Thanks, everyone, for joining us. Before we begin, just a disclaimer. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Thank you, everyone, for joining us. We're here with Mark Singleton, CFO of Bioventus. Thanks for being with us here, Mark.
Thank you. Really appreciate you having us. Look forward to the discussion today.
Yeah, absolutely. Likewise. I think, look, maybe a good place to start is, you know, for those in our audience who might be unfamiliar with Bioventus, just providing a brief overview of what it is you do.
Sounds good. Bioventus is a $550 million medical device company participating in large and growing markets. The portfolios that we have are in pain, surgical solutions, and restorative therapies. Overall, that's where we participate. We feel, compared to other small mid-cap stocks, that we have a lot better opportunity, more pathways to really create value for our company, for shareholder value, opportunities. For a company of our size, we have a really diversified portfolio that participates in large and growing markets. In each of our portfolios, we're either a category leader or a growth leader. We have shown the success of execution over the last couple of years with seven quarters of above single-digit, mid-single-digit growth. In four of those quarters, we've driven double-digit growth. There is a really strong opportunity for driving growth and we have demonstrated that in the past.
When you combine that, we also have a margin in the mid-70%, which is a lot better than our peers and really positions us well from having high growth and having high margins. When you do that and you get into the management of those gross profit dollars that you're generating through the growth, it really comes down to where we're going to invest our OpEx and how we're going to invest that money. It really allows us to expand margins and really drive a lot of cash flow. Overall, when we look at our vision for the company, it is to eventually become a $1 billion company, high growth, high profitability, and high cash flow company that is helping patients recover and live life to the fullest and get back to enjoying their lives. We really feel good about the future for Bioventus.
Great. Yeah, a lot to unpack there. I think we'll probably have a lot of follow-up questions over some of the things you touched on. Maybe before we get into the specifics of the portfolio, it'd be great to hear, there's been a pretty remarkable and successful effort to turn around Bioventus over the past couple of years. Could you maybe talk through some of the changes that were implemented and how you managed to turn around the business?
Yeah, good question. Really, I'd describe that time period as too much, too fast. Obviously, we learned a lot and, as you said, have been successful in that turnaround. I think, you know, first, we kind of started with simplifying the business. We've done, since that time period, two divestitures where we divested out of our wound business, divested out of our advanced rehabilitation business, really did a restructuring, taking expense out of the business to lower that to help leverage the high gross margins that we have that we talked about. It was a challenging time period. We refinanced our debt agreement during that time period.
When you really go through that, I really think that all of that noise, if you will, the too much, too fast, really took away from or kind of disguised the actual great portfolio products that we have that we talked about earlier to where we participate in these large and growing markets and the ability to drive really good growth. It was a challenging period. Now, we look at our company today after coming through that and all that we've learned and becoming more disciplined in our investment process. We brought on a new CEO with Rob, who has a lot more commercial experience than we've had in the past in the company. It's really exciting about the future. We've gone from a really challenging time with our banks to now, most recently refinancing and getting back into a new agreement that we feel good about.
That's a reflection of the performance that we've done. Another thing that we'll talk a little bit more about is our ability to really drive cash flow. I had mentioned that earlier in the discussion. We've gone from really needing to bring cash into the company through the divestitures to really, we're going to, we expect to double our cash flow in 2025 from the high $30 million last year into the $60 million to $70 million range and really think that it gives us a bright future to really drive a lot of shareholder value going into the next few years.
Great. I think you mentioned this in your opening remarks and you sort of alluded to it. As part of that turnaround, you've actually had above market growth across your portfolio for the past two years. How have you been able to achieve that?
Yeah. I think we talk about the market growth leaders and then the market leaders. It's really just a reflection of the portfolio that we talked about. If you walk through the portfolio, I mentioned that at a higher level earlier, but our ultrasonics portfolio that we acquired through the MySonics acquisition in 2022 has technology, really the ability to really change the standard of care, we think. I'll go through that in a little bit more detail later. Ultrasonics has been, it's a great product. We've brought in new leadership to really drive that growth, and that's working really well. Our HA portfolio had great growth in 2024. The growth is a little bit less this year, but still performing well there.
