Good day, and welcome to Bioventus Inc. Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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.

Thank you. Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to the Bioventus 2022 third quarter earnings conference call. With me this morning are Ken Reali, CEO; and Mark Singleton, Senior Vice President and CFO. Ken will begin his remarks with a review of the third quarter and an update on our progress on our 2022 priorities. Mark will then provide further detail on our third quarter results and updated full-year guidance. We will finish the call with Q&A. The presentation for today's call is available on the Investors section of our website, bioventus.com. Before I begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A. Risk Factors of the company's Form 10-K for the year ended December 31, 2021, as well as our most recent 10-Q filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as the date of they were made. Although it may be voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with 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 accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website at bioventus.com. Now, I will turn the call over to Ken.

Thanks, Dave; and good morning, everyone, and thank you for your continued interest in Bioventus. As we finish the year, we continue to build a foundation for sustainable long-term growth. Earlier in the year, we successfully completed the integration of Bioness. In addition, we are on schedule with the integrations of Misonix and the recently completed acquisition of CartiHeal, which provides us with a transformational long-term opportunity to accelerate growth. With the Misonix integration, we are on target to achieve our goal of $20 million in synergies by the end of 2023. We are focused on improving our execution and internal processes to make us more efficient and strengthening our long-term outlook. And we are proud of the way our global team continues to strive toward achieving our goals. Our financial results for the quarter fell below our expectations and we are updating our full-year revenue and financial guidance to reflect these results and the expected impacts to our business during the fourth quarter. For the third quarter, revenue increased 26% to $137 million. Organic growth was 7% and after adjusting for exchange rate impacts, constant currency organic growth was 8%. Adjusted EBITDA of $23 million for the quarter was the result of lower-than-expected revenue as well as temporary impacts on our adjusted gross margin, which Mark will discuss in more detail. Our revenue shortfall in the quarter can primarily be attributed to transitory headwinds related to Gelsyn, our three-injection HA therapy, as well as changes in customer buying patterns near the end of the quarter due to reimbursement changes announced by Medicare that resulted in greater-than-expected volatility across our entire HA portfolio. We face two primary headwinds specific to Gelsyn. The first of these was higher-than-normal rebate claims due to unexpected prior period rebate charges from a private payer who found errors in their earlier claims reporting. We are working with this private payer on their reporting of rebate claims in an effort to avoid future volatility. The second impact in the HA market was related to the recent change in pricing to average selling price, or ASP, from wholesale acquisition cost, or WAC. Importantly, as I mentioned last quarter, we have successfully negotiated a decrease in the amount of the rebates to be paid on our preferred payer contracts. This change took effect at the start of the quarter and is now offsetting some of the deduction in selling price due to the changed ASP. However, we experienced volatility due to the change to ASP that was beyond our expectations during the quarter, as Gelsyn sales volume shifted during the quarter in more price-sensitive or non-contracted accounts as market pricing disadvantages arose. While we expect to see continued pressure on Gelsyn revenue through the first half of 2023, we believe that the mechanics of ASP reporting will resolve this issue as full ASP reporting takes effect and Gelsyn pricing stabilizes to a more competitive position. As a reminder, ASP reporting is based on a four-quarter look back. While both Gelsyn and Durolane moved from WAC to ASP pricing, this dynamic did not impact Durolane, which maintained strong double-digit growth for the quarter. Durolane possesses the highest molecular weight of any HA product. And that clinical differentiation, coupled with our market access strategy, continues to resonate with customers as we further increased our market share in single-injection HA therapy which is the fastest-growing segment of the HA market. In addition to these factors impacting Gelsyn, we also experienced some volatility across our broader HA portfolio at the end of the quarter, as customers delayed purchases while they awaited potentially lower pricing resulting from the quarterly reset in our ASP which happens at the middle of the last month of the quarter. We expect decreasing impact from the ASP shift as quarter-to-quarter pricing changes become less volatile over the next few quarters. Despite these near-term challenges, we continue to take overall HA market share in the quarter and we are confident we can build on our number two market share position. We believe we are on track to become the market leader across our HA portfolio, given four distinct factors that position us favorably against our competition. Number one, our market access strategy with our exclusive and preferred payer contracts. Number two, our complete portfolio of one, three, and five injection therapies is unique among our competition. Number three, Durolane possesses the highest molecular weight of any HA product on the market, providing longer residence time in the knee and clinical differentiation in the single injection space, the fastest-growing category in the HA market. And number four, we have the largest sales force focused on the specific customer base prescribing HA therapy. While we are disappointed that total company organic growth was below our double-digit target, we achieved high single-digit organic growth, driven by strong results and execution across our restorative therapies and surgical solutions verticals. Within surgical solutions, we delivered strong double-digit organic growth as we continue to see a steady recovery in elective procedures as hospital staffing issues improved. OsteoAMP Flowable, our injectable allograft, bone graft substitute solution, continues to grow rapidly following its introduction last year. We have also fully launched Bone Scalpel Access in early Q4. And combined with OsteoAMP Flowable, we now offer a complete portfolio in minimally invasive spinal fusion, the fastest growing area in spine. Additionally, Misonix continues to grow double-digits in the US on a pro forma basis. Last month, we put our full surgical solutions portfolio on display at the North American Spine Society Conference. We were encouraged by the reception our hardware-agnostic portfolio received from spine surgeons. Our