Earnings Call Transcript - BVS Q4 2025

Operator, Operator

Good day, and welcome to the Bioventus Fourth Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Dave Crawford. Please go ahead.

David Crawford, Moderator

Thanks, Chuck, and good morning, everyone. Thanks for joining us. It's my pleasure to welcome you to the Bioventus 2025 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, review our performance against our 2025 priorities and lay out our 2026 objectives. Then Mark will review the fourth quarter results and discuss our 2026 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, bioventus.com. 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, 2025, 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 the company may voluntarily do so from time to time, it 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 reference 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 Investors section of our website at bioventus.com. Now I will turn the call over to Rob.

Robert Claypoole, President and CEO

Thank you, Dave. Good morning, everyone, and thanks for joining our call today. Bioventus delivered another solid quarter and concluded a successful year across our strategic priorities while helping patients recover so they can live life to the fullest. Over the past 3 years, we have established a strong track record of meeting or exceeding our financial guidance while enhancing our portfolio and significantly strengthening our commercial, operational and financial fundamentals across our company. In short, we've transformed Bioventus. It's a different company today with a very strong foundation, and we are now entering an exciting new phase and are well positioned to build a $1 billion leading med tech company. In this next phase, we are increasing our focus on accelerating our revenue growth while further strengthening our earnings power and expanding our capital allocation optionality through strong and consistent growth in free cash flow. We believe this combination will drive significant future value creation for shareholders. For my remarks this morning, I would like to discuss 3 areas. First, I will briefly highlight our fourth quarter performance. Second, I will summarize our 2025 full year performance with respect to our 3 priorities that we outlined at the start of last year. And finally, I will lay out our objectives for 2026. Let's start with a review of the fourth quarter, which represented a significant year-over-year acceleration and reflects our progress with sharpening commercial execution, scaling operations and strengthening our financial foundation. The results further demonstrate that Bioventus possesses a powerful combination of value drivers of revenue growth, increased profitability and enhanced cash flow. We delivered 10% organic revenue growth with robust performance across our core businesses, and we achieved the second half revenue acceleration that we guided to throughout the past year. We drove an increase in adjusted EBITDA of $8 million and expanded our adjusted EBITDA margin by almost 500 basis points compared to the prior year. And we set a record for quarterly cash from operations at approximately $38 million, helped in part by our improved inventory management. In addition to our strong financial performance, we received positive market feedback and valuable insights from the pilot launches for 2 of our exciting growth drivers, peripheral nerve stimulation, or PNS, and platelet-rich plasma, or PRP, which I will discuss in more detail in a moment. Now let me shift to a review of our full year performance against the 3 priorities I introduced at the start of 2025, driving above-market revenue growth, continuing to expand our profitability and accelerating free cash flow generation. Across all 3 of our businesses, we delivered above-market organic revenue growth for 2025. In our Pain Treatments business, we drove solid growth from our market-leading HA business and added the 2 new high potential growth drivers I already referred to, PNS and PRP. We also received a strong contribution to our 2025 growth from Surgical Solutions and equally importantly, solidified our plan to accelerate growth in this business in 2026 and beyond. And in Restorative Therapies, we delivered our highest organic growth in the last 7 years, thanks to the excellent execution of our great team and the powerful impact Exogen has on patients' lives. Turning to our second focus area, expanding profitability. We drove nearly 150 basis points of adjusted EBITDA margin expansion compared to 2024, surpassing our goal to expand our adjusted EBITDA margin by 100 basis points. This illustrates our capability to build our profitability by leveraging the combination of strong organic revenue growth, our peer-leading gross margin and consistent operational efficiencies. Expanding our adjusted EBITDA margin to a level at or above many of our peers gives us the ability to invest in our significant growth opportunities in 2026, which we believe will accelerate future revenue growth. And with respect to our third focus area, we ended the year by generating nearly $75 million of cash from operations, accomplishing our goal to nearly double cash flow from operations compared to the prior year. In addition, we refinanced our term loan, which enhanced our liquidity and drove interest expense savings in the second half of the year that we expect to continue throughout 2026. Overall, 2025 was a pivotal year for our company and reflected our substantial advancements with our portfolio, execution and financial performance. Next, I would like to highlight the 3 objectives we are prioritizing in 2026. First, with a strong financial foundation established, we are very focused on accelerating our growth drivers through targeted and disciplined investment. Second, as we significantly increase investments to accelerate future growth, we aim to drive profitability at a pace exceeding revenue growth. And third, we look