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Robert Claypoole

Thank you, Dave Good morning, everyone. And thanks for joining our call today as a result of strong execution by our Bioventus team across all functions and geographies. We delivered another strong quarter and we look forward to completing a successful and transformational 2024.
We believe our diverse portfolio growth strategy and improved execution position us to sustain our momentum and deliver above market revenue growth margin, expansion and cash flow acceleration in the years ahead.
Let's take a look at our performance across the three priorities I introduced at the start of the year accelerating revenue growth, improving profitability and enhancing our liquidity position with respect to our first priority, accelerating revenue growth. We delivered growth of 15% in the third quarter.
This marks the fourth straight quarter of double digit organic revenue growth given the strong execution across all of our businesses. We are pleased to raise our revenue guidance for the full year to the high end of our previous expectations.
I'll share just a few highlights regarding our revenue starting with surgical solutions. We accelerated our double digit growth in the third quarter across both ultrasonics and bone graft substitutes with respect to ultrasonics. Our selling strategy continues to gain momentum as the number of generators sold exceeded our expectations and we saw the highest year over year growth for our disposable blades for the year.
As we have mentioned in the past, we are in the early stages of penetrating the roughly $1 billion market opportunity across spine, neuro and general surgery.
Today, our focus, our strategic focus remains on spine surgery as we seek to scale the business and drive significant growth by establishing nexus and bone scalpel. As the standard of care.
To this end, we are making strategic investments to build awareness about the benefits of ultrasonic surgery versus current practices, increase medical education and commercial effectiveness and enhance our portfolio with line extensions.
Longer term, we plan to augment our growth by penetrating neurosurgery and general surgery. While also expanding internationally, we're excited about our potential to drive sustained, double digit or ultrasonics grows in the years ahead with respect to our H A business for knee osteoarthritis. The team once again delivered double digit growth in the third quarter, led by significant demand for Dura Lane, our single injection H A therapy.
Throughout this year, we have concentrated on enhancing the collaboration between our corporate accounts team and our field sales team to augment our commercial execution with large ID N and regional customers.
Our intense focus is helping us expand our footprint and secure new accounts as we continue to gain market share.
Looking forward, we are confident in our ability to drive sustained above market growth with our clinical differentiation, dedicated commercial team, robust private payer coverage and opportunities for geographic expansion.
Moving to Exigen, we have fully transitioned from stabilizing the business to establishing it as a growth business in our portfolio with our very dedicated and patient focused team.
Given our renewed focus and investments in additional commercial resources, medical education and product enhancements. We expect exigen to grow annually by low to mid single digits in the years ahead.
Next, I'd like to provide a brief update on the status of our advanced rehabilitation business divestiture that we discussed last quarter.
At the beginning of October, we announced an agreement to sell the business for $25 million with potential earnouts totaling up to $20 million.
We believe this divestiture will allow us to further strengthen our focus and execution within our core portfolio while also enhancing our liquidity.
At this time, we expect the transaction to close near the end of this year or early next year.
Now I'll shift to our second focus area boosting profitability with our peer leading gross margin and our accelerated revenue growth adjusted EBITDA of $24 million increased by $2 million versus the prior year for the year. We have delivered nearly 150 basis points of adjusted even though margin improvement going forward. We remain committed to growing the bottom line faster than our top line. And as previously mentioned, we are committed to expanding our EBITA our adjusted EBITDA margin by at least 100 basis points annually.
We believe this level of annual margin improvement is sustainable as we capitalize on our revenue acceleration, preserve our high gross margin profile with supply chain improvements and reallocate or reduce operational expenditures, either invest in higher roi initiatives or drop the savings to the bottom line.
And now I'll turn to our third major focus area improving our liquidity position.
I'm pleased to say that we generated positive cash flow from the operations in the third quarter, increased our cash position and further reduced our net leverage ratio to approximately 3.5 turns.
Next year, we expect a material acceleration in our cash flow as we plan to reduce one time cash costs, decrease inventory and lower our interest expense providing further improvements in our overall financial position.
That concludes my update on our three priorities. I'm confident that the work taking place across our organization to improve our fundamentals drive above market growth, enhance profitability and strengthen our liquidity position will continue to advance our business and create significant shareholder value. Now I'll turn the call over to mark.

