Good afternoon, ladies and gentlemen and welcome to the Second Quarter 2021 Earnings Conference Call for Bioventus Inc. At this time all participants have been placed in a listen-only mode. Please note that this call is being recorded and that the recorded and that recording will be available on the company's website for replay shortly after the end of the call. Before we begin, I would like to remind everyone that our remarks today may 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 Securities and Exchange Commission, including Item 1A of the company's Form 10-K for the year ended December 31, 2020, as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. 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 generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Definition and reconciliations of these 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 portions of our website at www.bioventus.com. I would now like to turn the call over to Mr. Ken Reali, Bioventus' Chief Executive Officer. Sir, please go ahead.

Well, thank you, Katherine, and welcome, everyone, to Bioventus second quarter 2021 earnings conference call. I'm joined on the call today by Greg Anglum, our Chief Financial Officer. Let me provide you with a brief outline of what we intend to cover. I'll start by discussing our second quarter revenue performance and business trends, followed by an update on ouroperating progress and key highlights in the quarter and in recent months. And after my opening remarks, Greg will review our financial results for the second quarter 2021 and our financial guidance for full year 2021, which we updated in our press release this afternoon. And then we will open the call to take your questions. Turing to a brief review of our second quarter results. We are pleased to report second quarter net sales of $109.8 million up 89% year-over-year. exceeding the expectations we provided on our Q1 call, which assumed growth in the range of 67% to 74% year-over-year. Our second quarter revenue exceeded the midpoint of this guidance range by roughly $11 million or 19 percentage points of growth year-over-year. Needless to say, we are extremely proud of the Bioventus team and the strong growth performance we delivered in the second quarter. We believe our second quarter results were driven by our team's ability to build upon the momentum we saw coming out of the first quarter and importantly reflects strong organic growth overall and improving growth trends quarter-over-quarter. Specifically, our second quarter revenue results reflect organic growth of 15% as compared to the second quarter of 2019 driven by strong organic growth versus 2019 in the U.S. of 18%. While we are very pleased with this growth performance, we are even more encouraged by the fact that our growth trends over 2019 accelerated quarter-to-quarter which reflects improvement…

Thank you, Ken. For the avoidance of doubts and unless otherwise noted, my commentary will focus on the company's non-GAAP results for the second quarters of 2021 and 2020. We've included definitions and full reconciliations from our GAAP reported results to the related non-GAAP item in our press release this afternoon. Turning to a review of our second quarter financial results. GAAP net sales increased $51.8 million or 89% year-over-year on a reported basis and increased 88% on a constant currency basis. Gross profit increased $38 million or 84% year-over-year and represented 76.5% of sales compared to 78.7% of sales in the prior year period. The year-over-year change in gross margin was driven primarily by the mix of revenue by geography and by vertical as compared to the prior year period. Note our gross profit excludes non-cash amortization expense of $5.6 million for the second quarter of 2021 compared to $5.3 million last year. Second quarter of 2021 gross profit also excludes $2.1 million of inventory step up costs related to our acquisition of Bioness. Total operating expense increased $31.3 million were 79% year-over-year to $70.8 million. The change in total operating expense by line item was driven by a $29 million increase or 79% year-over-year in SG&A expense, and to a lesser extent, a $2.2 million were 86% year-over-year in R&D expense. The increase in operating expense compared to the prior year period was primarily driven by investments in our selling and marketing organization. Public company costs which did not impact the prior year period results and the resumption of discretionary spending, including travel and related expenses, given the more normalized business environment as compared to the significant cost reduction efforts in the prior year period as a result of the COVID-19 pandemic, as well as operating expenses related…