to continue to strengthen our already robust cash flow, which in turn will enhance our capital allocation optionality. Let me expand on each objective, starting with revenue growth. We remain focused on driving above-market growth across our core business, led by our durable and very profitable HA franchise, which generates profit to invest in and accelerate our future growth drivers of PNS, PRP, ultrasonics and our international business. In 2026, we plan to allocate approximately $13 million of incremental investment towards these exciting growth drivers. Investment across these businesses includes expansion of commercial resources, evidence generation to highlight the clinical and economic benefits of our technology, stronger marketing to raise awareness of our clinically differentiated portfolio and continued R&D innovation. Let me provide additional context on these investments across our 3 businesses. First, within our Pain Treatments business, we will be investing in both PNS and PRP. Our PNS platform will receive the largest share of the incremental investment, given the rapidly expanding market, our highly differentiated technology and the enormous potential of this business. This resource allocation strategy is supported by our successful pilot launch and positive feedback from physicians and patients as they see the benefits of our innovative technology. During the pilot launch, we gained positive traction with both our trial and permanent solutions and collected valuable insights. The learnings from the pilot launch enable us to invest aggressively in 2026 in a very targeted and measured way to maximize the growth of this business in 2026 and over the coming years. Mark and I have spent time in the field and witnessed firsthand the positive impact that our PNS technology has on patients' lives. Our interactions with a wide variety of customers and patients have made us even more confident that our PNS business will become a major growth driver for Bioventus given the power, size and ease of use of our differentiated technology. We're also excited about PRP following its successful pilot launch. As a reminder, we are leveraging our existing HA commercial team for PRP, so there is less incremental investment required for this growth driver. Again, the market feedback from our pilot launch has been positive about our differentiated technology and the benefits for both physicians and patients. We believe the combination of PNS and PRP will provide a minimum of 200 basis points of growth this year with further acceleration in 2027. Shifting to our Surgical Solutions business, where ultrasonics will receive a disproportionate amount of our incremental investments considering the size of the market, the unique benefits of our technology and our increasing ability to make our solution the standard of care. In 2026, we plan to invest aggressively in marketing to raise awareness and medical education to train surgeons earlier in their careers and in sales expansion in targeted areas. We will also continue to support the growth of our excellent bone graft substitutes technology by raising awareness of our distinct clinical and economic value proposition. And with respect to our Restorative Therapies business, we will continue to support the business with targeted investments in 2026 and maintain our renewed focus and disciplined execution following a very successful 2025. Finally, within our International segment, we plan to make significant investments across Pain Treatment, Surgical Solutions and Restorative Therapies given the untapped growth potential in front of us. I recently attended our international sales meeting and came away even more confident that our international business is well positioned to become a key growth driver for Bioventus. We now have a targeted growth plan, new structure and capabilities and a highly energetic team that is very focused on driving excellent execution in 2026. Before I turn the call over to Mark, let me briefly touch on our other 2 key objectives for 2026, earnings and cash flow. Mark will share more details on both during his section, so I'll just provide the headlines. We remain committed to increasing our earnings and strengthening cash flow even as we accelerate investment in our growth drivers. We expect earnings growth to outpace revenue growth, driven by our peer-leading gross margin, disciplined resource allocation and our interest expense savings. Given our substantial progress over the past few years in raising our EBITDA margin, we believe the best way to maximize shareholder value is to prioritize greater investment in our future growth while maintaining an EBITDA margin of approximately 20% for 2026. We believe our strong business model gives us the flexibility to invest more aggressively in 2026 to accelerate our future growth and the ability to expand our margins as soon as 2027. And we believe this combination of accelerating growth and margin expansion will create significant shareholder value. And with respect to our third objective, as our increased earnings outpaces revenue growth, we expect it to contribute to an increase in cash flow, which will create increased capital allocation optionality. In the near term, we will continue to prioritize strengthening our balance sheet by using our strong free cash flow to further reduce debt. In conclusion, thanks to the strong execution of our team, we have transformed Bioventus and created a strong foundation. It's unusual for a company our size to consistently grow above the market while simultaneously increasing its investment in growth and expanding profitability and cash flow. We believe this combination is one of the many aspects that sets Bioventus apart. We are now entering a new stage, confident in our portfolio, growth strategy and investment power to become a $1 billion leading med tech company. Our team is focused, excited and ready for the year ahead. Now I'll turn the call over to Mark.

