Good day, and welcome to the Bioventus First Quarter 2024 Earnings Conference Call. Please note, this event is being recorded. I would now like to hand the call over to Dave Crawford, Vice President of Investor Relations. Please go ahead.

Thanks, Andrea, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2024 First Quarter Earnings Conference Call. With me this morning are Rob Claypoole, President and CEO; and Mark Singleton, Senior Vice President and CFO. Rob will begin his remarks with an update on our 2024 priorities and our business. Mark will provide detail of our first quarter results and discuss our updated 2024 financial guidance. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website. But before we begin, I would like to remind everyone that our remarks today 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 SEC, including Item 1A Risk Factors of the company's Form 10-K for the year ended December 31, 2023, and such factors may be updated from time to time in the company's other filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date that they were made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles or GAAP. 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.

Thanks, Dave. Good morning, everyone, and thank you for joining our call this morning. We're off to a very strong start to the year, and our Bioventus team is driving significant improvements across our business. During our last call, I introduced the three priorities we're focused on: accelerating revenue growth, improving profitability, and enhancing our liquidity position. I'd like to begin today by reviewing our progress. With respect to our first priority, accelerating revenue growth, we delivered 15% organic revenue growth in Q1 after removing the impact of our own divestiture. Our team generated this strong performance through better strategic focus and disciplined execution of the plan that we established at the beginning of this year. Let me share a few of the highlights. With respect to our HA business, the material impact from the reimbursement change is behind us, and we delivered double-digit growth in Q1, which was propelled by significant volume growth in Durolane, our single-injection therapy. Durolane now accounts for over two-thirds of our total HA revenue, and we believe we have a platform for sustained growth with this clinically differentiated therapy for several reasons. First, the market continues to shift from multi-injection therapies to single injection, which is why it's the fastest-growing segment of the HA market with projected annual growth in the mid-single digits. Next, the awareness and recognition of Durolane's compelling clinical differentiation is spreading, which is why more clinicians and patients are making it their preferred choice. The positive impact from this market growth and clinical differentiation is augmented by the fact that Bioventus now has the most preferred payer coverage in the U.S. in the single-injection market, thanks to our team's successful contracting strategy. Bioventus also has the largest fully dedicated HA commercial team in the U.S., and our team is doing a great job shifting their time and efforts to target larger accounts, which is producing early gains. All of these volume growth drivers will be supported by continued sequential price increases that we expect will ramp up during the second half of this year. And we currently only have about a 25% market share in the single-injection market, which further enables us to grow our HA business well above market over the next few years. As a result of this powerful combination and our expectations for the remainder of the year, we anticipate HA revenue growth in 2024 to be high single digits to double digits, which is an increase from what we previously shared. Regarding Surgical Solutions, we also accelerated to double-digit growth across both ultrasonics and bone graft substitutes in the first quarter. Let's talk about ultrasonics first. I'm encouraged by our progress with our Q1 performance, but even more excited about our long-term potential with this business. Our unique technology provides surgeons with more control and versatility while saving them valuable time, which is why we believe our technology can become the standard of care. Meanwhile, our bone graft substitutes team is strengthening our commercial execution with both existing and new distributors, which resulted in above-market growth in Q1. As a result of our momentum with both ultrasonics and BGS businesses, we now expect double-digit growth across Surgical Solutions in 2024. And with respect to our International segment, Q1 growth was below our expectations due to the timing of some shipments. While the team is focused on driving more consistent quarterly results in the short term, we remain very optimistic regarding the long-term growth potential of this business. And I'll tell you, Mark and I were in Europe a few weeks ago to dive into the business, collaborate with our team on our growth priorities, meet with customers, and our visit confirmed for us that our International business possesses significant untapped potential, which is why we expect strong and sustainable double-digit growth as we build out our international presence with a targeted focus on the products and geographies that will generate the highest ROI. Now I'll shift to our second focus area, boosting profitability. I'll start by highlighting that we have a very healthy peer-leading gross margin in the mid-70s. The reason I mentioned this is because one of our first priorities of accelerating revenue growth combined with the gross margin in the 70s paves the way for sustained increases in our EBITDA and operating margin. So as a result of our Q1 revenue acceleration and healthy gross margin, we drove over a 300 basis point increase in our adjusted EBITDA margin. And as mentioned during our last call, revenue growth is not our only tool to improve our profitability. We will continuously explore areas where we can reduce costs over the coming months and years to either invest in more productive initiatives with a higher ROI or to drop the savings to our bottom line to further accelerate our margin expansion. And now I'll turn to our third major focus area, improving our liquidity position. We reduced our net leverage ratio to below 4x at the end of Q1 because of our increase in adjusted EBITDA. The reduction in net leverage to below 4x was significantly ahead of our prior expectation of achieving this target by the end of 2024. We will stay focused on this priority as we expect to continue to steadily pay down our debt in the quarters ahead, and we are committed to reducing our net leverage ratio to around 3x as we exit 2025. That concludes my update on our three priorities. Before turning it over to Mark to dive deeper into our financials, I want to emphasize that although we have significant work ahead of us, I'm excited about the excellent teamwork that's taking place across our organization to advance our business. We are improving our fundamentals every single day in many areas, ranging from better sales operations to enhanced customer experience to more disciplined supply chain and inventory management to support our growth and improve our future cash flow to dispassionate and closely track resource reallocation based on our priorities. Moving forward, my leadership team and I will be laser-focused on consistently delivering strong results quarter after quarter and year after year across each of our three priority areas. And as we continue to accelerate revenue growth, boost our operating margin, and generate increased free cash flow, we expect our valuation multiple to align with our peers, which will translate into significant shareholder value creation. Now I'll turn the call over to Mark.

