Thank you for standing by. My name is Dustin, and I will be your conference operator today. This time, I would like to welcome everyone to Bioventus Inc. Third Quarter 2023 Earnings Conference Call. [Operator Instructions] At this time, I’d like to turn the call over to Mr. Dave Crawford, Vice President of Investor Relations. Sir, you may begin your conference.

Thanks, Dustin, and good morning, everyone, and thanks for joining us. It’s my pleasure to welcome you to the Bioventus 2023 third quarter earnings conference call. With me this morning are Tony Bihl, CEO; and Mark Singleton, Senior Vice President and CFO. Tony will begin his remarks with an update on our business and outlook for the remainder of the year, followed by a review of the quarter. Mark will offer further detail on our third quarter results and discuss the update to our 2023 financial guidance. We will finish the call with a 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, 2022, as well as subsequent Forms 10-Q and other company’s 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 generally refer to these non-GAAP or adjusted financial measures. Important disclosures about and definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website at bioventus.com. And now I’ll turn the call over to Tony.

Thanks Dave, and good morning, everyone, and thank you for your continued interest in Bioventus. Let me begin by saying that I am again encouraged by the strength of our results for the quarter, as we delivered earnings ahead of our expectations for a third consecutive quarter, raised our annual financial guidance. The highlight for us was a return to growth for our HA business, one quarter ahead of schedule. Our resilient employees have worked diligently to address last year’s challenges and have made measurable progress in improving our execution, delivering on our commitments, enhancing our business controls and processes. Before discussing the quarter’s performance, I want to take a moment to reflect on the recent progress made to solidify our financial metrics, we believe successfully delivering on our financial plan this year will position us to deliver future improvement in revenue growth, profitability and predictability. As I mentioned in the past, we will not reverse last year’s headwinds and fully rebuild our balance sheet, earn back stakeholders trust and regain credibility with our investors with a couple of quarters of strong performance. With that said, I believe we have achieved substantial progress to solidify our financial position and maximize the long-term opportunities for Bioventus as we begin to gradually increase our attention to future growth drivers. During the quarter, we demonstrated several positive indicators of our future success, including one, the continued financial discipline to reduce spending and enhance operating margin. Two, as I mentioned earlier, we saw a return to growth for our HA business, including continued double-digit unit volume gains; and three, we achieved double-digit growth across key long-term revenue drivers in our ultrasonics business and across our International segment. As we begin planning for next year, we remain focused on investing and prioritizing areas of our…

Thanks, Tony, and good morning, everyone. Let me start by saying that I’m delighted with the sizable improvement in our leverage so far this year as well as the reduction in our cost structure and improvements in our internal control environment. Throughout the entire organization, our team have executed well against our financial objectives. In addition, the predictability of our business has significantly improved, enabling us to have confidence in raising our financial guidance and increased visibility as we planned for 2024. Now turning to our results for the third quarter. Revenue was $121 million, which was a 6% lower compared to the prior year. Adjusting for the divestiture of our wound business, revenue growth was even when compared to the prior year. In addition, adjusted EBITDA of $22 million was also even compared to prior year adjusted EBITDA from continuing operations. Lower operating expenses from our focus on reducing spending and benefits from our restructuring initiated at the start of the year were offset from lower gross profit due to the reduction in revenue. Across pain treatments, revenue returned to growth as sales increased 3% compared to the prior year as we continued our strong double-digit volume growth across DUROLANE, which more than offset the continued pricing pressure due to the move from WAC to ASP. As a result of its continued momentum and significant share gain from its clinical differentiation, DUROLANE now makes up nearly two-thirds of our HA revenue. Meanwhile, we previewed, last quarter, volume increased for GELSYN compared to last year, although overall revenue was down slightly as pricing headwinds similar to DUROLANE remained. As we look to close out the year, we expect to see growth across our HA platform continue to accelerate for the fourth quarter. In Surgical Solutions, we grew 7%. ultrasonics maintained…

Thank you. [Operator Instructions] And your first question comes from the line of Chase Knickerbocker from Craig-Hallum. Sir, your line is open.

