Good morning and welcome to the Bioventus Fourth Quarter 2024 Earnings Conference Call. All participants will be in 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, Investor Relations and Treasurer. Please go ahead.

Thanks, Drew, and good morning everyone and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2024 fourth quarter earnings conference call. With me this morning are Rob Claypoole, President and CEO; and Mark Singleton, Senior Vice President and CFO. Rob will begin his remarks with an update on our business and lay out our 2025 priorities. Mark will provide detail on our fourth quarter results and discuss our 2025 financial guidance, and we will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, bioventus.com. 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. This includes 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, 2024, as such factors may be updated from time to time in the company's other filings made with the SEC. You are cautioned not to place undue reliance upon any forward-looking statements which speak only as of the date 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 will generally refer to these as non-GAAP or adjusted financial measures. Important disclosures about the 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 Investors section of our website at bioventus.com. And now, I will turn the call over to Rob.

Thank you, Dave. Good morning everyone and thanks for joining our call today. I'm pleased to report that the Bioventus team delivered another strong quarter, concluding a very successful and transformational year for our company. I want to express my gratitude to our talented team for embracing the improvements we are making across our company and for helping over 1 million patients last year recover and live life to the fullest. Looking forward, we believe we're well positioned to build on this positive momentum in 2025 and beyond, driving above-market revenue growth through a multitude of diverse growth drivers for the short, mid, and long term while also enhancing profitability and accelerating cash flow to create significant shareholder value. Now that I've surpassed my 1-year anniversary with Bioventus, it's an appropriate time to briefly reflect on the meaningful progress our company has made to position us for continued success. I'll categorize our progress into 3 areas: strategy, people, and execution. First, with respect to our growth strategy, we completed a comprehensive review of all of our markets and established a framework for sustained and profitable growth. This plan has aligned our entire organization around a common vision and is already serving as a strategic roadmap for organic and inorganic opportunities to optimize our portfolio, commercial, and operational improvements, and select high ROI investments to support our business. Second, in terms of our people, we continue to strengthen the Bioventus team and enhance our culture. We are developing new capabilities internally and recruiting new talent that we believe possess the expertise, experience, and market knowledge necessary to maximize our growth prospects. We are also improving an already great culture at Bioventus, and we have seen a significant increase in our employee engagement based on our recent survey. And with respect to execution, there's been a lot of progress. And so I'll highlight just a few areas. First, we delivered a strong financial performance in 2024, including double-digit organic revenue growth in all 4 quarters, along with 150 basis points of adjusted gross margin expansion. We leveraged this combination to generate enhanced profitability, positive cash flow, and improved liquidity. We also optimized our global portfolio with the successful divestiture of our advanced rehabilitation business. We aligned our commercial and operational strategies and priorities with targeted investments, more disciplined focus, and enhanced accountability. We have elevated the visibility and the collective ownership of the execution of our key initiatives to my entire executive leadership team. While there's more work to be done, I'm pleased with the progress to date and believe we now have an even stronger foundation for sustained future momentum and success. Now I'll transition and briefly review our performance across the 3 priorities that I introduced at the start of last year: accelerating revenue growth, improving profitability, and enhancing our liquidity position. With respect to our first priority, accelerating revenue growth, for 2024, we exceeded our expectations and accelerated revenue growth to 12% and delivered organic growth of 14%. We ended the year with continued momentum and a strong performance in the fourth quarter, with revenue growth of nearly 14%. I'll share just a few highlights. Starting with Surgical Solutions, our team beat internal expectations and generated double-digit growth again in the fourth quarter, led by Ultrasonics, which achieved its highest quarterly growth rate of the year. In pain treatments, our HA portfolio for knee osteoarthritis also exceeded our internal expectations and achieved another quarter of double-digit growth driven by DUROLANE. In Restorative Therapies, Exogen generated growth in the fourth quarter despite a tough comp, and we are very pleased with