernible] parts. So there's still steady demand for both of those as well, but there is a shift into the single injection. And -- but overall, I think it's more preferences and then convenience for the doctors and the patients.

Staying with HA, you talked about, I mean, here and in other public appearances, targeting profitable growth, definitely our occurring theme. Can you describe to us what does it actually look like in like out in the field, are you willing to turn down lower margin contracts? How is it playing out?

Right. It's a good question. Again, been really successful in driving a lot of volume growth over the last few years, adding new payers, adding new physicians. So really done a good job. We'll continue to do that in 2026. Our expectations for this business are not as high in 2026 as what they were and what we achieved in 2025. And it's really about being responsible from a pricing perspective, pretty much what you're asking us that we're not going to chase volume that's not profitable from overall. It just doesn't make sense from a P&L and financial management perspective. And so we're going to be rational and really pursue business that we -- that feel is going to add profitable growth. And that's what we've been focusing on with our sales team in 2026. And as we talked about before, our first quarter results were in line with what we expected.

Turning to [indiscernible] there's obviously been some M&A activity from larger players. I think it's attractive about this market and how are you uniquely positioned to compete against some of these larger players?

Yes. I think it's -- again, it's a $250 million market growing at 25%. These are patients who are really suffering from debilitating pain. I've been out in the field with our CEO, Rob and seen this live in person, seen some procedures, seen the patients really go from -- when they've got the device implanted in them come back to the doctor and really kind of highly questioning us, the Bioventus team when we were there, that product was actually going to work for them. And you saw it live in person to where we actually -- after the implant actually saw that have an impact. We've had our General Manager out in the field that were a woman really had not been able to really have be mobile for a long long while, and she had the PNS device installed and was able to walk after that and had much higher mobility and she came to tears after after seeing and experiencing that and just really moving experiences that we've seen. So it's a great market, and it's really treating people with really not just a little bit of pain in their knee, but significant pain that's really impacting their daily life. So that's why it's such a really attractive market with $250 million, growing almost 25%. And we feel that we have the advantage versus our competitors, again, because our device was specifically designed for the peripheral nerves versus the other ones being designed for for spinal cord stimulation. Our device, the power that our device generates is more efficient and it's more powerful, to where it goes from the lead into the deeper and thicker nerves. And so it's going to have a more effective impact on the nerves and bring the patients see the results that I just referred to. And then there's always -- it's a wearable device you have and ours is much more small -- much smaller than our competitors. And so we think really the combination of all those things is what gives us the advantage. But we really are excited about this product. We have a specific general manager we brought in to run this business and excited about what we see so far, excited about what we can do into the future. And I think it's -- it's going to be a one of our great growth drivers and help change the growth profile of the company over time.

So it sounds like there might be an advantage on the clinical side just in terms of how the device was designed. I guess, how are you guys thinking about generating clinical data so that the clinical community knows this?

Yes, that's a good question. And we're in the early stages of that and exploring the opportunities of how we go about doing that. And obviously, that's an investment that we're -- that we'll need to make to do that, but we have not generated that, but we're -- we have plans in place. We're assessing that all the time, looking at the benefits of that and how we -- in our research and our R&D team participating in that with the clinical team.

I think something else unique about the PNS portfolios that there's multiple offerings, see the trial. Do your competitors have this? Is this something unique? And does this help you address maybe a wider range of patients or indications.

I'd say it's a little bit hard of that market. Not all of our competitors have a complete portfolio like we do, like the company that SPR just bought -- Medtronic just bought SPR, they just had a temporary device. But it's important for -- and so we have a trial device and then we have the permanent device. And we just came out and launched those -- we got FDA clearance in 2025. And but it's important for the patient to go through a 30-day or 60-day trial to really experience the impact of that. And then once they get comfortable with it and how to use it and then we move them to a more to a permanent device. And so it's really more in line with how the industry does that. But there are some patients, like I said, the SPR market is more temporary devices. And so -- but overall, we think that gives us an advantage.

On the earnings call, you mentioned that half of the planned investments for the year are being dedicated to PNS. So can you walk through what some key areas of investment are for this year?

Yes. We're investing -- we grew our EBITDA above 20% last year. So we really have a unique from a P&L perspective of either expanding our margins or initiate this is an investment year in 2026 to really invest in the 4 key growth drivers that we've talked about. And so from a PNS perspective, the $13 million that we're investing in that, a big portion of that is for the PNS market or product. And we're focused on, first, expanding our sales force there and investing in the sales resources to bring the product to market. Second, this so also there's -- as we talked about, the clinical trial and the clinical data really investing in clinical resources who will work alongside the sales team to help in the procedure and answer the questions and make that procedure as efficient and effective as possible. And so we're investing those. We're also increasing the amount of medical education that we're doing. Overall increasing our marketing that we're doing for that product. So really, this is really like a start-up in a lot of ways for us. And so there's lots of investments that we're making and the things that we just talked about, but we really we look at those and think about like the return that we're going to have and expect from those, we're, again, really excited about the product and confident in the investments that we're making.