We're positioned well in that market as far as how we go to market with our market access team and contracts and our sales force that sells around it. BGS has been a big growth driver for us as well. It's really just a reflection of the strong portfolio that we have. Inside of that, our Exogen fracture care device has really gone from declining over the last five years to actually growing and adding growth to the portfolio. Again, a really strong portfolio of products that, combined with Rob coming into the company, upgrading the talent and capabilities that we have in the company to take those products and maximize the actual capabilities that they have to be able to treat patients.
Yep. Maybe zooming in a little bit more on that more core part of the portfolio, I think you mentioned HA, BGS, bone fracture. What is the strategy to continue gaining share and growing those products and sort of continuing that above market growth?
Right. Yeah. We'll start with HA, which is a significant portion of the company's revenues. With HA, really, we have three products there, three injections. We have the single injection Duralane, our three injection Gelsyn, and our five injection Supartz. Only company out there with a complete HA portfolio. The market's moving more towards Duralane, which is where we have clinical differentiation. A really strong portfolio positioned for where the market is moving. You add the combination of our contract positions that our market access team has put in place with people like UnitedHealthcare and other big payers where we have a really good position with them. We have our sales force that sells around all of those contracts.
The combination of the products we have, the clinical differentiation in the products, how we're going to contract with the market, with the contracts, and with the sales force, we have demonstrated really gives us an advantage. That's how we'll continue to drive above market growth with that and feel really good about our position as a leader in that space. When you look at BGS, we continue to add distributors. We continue to focus on improving the customer experience there. We're looking at adding new contracts with IDNs and things like that out there where we can expand our business in these big healthcare systems to try to become the preferred product on the hospital or people that we're dealing with contracts. When you compare our product in BGS to Infuse, clinical-wise, we're very close to them, which is Medtronic's product, Infuse. Price-wise, we're a lot lower than that.
We actually feel that in some ways we have opportunity to increase price, but also get in and take some business away from them. BGS, HA, we talked about ultrasonics a little bit earlier. We can expand on that. This technology is really game-changing. It's really out there competing with other products that are more, I'd say, archaic. Ours is very technology where it makes a nice clean cut on the bone in the spinal space and really a differentiated product. That growth is contributed to with all of those, and Exogen is also a surprise for us, but continue to execute on our growth with those products.
I do want to touch on ultrasonics because it's obviously done very well recently, I think, in the order of magnitude of double-digit growth.
Correct.
How durable do you think that growth rate is? How much more double-digit is there in that product?
Yeah, we're very confident in the long-term growth of that product. We don't expect that to change, the growth to change over the long term. It really is a differentiated product. Myself, Rob, we've been out in the field with our team and meeting with surgeons and had feedback from the different surgeons of, you know, this is really revolutionary technology, right? Meeting with a surgeon who's maybe later in their career and has seen a lot of things, talking about the revolutionary product that it is. We've had doctors comment on how it's actually extending the life of their careers to where it's easier on their hands to use versus the archaic tools that they're using in prior surgery. It's actually better on their hands on a day in and day out in the surgery that allow them to work longer in their career.
It's less blood loss for the patient. There are so many benefits from this product that we've seen and we're continuing to improve our execution. When you get into actually the growth part of it, we've been very successful in capital sales, so actually placing the generator into the hospital. By doing that, it creates lots of opportunities to sell the disposables that go with that. You have the generator in the hospital or that you place in the hospital, then you have the hand piece that hooks into the generator with the different disposables on the end of the hand piece to actually do the surgery. Over the last 18 months, we've had great growth in our capital placement. Now the team's really focused on driving and has huge opportunity in front of them to actually have the disposables.
When you look at that from a, back to your question of how durable is the growth, we believe it's very durable. Today we're really just participating in spine, which is a huge market, $1 billion market. We also have the opportunity to take this technology into neuro and then into general surgery. We're not even really in all of the markets where this can be. We're really focused on spine now to really try to maximize the placement of generators, to maximize the disposables that go with that. Once we continue to raise the bar on our execution there, we'll look into the future of moving into neuro and moving into general surgery. It's a great product. We purchased this in 2022. It's been a great contributor to growth. That's a great driving profitability.