accelerating growth to 7% for the full year 2024 after 5 years of declines in this business. Turning to our second focus area, boosting profitability. With our peer-leading gross margin and our accelerated revenue growth, we generated adjusted EBITDA of $109 million for the full year, an increase of 23%, and we expanded adjusted EBITDA margin by 160 basis points. This included a strong finish to the year as we generated adjusted EBITDA of $28 million in the fourth quarter, up over $6 million versus the prior year. And with respect to our third focus area, improving our liquidity position, I'm pleased to say that we paid down nearly $50 million in debt in the fourth quarter. This included the proceeds from the divestiture of our Advanced Rehabilitation business. As a result of our growth in adjusted EBITDA and our debt repayment, we further reduced our net leverage ratio to slightly above 3 turns at the end of 2024, representing a reduction of more than a full turn since the start of the year. In summary, our team accomplished a great deal in 2024 but we are not satisfied with our progress as we strive to capitalize on our enormous potential to create even greater value for our stakeholders. Now I'll transition to our 2025 financial priorities which are one, driving above-market growth; two, continuing to expand our profitability; and three, accelerating free cash flow generation. Let me provide further context on these 3 areas. First, across our diverse portfolio, we participate in large growing markets with favorable demographic trends. On average, these markets are growing low to mid-single digits. However, given our strong clinical differentiation and enhanced commercial execution, we believe we have demonstrated our ability to grow at a higher rate and achieve above-market revenue growth. Let me take a moment to highlight some of the opportunities in front of us. Starting with Surgical Solutions, this is our highest growth business today. It includes both Ultrasonics and Bone Graft Substitutes, and we project long-term double-digit growth. With ultrasonics, we are in the early stages of penetrating the roughly $1 billion market opportunity across spine, neuro, and general surgery. Customers I've met with over the past year have referred to our technology as revolutionary because it provides control and precision for surgeons, reduces blood loss for patients, and decreases time in surgery, which enables hospitals to improve operating room productivity. It's for these reasons that we believe we can make our technology the standard of care. We recently brought on new leadership over this business to capitalize on this substantial opportunity and we are focusing our efforts in several key areas, including strategic marketing, commercial effectiveness, and medical education to raise awareness about the benefits of ultrasonic surgery versus current practices. In addition to ultrasonics, our OSTEOAMP portfolio enables us to continue growing our bone graft substitutes business above the market growth rate. OSTEOAMP provides similar results for a large number of spinal procedures as compared to the leading product in the premium segment and delivers material savings for hospitals. In the Pain Treatments business, we are an established market leader in HA for knee osteoarthritis. We are driving above-market growth and will continue to enhance our commercial execution and expand our footprint within large customer accounts. Looking ahead, we are confident in our ability to drive sustained above-market growth with our clinical differentiation, dedicated commercial team, robust private payer coverage, and targeted opportunities for geographical expansion. And with restorative therapies, we're focused on capitalizing on our clear momentum with Exogen and driving sustained profitable growth. With a market growth rate in the low single digits, we believe we can grow Exogen annually in the low to mid-single digits, and the team is working hard to achieve the upper end of that range. Our second focus area is to continue to improve our profitability. Last year, we demonstrated how the powerful combination of our peer-leading gross margin with above-market growth can drive meaningful margin accretion. We will focus on preserving our high gross margin with supply chain improvements and we remain committed to growing our bottom line faster than our top line. Consequently, as we have already mentioned publicly, our goal is to deliver 100 basis points of incremental adjusted EBITDA margin improvement in 2025. Our third priority for 2025 is continuing to accelerate free cash flow. In 2024, our cash from operations more than doubled and we believe that we will further accelerate cash generation and have the opportunity for it to nearly double again in 2025. We plan to achieve this by increasing EBITDA, reducing one-time cash costs, managing our working capital, especially inventory more efficiently, and lowering interest expense. In conclusion, we made significant progress in transforming Bioventus in 2024 and we exceeded our financial expectations but this is just the start of what we can achieve. I'm confident that with strong focus and disciplined execution, we will continue to advance our business and create significant shareholder value. Now, I'll turn the call over to Mark.