Thanks, Greg. Before opening the call for Q&A, I want to summarize the main points of the Bioventus investment story, which I believe will illustrate why we are so enthusiastic about the long-term outlook for the company. Number one, we are a company focused on building a portfolio of clinically differentiated minimally invasive treatments to help patients heal faster and relieve pain. We are confident in our multi-year organic growth profile, which is increasingly compelling and fueled by our market penetration strategy in both our pain treatment and joint preservation and bone graft substitutes verticals and expanding our reach in our restorative therapies vertical. Number two, our product pipeline is robust and is expected to fuel accretive growth in the medium-term with potential products like Agili-C by CartiHeal, MOTYS and PROcuff and talisman the implantable less invasive PNS device from Bioness. Number three, our M&A strategy is designed to bring in acquisitions that are expected to bring accretive growth to our global business and leverage our strong commercial infrastructure to bring about consistent double-digit growth. As discussed our acquisition of Bioness in March and our recently announced pending acquisition of Misonix represents ideal fits in terms of how our M&A strategy will enhance our long-term growth profile and create further value for our shareholders. Importantly, we will continue to be measured and prudence in our approach to M&A as we have with both the Bioness and Misonix deals. Number four, operationally, we are focused on continuous improvement to positively impact our margins, including cost savings initiatives from a manufacturing and supply chain perspective, while also enhancing our quality programs to meet ongoing changes in our regulatory environment. And number five, and most importantly, our strategy is backed by a highly engaged results driven culture that is fueled by an employee driven mission to improve the lives of the 1,000s of patients that are treated each day by one of our medical devices returning them to active lives. With that, we'll open the call to take your questions. Katherine?

Thank you, sir. [Operator Instructions]. We do ask that you limit yourself to one question and one follow-up. [Operator Instructions]. We will now take a moment to allow participants to join the queue. And our first question from Robbie Marcus of JP Morgan. Please ask your question.

Great. Thanks for taking my question. Maybe we could start on the outlook, I think people are getting very concerned about the impact of COVID and the Delta variant, particularly in the southeast with some hospitals in Texas and Florida and other states starting to put-off elective procedures. It doesn't sound like the guidance necessarily assumes a worsening of the situation. So it'd be great to get your take of -- what you're seeing right now in the U.S., particularly in the southeast? And are you seeing an impact so far in third quarter from the rising cases? Thanks.

Yes, thanks. Robbie, good to hear your voice. And thanks for your question. That is -- it is a concern and one that we're watching carefully. At this point in time, it is not impacting our business. Keeping in mind that Bioventus is broadly diversified, geographically across the United States, where we sell in a given month to 1,000s of surgeons across our three verticals. That really helps us where we may have some regional spikes, which is I think, what we're seeing with the Delta variant, whether it’s some impact and elective procedures, but we're broad enough, based at this point, where we have not seen an impact. We're obviously continue to watch that carefully. But our guidance assumes we'd return back to normalize growth in the second half of this year.

Got it, okay. So it doesn't seem like it's really impacting you from second quarter trends at all, in a material way?

No, no. It's not Robbie. And hopefully that will continue for us.

Yes, thanks, Robbie. Our M&A strategy, as we've talked about, since we went public earlier this year, is not to drive growth for growth's sake with M&A, but really look at it from a strategic perspective and make sure it [indiscernible] and leverages our commercial channel. We've been fortunate to find two excellent acquisitions in 2021 in Bioness, and the pending acquisition with Misonix. We will continue to look at other M&A. And we'll take a prudent and measured approach that those potential deals if we go that far are ones that will return value to our shareholders. And that will be a key measurement device. We have assessed carefully where we stand relative to the Misonix and completing that acquisition, which we successfully expect to close in the fourth quarter, and then CartiHeal and as highlighted on the call, we don't expect CartiHeal if we do move forward to receive PMA approval until mid-2022, which puts quite a bit of daylight between the close of Misonix and the CartiHeal deal. So, we are in a strong position with low debt, high -- not leveraged, but very strong cash that drives down to our bottom line every month. So we'll continue to certainly look at our M&A pipeline and look at opportunities that drive accretive growth. But as we've done in the past, it'll be a measured and prudent approach. And we just have in our case some very good synergies that we've been able to take advantage of here in the near-term with both Bioness and with Misonix, and we're clearly excited about CartiHeal. And we'll be assessing that technology, and as mentioned, are in process of doing that right now.

Great. Maybe if I could sneak in one more. Now that you've had some time to digest the acquisition, at least since the announcement a couple weeks ago, any updated thoughts on accretion for the first year and the second year on adjusted EBITDA, and how that impacts net income? Thanks.