That's going to be one of the top priorities for us when we take the great gross margins with the growth that we have and what we're going to invest in. When we look at investing for the future, this is going to be one of our top priorities.
Okay. That's both on the spine side and the adjacencies that you're talking about.
Correct. That's what we'll continue to keep, the adjacencies. We're doing a lot of research and understanding there. Today we're just really focused on spine, but into the future, that's another area for us to enter into.
Right. Maybe shifting a bit, I think those are sort of the market leaders, moving more to the growth leaders. Earlier this year, you added PRP to your portfolio. Can you talk us through the rationale on why you did that and any early signs that the cross-sell with HA is playing out?
Yeah. We say that with Rob Claypoole coming into the company, he has really taken us through a very disciplined and thorough investment process, defining the strategies for all of our business individually when we look into the future. Obviously, I talked earlier about the footprint of the sales force that we have in HA and the success that they've had over the last few years. One of the feedbacks we get from the reps themselves is they want more products in their bags. When we look at that from a financial and an investor perspective and a management team, most of the medical device companies out there have multiple products in the bag, as they refer to it, a medical device. Right now, before we added PRP, they really had HA, right?
When we were going through the strategy discussions, we said we really need to get more products in our sales force that has demonstrated the success that they have to be able to leverage that footprint in the marketplace that we have. We did a lot of research. This is a distribution agreement that we've entered into with Apex. We talked to several different people out there, looked at several products. We felt in our relationship with them and the product that they're bringing to market really gives us a lot bigger advantage. This is a playbook that we're not taking on additional debt with this. This is a distribution relationship, fitting in, creating synergy. Now we have this new product for HA sales force for a $400 million market. A big market, probably high single-digit growth.
Another large market, another high-growing market that we add to our portfolio on top of the salespeople that we have today. We're not adding new salespeople. When you think about, all right, it's going to add growth and it's going to add gross profit dollars, there's not going to be a lot of expense to go with that. That's going to drop straight to the bottom line. It comes down to execution. I think inside of that and part of the really the justification for doing it is when we looked at our customer profile, over 80%, greater than 80% of our customers had a PRP in their bag or in their office. We said, okay, we can, not just the HA sales force, but we also get synergies with the customers. Now it's convincing those customers and doctors to come over to the product that we have.
We feel when we look at our product, it's a lot more efficient process. When they spin the platelets, really only have to do it one time. Some of the other products, you have to do it multiple times. It also allows through that process for us to get the higher quality platelets. When the actual procedure happens, it's actually really better results we feel that we'll get through the process. Really positioned well with that. Again, it's a synergistic play, fits right into the HA sales force's bag. Financially, we'll, once we are successful with it, get into driving the revenue, the profit's going to drop to the bottom line. That's a lot about how we also think about down the road, potentially, if we ever do or when we do M&A into the future, not present. Those are the types of things that we want to do.
Right now, we have a diversified portfolio that we want to build around what we have, whether it be through distribution agreements or future M&A. We really feel that this is a great add to the portfolio. We're early on with this product. I don't really expect to have material impact to our 2025 financials. When you look at this and you combine it with PNS, we'll look into 2026 is where we really start to have some benefit to the total company from a growth perspective.
Yes. I'll touch on PNS in a second. I guess the follow-up question to that is, as you know, for people who want to track how successful or not successful PRP has been in being added to your portfolio, is there any measures of success that you're looking internally to say, hey, this is working, this thesis is working out? What should we sort of be looking out for to see those sort of green shoots of success with?
Yeah, I think that that's an important one and that, you know, this is in our pain portfolios. When we talked about the three portfolios that we have, you know, pain, surgical solutions, and restorative therapies, it's in our pain portfolio. We're not going to get into disclosing those specific numbers, but I really think it's, you know, so we've now gone through the training. We're kind of going through a pilot launch. We start to get into internal things, but not going to disclose the numbers, but okay, what does our pipeline look like? If we're going to do X million of revenue, we need to have Y million more of revenue in our pipeline to be able to convert that. Really pushing the sales team to have, you know, the pipeline for these products and to have the conversations with the doctors.