sales and marketing team had many positive conversations with attendees about the clinical and economic value that our combined portfolio can bring to their spinal fusion and decompression procedures, as well as the economic benefit our products can bring to their hospitals. Within Restorative Therapies, we delivered high single-digit organic growth, driven by the recovery in our advanced rehabilitation portfolio, following the previous quarter's supply chain disruptions. Unfortunately, in the past week, we were informed by our contract manufacturer that supply chain headwinds have arisen again for key portions of our Advanced Rehabilitation portfolio, which has reduced our expected revenue for the fourth quarter. The improved performance of Advanced Rehabilitation during the quarter was partially offset by a slower-than-expected recovery in Exogen which we anticipate will remain a headwind for the rest of this year. Exogen underwent significant changes earlier this year to our internal processes, as well as the realignment of our sales force to improve overall sales effectiveness. While this has caused some disruption throughout the year and contributed to the shortfall against our original full-year revenue expectations, we are seeing tangible evidence of a sales force that is gaining effectiveness and rapport with their accounts. We are also driving steady reductions in the time required for us to process orders through the payer. As we continue to improve our processes and our representatives gain greater effectiveness, we are building momentum and expect to see a positive inflection in the coming quarters. Finally, our international segment grew 27% on a reported basis, driven by our Misonix acquisition. Constant currency organic growth was 5%, primarily driven by continued strength in Durolane. As discussed on our second quarter earnings call, we continue to see MDR related regulatory headwinds in our advanced rehabilitation portfolio in the third quarter. Despite productive conversations with our EU notified body indicating no outstanding issues in our final submission for the MDR CE Mark, we have not yet received formal approval. Therefore, we now believe this headwind will continue through the fourth quarter. Reflecting on the significant and strategic changes over the past 20 months, Bioventus has invested in multiple growth drivers to diversify a business that has been historically concentrated in HA and Exogen. Many of these new growth drivers are now coming to fruition and will be critical for us to execute as we move forward. The value of these investments is evident when looking at the combined double-digit growth achieved across the Bioness and Misonix businesses we acquired last year. These investments have nearly quadrupled our total addressable market to roughly $16 billion, providing us with a pathway for accelerated growth across the short, medium and long-term. Additionally, products launched within the last few years, such as Durolane and OsteoAMP, continue to gain market share and grow double-digits. Today, 40% of our legacy Bioventus product revenue comes from products launched since 2018, demonstrating a significant track record of innovation as well as successful product launches and commercialization. While we expect to fall short of our goal of double-digit organic revenue growth this year, the Bioventus team remains highly focused on improving our execution, internal processes and operational efficiencies. Turning to our recent acquisitions, we continue to make good progress on the integration of Misonix and successfully completed the first phase of our IT transition at the end of August. Over the course of the next 12 months, we will complete our systems integration and move the manufacturing of Misonix products from Farmingdale, New York, to our facility in Memphis. We remain on track to complete the integration of Misonix by the end of 2023. During the quarter, we also kicked off the integration of CartiHeal and we began to execute on our launch plans. We are excited for the first case in the US, which we expect to be completed in Q4 and we anticipate the first cases in Europe will take place in the first half of next year. As we've discussed in the past, we are taking a measured approach to our initial launch strategy in order to ensure that all surgeons receive mandatory cadaveric training and understand both the clinical utility of the implant and the reimbursement mechanics. We believe that this methodical approach will lead to broader private payer coverage and facilitate successful adoption of the product. As a reminder, CartiHeal gives us a significantly differentiated treatment in the high-growth market of cartilage replacement with a total addressable market size of $2.6 billion. As discussed on prior earnings calls, given the increase in debt to finance the CartiHeal transaction and future milestone payments, we are pausing on further M&A. Additionally, we have begun a thorough review of our spending with the recognition that we need to carefully manage our resources and discretionary spending. Also, in order to drive optimal efficiency and set the company up for sustainable long-term growth, we reorganized into three business units during the third quarter that are centered around our revenue-based, customer-focused verticals. These business units consist of pain treatments and restorative therapies, surgical solutions and international. Bioventus has consistently focused on internal talent development. And as we have made this transition, we promoted three leaders from within each business to newly created General Manager roles, while simultaneously eliminating the Chief Commercial Officer role. I'm excited for my colleagues that have received these promotions and look forward to their success as we continue to execute our growth strategy. In conclusion, Bioventus has made a significant transformation since going public about 20 months ago. We created a more diversified portfolio that has driven high single-digit above market growth in a medical device business of significant size and scale, all while successfully integrating three acquisitions. Our expertise and success in commercializing new technologically advanced medical devices and our ability to gain market share with our best-in-class commercial channels, our key strengths that bode well for our future product launches that are in our pipeline. Our larger scale has been meaningful, particularly when faced with the volatility of the temporary pricing shift with Gelsyn and our softer than expected Exogen performance. Importantly, we view our headwinds as temporary and not impactful to our long-term goals. We are excited about the multiple growth levers and market opportunities across our businesses and believe that there are significant opportunities to gain share in large and growing markets. We remain confident in our ability to deliver cost synergies from our acquisitions and improve our overall expense profile across the business, as well as enhance our growth and margin profiles by leveraging our leading medical devices scale and commercial infrastructure. Now I will turn the call over to Mark.