Hey, guys. Congrats on the progress. And thanks for taking the question. First from me, I just want to understand, I guess, the decrease in expenses year-over-year. If we kind of look on a year-over-year basis. Can you just walk me through the delta that $10 million delta on SG&A as far as how much of it’s from lower sales, how much of it is from savings, from the wound divestiture and then how much is from other restructuring activities?

Yes. Thanks, Chase, for the question. This is Mark. When we look at year-over-year expenses, our expenses first start with the expenses are really down more than what you see. If you remember last year, I mentioned this in my prepared remarks, but we had a big reduction for management incentives in the third quarter last year, in the $8 million range. So that was drawn out of our expenses if you normalize that it will be down even further. But this just gets into our continued discipline in expense areas of reducing sales that we initiated in the beginning of the year. So overall, we see continued discipline in expense and really the only one-time item I would say that we had in there was a progress that we made on our accounts receivable bad debt. It was a credit to our P&L of roughly $2 million. But overall, we feel good about where we’re headed with expense.

Got it. And then I just want to make sure I understand the Durolane kind of ASP impact again in the first quarter. Can you just walk me through kind of the moving pieces there? I’m sorry, I missed it.

Yes. As we said in our prepared remarks, back to being more predictable, we did say that the ASP was going to increase in the fourth quarter, and that’s what we – that’s what we’ve seen. And we’ve gotten a lot better at understanding our processes around this and a lot better handle that’s improved our predictability and visibility into this from a CMS perspective. This is a really complicated formula, I’d say, as far as the calculating the CMS and there’s a lot of factors that go into it. One of those factors that was unique that we saw in third quarter was one of our major distributors reduced their inventory days on hand if they carry a Durolane and some of our other HA products. And by them, drawing that down, that has an impact on our first quarter ASP. But we’re confident that it will bounce back in second quarter and beyond to continue to increase sequentially. So we view this as a temporary reduction in 1Q and would see that to continue to increase over – sequentially over 2024.

Got it. And I mean we can see kind of the volume increase in the background for Durolane and it’s been quite impressive. How do you think about kind of holding on to some of that volume growth as your ASP does start to improve, I guess, ask it another way, what kind of part of that volume growth has been driven by kind of lower acquisition costs for customers versus other kind of moving pieces there?

Yes. I’d say through the first three quarters, we’re very pleased with the growth that we’ve seen in our HA portfolio for Durolane specifically continues to grow double digits and expect that to continue into 2024, and we’ll see prices kind of sequentially increase as we talked about. But again, it’s a clinically differentiated product. We don’t see as the prices start to increase as we go through 2024, we don’t see that changing our ability to continue to grow the product as the clinical differentiation will be there. Our strong position with the payers that we’ve talked about before will continue to be there. And our sales team will continue to execute at the same levels that they have been. So we see this as continuing into 2024, as we said in the script from a mid to high single-digit growth in 2024.

Yes. And then just last one for me. I want to make sure I understand kind of the moving pieces in surgical. So we kind of shifted to other distributors, did maybe some of those customers not come back as quickly as we thought on the bone graft side? And then kind of when could we get back to kind of double-digit growth in Surgical? And is that just driven by kind of recovery with those customers that you’re going to get back or kind of just growth within those new distributors that you kind of passed off your bag to?