We'll reassess our commission plan to make sure that we're incenting the reps in the right way. Really starting to look for those, you know, and there's also a little bit similar to ultrasonics, maybe not as to the extent, but the capital placement and the disposables. One of the leading indicators for this will be how many centrifuges we're actually placing into the hospitals. Sometimes what we're finding out with our current customers is they have some inventory on the disposables from some of their other competitors that they've been using. Looking at those and how they work through those. We're excited about this. Our team's excited about it. It gives them something new to sell. I really think this can make a difference for us.
Great. I think to round out the pain portfolio, you mentioned PNS, super exciting market, super high growth, relatively new market. You just got 510(k) clearance for both StimTrial and Talisman. It would be great to just hear from your perspective the differentiators of the technology, how you're thinking about tackling the PNS market, and sort of why it's so exciting for you all.
Right. Yeah. Great question. We'll start kind of with the market itself. It's a huge TAM, as you've alluded to. It's a $2 billion, you know, TAM. When we look at the actual kind of market today, we think it's around $200 million. There's very few players in this, probably two or three, you know, including us. We expect the market to get to $500 million by 2029. Over 20%, 24% CAGR over the next five years. Huge growth opportunity. When we look at, you know, kind of the market and what's driving it, it's really about chronic pain. In some cases, these patients are, you know, debilitating, you know, pain that, you know, even the touch of the skin is painful for them. There's tens of millions of patients who are affected by this. We believe our product will address this in a really effective way.
Before we kind of get into the details of the product and you think about kind of the market, there's the unmet need, as I mentioned, the tens of millions of patients that are out there with that. We have the unmet need part of this. We also have the outpatient, you know, in healthcare, kind of the shift to the outpatient movement, which most of these procedures will happen in ambulatory surgical centers. Outside the hospital, there'll be a few that'll happen in the hospital. The unmet need of the chronic pain that we feel we have an ability to be better than our competitors, the shift towards outsourcing. There's really a compelling case for evidence in this case, right, to really, you know, some of the devices that have been used in the past, maybe a medication, other spinal cord devices haven't been successful.
That gets into our product and how we've designed it. We've been working on this for a while and investing a lot in R&D. This came to us through one of the acquisitions we had in Bioness. There are a few things that we think really put us apart or separate us from our competition. First is kind of the footprint of the device. These devices, whether you're treating an area in your arm or your leg or whatever, there's always going to be a small device on the outside of your body that has a lead coming out of that device into your body to treat the nerve. Ours is going to be a much smaller footprint from the actual device than what our competitors are. It will be a lot less burdensome to the actual patient who has this.
When you get into the lead that's actually going to deliver the charge, if you will, to the patient, it's more flexible. You can move it around a little bit. You can stretch it. When we compare that to our competition, whose actual device wasn't designed specifically to treat the peripheral pain, they kind of took another device and designed it into that. Ours is specifically designed for it. The stretchability means we can be a lot more precise with the placement of that. The footprint, easier placement, and the last part that I think is one of the differentiators as well is really the power. The electrical field connection actually drives more power through the lead into the nerve. You don't have to be as close or as precise, even though ours is smaller, and kind of get there in a more efficient way than our competitors.
We will actually treat that nerve a lot more effectively than our competitors. That technology, the smaller footprint, the greater charge and kind of pulse that are entering into the nerves has really allowed our product to be different than our competition. It is another exciting time for that. We have a smaller sales force today. The revenue for us today on this product is less than $5 million. We are in, similar to PRP, an area right now where it's kind of a soft launch, kind of piloting this in several different ways. We are bringing on people with experience in this area. This will be more of a 2026 play than it will in 2025. It is really about prepping for that. We are going to be really disciplined around this launch.
We want it to be a go-big launch, which is how we've kind of been talking about it internally. This is going to require my team, the finance business partners working with the actual general manager and their team and marketing to, as you kind of asked some questions about PRP, we don't want to just add a bunch of reps and then not have it figured out. We are going to have to get into expense management. It's okay after we achieve a certain amount of productivity per rep, then we invest in more reps, right? We'll be looking at these leading indicators as we go, investing a decent amount upfront, but not too much. As we go and start to see success, be ready to turn the machine on more quickly and be nimble with that.
We're really excited about it, but are also going to be disciplined in how we approach it when we get into 2026 and make sure that we have those leading indicators in place and that we're getting our reps to the level of sales productivity that we need before we add more.