Thanks, Ken, and good morning everyone. Let me begin with a review of our third quarter results. Revenue of $137 million increased 26% compared to the prior year. We saw a 7 percentage point increase from organic revenue along with a 19 percentage point increase related to our acquisition of Misonix. Lower sales and gross margin headwinds also impacted our earnings as we generated adjusted EBITDA of $23 million and adjusted diluted earnings per share of $0.08. Across Pain Treatments, sales were flat compared to the prior year, as double-digit growth in Durolane was offset by a double-digit decline in Gelsyn. In Surgical Solutions, we grew 94%. We saw 32 percentage points of organic growth across our bone graft substitutes, representing back-to-back quarters of double-digit growth as the market normalizes from recent hospital staffing issues. The third quarter included a 62 percentage point contribution from Misonix surgical portfolio. Finally, Restorative Therapies delivered 38% growth. Revenue from Misonix wound products contributed 31 percentage points. Organic growth of 8 percentage points was enhanced from the recovery in our advanced rehabilitation portfolio from supply chain challenges seen in the prior quarter and offset by slower-than-expected recovery in Exogen. The return of supply chain headwinds in Advanced Rehabilitation, along with the delayed receipt of EU MDR certification will hinder our organic growth in the fourth quarter. Moving down the income statement, adjusted gross margin of 75% was down 350 basis points compared to the prior year and was driven by three factors. First, we had unfavorable product mix due to the strong recovery of our lower-margin Advanced Rehabilitation products, combined with lower sales of Exogen, which is a higher-margin product. Additionally, the impact of our Misonix acquisition also negatively impacted our sales mix during the quarter. Second, we were impacted by the unexpected prior period rebate claim related to Gelsyn which Ken discussed earlier. And third, we incurred higher freight costs throughout the quarter. Overall, adjusted operating expenses increased $15 million, primarily by costs related to Misonix when compared to the prior year. Now turning to our bottom line financial metrics. Adjusted EBITDA totaled $23 million compared to $21 million in the prior year. Increased revenue was offset primarily by higher operating costs related to our acquisition of Misonix and lower gross margin, as discussed a moment ago. Adjusted operating income increased to $18 million from $16 million in the prior year. Adjusted net income totaled $6 million compared to $11 million a year ago due to higher interest expense and we earned $0.08 of adjusted earnings per share. Now turning to the balance sheet and cash flow statement. We ended the quarter with $34 million of cash on hand and $424 million of debt outstanding. Our revolving credit facility remains undrawn at the end of the third quarter. Operating cash flow represented an outflow of $1 million for the quarter, as we saw increased working capital. We expect operating cash flow to accelerate in the final quarter of the year as EBITDA increases and we see improvement in working capital. Finally, let me provide an update to our 2022 guidance. We now expect 2022 revenue to be in the range of $527 million to $532 million compared to our previously issued guidance of $547.5 million to $562.5 million, representing a $25.5 million reduction in revenue at the midpoint. Our updated guidance primarily reflects three changes in our outlook. First, we expect Gelsyn sales to continue to be impacted by the shift in sales volume related to the transition from WAC to ASP acquisition cost. This represents approximately a quarter of the reduction in our revenue guidance. And while we expect Gelsyn pricing to continue to be a headwind through the first half of next year, we expect pricing to become more favorable in the second half of 2023. Second, we expect to see Exogen sales recover more slowly than previously expected, as we regain our sales momentum following the realignment of our sales force and operational challenges earlier this year. This represents slightly less than half of the reduction in our revenue guidance. And lastly, we expect lower revenue from our Advanced Rehabilitation portfolio due to supply chain headwinds and delayed EU MDR approval representing approximately a quarter of the reduction to our revenue guidance. With the reduction in our revenue guidance, pressure related to gross margin and slower reduction in planned spending due to prioritization of initiatives, we are lowering our adjusted EBITDA guidance. Adjusted EBITDA is now expected to be in the range of $75 million to $79 million, compared to our previously issued guidance of a range of $94 million to $104 million. Corresponding to the reduction in adjusted EBITDA guidance, we are reducing our full-year 2022 adjusted diluted earnings per share guidance to $0.20 to $0.25, compared to our previously issued guidance of a range of $0.47 to $0.57. The updated EPS guidance also now takes into account the impact of purchase price accounting for our CartiHeal acquisition that was recently finalized. While we continue to pay interest on the financing at 8%, for accounting purposes, we will accrue interest at approximately a 15% rate. As a result, we now expect to recognize higher interest expense related to our seller-financed acquisition. In closing, we are focused on bringing increased discipline and rigor to our revenue forecasting and expense management processes. Though we are not satisfied with our results, we are confident in our ability to drive revenue growth and expand our margins as we delever our balance sheet and prepare for future milestone payments related to CartiHeal.