Yes, Robbie, it's Greg, I'll take that when -- with respect to Misonix. I don't think there's any updated thoughts at all as we said, at the time of that announcement, we expect that acquisition to be accretive to our adjusted EBITDA in the first full year after the completion of the transaction and accretive to our adjusted EBITDA margins by the second full year after completion, and really no change to that for what we said at that point. Thanks.

And, sir, our next question from Amit Hazan of Goldman Sachs. Please ask your question.

Hey, this is Phil on for Amit. Can you guys hear me? Okay?

We can Phil.

Awesome. I wanted to circle back to Delta and maybe a slightly different way that Robbie asked that and asked about patient risk aversion, kind of independently of constraints on facilities and hospitals. So I'm wondering what your learnings were on patient risk aversion over the last roughly year 18 months? And how you're thinking about that moving forward. And any differences that you see in different divisions? Obviously, there's slightly different dynamics between the different segments that you guys operate on it?

Yes, it's a great question, Phil. And let me try to answer it by the verticals. And a lot of our data will be U.S. faced, but certainly we -- I will reflect on some international points as well. First of all, on our HA therapy in our pain treatments area in that vertical, we saw last year reticence to go into physician offices, keeping in mind that that particular population with HA is elderly people, or people over the age of 65 and sometimes quite a bit older. We've seen a return, a full return to our HA business, as the vaccines have become available late last year and early this year. And as you can see from our results, we continue to see continued strong growth in that area and continue to gain market share in the HA space in general. EXOGEN is more of a broad-based technology and our restorative therapies area. And that particular area, it's -- it was impacted throughout 2020 because of the reduced activity level reduced trauma, and then we've seen a consistent pickup across the back half of 2020 and into 2021. I don't expect that to be impacted, because that's more trauma related and as long as people will continue to remain active and we don't have shutdowns. The impact of a Delta variant will not be extensive on that restorative therapies area of EXOGEN. And for that matter, on the advanced rehabilitation area with Bioness I would say the same thing. Where it's more stroking and focused at this point. And in areas like that, that affect gaits, we don't expect a significant impact there, unless there would be some type of significant shutdown. And then we're going to our bone grafts substitutes area that also is more of a…

All right, thanks. Thanks for all that color. That was great. One more, if I may, the EXOGEN system. I think growth if you look on it, kind of a compound basis slowed sequentially versus 1Q. I'm wondering what happened the market there. Obviously, we had some things going on in 1Q that I think could have actually slowed growth on that side. So what happened in 2Q and what gives you confidence in the reacceleration that's implied in guidance for that business? Thanks.

Yes. Thanks, Phil. Well, just to be clear, we did see sequential growth in EXOGEN, from Q1 to Q2, and we're very pleased with that. So from our perspective, EXOGEN, we continue to expect low-to-mid single-digit growth with the product. And we continue to be strongly optimistic on EXOGEN to deliver from a profitability perspective. So as far as we're concerned, we've continued to see really good numbers there and encouraging numbers. As I mentioned, we did -- EXOGEN was hit last year, particularly with the reduction in trauma. But we've seen that pickup and we've seen good sequential growth from Q1 to Q2 now.

Right. Thanks [indiscernible] come back with you.

Thanks, Phil.

And our next question from Drew Ranieri of Morgan Stanley. Please ask your question.

Hi, everyone, thanks for asking -- taking question. Just going back to the third quarter for a moment just to your comments that you're expecting a return to normalized year-over-year growth trends in the third quarter. It looks like consensus has about $102 million for the third quarter. But if I kind of look back and maybe what your normalized growth rates would have been, it seems like we might be coming out to like $95 million to $98 million. Just curious if you're comfortable, where consensus currently stands, just kind of given the trends that you're seeing in the business and variants.

Yes, Drew. Thanks. It's Greg, and short play version is we've said all year long we expect to get back to normalized growth. In the second half, we continue to say that. If you go back and you look at our business historically Q2 to Q3, our business stays relatively constant, maybe [indiscernible] just shift [indiscernible], but our business certainly builds from the first quarter to the fourth quarter, but is relatively constant from Q2 to Q3. So we remain very positive in terms of our outlook for the rest of the year.