Thank you, Rob, and good morning everyone. Let me begin by saying I am very proud of our ability to deliver on our 2024 financial commitments and the progress our team made to continuously improve our business. Turning to our results for the fourth quarter. Revenue of $154 million increased 14%, and adjusted EBITDA of over $28 million grew $6 million, reflecting a 28% increase compared to the prior year. Surgical Solutions revenue accelerated by 18%. For the second consecutive quarter, our Ultrasonics revenue advanced by more than 20%. With respect to Bone Graft Substitutes, we are on track to add new customers as we onboard new distributors, while at the same time, we are increasing the productivity of our existing distributors. As a result, we expect BGS to return to double-digit growth in the second half of 2025. In Pain Treatments, positive momentum continued as revenue increased 17% compared to the prior year. As we previously mentioned, DUROLANE's strong brand recognition and clinical differentiation, along with the strength of our team's commercial execution is enabling us to gain share and grow faster than the overall market for single-injection treatments. Sales for the fourth quarter also benefited by up to $2 million due to higher year-end orders by certain distributors. Consequently, our first quarter 2025 growth expectations for HA will have this headwind as these distributors lower their inventory to normal levels. Shifting to Restorative Therapies. Sales were flat compared to the prior year as growth in Exogen was offset by a decline in advanced rehabilitation when we divested in the fourth quarter. Going forward, we remain optimistic about our ability to drive consistent growth in Exogen through our demonstrated improvement in sales force execution and the impact of additional resources to assist our sales team. Finally, our International segment grew 11% compared to the prior year as we benefited from shipments in our ultrasonics business that were delayed earlier in the year. Moving down the income statement. Adjusted gross margin of 74% expanded 230 basis points compared to last year, as we experienced transitory inventory write-offs in the prior year. In line with our expectations, adjusted total operating expenses rose by nearly $10 million compared to the prior year as we increased investment in strategic growth initiatives and spending normalized from the reduced levels we operated with a year ago. Now turning to our bottom line financial metrics. Adjusted operating income increased 34% to $26 million from $20 million in the prior year. Adjusted net income of $13 million more than doubled compared to the prior year, and adjusted earnings per share were $0.15 for the quarter, almost more than doubled compared to the prior year. Now shifting to the balance sheet and cash flow statement. We ended the quarter with $42 million of cash on hand and $336 million of outstanding debt. During the quarter, we repaid $48 million of debt from free cash flow and acquisition proceeds. As anticipated, we ended the year with no amount drawn on our revolving credit facility. Operating cash flow represented an inflow of $19 million, which was 86% higher than the fourth quarter last year. We forecast further accelerating our cash generation in 2025 and expect free cash flow to nearly double compared to 2024. Through adjusted EBITDA growth and debt paydown, we continue to lower our net leverage ratio. And as Rob mentioned, our leverage ratio at the end of the year, as defined in our credit agreement, was just above 3x net debt to adjusted EBITDA, and we have increased our liquidity meaningfully. We are confident in our ability to continue to reduce our net leverage and now project our leverage to be below 2.5x by the end of 2025. Finally, let me lay out our 2025 financial guidance and provide some additional color on our guidance for the year. Based on current trends in our business, we expect net sales to be in the range of $560 million to $570 million, reflecting above-market organic growth of approximately 6% to 8%. Organic growth adjusts for the divestiture of the advanced rehabilitation business that generated approximately $45.4 million of revenue in 2024. For the year, we expect adjusted EBITDA to be between $112 million and $116 million. This represents growth in the range of 8% to 12% when adjusting for the impact of the advanced rehabilitation business, which generated approximately $5 million of adjusted EBITDA in 2024. Finally, we expect adjusted earnings per share of $0.64 to $0.68, an increase of 31% to 39%. In line with the cadence established in prior years, we expect revenue and adjusted EBITDA to be the lowest in the first quarter of 2025 and to be the highest in the fourth quarter. To elaborate further, we expect first quarter organic revenue growth to be below our implied guidance range of 6% to 8% given the strong finish in Q4, primarily in the HA business, as we mentioned earlier, and a difficult comparison to the prior year, including two fewer selling days. And given the strong adjusted EBITDA performance in the first half of 2024, the timing of our growth investments and the return to normalized spending levels across our business, our projected adjusted EBITDA is expected to be lower than the prior year during the first half of 2025 and significantly higher in the second half of 2025. Lastly, as we accelerate investments during the year and as revenue increases, we expect to see a slight increase in quarterly operating expenses throughout the year. In closing, the execution of our business plan over the past year has significantly strengthened our growth, profitability, and liquidity position. Looking forward, we are excited about the long-term potential as we strive to become a $1 billion high-growth, high-margin, high cash flow medical device company.