We will now begin the question-and-answer session. The first question today comes from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.

Good morning, everyone. This is Chase on for Alex. So, Ken, starting off from us on the HA piece. It looks like revenues were down about 13% sequentially for pain, while we have volumes up for Durolane. So you gave some helpful color there, but can you go more in-depth for us a bit on Gelsyn versus Durolane impact? With all this sequential revenue decline in Gelsyn did you see any top line impact on Durolane as well that diluted those volume increases you're seeing? And then is pricing actually helping you take share with Durolane, because, I mean, we saw a pretty nice increase in Q3? Thanks.

Yeah. Thanks for your question on that. So the HA market is really a three distinct markets is the best way to think about that. We have the single injection market, Durolane, where we continue to grow double-digits and take market share and under favorable pricing conditions as well. Durolane, also, as a factor, where it's the highest molecular weight with the strongest clinical data on the market. So it gives us distinct product feature advantages as well. Gelsyn is in the three-injection market and that is more of a commodity market today that is much more price sensitive. And with the shift from WAC to ASP, it put Gelsyn in a position where it was not as price competitive over the third quarter. As mentioned on the call, we expect this to ride itself. This is a temporary phase. And by the second half of next year, our pricing will be more competitive with Gelsyn and we expect to regain any market share that we lost in the three-injection. And then SUPARTZ is our five-injection and that did not go through a pricing change from WAC to ASP that was already ASP reported. But, all told, we continue to gain market share and our single injection product loss a little bit on three-injection and continue to go well with the five-injection. And, as I mentioned, we continue to gain overall market share in the HA market. As you pointed out, we've had significant gains in volume and we expect that to continue and continue to move forward from our number two position and to hopefully be the market leader here in the quarters to come.

