Third Quarter 2026 Earnings Conference Call - BIOVENTUS INC

Financial Performance:

• Third quarter revenue was $142 million, representing a 3% year-over-year increase; excluding DGS, underlying revenue growth was 6%.
• Adjusted EBITDA reached $28 million (up nearly $2 million YoY), driven by an adjusted EBITDA margin expansion to 20%, a 70 basis point improvement YoY.
• Adjusted EPS was $0.17, up 13% year-over-year, while full-year adjusted EPS guidance remains reaffirmed at $0.75–$0.79.
• Cash flow from operations was $21 million, funding $19 million in term loan repayments; year-to-date debt repayments totaled $65 million.
• Net debt decreased to below $200 million at quarter-end; cash on hand stood at $31 million with $230 million in outstanding debt.
• Updated full-year 2026 revenue guidance lowered to $590–$595 million, reflecting mid-single-digit growth expectations for Q4.
• Cash from operations guidance revised upward to $84–$89 million, excluding impacts from the strategic review process.

Guidance and Future Outlook:

• Expectation of sequential acceleration in revenue growth and earnings in Q4, transitioning into full-year 2026 delivery.
• Long-term goal to build a $1 billion MedTech company, with a specific target to scale the Peripheral Nerve Stimulation (PNS) business to over $100 million in future years.
• Projected strong double-digit growth for international business in Q4 and continued excellent growth in 2027.
• Anticipate full-year adjusted EBITDA margin to finish above prior year levels, balancing strategic investment with operating discipline.
• Expect to complete the strategic review and determine the best path for shareholders, though no specific timeline was provided for the outcome.

Business Segments and Product Lines:

• Pain Treatments: Revenue grew 6%, driven by the HA portfolio, Duralene, and early traction in PRP and PNS; year-to-date up 9%.
• Surgical Solutions (Ultrasonics): Delivered strong double-digit revenue growth; momentum in capital placements, surgeon training, and disposable reorders is accelerating.
• Bone Graft Substitutes (BGS): Revenue declined due to competitive dynamics in the synthetic market, slowdown in spine procedures, and distributor ramp delays; positive trends observed in October.
• Platelet-Rich Plasma (PRP): Revenue from disposable kits surpassed capital placement revenue; secured exclusive rights with Apex Biologics for sports medicine accounts.
• Peripheral Nerve Stimulation (P&S): Trial-to-permanent conversion rates exceed plans; physician trained count grew >50% sequentially; significant investments made in marketing and commercial infrastructure.
• Restorative Therapies (Exygen): Revenue declined 3% due to prior sales force vacancies; growth expected to improve in Q4 as positions are filled.
• International: Revenue grew 16% YoY (18% constant currency), led by ultrasonics and HA businesses, with a >20% growth forecast for Q4.

Market and Competitive Landscape:

• PRP solution gaining traction as customizable option displacing competitors; exclusive sports medicine agreement expands addressable market.
• P&S business showing robust market opportunity; clinicians validating Talisman technology with improved conversion efficiency.
• Ultrasonics segment changing the standard of care in its space, driving significant volume despite procedural headwinds in other segments.
• Large accounts and IDNs increasingly separating biologics RFPs, favoring providers with strong clinical and economic value propositions; BioVentus seeing increased traction in these RFPs.
• BGS face transitory headwinds from synthetic market competition, with new actions taken late in Q3 showing early positive results in October.

Risks and Challenges:

• Strategic Review: Ongoing evaluation of strategic options following an unsolicited acquisition proposal; uncertainty regarding timing and outcome.
• BGS Headwinds: Near-term volume softness in spine procedures and competitive pressure in the synthetic bone graft market.
• Sales Force Execution: Transient impact from vacancies in the Exygen sales force, though positions have been filled.
• Investment Execution: Risk of over-investment in growth drivers if market adoption does not meet expectations, though management notes accelerating returns on capital.
• Market Dynamics: Potential shifts in healthcare purchasing patterns, such as IDNs demanding separate RFPs for biologics.

Management Commentary and Tone:

• Management maintained a confident and optimistic tone, emphasizing strong underlying momentum and the ability to grow earnings while investing in future drivers.
• Rob Claypool (CEO) expressed strong conviction in the strategic priorities and the long-term value creation potential of the portfolio.
• Mark Singleton (CFO) highlighted the resilience of the P&L and the strategic discipline in allocating capital, even while accelerating spend to $15 million.
• Tone was forward-looking, with a focus on "leading indicators" (e.g., disposable reorders, trial conversions) validating the growth strategy.

Analyst Questions and Answers:

• BGS Recovery: Analysts queried the sustainability of BGS headwinds; management confirmed competitive dynamics and procedural volume were the primary causes, both viewed as transitory, with October tracking ahead of expectations.
• Exygen Outlook: Clarified that low single-digit growth is expected for the full year, factoring in the impact of the sales force rebuild, with Q4 recovery anticipated.
• Investment Levels: Confirmed annual investment in growth drivers increased from $13 million to nearly $15 million, with >50% allocated to P&S.
• Revenue Guidance Granularity: The $12.5 million revenue guidance reduction was attributed primarily to BGS and the timing of new rep onboarding, with Q4 expected to see mid-single-digit growth.
• PNS Growth: While no specific 2027 guidance was given, management expects PNS to scale significantly, with learnings from 2026 positioning the business for strong growth in 2027.
• Strategic Review Timing: When pressed on the timeline for the strategic sale, management reiterated they cannot provide details and will not answer questions on the process.

Other Key Points:

• BioVentus continues to hire "best in class" marketing leaders and expand commercial infrastructure, particularly for P&S.
• The company achieved a milestone of lowering net debt below $200 million, enhancing capital allocation optionality.
• Adjusted cash flow excludes the one-time cost of the strategic alternatives review.
• Management remains committed to the IDN strategy for BGS despite near-term volume fluctuations.
• The strategic review was prompted by an unsolicited acquisition proposal and multiple expressions of interest, currently under evaluation with advisors.