Is this level of investment in response to competition coming on? Or is this kind of the right time for you guys?

This is -- we believe it's the right time. These investments were planned in 2025 before any of these acquisitions were made, and we looked at our P&L and through our planning processes in the fall of 2025, looked at our growth potentials in 2026 and really focused on putting those investments in place then and giving us a head start going into 2026. So really not in response to them. And we actually feel these 2 players, Boston Scientific and Medtronic coming into the space really we welcome it. Our CEO, Rob, he's ready to compete with them, which I agree with. But I think it will bring more attention to the space. It will expand the market. So we really look at this as all upside from Bioventus perspective and what that will -- the opportunities that it will actually bring to us.

Got it. Shifting to PRP. You've highlighted it's the only system that only requires 1 centrifuge spend cycle. How pivotal is this point of differentiation in terms of clinicians looking to adopt PRP?

Yes, PRP, we think, to answer that question directly, we think that it's an important part of the decision. It's not just because we walk in there and say that they're going to switch on that alone. But we think it is 1 of the differentiators anytime, whether it be PRP or another device that you can actually make it easier for physicians. That's going to be an advantage no matter whether it's PRP or another product. our thesis and thinking about getting into PRP is really taking advantage of the synergies we get with our HA sales force. So we're entering this space with a product that is going to be highly accretive to our bottom line straight away because there's not a significant amount of investments. There are all kinds of synergies that we're -- our HA reps for going to the office today already, and now they're going to -- they're selling an HA are they going to bring in PRP. So the infrastructure that we have and the success that we've had with our HA sales force, really a medical device, talk about having multiple things in the bag. This adds another thing the bag for our HA sales force. And we've seen early on that this has been very beneficial both ways. One, getting conversations with our current customers about PRP and being those customers to sign up and switch to our device. But at the same time, reaching out to some new customers who maybe weren't buying HA from us before and now they're buying. So we're seeing benefits both ways on this and really are excited about the opportunities. But we think the biggest advantage we have is the sales force that we've been so successful with in selling DUROLANE, GELSYN, and SUPARTZ and really adding this to their bag to get synergies. And also from a look at it from an investment, again, we'll have the gross profit through the revenue growth that we drive, and that will be going to the bottom line because there's not a lot of investment to really drive this. So we're excited about that one for HA reps to be able to have something else to sell in their bags and also the benefits in the P&L that, that will actually bring from a financial EBITDA and also cash flow.

I'd say there's one other differentiation besides just the centrifuge spend is the benchtop processor. It's is that it allows more customization for the surgeon or a physician to choose [indiscernible], this is like depending upon what the patient is requiring to be treated. That allows them to have like just one system. A lot of these orthopedic doctors will have multiple systems because of what they want to do. They're able to customize it just using our own system. So not just a quicker process but 1 that's more efficient and customizable.

Great. I think for PNS and PRP together, you said should contribute 200 basis points to growth for the year. How are you tracking against that so far? What KPIs are you monitoring? And just any comments on that goal?

Yes. So our expectations for the first half of the year were not to be at 200 basis points. The 200 basis points was a full year commitment. So we're tracking in line with our first half expectations. And so I would expect the back half to be more than 200 while the first half is less than that. But in addition, just the pure revenue, we're looking at -- we've developed a sales pipeline. So obviously, you want to look at the opportunities that you have. What we talked about before with the temporary devices or the child devices to see how [indiscernible] many if you get me going to get a [indiscernible]. So we were tracking the number all from a PNS perspective, looking at the number of physicians that we've actually trained or surgeons that we've actually trained and then how many of them are adopting it. And so all of those are internal things that we're assessing and looking at. We haven't started to quote any of those externally at this point in time. That's something that we eventually want to do. But really looking at those internally from a PRP perspective, looking at the capital placements that we have, obviously, looking at the sales funnel, developing all of those things early on with these new businesses, and really looking at those metrics and monitoring them over time, and that's where we'll help us get more and more confident about the future.

Shifting to ultrasonics. You have a first first-of-kind offering. So how are you thinking about the investment required given that you're kind of being the market greatest this year?

Yes. So the Ultrasonic product came through us a few years ago through an acquisition. And then for those that don't know about this, this is really a game-changing technology. Again, another field visit that I did with Rob early on in his tenure, we met with a surgeon, probably a gentleman about my age, you've been working and doing surgery for a significant amount of time. And unprovoked or unsolicited, he told Rob and I that he thought this technology was revolutionary. So that was direct quote from him. Literally, the devices that we're competing with today are hammer and chisel, it's night day different. We strongly believe that we have the ability to change standard in care in this space over time. It's really when we -- the surgeon has more precision and control with this device, there's a lot less blood loss for the patient. And it also extends the life of the surgeon because they're not in there with their hands, moving things around and hammering and chisel and safe and at that we're excited about to win in this space with this technology.