Thanks. That's helpful there. I guess, help us understand a little bit more on the bridge to double-digit organic growth, would be helpful as well? Is this on the paint side, is this something we should expect to be similarly year-over-year impacting the pain business until three quarters from now when everything kind of stabilizes for Gelsyn or kind of walk us through the bridge to overall organic double-digit growth there with, obviously, strength in surgical and sort of it's good to see, but I guess the bridge there would be helpful to kind of hear you talk about?

Sure. And I'll emphasize that we continue to see strong double-digit growth in big areas of our business. As you pointed out, surgical solutions had an outstanding quarter, advanced rehabilitation had an outstanding quarter, the biggest impact we had was in pain and we see that headwind, although temporary, continuing until the midpoint of next year. At the midpoint of next year, Gelsyn in particular will be in a better position. Pricing wise, the year-over-year comps will be favorable as we shifted from WAC to ASP on July 1. So we expect that to kick in. We will continue to see double-digit growth in certain aspects of our business, but certainly the pain area, we don't anticipate that until we get beyond this current situation with Gelsyn.

And then just last from me, just from a modeling perspective, it's a little bit helpful to understand the mix between the top line impact on Gelsyn between the volume decline and then that rebate issue. Any more additional color there would be great.

Yes. When you just look overall at our EBITDA guidance coming down, I think, two-thirds to three-quarters of that is due to the revenue drop in total. When you look at gross margin perspective, we have some headwinds in freight that we incurred in the third quarter that we expect to continue to see the full impact of that in fourth quarter. We had some of our product costs come in higher in 3Q that we would continue to see in 4Q. We did mention in our script about higher rebates that we saw in third quarter. And while those should improve in fourth quarter, we do expect to have a higher run rate that we will be accruing to for our private payers. So there's kind of an impact on our margin in the third quarter. From a third quarter to fourth quarter perspective, our third quarter perspective, we also had some savings identified that didn't materialize. I guess, one example that I'd give on that was higher bad debt, which is really related to our integration of Misonix and Bioness. We expect to be seeing improvement on that as we - one thing we did accomplish in third quarter is the integration of our ERP systems and bringing those acquisitions onto our Bioventus ERP system, which gives us more visibility into the customers' contact information and more efficiencies within the organization to collect accounts receivables. So we're working that and expect to see some improvement in that in fourth quarter, but that was an impact for us in 3Q.

Okay, thanks for the questions, guys. I'll hop back in queue.

The next question comes from Kyle Rose with Canaccord Genuity. Please go ahead.

Hi, this is Caitlin on for Kyle. Just a quick question on Advanced Rehab. So given the supply issues have returned, how long do you see these issues lasting and do you anticipate that any supply issues in any other business will arise?

Yeah. Good question there. As we talked about, this is one specific product in Advanced Rehabilitation. And just to characterize it, it's a capital equipment piece and the order book is very solid. And certainly, we - these aren't lost sales just because we have a supply chain issue, it's temporary. We do expect it to get resolved by next year and expect to start shipping units again in the first quarter as we move forward. So, at this point in time, that's how we're looking at it. As far as the rest of the business, we've been fortunate. The supply chain issues we've had this year have been really relegated to this specific product. And, as I mentioned, it's capital equipment. The orders did not go away. This is a unique device and we'll be able to capture that revenue as the supply chain issues lessen.

Got you. And then on CartiHeal, can you just walk us through the expected ramp on the product and when we can expect meaningful revenue contribution?