Thanks, Rob, and good morning, everyone. Let me start by saying that I'm excited about the momentum exhibited throughout our business. The robust execution by our commercial organization drove meaningful revenue and EBITDA growth. Meanwhile, our corporate teams made tangible progress on improving our processes. As we move forward, we look to consistently approach our business with a continuous improvement mindset to enhance our performance and drive further efficiency across Bioventus. Now turning to our results for the quarter. Revenue of $129 million represented a growth of 9% compared to the prior year. Both our HA and Surgical Solutions businesses performed better than our expectations. Adjusting for the divestiture of our Wound business, organic revenue increased 15%. In addition, adjusted EBITDA of $23 million increased $6 million and represented a 33% increase compared to the prior year. The increase was driven by higher revenue and improvement in our gross margin. Adjusted gross margin of 76% increased 190 basis points compared to the prior year. This was a result of favorable revenue mix given strong growth from the higher-margin HA and Surgical Solutions businesses and the impact from the divestiture of the lower-margin Wound business. Looking more closely at our revenue performance for the quarter across Pain Treatments, revenue growth accelerated 22% compared to the prior year as we maintained our double-digit volume growth, primarily driven by Durolane. As expected, we saw a sequential increase in price and expect this trend to continue throughout the year. As Rob mentioned, our strong execution is expected to drive growth above our earlier expectations for the year. In Surgical Solutions, revenue growth accelerated to 16% as both ultrasonics and BGS generated double-digit growth. With our recent growth acceleration in Surgical Solutions, we are monitoring our supply chain closely. And despite some recent shortages, we currently do not anticipate a meaningful impact on our projected growth. Shifting to Restorative Therapies, sales fell 16%, driven by the impact of our Wound business divestiture, which accounted for 19 percentage points of the decline. On an organic basis, Restorative Therapies increased 3 percentage points, driven by Exogen through our efforts to improve sales force execution and processing reimbursement claims more efficiently. Finally, our International segment grew 1% compared to the prior year and was even with the prior year when factoring in constant currency. Growth was driven by Durolane but was offset by the timing of shipments for ultrasonics at the end of the quarter that are now expected to be recognized in the remaining three quarters. Moving down the income statement, adjusted total operating expenses rose nearly $4 million compared to the prior year. The increase primarily resulted from an increase in sales commissions due to revenue growth and improved employee retention, which was partially offset by savings from our Wound business divestiture. Now turning to our bottom line financial metrics. Adjusted operating income increased 49% to $20 million from $14 million in the prior year, while our adjusted operating margin of 15.5% advanced 410 basis points compared to 11.4% in the prior year period. Adjusted net income totaled $5 million and adjusted earnings per share were $0.07 for the quarter. This compares to a loss of $16 million or a loss of $0.26 per share in the prior year. The increase in adjusted EPS was driven by increased profitability in the current year and the impact of a noncash valuation allowance against deferred tax assets resulting from the impairment of our divested Wound business. Now turning to the balance sheet and cash flow statement. We ended the quarter with $25 million of cash on hand and $391 million of debt outstanding. We had $15 million drawn on our revolving credit facility at the end of the first quarter. As Rob mentioned, we drove our net leverage ratio below 4x at the end of the quarter. And from a liquidity perspective, we remain well within compliance with our net leverage and interest coverage covenants. With our expected reduction in debt and increase in EBITDA in 2024, we are now focused on reducing our net leverage ratio to around 3x as we exit 2025. As planned, operating cash flow represented an outflow of $6 million due to the expected outflows related to employee annual bonus payments, most of our annual insurance costs, and the timing of contractual inventory purchases. These three outflows totaled over $13 million for the first quarter and are not expected to reoccur this year. Absent these outflows, operating cash flow would have been positive. Consequently, we expect cash from operations to accelerate in Q2 and throughout the remainder of the year, and our cash generation for 2024 is forecasted to be sufficient to meet the amortization requirements for our term loan. Finally, given the accelerated momentum in our business and increased expectations, let me update our 2024 financial guidance. Based on our team's solid execution of our business plan, we now expect net sales to be in the range of $535 million to $550 million. This represents a $15 million increase compared to our prior guidance of $520 million to $535 million. For the year, we expect adjusted EBITDA to now be between $94 million and $99 million. This represents a $5 million increase compared to our prior guidance of $89 million to $94 million. Finally, our guidance for adjusted earnings per share is now expected to be $0.25 to $0.33. This represents a $0.13 increase compared to our prior guidance of $0.12 to $0.20. There are two factors driving the increase in EPS guidance. First, our increased expectations for higher EBITDA; and second, a reduction in our expectations for equity compensation for employees. In closing, our robust execution has generated a strong start to the year, and we look to further enhance our revenue and adjusted EBITDA growth and drive improved cash flow through the remainder of the year. Operator, please open the line for questions.