Mark Singleton, Senior Vice President and CFO

Thank you, Rob, and good morning, everyone. Let me begin by saying that I am proud of our team's hard work and dedication to transform Bioventus and significantly improve our financial results over the past few years. After a strong finish to the year, our improved execution has now positioned us to increase investment in our future growth while continuing to strengthen our balance sheet. I'm confident that with continued strong focus and disciplined execution, we will advance our business and create significant shareholder value. Turning to our headline results for the fourth quarter. Revenue of $158 million increased 3% compared to the prior year. Organic growth was 10% after adjusting for the impact of our advanced rehabilitation divestiture at the end of 2024, which was a result of strong performance across Pain Treatments and Restorative Therapies. Revenue growth also benefited from an additional selling day compared to the prior year. Adjusted EBITDA of $37 million was $8 million higher than the prior year and represented an increase of 30%. Again, foreign exchange rates had an unfavorable impact for the quarter, and we incurred an unplanned loss of almost $1 million. For the year, we've absorbed more than $3 million in unplanned impacts from FX rate movements. Adjusted EBITDA margin of 23% expanded 490 basis points compared to the fourth quarter of last year. This was the result of higher revenue, improved gross margin and disciplined spending. And adjusted earnings were $0.24 per diluted share for the quarter. Now let me provide some additional commentary on our quarterly revenue. In Pain Treatments, we continue to see the second half acceleration that we previously communicated as revenue advanced 15% in Q4. Growth in HA benefited from strong volume growth in DUROLANE and recent account wins from earlier in the year. Next, Surgical Solutions revenue grew by 3%. Results in Ultrasonics were impacted due to a tough comparison to the prior year for capital sales, which was an all-time high. To give you a sense of the tough comparison, generator revenue in the fourth quarter this year still represented our third highest total ever. For the year, we exceeded our plan for capital sales, which provides the foundation to accelerate disposable growth in 2026. Growth was also impacted in our International segment due to the timing of distributor orders. Shifting to Restorative Therapies. Revenue declined 26% compared to the prior year due to the divestiture of our Advanced Rehabilitation business. Excluding the impact of the divestiture, organic growth was 10% as the Exogen team delivered another strong quarter to close a remarkable year. Finally, revenue from our International segment was unchanged compared to the prior year, while organic growth climbed 10%. For the year, our International segment grew 11% organically as our new team delivered on its target of double-digit organic growth in 2025. We believe this positive momentum can continue given the talent additions made throughout the year, market expansion opportunities and improved commercial execution. Moving down the income statement. Adjusted gross margin of 76% was 180 basis points higher than the prior year period due to improved product mix and favorable comparison to the prior year, which more than offset the impact of tariffs and foreign exchange rates. Adjusted total operating expenses and R&D expenses declined by $2 million as increased investment was more than offset by direct expense savings related to the divestiture of our Advanced Rehabilitation business. Now for additional detail on our bottom-line financial metrics. Adjusted operating income of $33 million increased $7 million compared to the prior year. Adjusted net income of $20 million increased $1 million compared to the prior year. This growth is the result of our increased gross margin, decreased operating expenses and lower interest expense, which was offset by higher tax expense. Now shifting to the balance sheet and cash flow statement. Consistent with our planning assumptions, we generated significant cash flow for a third straight quarter. Cash flow from operations totaled $38 million, nearly doubled compared to the fourth quarter last year. The stronger cash flow was driven by higher profitability, lower interest expense and a reduction in inventories. As Rob mentioned, we achieved a full year objective of nearly doubling cash flow from operations, delivering a 92% increase for the year. We ended the quarter with $51 million in cash on hand, $294 million in outstanding debt. During the quarter, debt decreased $29 million as we repaid the borrowings on our revolving credit facility. As a result of the lower debt outstanding, our net leverage ratio declined to below 2.5x at the end of the quarter. We are confident our projected strong cash flow and increase in adjusted EBITDA will drive our net leverage well below 2x by the end of 2026. We believe this reduction in our net leverage will drive additional interest expense savings and enable greater optionality for future capital deployment. Finally, let me lay out our 2026 financial guidance and provide some additional color on our guidance for the year. Based on current business trends, we expect net sales to range from $600 million to $610 million. In terms of quarterly phasing, we expect our first quarter revenue growth to be below our implied guidance range, at which point we believe it will accelerate in Q2 and the second half of 2026 as our PRP and PNS investments result in a more meaningful contribution to growth. First quarter growth is expected to be impacted by 1 fewer selling day than the prior year and a rebalancing of HA distributor inventory levels given the very strong fourth quarter results. For the year, we expect adjusted earnings per share of $0.73 to $0.77, which represents growth that outpaces our revenue growth. This demonstrates strong earnings expansion while making significant incremental investments in our growth drivers. Finally, further demonstrating the strength of our business and our momentum, we project cash from operations to range between $82 million and $87 million, an increase of approximately 10% to 17%, driven by higher operating earnings and lower interest expense. In line with the cadence established in prior years, we expect revenue and adjusted EBITDA to be the lowest in the first quarter of 2026 and to be the highest in the fourth quarter. Our guidance does not assume additional impact from the U.S. dollar fluctuation for the year. In closing, Bioventus has solidified its foundation, and we are now at an inflection point to invest in our 4 growth drivers to accelerate future revenue growth, deliver increased profitability and strengthened earnings power, and generate significant free cash flow. We believe this is a powerful combination as we strive to create increased value for our shareholders.