Sure. And, first of all, I'd say I was able to see a couple of CartiHeal cases in the quarter and we are extremely excited about this technology. It's a perfect outpatient procedure in cartilage replacement and it's a perfect fit with Bioventus and with our sales team that calls on sports medicine surgeons today with our HA product. We are going to start cases here in the US later this quarter and go through a process where each surgeon is going to have to be trained via cadaveric lab and then we walked through the reimbursement steps and what's important is CartiHeal has a Category 3 code today that will be crosswalk to an existing Category 1 code for reimbursement and payment. Our goal is to do a methodical approach in building our business with CartiHeal. We do not expect meaningful revenue in 2023, but over the next year we should be able to provide better guidance on the trajectory of growth in the future years to come. But we're very excited about this. It's been a terrific start. The team has done a terrific job in bringing on board the key opinion leaders that are going to do the initial cases in the United States and certainly we look to start cases in Europe in the first half of next year. So all of that is in place and moving forward very nicely.

Awesome. Thank you so much.

The next question comes from Drew Ranieri with Morgan Stanley. Please go ahead.

Hi, everyone. Just - Ken, maybe to start, as you're looking at these issues and I get that some of these are transitory, what's giving you really the confidence on the visibility to maybe label some of these as transitory? And maybe specifically with the HA side, you talked about being like kind of mid-next year until these, kind of, resolve, but, again, kind of, what gives you that confidence - that level of confidence and that there is not broader implications for the other parts of the HA portfolio to come?

Yeah. Great question, Drew. So we model this out and we have a full understanding of where our pricing is going to go over the next year with all three HA products, Durolane, Gelsyn as well as SUPARTZ. So if you look at it that way, we have a really good understanding of that as well as the market dynamics and we can pinpoint based on the look back. Keep in mind that this HA lacked ASP pricing change is really a four-quarter look back. So when we look back right now, we have the WAC pricing, the wholesale acquisition cost involved in our ASP calculation. By July 1st of next year that will have gone away and that will put Gelsyn in a much more favorable pricing dynamic than what it is today, where it's a combination of WAC and ASP. So we're able to constantly look at that. We certainly know the competition, we know the markets and we know where the pricing is going to be and we're confident it's going to be transitory in that respect, so that's Gelsyn. Durolane is a very different story and, as articulated, we continue to grow double digits there. Keep in mind, Durolane was just launched in 2018. It's early in its product life cycle. It has the highest molecular weight out of any HA product. And we see ourselves continue to gain market share with Durolane. We know where the pricing is going relative to ASP and we've got a firm handle on our ability to continue to grow. Lastly, I would mention our preferred and exclusive contracting with payers makes a big difference here with both Durolane and Gelsyn for that matter. With Durolane, we continue to have exclusive contracts with United and Cigna and that drives significant entree into many new accounts. And then with Gelsyn, we are one of two. We're a preferred payer contracts with both United and Cigna, which also helps us with Gelsyn maintain our presence in key accounts and, obviously, as the pricing transitions, we expect to get back some of the lost accounts or business that we're not getting today.

Got it. Thanks. Thanks for the detail. And you sort of talked about this a little bit earlier, but as you're thinking about confidence in growth and driving margin expansion as you're deleveraging, how should we think about that for 2023? I know you don't necessarily want to provide guidance, but I mean this is a significant guidance reduction that we're seeing today, there are some incremental challenges as we're heading into next year, but how are you thinking about the business, maybe ex Exogen and Gelsyn, and kind of this advance rehab product as we're - as you're kind of thinking about 2023 growth?