Mark Singleton

Thank you, Rob and good morning. Everyone. Let me begin by saying that I am encouraged by our results to date and the progress of our teams throughout our business to deliver on our goals and objectives.
Now, turning to our results for the third quarter revenue of $139 million increased 15% compared to the prior year. We maintained strong momentum across all three businesses with double digit growth in both pain treatments and surgical solutions for the fourth consecutive quarter.
In addition to just over $24 million increased $2 million and represented an 8% increase compared to the prior year.
Year-to-date adjusted EBITDA is up 21% compared to the prior year adjusted gross margin of 75% was comparable to last year down 10 basis points.
Looking more closely at our revenue performance for the quarter. Surgical solutions revenue accelerated by 18% as both ultrasonics and bone graft substitutes continue to generate double digit growth. A trend. We expect to continue in the fourth quarter through the diligent work of our product supply team, we have secured additional capacity within our BGS supply chain to meet future growth.
However, we expect a short term slowdown in the growth in our BGS business due to the action taken earlier in the year to delay adding new distributors and exiting some relationships with smaller distributors that we manage shortages in our supply chain.
We do not anticipate this impact to be long term and with enhancements made to our supply chain, we are working to quickly onboard new distributors in pain treatments revenue increased 18% compared to the prior year driven by Dlas brand recognition and clinical differentiation along with the strength of our team's commercial execution.
Shifting to restorative therapy sales grew 6% driven by accelerated growth from exgen.
We remain optimistic about our ability to drive consistent growth going forward through our demonstrated improvement and sales force execution and the impact of additional resources to assist our sales team.
Finally, our international segment grew 10% compared to the prior year driven by Durra Lane and partial recovery of delayed shipments in our ultrasonics business that we discussed last quarter.
Moving down the income statement adjusted total operating expenses rose in line with our expectations by nearly $13 million compared to the prior year from a combination of a return to normalized spending and increased investments in strategic growth areas.
Now turning to our bottom line financial metrics, adjusted operating income increased 2% to $21 million from $20 million in the prior year adjusted net income totaled $5 million. Up 10% compared to the prior year adjusted earnings per share were 6¢ for the quarter. Shifting to the balance sheet and cap statement, we ended the quarter with $43 million of cash on hand. An increase of $11 million for the quarter and $384 million of debt outstanding. We add $15 million drawn on our revolving credit facility at the end of the third quarter. Our expectation is to end the year with a zero balance drawn on our revolver as we repay the borrowing with current cash on hand and free cash flow generated in the fourth quarter.
Operating cash flow represented an inflow of $10 million despite the payment of more than $9 million during the quarter to settle our shareholder litigation.
Even with this payment, we generated double digit cash flow from operations for the second consecutive quarter.
We forecast double digit cash from operations to continue for the fourth quarter and expect a significant increase in 2025.
We continue to lower our net leverage ratio. And from a liquidity perspective, we remain well within compliance with our net leverage and interest coverage covenants consistent with our messaging last quarter. We are confident in our ability to reduce our net leverage to below three times during 2025. Finally, let me provide an update for the two areas of our 2024 financial guidance that we are increasing.
First, based on the team's solid execution of our commercial plan. We now expect net sales to be in the range of $562 million to $567 million. This represents a $2.5 million increase in the midpoint compared to our prior guidance of $557 million to $567 million. From an organic perspective. The midpoint of the guidance range reflected expected revenue growth of nearly 13% growth for the full year. Second for the year, we now expect adjusted earnings per share to be between 40¢ and 42¢. This represents a 2¢ increase compared to the midpoint of our prior guidance of 36¢ to 42¢ with respect to our 2024 guidance for adjusted EBIDA. It is unchanged and remains between $104 million and $107 million. The midpoint of our guidance reflects expected adjusted ebida growth of over 19% for the full year.
In closing, we are focused on finishing the year strong and finalizing our plan for 2025 to further enhance our revenue, increase profitability and drive improved cash flow operator. Please open the line for questions.

Question and Answer Session

Operator

We will now begin the question and answer session to ask a question. (Operator Instructions)
The first question comes from Chase Knickerbocker from Craig Hallum. Please go ahead.

Good morning. Thanks for taking the questions and congrats on a strong Q3 here.
I just wanted to start on 2024 guidance. So it implies a 7% kind of growth rate for the overall business in Q4. Doesn't kind of flow through that beat in Q3 on either revenue or even kind of a little bit more color on how we should think about this. Is there seasonality in the business that we kinda hadn't thought about or anything in the business you would call out kind of outside of that kind of surgical headwind that you called out in your prepared remarks in Q4. Thanks.