Congrats on the great results here. First, I just want to dig in a little bit on the segment strength. When I look at ASPs and Pain, particularly Durolane, you improved sequentially, but kind of year-over-year, there was still a bit down at least as reported with CMS. So I know financial ASPs differ from the price file. Can you just help us back out what was price in that year-over-year growth number versus what was volume? Because obviously, seemingly, it was a very impressive kind of volume quarter.

Chase, thanks for your question. So when we look at the volume growth on Durolane, it was really strong growth in that segment with high double-digit growth for that product. And again, just to talk about our dedicated sales force, they are really executing very well. We also know that the market's moving to a single injection, which is in our favor, given that we have a clinical differentiation in that product. We're proud of what the team has accomplished. We also, when we look into the future, expect this to continue throughout the year in '24 and into '25. From a CMS perspective, again, we had a slight increase in price, and we expect that to continue to increase in Q3 as well when those are published in early June. So as we've discussed, we're focused on continuing to increase the price sequentially throughout the year. That's our expectation for '24. So the price headwind that you're referring to becomes less and less as we progress throughout the year.

Got it. And then just to help us understand kind of financial ASPs with you guys, when we talk about that kind of sequential growth in financial ASP from here, is it kind of mid-single digits quarter-over-quarter? Or just, I guess, help us out there? And then just specifically on GELSYN, have we kind of seen that stabilize or should we see some improvement in the back half of the year to fully realize it's now a smaller piece of the model?

Yes. When we look at the Q2 price that we're in right now from Q1, Durolane increased about 6%, GELSYN increased about 1%. When we look into Q3, we expect a smaller increase on Durolane, around 2% from Q2 to Q3. For GELSYN, as you mentioned, we're expecting a significant double-digit increase from Q2 to Q3. Overall, we believe our growth will continue. We don't see these price increases as a headwind to our growth. Our contracts include provisions where, as the ASP goes up, our prices increase accordingly.

Got it. That's helpful. And then just maybe shifting gears to surgical, really impressive kind of acceleration of growth there. Can you kind of sum up what specifically drove that around BGS in the quarter? Was there anything from a supply perspective in the market that kind of benefited you guys? Or was this kind of true demand that you kind of would expect to hold on to through the year? And then along those lines, if we think about kind of low double-digit growth there, that would imply kind of a little bit of a step down through the year, just because we had an easier compare in Q1.

Chase, this is Rob. I'll start off, and then Mark can feel free to chime in. The growth was true demand that was generated by our team during the quarter. I feel really good about the continuation of our strategy there to have dedicated focus on that business, and we're seeing the impact from that. In terms of going forward, yes, we are really optimistic about this business, as reflected in our comments on overall Surgical Solutions. Regarding guidance, we will maintain a measured approach on this to ensure we have visibility into the growth generated from our initiatives, but feel good about it, which is why we said Surgical Solutions will drive double-digit growth for the rest of the year.