Sure. And I can talk about it qualitatively, Drew. In terms of all the tailwinds we see in 2023 and we obviously build this business over the past 20 months with a long-term view of driving growth and when we look at it, obviously, we're a one-year post integration of Misonix and we see a significant growth and opportunity in surgical solutions that includes the bone scalpel as well as the bone graft substitutes. As our direct sales force that we inherited from Misonix with the acquisition continues to gain interaction with bone graft substitutes, we see that as a big inflection point and expansion opportunity keeping in mind that we only have 5% of that market today. We are going to be launching the SonaStar Elite in 2023 as well. And, obviously, as we've talked about in the quarter, the bone scalpel access with minimally invasive spinal fusions will be fully launched through the course of 2023. We are also launching in this quarter a new version of Exogen, that is in a patient encouragement software that ensures better compliance and better visibility of patient compliance with Exogen that we've gotten great feedback on from surgeons. So that's in the launch mode now and that will impact all of 2023. As mentioned, we do see ourselves regaining traction with Gelsyn by the second half of next year and we view the rehab business regaining our supply chain issues, resolving those in the early part of 2023, and having that product in place through the course of all of next year. And we do see ourselves resolving the MDR issue mentioned on the call and being able to ship the L300 through most of next year as well. And then we continue to see growth in our peripheral nerve stimulation, growth and continued market penetration. And as far as CartiHeal goes, we'll be able to provide further updates as we go through next year and certainly a more significant ramp as we go into 2024. And then the last thing I'll mention, Drew, is, just on TalisMann, which is our next generation peripheral nerve stimulation device, which we expect to have 510(k) cleared by the end of next year as well. So those are all qualitative tailwinds that we'll talk about as we think about 2023 and discuss that on our Q4 earnings call in March.

Thanks for taking the questions.

The next question comes from Amit Hazan with Goldman Sachs. Please proceed.

Good morning. This is Phil on for the team. Thanks for taking the questions. I mean, I keep following along the same general lines that we've heard already. So the first one on the Gelsyn side, I think, maybe asking the question slightly differently, I'm wondering what was sort of different or incremental versus what your expectations were internally that you're seeing sort of occur in the end market? And then the sort of follow on for that line of questioning is, is Durolane in a premium price position as Gelsyn in retrospect was just for our understanding? Thanks.

Yeah. Great question on Gelsyn. And the one thing we can't anticipate - and we certainly anticipate the pricing in Gelsyn, but we can't anticipate what competitors do on their pricing. And, in this environment, price discipline is extremely important, meaning that you can't reduce your price to try to get business, because that impacts your long-term ASP, as you can imagine, with a fourth quarter look back. But we've had some competition that has done that deliberately to get business. It's obviously a short-sighted lever for growth and it doesn't lead to long-term maintenance of market share. So that's the situation we found ourselves in with Gelsyn and that's a competitive dynamic that's certainly we could not predict, because it doesn't - it's not a logical approach to the market when you're looking at trying to maintain price and value over the long term. Regarding Durolane, a very different pricing position with Durolane and it's not as price-sensitive of a market. As I mentioned, the three-injection market is much more of a commodity market and much more price sensitive. The single injection market with products like Durolane is a premium product with the highest molecular weight, it has product characteristics that are unique in a single injection product. Once again, this is the fastest growing area of the HA market, is a single injection area. So it puts us in a very nice position. That's why we are continuing to gain market share in the HA market overall in this environment, because of a product like Durolane.

That's great. That was really helpful. Thank you. A follow-up question. I believe, Mark, in your prepared commentary you've characterized roughly one-quarter of the guidance reduction is attributable to the Gelsyn shortcoming shortfall. So it's another question along the lines of durability of the other headwinds. It sounded like the supply-related issues on the advanced rehab side, you expect to sort of be a catch-up in 2023 once resolved and then, sort of, what are you looking for in the Exogen end market outside of what you're doing with the product release to see a re-acceleration in that business? Thanks.

Yeah. Let me speak to Exogen there on your question. And we are laser-focused on Exogen today and here is what we're doing with Exogen. First of all, as we mentioned, we had a sales force reorganization earlier this year to really put more focus on specific specialties, sports medicine with our HA business and eventual CartiHeal key area for us and then lower extremity with our Exogen reps. Our Exogen reps who also picked up our wound products and selling those in the office. We also put in place direct sales management and that's effective as of late August. Earlier, we had sales management that really encompass managing both the HA as well as the Exogen areas of our business, but made a decision earlier in the quarter to put this in place and provide more direct focus on the Exogen business. So that just happened. We also are improving our processes and most of the Exogen orders today as of mid-third quarter are processed within 72 hours and this is a drastic improvement, it's an improvement in customer service and certainly gets the unit to a patient quicker, to a patient in need. As I mentioned, we're also launching this quarter the patient encouragement software, which we feel is going to allow surgeons to track compliance better. This was a key wish and factor that surgeons look to when they want to understand if a patient is using the device and using it in a compliant way. So this is just being launched right now. And the last thing I'll mention that we really brought to fore here is an omnichannel approach with Exogen, which offers a broader reach with an inside sales team that is less expensive, but is able to reach areas - more rural areas in the country where we don't necessarily have a sales rep or a direct rep that makes financial sense. So that's where our approach to really Exogen is. And certainly in the early going here of trends, we're optimistic that we're going to reach a positive inflection point here.