Fair enough. I guess similar to PRP, anything that you think we should all be looking for as we think about, you know, into 2026, how we measure success, the success of your launch in PNS?
Yeah, I think it's very similar to PRP and what we talked about as far as the pipeline and leading indicators and starting to treat the patients and the success and the feedback from the different surgeons and being able to adjust for that. We believe between PNS and PRP that we could add 200 basis points of growth for 2026. We are expecting to have a good amount of growth from both of these. I think it really gets into the sales productivity and the feedback we're getting. That's where, again, that one would also be a contributor to the growth in the pain portfolio.
Yes. Maybe one last one on PNS is, some argue that this is not one market. It's a lot of markets, because each nerve in itself is a market. Are there any specific indications that you're, or specific nerves that you're prioritizing as you think about the launch? Is there any specific type of pain that you, or not specific type of pain, but any sort of specific type of patient that you're targeting?
I think it's more, I mean, it's pretty versatile where we can go with the device. Really just focusing on those patients who really have the really chronic pain, and we'll work with the different physicians on that feedback from them when they get into the surgeries.
Fair enough. I guess putting it all together, solid core, high growth ultrasonics franchise, a launch in a large, you know, pretty unpenetrated market, putting it all together, it seems like there's a lot of exciting things happening. What do you think the long-term algorithm, growth algorithm looks like? What can we expect going forward?
Yeah, I think it, you know, I mean, like you just articulated very well. We have, you know, a lot of times people will ask us about M&A, but we really like the portfolio we have, and we have a lot of work to do with our portfolio. We're just getting started in PNS, just getting started in PRP. Ultrasonics has already demonstrated success, and there's still a long runway in front of us even in spine and then also into neurosurgery and general surgery. We have a lot of growth drivers that we're really focused on the execution part of those, right, before we even get to start to thinking really about M&A. Really feel good about that. We'll continue to commit to being driving the above market growth and, you know, into the future.
This year, if you look at our, I would say that next couple of years would have a similar expectation. Our guidance, midpoint of our guidance this year is 7%. That's what we've had from the beginning of the year. I think that's how you can really think about the future growth in the next few years.
Fair enough. I think you said you really like the portfolio, which I agree with. Is there anything else that you think could be a potential divestiture candidate? Anything from the turnaround that you still feel could be around the edges, trimmed?
Yeah, we really, really like the portfolio. We're really focused on running it. I mean, Exogen's been a great story. We haven't talked a lot about that. I think that that's a contributor to our growth as well, right? Obviously, when you take a decent part of the portfolio that's a negative growth and you turn it into a positive growth in Q2, that was 10% growth. That's going to be a big contributor to your growth. I think that's where some people, even some of our even sell-side analysts, miss that part, as far as that turnaround. That's been a remarkable story. Really credit to the team there and the leader of that organization and really made some small investments.
We're not going to invest in that business like we are in ultrasonics or PNS, but we have made some investments there that they came forward on, and those are starting to pay off. One, just investing a little bit in the back office to make those reps more productive, but also adding junior sales reps, what we call Associate Territory Managers, to where they learn from their senior sales reps. Maybe that helps us from a retention perspective, but also from coverage because there is a lot of paperwork that these reps have to deal with. By adding those ATMs over the last few years, that's been a big increase in our productivity. The return on investment has been good for them. Really, that's an underappreciated asset that we've had that the team has really done a great job on turning around inside the company.
We expect to continue to execute well on that and have that contributing to our growth versus subtracting from it.
Fair enough. I think I heard you say you're likely not doing a lot of M&A in the near term. I heard you say likely not doing a lot of divestitures in the near term. It really sounds like right now it's all about organic execution.
I agree. It's actually really good to have people ask us about M&A because two years ago that wasn't really even possible for us. Really good about what we have and really focus on running that. If the right thing comes along, you know, the perfect thing, again, the things we're going to be looking for in M&A into the future are going to be things very similar to PRP. Drop that right in on top of the sales forces that we have. We're not looking to create more sales forces or more additional complexity. It's how do we get more products into the hands of the sales force that we have to really leverage the footprint and leverage the structure that we have. That's how we look into the future to that billion-dollar company, really leveraging the infrastructure that we have and scaling our organization.