Operator, Operator

And our first question for today will come from Chase Knickerbocker with Craig-Hallum Capital Group.

Chase Knickerbocker, Analyst

Congrats on the impressive execution to finish 2025 here. I wanted to start in pain. You've kind of far exceeded what we had modeled there in Q4. I wanted to get a little bit more color. I just throw out a couple kind of quick questions on pain. So just any growth contribution year-over-year from price? And then some thoughts on kind of GELSYN and SUPARTZ's contribution to growth. Was it positive? Was it negative? And clearly, it looks like double-digit growth, but can you just give us a sense of kind of underlying volume, too?

Robert Claypoole, President and CEO

Thanks for the question, Chase. I'll start by saying that we have a strong Pain Treatments business, which is heavily supported by HA, as demonstrated in the fourth quarter. Knee osteoarthritis remains a persistent issue with favorable demographics. HA is a well-respected therapy in this area, and we believe our clinical differentiation and extensive private payer access give us a competitive edge. This was again evident in the fourth quarter, showcasing how this business can achieve sustainable and profitable growth over the long term. The team's performance in the fourth quarter was excellent, aligning with our previous guidance of an acceleration in the latter half of the year, mainly driven by account wins and overall market expansion. Additionally, we benefited slightly from selling days and distributor dynamics, resulting in outcomes even more positive than anticipated. In terms of price and volume, our business continues to be mainly volume-driven, although we remain focused on both aspects. The performance we achieved was largely fueled by volume, with positive results across our portfolio. Regarding DUROLANE, its strong performance and the market's shift from multi to single injection have been pivotal for us.

Chase Knickerbocker, Analyst

Got it. And maybe just on the '26 guide, can you give us a sense for kind of assumptions by segment as far as how you kind of come out on the top line versus contribution for growth by segment?

Mark Singleton, Senior Vice President and CFO

Yes, thank you, Chase. This is Mark. As we review the portfolio, I am proud of our strong fourth quarter results and the turnaround we have achieved over the past few years. For 2026, we anticipate the Restorative Therapies segment will see low to mid-single-digit growth. In terms of pain management, we expect mid- to high single-digit growth as we continue to execute our strategy across various parts of our portfolio. Additionally, with our advanced ultrasonic technology, we expect double-digit growth in our surgical portfolio in 2026.

Chase Knickerbocker, Analyst

And then just one last one for me, guys, if I can sneak one in. Just as it relates to kind of pain for 2026, obviously, exiting the year on that strong quarter and guide kind of implies a step down in organic growth for the HA business that gets you kind of closer to market growth rates. Can you just kind of walk us through kind of why that deceleration in organic growth in the first half of the year from kind of the strong Q4 performance? And just maybe walk us through what in the market is kind of causing that expectation from you guys?

Robert Claypoole, President and CEO

Yes, sure. I'll take that, Chase. So in 2026, we expect to grow our HA business above the market again, and we anticipate that growth to be less than 2025, partly influenced by the selling days in Q1 and normalizing inventories, but mainly because of our very intentional approach to continuously play the long game and to go after business that is accretive to our profitable growth. That's the main driver. And we've done that and shown that for years with our durable profitable growth in this business. And it's important for us because we're leveraging that profitable growth to fund our exciting future growth drivers, 2 of which, as you know, fall into our Pain Treatments business with PRP and PNS. So that's really the key, some contribution from selling days and normalizing inventories, but really our intentional approach to go after profitable growth. So we feel good about HA and our Pain Treatments business overall for 2026.

Operator, Operator

Your next question will come from Mike Petusky with Barrington Research.

Michael Petusky, Analyst

Yes, it was a strong finish to the year. Mark, you mentioned several times about the challenges and some positive order timing, particularly regarding distributor dynamics. Can you provide any estimates on how much of a boost you received from favorable order timing in the quarter?