Robert Claypoole

Hey, Chase. This is Rob. I'll start and I invite Mark to chime in. And thanks for the question. We'll see lower growth in Q4 driven mainly by two factors. It first is unfavorable comps from a year ago, especially with Exgen where we had some one time favorability and in Q4 with a significant collections for that business.
And then second, then you alluded to this but slower BGS growth because we slowed our on boarding of new distributor agents several weeks ago when we had supply changes and we're seeing a temporary temporary lag effect and, and ramping them back up.
But you know, that said, we feel very good about our continued momentum across the business in Q4 and in line with our guidance and we're looking forward to, to driving approximately 13% top line growth for the year 1.5 X that on the 1.5 times that on the bottom line and, and and 150 basis point margin improvement for the year or so. Mark anything to add?

Mark Singleton

Nothing to add. I agree. We're really happy with where we're at from a four Q full year, you know, guidance perspective, as Rob said, you know, really strong revenue growth and managing the bottom line growing greater than the top Line.

Great, thanks and then maybe just one more. I'm kind of Q4 when it comes to paying.
You know, you had said kind of low double digits and surgical, you know, back of the napkin math that implies kind of, you know, low double digit high single digit in pain. You know, how should we think about this? Are we going to start to see some price benefit in Q4?
And then kind of is this just kind of tougher comps from Q4 paying last year, just kind of how should we think about the paying business in Q4, particularly when you have, you know, one of your leading competitors out there, kind of calling out some headwinds in the market. Thanks.

Mark Singleton

Yeah, we, we feel good about our paint business continuing the momentum in Q4. You know, if you look at really focused on driving volume growth, we look at our, our Q3 results, you know, we had a little bit of a price tail end, not significant. Where, you know, we expect those dynamics to continue in the Q4.
You know, we feel good, the the position we have with our contracts, the differentiation we have in D lane. And as the markets, you know, continues to move towards the single injection, we feel very well positioned against our competition that's in the market and don't really see any significant changes in in Q4 versus our performance here today.

Great and then, just kind of last from me. If we think about, you know, start to kind of think about 2025. You know, kind of taking this kind of growth rate from Q4.
You know, how are you guys kind of thinking about 2025? Kind of too early of a question here, but kind of on a top line basis, you've kind of given some color on EBITDA as far as margin expansion. Any color you're willing to give us kind of how you're thinking about 2025 as you kind of enter the year from kind of what it implies in Q4. Thanks.

Robert Claypoole

Chase. I'll start and again, invite Mark to chime in. But you know, we won't be giving 2025 guidance at this time, of course. But but overall, I'd say, you know, we feel like we're just getting started with the business in 2025 we have multiple growth drivers and while the comps will get harder and that's what we expected and, and we also expect to continue our positive momentum into next year. So, again, I'll keep it high level, but consistent with what we've said before, we expect to drive double digit growth and ultrasonics BGS may slow slightly compared to the double digits that we've seen this year until we have on board new distributors with HA again, consistent with what we said we expect to continue above market growth in, H A and loaded mid single digit growth as I've mentioned.
So, you know, that combination, you know, with our, our peer leading gross margin and really a disciplined allocation of resources across our business, that strong revenue growth converts, as you mentioned there, it converts to EBITA expansion, which is why we're reaffirming our intention to deliver above 100 basis points and EBITA improvement again next year and in the years ahead.
And and then on top of all of that, we'll see a very nice improvement in cash flow due to several factors including our improved working capital. So that's a, that's a very exciting combination for us and we're looking forward to 2025 and beyond.

Mark Singleton

Yeah. Nothing, nothing to add from me. Really excited about finishing 24 and, and looking forward to 2025.

Great. Thanks guys.

Operator

The next question comes from Robbie Marcus from JP Morgan. Please go ahead.

Oh, great. Thanks for taking the questions and congrats on a nice three Q.
Maybe first one just to follow up. You talked about some of the I'll call them transitory issues in fourth quarter. How should we think about that? Bleeding into the beginning of 2025? And will this cause any sort of first half or second half type of growth disparity in 2025.

Robert Claypoole

Hey, Robbie, this is Rob, I start and I turn over to mark. Yeah, so we feel really good about our momentum into Q4 and, and into 2025 as well in terms of any of the factors that I mentioned for Q4 that could carry into 2025. Really, the only one is from a BGS standpoint and making sure that we, as I mentioned, we have temporary lag effect and need to ramp that back up as we go into next year. So the start may be a little bit softer, but besides that, feel, feel very good across the business about our momentum heading into next year.
Mark anything to add there?