Makes sense. And then just lastly, Mark, when we look at gross margins, pretty well ahead of our expectations, now that we've got Surgical returning to growth, and Pain is very healthy, should we be modeling mid-70s adjusted gross margins from here or is there anything we should be considering as we go through the year?

Yes, Chase, thank you for the question. To start, Rob mentioned in his script that our gross margin is competitive. In peer analyses, we consistently rank in the top positions, either leading with the highest gross margin or being in the top two or three. We are quite pleased with our margin, and looking year-over-year, we expect it to remain around 74%, which is similar to 2023. The first quarter was slightly higher at 76% due to a favorable product mix, but we anticipate maintaining strong margins in the mid-70s, competitive with our peers.

Great. Impressive results, guys. Congrats on the execution.

Congrats on a very nice quarter. Two for me. Maybe first, now that all the reimbursement headwinds have lapped in the HA business, what do you see the underlying growth? And what's your competitive share of the revenues that have been obscured?

Yes, Robbie, just to make sure I heard your question correctly. You're really looking at the underlying growth and the share that we have?

Yes, exactly.

When we look at our share over the last year, we've really accelerated our share from a revenue perspective, but even more so from a unit perspective. So our gain in revenue has not been quite as much as in volume because of the CMS pricing headwinds that we have. However, I want to emphasize that those are behind us. We feel well-positioned with the sales force we have, the contracts in place, and the market moving to Durolane and the single injection space. Our underlying growth in Q1 was around 22%, whereas last year we were slightly positive growth for the full year but had a strong fourth quarter. Going forward in HA, we're looking at high single digits to double-digit growth. The CMS reimbursement headwind is well behind us.

Great. And one more. You had very good expense control in the quarter after a couple of years of tight expense control. Maybe just speak to employee turnover, employee morale, and the ability to keep expenses low because it was pretty impressive in the quarter.

Robbie, this is Rob. Thanks for joining. Yes, we did have good expense control in the first quarter, but there is a much greater opportunity for us going forward. We are being very diligent and thoughtful about where we want to spend to drive high ROI. Some expenses from the first quarter will shift into other quarters as we develop our strategic plan and determine the best areas to invest in. So, while we had good expense control, I see even more opportunity ahead. We will continue to invest in areas to build the fundamentals of the company and drive transformational growth.

I will just add to Rob's comments that we are being very selective about whatever investments we make, ensuring that we have a high return on investment. We maintain a disciplined approach and continue to improve our strategy as we go through the year.

Congrats on an impressive quarter. It seems like commercial execution is improving across the business. Could you provide some more color on how this momentum is building and for Surgical Solutions specifically, how are the distribution changes continuing to fit?

Caitlin, this is Rob. Thanks for joining. Yes, I think our commercial execution is coming along nicely. The organization, not just within Surgical Solutions but across the board, is responding well to the opportunities ahead of us. We saw this in the first quarter and expect it to continue, with stronger strategic focus and disciplined execution on our priorities. Regarding the Surgical Solutions specifically, it's working quite well. By having dedicated focus from a distribution standpoint, we're seeing more disciplined execution, both on the ultrasonics side of the business and BGS, which is reflected in our results as well as the guidance for the rest of the year.

To add to Rob's comments, when you look at the growth, we did a lot of work on bringing in new distributors in the latter half of last year, and those contributions are showing in the first quarter. We are also getting better than expected pull-through from legacy distributors. There was definitely good execution by that team in the first quarter.

Awesome. And then just on Exogen, congrats on the MDR. Any updated expectations for Exogen and/or your OUS business going forward?

Yes. Exogen is a great business for us. We have strong brand equity in this business. When Mark and I are out in the field meeting with customers, it's inevitable that enthusiastic clinicians approach us and share phenomenal results they've seen with patients. Of course, it's a focus area for us globally, and securing MDR allows us to build on that business in Europe. We feel confident about continuing to grow that business into the future.

This concludes our question-and-answer session. I'd like to turn the call back over to Rob Claypoole for any closing remarks.

All right. Thanks, everyone, for your interest in Bioventus. We drove significant improvement across our business in Q1, and we look to build on our momentum with stronger execution as we focus on our mission, on accelerating revenue growth, profitability, cash flow, and creating shareholder value. Thanks for joining.