Thanks, Chase. Tony Bihl, let me take this one. First of all, as I mentioned in my comments, we did do some changes in the structure among our surgical sales force Surgical Solutions. And the key thing here is our focus as we reestablish that sales force with the acquisition of Misonix was focused on execution. We knew which our distributors were selling the bone graft product and our direct sales people were selling the ultrasonic product. And we had them overlapping a bit as they were trying to demonstrate the opportunity for some synergies. I think we found that there was perhaps some a little bit of an overlap in channel and so we’ve decided to move forward with our distributors are our primary driver of bone graft, and we believe that will stabilize that team. We’re focusing our efforts of a very direct group of people who will manage that group as they have in the past. So we’re sort of going back to the future there, if we will, a little bit. The good news is we’re going to maintain some synergy here because those distributors are also – have also been effective in selling ultrasonic products. In fact, they’re probably selling more than 10% or 15% of our total ultrasonic by their great relationship standing in surgery with spine surgeons. So we think bifurcation that sales force back to where they were, but still allowing them to have if they have opportunistically reaching over, but they don’t have sales quotas and they’re not going to have what we believe was a developing channel conflict. So what’s going to happen in bone graft? I think we’ve been driving growth with new product, the new fibers and global allografts, and those have been a big driver of our growth. That’s probably going to stabilize a little bit. It’s probably going to settle. And so we’ll be continuing to see growth from that. But the question is when that will be sort of moderating more to high single-digit growth rather than double digits. So I think we’re going to continue to monitor carefully. We’re continuing to look at new product ideas. But right now, we’re feeling positive about these changes, and it’s going to be a couple of quarters before you see all the benefits of it.

Great. Thanks for the questions. Congrats again on the progress

Thank you. The next question comes from the line of Robbie Marcus from JPMorgan. Your line is open.

Hi, this is actually Lily on for Robbie. Thanks for taking questions. This year has had some challenges, but it seems like you’ve made some good progress stabilizing some of these trends. And I know it’s still early, but as you look out to 2024, how do you think about your ability to drive overall revenue growth next year? And what sort of headwind tailwind should we be keeping in mind?

We look into 2024, we expect a return to growth. We’re going through our plan on 2024 as a team right now and looking for solid growth in that – in 2024. We talked about HA, we look to have mid- to high single-digit growth. And so as prices stabilize and we expect the volume to continue to grow, we also – the team has done a really good job on improving our processes around the predictability of our total business, but also in HA and that will help us have confidence in managing that, and we’ll also continue our disciplined expense trends and the culture that we’ve developed in 2023. And – but I think starting in Q4 and we look into 2024, we’re going to start to look at investments that are going to drive return the business back to growth. And we talked about having solid growth in 2024. So we’ll start to look at some commercial investments starting in Q4 with our sales team as well as R&D investments that will help drive the growth over the long-term. So, both of those will be investments that we would make. And so, when we look at 2024 off of the guidance numbers that we’re providing, we would expect to see a smaller than the expected increase in EBITDA. We expect to increase it, but it’s not going to be maybe as much as what you would expect with the growth that will drive just because of some of the investments that we’re putting back to drive growth in 2024 and beyond.

Alright. That’s really helpful. And how do you think about where the portfolio stands today? Are there still any divestitures potentially on the table? And where does M&A fit into the equation as you think about continuing to drive growth and innovation? Thanks so much.

Lily, Tony Bihl, let me take that one. First of all, yes, M&A is probably not in the near term on our horizon. I think our focus is to digest a lot of great products and a lot of great processes that we have in our current portfolio. So that’s what we’re focused on. And I think for the foreseeable future, at least for the next year or so, you’ll continue to see us focus there. I think that from a standpoint of whether we’re looking at our portfolio, yes, we’re constantly looking at it. Those activities are ongoing. Nothing new to report here today, but have confidence that we are evaluating where can we make investment to fund future sustainable profitable growth and continue to focus on those businesses. And we’ll continue forward with our evaluations of what belongs in the portfolio and what might change. But right now, we’re very, very focused on driving what we have in our portfolio, and we feel comfortable that we don’t have anything that we have to – we are forced to do. We have good cash generation from the businesses we have and – but we will continue to evaluate.

Great. Thank you.

Thank you. [Operator Instructions] Next question is coming from the line of Bill Plovanic from Canaccord. Your line is open.

Hi, thanks. My question has been answered. Thanks.

With that, there are no further questions at this time. I would like now to turn the call over back to our CEO, Tony Bihl.

Well, thanks, everyone, for your interest in Bioventus. We continue to generate significant improvement in our financial position through strong execution of our business plan. Our increased visibility into our business provides us with confidence in our ability to raise our revenue and earnings commitment for the year. Our leadership team and I lead a dedicated team of employees that are focused on our mission and stakeholder value creation. Thanks again.

This now concludes today’s conference call. Thank you for joining. You may now disconnect.