Mark Singleton

Nothing to add.

So, is this something we should expect in BGS it's resolved by two Q or could it go on longer than that?

Robert Claypoole

So you can expect it to resolve by Q2

Okay. And then maybe as a follow up, you talked about in the prepared remarks, getting net leverage down to three times by the end of 2025 maybe just remind us of any upcoming debt payments or, or milestones. And you know, the pathway to getting to three times in the ultimate target leverage. Thanks a lot.

Mark Singleton

Yeah, I think you know, thanks Rob, just from the overall leverage perspective, you know, it really just continued execution in the business. You know, we talked about the, the cash flow acceleration that we expect in, in 2025 I mean, you know, continuing to grow, you know, grow EBITDA, you know, we're going to pay down you know, the revolver in the in four Q and the acceleration and, and things that we've seen and in 2023 is is good, you know, we have a quarterly amortization and you know, a debt repayment you know, with, with our over achievement on EBITDA.
So really just continued execution on, you know, driving our our business in 2025 as kind of Rob talked about earlier and seeing interest come down, seeing the the debt, you know, come down as we as we repay some of that. And just, you know, look to flow that through with our strong even up performance and back to the expanding our margin by 100 basis point.

Great. I appreciate it. Thanks a lot.

Mark Singleton

Thanks Robbie

Operator

Again. If you have a question, please press star one.
The next question comes from Rose Kyle from Canaccord Genuity, please go ahead.

Great. Thanks for taking my questions and congrats on the quarter. So for pain treatments, it seems like you guys are really taking share any concerns over your competitor that you know, chase mentioned earlier, really refocusing on its H A business with other divestitures and it's also noting that its distribution partner in the US will work to establish, you know, stronger market access and work to stabilize sales in the US O A paint products for that company. So any concerns there over a renewed focus by them?

Robert Claypoole

Hi, Kyle, it's Rob. Let me start. You were a little bit muffled there at the end. But I think it was about given what we're hearing externally in the HA category from competitors. Is there any concerns on our side? And and so I'll start, let me know if I, answer your question fully, but no, there's no concerns and what you're hearing externally is a reflection of what we conveyed to, all of you throughout this year. I mean, we, we have very strong clinical differentiation.
We've dedicated the largest dedicated sales force. We have strong payer contracts and that is a very strong combination and it's, we're also focused on and seeing traction with improving our commercial execution with larger accounts.
So all of that's consistent with what we've I shared with you. And as a result of that combination, we've been driving significant volume gains and we've always expected that the pressure from competitors will increase in the coming years. That's, that's what happens when you're leading. So even though the comps get harder, we feel good about our ability to continue to grow above market, given our, strength and our momentum.

Got it. That's helpful. And then just thoughts on, you know, the other ultrasonic bone cutting tools in the market that you know, we recently launched and how ultrasonics really compares and, and any more color on the innovation you noted coming to this product line.

Robert Claypoole

Yeah, I'll, start, you know, it's overall in that category. We're early in the going here. And that's what's so exciting about it. You know, we have a world class technology and tremendous momentum with the begin with the business, but we're just scratching the surface and plenty of opportunity for us to expand organically. And that includes through through additional innovation in the space, I won't go into detail on what that is.
But you know, it's one of the, one of the hidden gems with by event is that we have a very strong R&D team for this business and for the most part they've been on, haven't been leveraged over the last couple of years. So that's one of the areas we'll be investing more in the business is from an R&D standpoint. So we'll be sure to update you on some of that innovation when the time comes.

Got it awesome. And then just, you know, any expectations for the O US business, you know, going forward into next year.

Robert Claypoole

Yeah, I feel really good about it. You know, I've mentioned a couple of times that I think we have tremendous potential for the international business. And there's probably more foundational work that's required than, than I than I realized when I first joined the company. But that said, I'm familiar with scaling international some businesses and I remain very optimistic about the growth potential of our international business in the years ahead. So we'll be talking about that again throughout 2025 as we, as we build and scale that business and make it a more significant contributor to the overall growth profile.

Thanks so much.

Robert Claypoole

Thank you.

Operator

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

Robert Claypoole

Alright, thanks everyone for your interest in Bioventus.
We delivered a strong performance across our business in the third quarter and look to for and look forward to building on our momentum across our three priorities of accelerating revenue growth, improving profitability, and enhancing our liquidity position to create significant shareholder value. Have a good day.

Operator

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