Yep. I think you've said you've given us a lot of breadcrumbs on this question, but I want to sort of give you the opportunity to put it all together. On the profitability point, you've done a great job in turnaround profitability, right? I think you're up above 20% EBITDA margin now. What did you do and what can we expect going forward, on your profitability initiatives?
Yeah, I think just to really be clear on those numbers, we went from $66 million of EBITDA to $89 million of EBITDA to $109 million of EBITDA. This year, our guidance is the midpoint of our guidance is $114 million. That's coming off of our leading gross margin, pure leading gross margin that we have, all of the growth assets in the portfolio that we have. That's how we've really been able to be successful there. This year, as you are specifically asking about, we committed to expanding our margin, our EBITDA margin by 100 basis points. That has come through kind of the growth ability in the portfolio. We've executed on the margins and then been really disciplined about the expense.
Inside of that, also we talked about in our Q2 earnings call, we've absorbed $5 million of, say, macroeconomic headwind, $2 million from FX that we've had that we held our guidance on, $3 million of tariffs. We've been able to really maintain our commitment on expanding margin in 2025. Tariffs, who knows what tomorrow is going to bring on that, right? We're still planning for that to be a headwind for us into 2026. We go into that. We're going to be making investments in PNS as well for this year and into 2026. We're going to continue to focus on profitability. There'll be some challenges with the tariffs and those things that we'll work through. That's what our jobs are to do, to really focus on that.
We're going to balance our need to invest in the portfolio to tackle the macroeconomic headwinds that we have and also make sure that we're creating shareholder value by continuing to deliver profitability for the company.
Yep. All makes sense. Maybe the one thing that you touched on is, you know, PNS and investment in PNS, obviously a big launch that's coming. Should we expect that to pressure margins at all once you hit the ground running?
I mean, I think, you know, when you look at the gross margin on this, I know you're talking about the EBITDA margin. The gross margin is a little less than our average today. It's not significantly less. It's not going to be, you know, margin diluted. When we get into making investments in the sales team, you know, think about this. If we just got through the 510(k) process, there's a lot of R&D. Some of the R&D expense comes down and we invest that into sales. There's some trade-offs with that. We're not going to erode our profitability, certainly, but we want to make sure that we're balancing, you know, the investment in the short term to get that long-term payoff. We're not going to erode profitability while doing that.
Yep. Fair enough. Maybe last question on the balance sheet. You know, there was a point in time where leverage was a concern. You've obviously taken care of that. You've increased cash flow, reduced leverage. I think you said a leverage target of 2.5 times net leverage. You know, once you reach that, how comfortable do you feel that you are going to reach that by 2025? Once you reach that, what can we expect in terms of capital allocation?
Yeah, I think, you know, again, to replay the history on that one is that we were close to 6 times leverage as a public company, not any place that anybody really wants to be. Now we do expect, you know, back to your question about confirming that, that's our expectation is that by the end of 2025, we get to 2.5 or below. We're on track to do that. The team and myself are proud of that accomplishment. We've come a long way there for all the reasons that we've talked about. From capital allocation, we're going to continue to pay down debt. I think it's one of the missed stories, and I've mentioned it here on this, and maybe underappreciated is the cash flow ability that we have as a company. We're going to double cash flow, nearly double cash flow in 2025.
Really, the capital investments that we have to make in our business model are not a lot. We've done a great job on working capital. ARs come down. We're making progress and we're going to make progress and started to see signs of that in the second half of bringing inventory down, which we haven't done even while we've been generating cash flow. Accounts receivable, inventory. Really, our first priority on that's going to be paying down debt in the short run. The perfect situation comes along from an M&A, we'll look at it, but we really like what we have. We're going to continue to focus on executing and improve our execution, bringing in capability into the organization to really maximize the value of the assets that we have, but not out there knocking on doors for M&A right now.
It's really about just driving debt down and using the cash to pay down debt.
Excellent. That makes sense. I think we are right at time. Thank you very much for being here, and we really appreciate that you came to our conference.
Excellent. Appreciate you having us.
Yeah, absolutely. Thank you.