Mark Singleton, Senior Vice President and CFO

Thank you for the question, Mike. From an order timing perspective, we had favorable selling days in the fourth quarter, which contributed positively to our overall performance, leading to slightly higher growth than we anticipated. The dynamics with our distributors in the fourth quarter likely contributed around $2 million, possibly a bit more. Looking ahead to the first quarter, we expect that to be our lowest growth period for the year, as we anticipate some decline following the fourth quarter. These factors are the main drivers behind our performance.

Michael Petusky, Analyst

Okay. I have a couple of questions related to PNS. You mentioned insights gained during the pilot phase. I'm curious about what those insights were. Is the trial lead as significant as you initially thought? Is TalisMann receiving a positive response? Also, I may have missed this, but are you confirming the 200 basis point increase from PNS and PRP for '26?

Robert Claypoole, President and CEO

Thanks, Mike. First, regarding the PNS pilot, we aimed to gain insights during this phase, and it was quite successful in that regard. We gathered positive feedback on our unique technology, its size, and user-friendliness. Our peripheral nerve stimulation technology, especially our permanent solution, is the only one designed specifically for peripheral nerves from the outset. We anticipated this positive feedback during the pilot launch, and it was great to have that confirmed. Additionally, we plan to scale this business aggressively, and what we learned during the pilot will guide us on optimal resource allocation and the pace of growth through 2026 and beyond to ensure our success. We also gained valuable insights on effectively executing in the market to support patients with our outstanding technology while establishing a significant growth driver for Bioventus. We're eager to see these developments unfold as we transition into the full launch and ramp up this year and in the years to come. As for your second question regarding the 200 basis points, we have indeed reaffirmed earlier that we expect to achieve a minimum of 200 basis points from the combined contributions of PNS and PRP.

Operator, Operator

The next question will come from Caitlin Roberts with Canaccord Genuity.

Caitlin Roberts, Analyst

Congrats on the quarter. Maybe just starting with Ultrasonics. How near term are your expectations to build out the neurosurgery and the general surgery parts of the business? And does this require more rep adds from that perspective?

Robert Claypoole, President and CEO

Caitlin, yes, our main focus for our Ultrasonics business is in the spine area for several reasons. The primary reason is the substantial size and opportunity in that market, which is significantly larger than neuro overall. However, we also have the technology and interest in neuro since Ultrasonics is already an established standard of care there, which will help us accelerate growth in this business. Nonetheless, our main focus and most of our investment will be directed towards expanding within the spine sector. Did I address both parts of your question, or was there another aspect you wanted to discuss?

Caitlin Roberts, Analyst

Yes. It was just if you required any more rep adds for adding those other indications, but it sounds like the focus is more on spine. So...

Robert Claypoole, President and CEO

Yes. But I'll touch on that as well. I mean it is the same sales organization that calls on both the spine space and neuro for us within Ultrasonics. And as we've alluded to a number of times, our 4 growth drivers, including Ultrasonics, are getting a disproportionate amount of our investment in 2026. And with Ultrasonics, we expect that to be in a number of places, including expanding our sales presence. So that will impact, of course, both spine and beyond spine and also increasing our marketing power. We have such great technology, but we need to raise awareness of our differentiated clinical and economic benefits with Ultrasonics. And we're really looking forward to putting more marketing power beyond this business and then doing some other things in terms of surgeon training and evidence and continued innovation. We have a fantastic R&D team behind our Ultrasonic business, and we're rejuvenating some of the investments from an innovation standpoint because we believe we can continue to drive exciting technology that will really help our surgeons and patients in this space. So we will see some of the investment go to Ultrasonics this year.

Caitlin Roberts, Analyst

That's great. And just a quick one on PNS. Any color on the progress to building out the PNS team and cadence to hiring this year?

Robert Claypoole, President and CEO

Yes. We're moving fast. We're scaling the business. And again, as I mentioned earlier with Mike, really driving that optimal resource allocation across PNS, and it's with the sales organization, of course, but it's also with the back support that we have, evidence that we're investing in. And as you may have seen recently, we've brought on a new dedicated General Manager for this business, just given the enormous potential that it has. So Megan Rosengarten has joined Bioventus and under her leadership, we're really looking forward to driving it aggressively throughout the year. So we'll see throughout the year an investment in this business across multiple aspects that are required to scale it effectively, not just to drive the growth in 2026, but as we mentioned, we expect that growth to further accelerate in 2027 and beyond.

Operator, Operator

This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Rob Claypoole, our CEO, for any closing remarks. Please go ahead.

Robert Claypoole, President and CEO

All right. Thanks, everyone, for your interest in Bioventus. Once again, we delivered a solid 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 earnings and accelerate our cash flow to create significant shareholder value. Thank you.

Operator, Operator

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