Please open the line for questions.

Congratulations on the excellent results and guidance. I would like to ask Mark if you could walk us through the guidance assumptions by segment for 2025. Should we expect these to be in line with previous messaging, perhaps mid- to high single digits in pain, low double digits in surgical, and low single digits in restorative? A specific update on these assumptions would be appreciated.

Yes, Chase, thanks. Appreciate your comments. Really, we focus on 2025, the full year guidance, we feel really good about the midpoint of our guidance of 7%, which is clearly above market. And obviously, we had a great year in 2024, where it was significantly above market as well. I think when we think about it and break it down by segment, it's pretty consistent with what you said. We're looking from a pain treatments above-market growth. When we look at our Restorative Therapies segment, that's low single digits. And then we look at our strong surgical portfolio in both ultrasonics and BGS, those are expected to be double-digit growth as well. So we really feel good about the short-term growth drivers and the longer-term growth drivers that we have in the business and are very well-positioned to drive above-market growth in 2025.

And Rob, if we look at pain, the performance in that business is far way better than peers. And you've got competitors kind of shifting strategy, pricing, and such things. So, I guess just how should we think about HA and DUROLANE performance in 2025? I mean, are you seeing any impact from some of these market shifts so far in the year? Or are you pretty insulated at this point with your contract and access position with DUROLANE?

Yes. Thanks, Chase. We feel great about the HA business. Our guidance implies growing above the market, roughly 2x again in 2025. And keep in mind, that's very volume-based. As it relates to price, we're very focused on price. We're analytical, we're strategic, and we're disciplined with our pricing, and we closely monitor what our competitors are doing as well. At this point, for 2025, we expect that our growth is going to be driven by volume again and that price will be fairly stable when you consider the entire year. So we feel good about the business. And as you alluded to there, the reason why we're in that position is because of the strong combination of clinical differentiation and the awareness of that just continues to spread along with our large dedicated commercial team that every day is focused on this business. And then last, that strong private payer contract base that we have. So again, feeling good about generating that above-market growth driven by volume.

And just last for me, 3x leverage now, 2.5x by the end of the year. I mean, when should investors be thinking about kind of capital allocation priorities shifting? And how do you see that kind of developing over the next, call it, 18 months?

Yes. First, I want to discuss this broadly. We are really pleased to continue delivering on our commitment from the beginning of last year to reduce our debt. This gives us both strategic and financial flexibility. As I’ve mentioned before, we are optimistic about the potential of our diverse portfolio to drive significant growth in the short, mid, and long term. We have a great combination of increasing financial flexibility while being selective about any portfolio expansion opportunities. This means we will only pursue additions if they perfectly align with our portfolio strategy. Mark, do you have anything to add?

No, I think that's perfectly said. Right now, we are showcasing the progress we've made in the business through improved and accelerating cash flow. This provides us with many options, but we remain focused on executing our business strategy and achieving our goals. We will continue to assess any opportunities that arise with careful consideration, ensuring they align with our existing sales forces in key markets.

This is actually Lily on for Robbie. You talked a bit about some of those transitory supply challenges impacting the bone graft substitute business. So how are you thinking about that trending this year? What's assumed in guidance? And how much confidence and visibility do you have to getting to that double-digit growth in the back half?

Thanks for the question, Lily. We are quite optimistic about the bone graft substitutes business. It encountered some challenges due to supply issues last year, which slowed our onboarding of new customers through distributor agents. As we mentioned in the previous call, we have resolved those supply challenges and have been bringing on new customers since then. We are still in the process of ramping up with them. Additionally, in the fourth quarter, we observed increased productivity from our existing distributor agents. This gives us a combination of growing productivity from our current agents and ramping up with new ones. From a guidance perspective, as Mark noted, we anticipate strong double-digit growth for the Surgical business both in the short and long term.