And then just to kind of address - this is Mark, your first part of that question, we talked about Gelsyn, the other two parts are MDR - - or we have portfolio from an international perspective and we're working through that with a notified bodies. We've been getting positive feedback from them all the way along the process. Our teams have been doing a great job of driving that. It's just not all the way through those hurdles. And as Ken kind of mentioned in some of his remarks earlier, we don't expect - we expect the demand because of this unique product, they will still be there. Once this MDR gets approved and cleared, then we have the inventory to deliver that and, hopefully, we'll be successful. But we don't expect that to go away. So if it doesn't happen this year, we'd expect that to roll into 2023. The second challenge we had in our advanced rehabilitation portfolio is also supply chain related. So the first one is MDR. The second one is supply chain related where we didn't have actually parts from our own supply, from our vendor and this is related to a unique component, so it's separate from the international opportunity. But we would expect that demand to be there as well for this product. We're pretty unique in that market and there is not a lot of competition. So once the supply chain is strengthened, then we'll be able to ship that product accordingly, but right now we don't have enough confidence to put that into our 4Q numbers.

And just one other comment on MDR. I think, it's important to recognize, as mentioned on the call, there are no outstanding issues relative to us gaining our CE Mark. This is a delay, a backlog with the notified body. Unfortunately, with all the products that are going through MDR, right now we've been a little bit of a victim here on that, that's beyond our control, but certainly the team has done a terrific job in addressing all issues related to this. So, now, we're just in a wait mode and wait-and-see mode to get the CE Mark.

Thanks for the additional color.

The next question comes from Robbie Marcus with JPMorgan. Please go ahead.

Hi. This is Rohin actually on for Robbie. So I just wanted to touch on kind of the adjusted EPS guidance. It came down pretty significantly relative to the first half guidance you provided last quarter and, obviously, without kind of providing formal color on 2023, but with all the moving pieces, could you just elaborate more on some of the drivers here? And, also, how you're thinking about adjusted EPS growth relative to sales and adjusted EBITDA growth moving forward? Thanks.

Yeah. So from an EPS perspective, if you look at that, compared to our prior guidance, so when you look at what we've achieved in 3Q and then you move into 4Q and kind of look at the full year, first thing is that when we were closing the CartiHeal deal, we didn't have full visibility to the purchase price accounting from an interest rate perspective. And so, now, we're accruing to a higher interest rate of 15% when you're looking at fee EPS. And then - but the cash payments that we're making are still at 8% on the milestones for CartiHeal. So that hasn't changed, but the purchase price accounting has made that worse than before when we issued guidance. When you look sequentially from 3Q to 4Q, our EPS is coming down, but it's really due to a full quarter of CartiHeal interest rate. We had a gain on a swap in 3Q. This is not going to repeat in 4Q. That's about $2 million of that. That doesn't repeat into 4Q. And then we have some offsets of that with higher EBITDA moving into 4Q.

And we do see as we go forward and we make these two milestone payments on CartiHeal next year, the two $50 million payments. Obviously, interest expense goes down significantly in the latter half of next year, which is going to positively impact EPS.

Great. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Ken Reali, CEO, for any closing remarks.

Great. Thank you, Betsy. And thanks everyone for your continued interest in Bioventus. While we have some near-term challenges in our business, we are confident in the revenue and earnings growth opportunities we have created at Bioventus over the past 20 months. We also view these headwinds as temporary and not impactful to our long-term goals. We participate in large growing markets and provide innovative differentiated products to our patients. In the coming quarters, we look forward to building on our short and mid-term growth drivers and expanding margins to create stakeholder value through our enhanced portfolio and synergies from our recent acquisitions. And, finally, I would like to thank our global team for their dedication and commitment to our mission of bringing innovations for active healing to patients around the world. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.