On international markets, any markets you guys are very interested in entering, what are you in? And any criteria that you're evaluating whether it makes sense then enter another country?

Yes. We're always looking at all of our investments from an ROIC lens when we think this is another growth driver for us where think it has a significant amount of potential. I think Rob's come into the company and where he used to -- the business that he used to run before Bioventus was 25% of the revenue was in the U.S. and 75% was in international. Bioventus is pretty much the direct inverse of that is that we have 10% of our business internationally and 90% in the U.S. So he understands how to go to market internationally and has had a proven track record on how to be successful. So first start with that in his experience there. He's brought new leadership into this business that has a similar track record in business and international markets and how to go about that. So we've added talent, one through adding Rob and his commercial experience he's added talent that were put in place there that's really looking at these markets a lot different and has had early success early on. But the areas that we're actually looking at and where we think we have the most opportunity going to be in Asia, APAC. But specifically within APAC and China and Japan, we're not really penetrating those markets much at all today. So an immaterial amount of business and both of those we're working through regulatory processes looking at all of the things we have to do to enter those markets and working through that. The other area is going direct in Germany. So this is not a market that we really -- even though it's a mature market, it's not something that we penetrated very much there, but we're making investments from a sales force perspective and really taking ultrasonic itself into Germany and some of the other products. . The last market, I'd say, is the Middle East and specifically Saudi Arabia, where we really think that we have opportunity again some examples of success from Rob's past and the leader that we have in our international business. So then very successful in those markets. Obviously, there's some turbulent times over there right now, but we believe in those areas that we have a lot of opportunity to really accelerate growth and hasn't really been, I'd say, explored before as a company.

Got it. Turning to the P&L a little bit, how would you frame the margin profile of some of the expansion emerging products that we talked about as these scale should be accretive to corporate average?

Yes. Our gross margin is peer leading. Overall, we're -- compares to anybody else, we're either the best or close to the best, and it's really a strength in of our P&L, where we have the ability to grow. We have a high margin, generates a lot of gross profit dollars, so we can either expand our margins drop it to the bottom line like we did last year. We can take that money and invest it in the P&L like we're doing this year. But from a margin profile of our growth drivers, we look at -- start with PNS, it's a little bit less than our average from a gross margin perspective. But that's today early on. And as we get more volume through that over time, we'll have the ability to lower our cost structure and bring that margin more in line with the corporate average of 75%. . From a PRP perspective, that margin is a little bit lower than our corporate average. But again, the thesis for that investment was fully knowing that, that margin is lower. But when you look at that from the actual variable profit to the bottom line, it will be significant because the amount of investments that we're putting into that are not -- we've really already invested in the sales force, which is the biggest thing we need to do to drive that growth. And so from an ultrasonic perspective, it's actually north of our corporate average. And so overall, that is accretive to our gross margin. Again, high-growth potential, really strong growth margin combination. And then our international markets today, that margin is less than our corporate average, but we don't feel that these growth drivers are going to -- over time, as we get success in each of these areas, we're going to have better negotiating power. We're always going to be looking at our cost structure on how to bring it down. And so we don't think that the growth driver and where our future growth is going to come from, is it going to be a meaningful difference in our actual gross margin that we have today and still fully expect that we'll be in that range over time.

So we talked about how 2026 is an investment-heavy year. And you've also said that you're expecting to hold EBITDA margins of 20%. How should we think about the balance between reinvestment and margin expansion beyond 2026?

Yes, I think that that's a wait and see a little bit of that to see the success that we have this year and the new things that we discovered by taking these new products to market. The great thing is we have the flexibility, right? And we've proven that we can do that last year. I think this year, our margin will be a little bit less from an EBITDA perspective, we'll grow EPS. So that's how our guidance is set up. But when we get into 2027, we'll evaluate the milestones of how we're doing. Are we making the progress that we expected, yes or no, and really look at that. But we do believe that these growth drivers have so much potential that we're going to invest in them to realize their full potential, and that may mean another investment year, but we haven't gotten to the point where we've really fully decided on that.

With the last minute, let me turn it back to you guys. Anything we didn't discuss, that you want to highlight something underappreciated or anything on [indiscernible].

Yes. I think, one, thank you for having us, but we really feel our story in total is underappreciated. We've already said Bioventus is a very different company today than it was a few years ago. We've made significant products overall on our revenue growth on expanding our margins on changing our cash flow from negative to positive. We think this is a really compelling investment. It's rare and really unique opportunity to get into the company. We look into the future with these 4 growth drivers that we have. that we're investing in, we really be able to take our growth profile that we have today and really accelerate it over time at the same time expanding our margins and driving more cash flow. But overall, we feel like we've had a good track record of what we've accomplished to get the company where it is today. We have a really strong foundation, and now it's really bringing these growth drivers, igniting them and driving that into the future. And we think it's a great opportunity to get into an exciting company that has a bright future.

Perfect. Thank you guys for coming.

Thank you.