Got it. And then it seems like Exogen could really be at a turning point now. So could you talk about some of the trends that you've been seeing there now that the business has sort of stabilized and the confidence that you have in that business staying in growth mode in 2025?

Yes. Thank you. Yes, we're really excited about the Exogen business. This is a great technology. Clinical benefits are very proven. And look, it's been declining for 5 years. And as we mentioned before, it was not because of the market, it was because Bioventus had deprioritized the business. Last year, what we did was bring our focus back to the business and also made some strategic investments and we saw the impact from that. The investments were rather small, and the team has just done a fantastic job with that business. So we feel like we're in control of this business. We turned it around, as I mentioned, to the 7% growth last year. And now with the market growing in the low single digits, we expect it to grow in the low to mid-single digits. Of course, we're going to work hard to achieve the upper end of that range. So really, this one is just about maintaining the focus that we've restored to the business and doing the fundamentals really well. And with that, we feel like we're in control of continuing to drive profitable growth with that business.

Congrats on a great quarter. If you could just maybe break down within pain treatments, the expectations within your 3 products, so how the growth is expected to trend there?

Yes, Caitlin, this is Mark. Thank you for the question. In the realm of pain treatments, a significant portion of our revenue comes from DUROLANE, which has been very successful for us. The market is leaning towards single injections, and our product stands out in that regard. Our sales force effectively leverages private payer contracts, which we consider a strength that differentiates us from some competitors. In comparison, GELSYN is more sensitive to pricing. We've been cautious and strategic in our approach to opportunities with that product. While we're seeing a decline in overall revenue growth year-over-year partly due to GELSYN, this isn't unexpected for 2025 or 2024. Despite the challenges, we remain engaged in that market. Overall, we have confidence in our portfolio, and SUPARTZ continues to perform consistently as a strong component of our offerings.

Caitlin, this is Rob. Just to clarify there, Mark meant GELSYN transitioning into DUROLANE, just for clarity.

Sorry, yes. So you're saying the revenue from that over time kind of just transitioning more into DUROLANE?

Yes. Just in line with the overall category of shifting to single injection but also our efforts internally are to continue to shift to DUROLANE, just given, again, the very strong combination that we have with that business.

Got it. Got it. And then, Rob, just with your expertise, you've really highlighted OUS as an opportunity going forward. Any more color on how you will drive OUS expansion in 2025 and beyond?

Yes. Thanks for the question. Yes, we continue to be really optimistic about the international business. We're bringing in a new person to lead our international business. We will join shortly to leverage the big opportunity that's in front of us. But at the same time, what I recognized last year is that it's going to take more work and more time than just 2024 alone. So very optimistic about it. What we're going to do is be quite targeted in our geographic expansion internationally. I mentioned a number of times that we want to make high ROI investments. And with international, that's critical to make sure we understand the markets, which businesses are most eligible for those markets, and what our specific go-to-market strategy is before we start to put the investments in place to drive that accelerated growth. So overall, optimistic about it and excited for the new leader to start as well.

Awesome. And then just one more for me. On Ultrasonic, you talked about expanding to general and neurosurgery. What's the timeline for those opportunities?

Well, we already have the portfolio for both neuro and general surgery. And we have a presence in those segments right now. But what we've been primarily focused on is the spine segment, given both its size and our bone-cutting technology. So just to make sure that we don't dilute our resources, we've been mostly focused on that segment. We started to introduce to the team this year the opportunities that exist within neuro and general surgery. And so we'll start penetrating those segments. But again, this will be the number one priority for us by far will remain in the spine segment. What I would expect is that in the outer years in 2026 and beyond, we ramp up more seriously in those segments.

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

Okay. Thanks, everyone, for your interest in Bioventus. Once again, we delivered a strong performance throughout our business in the fourth quarter and we are confident in our ability to build on our momentum to deliver above-market revenue growth, improve profitability, and accelerate our cash flow to create significant shareholder value. Thanks for joining today.

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