Okay, and then I'll put these two questions together, but can you maybe talk a little bit more about the pilot program between for StimRouter and EXOGEN and then second, just give us a pipeline update for bones and MOTYS? Thank you.

Sure, Drew. Well, first of all, the pilot program was something we launched several months ago with our sales team that sells EXOGEN and specifically calls on lower extremity surgeons foot and ankle orthopedic surgeons and podiatric surgeons, where there is a real need for a peripheral nerve stimulation, depending on the procedure, and the area that we are treating. As we brought the team in, and it was 25 of our sales reps, so at a small percent, that's gone quite well, as they've gone out in the field. They've been trained, working closely with the Bioness, peripheral nerve stimulation sales force. So we're very excited about that opportunity. It's an initial focus for us just to gain market experience and have our reps gain experience and confidence with a StimRouter product. From our perspective, we look forward to a full launch across our broader sales force in this area going into 2022. And obviously also the next generation talisman product, which we also expect 510-K clearance on and availability with that in 2022 as well. As far as bones, there's not a lot to update on at this point. As highlighted before, we have a deficiency letter from the FDA, on the metatarsal study. And we are in discussions with FDA and expect to continue to work to resolve the deficiency letter. And once again, this is a PMA supplement, that does take some time as the team works through that. So we'll have updates as we get them better material in that area. And that MOTYS we continue to work through our Phase 1 study, it's now two sites in the U.S. And we're ready to commence our Phase 3 study on schedule in the third quarter or Phase 2 study rather on schedule and the third quarter. So very excited about what that product represents, and the strong adjacency that we see in our HA portfolio with MOTYS as a placental tissue product that can have disease modifying implications, as well as reduce inflammation in the knee joint. So that continues to really progress nicely. And our team has done a terrific job moving that forward via the BOA application process.

Thanks for taking the question.

Thanks, Drew.

[Operator Instructions] And our next question from Kyle Rose of Canaccord. Please ask your question.

Great. Thank you very much for taking the questions. So I wonder if we could just ask more of a bigger picture M&A question, I understand that your appetite for continued M&A remains strong. When I look at the two deals that you've done, are one pending and one closed one. I mean, they're a bit more tangential than I think maybe we would have expected, broadening into the wound care market, as well as more on the operative side of the spine market. And then when I look at Bioness, you've got the multiple different market segments that you're broadening into, do you expect to continue to move into additional adjacent market segments or more so than invest in the existing markets that you're in now?

That's a good question, Kyle. And really, when you look at the segments that were in, in the verticals, these were highly adjacent areas, which is why we did them and they leveraged our commercial channel and the infrastructure that the company has. I mean, if you start with Bioness, we're using our current sales force. Obviously, it's just a pilot right now, but we will to continue to penetrate the peripheral nerve stimulation market, which is a significant one, when you look at the opioid crisis, and the use of opioids post-surgery. These are all physicians and surgeons that we call on daily. So leveraging that has been critical, and then obviously on the advanced rehabilitation business, there's an operational synergy, as well as a commercial synergy operationally with the durable medical equipment and that process that we have well-honed with EXOGEN. And then commercially expanding their gait restoration products to use in osteoarthritis and our sales force also going in that direction, where we see a lot of great synergy. And then with Misonix, it is essentially the same strategy going deeper with what we have, starting with spine, the unique strategy that we have been agnostic to spine hardware and leveraging our bone graft substitutes across a broad portfolio of opportunities and hospitals and surgeons, Misonix has taken the same strategy with the bone scalpel and we view that as a definite two plus two equals five because that strategy, and this relatively small market penetration we both have will allow acceleration of growth, using our combined commercial channels. call: So I like to call our business, Kyle, when we started out a mile wide and an inch deep, and all we're doing is taking that inch deep. And we're going two or three inches by going deeper with our customers. It might seem like it's not tangential. But when you really look at it, and hopefully that makes sense, the way I described it, we are going deeper with the same customers using our same commercial channels. So we're very excited about that. We'll continue to take a measured and prudent approach and a careful approach on M&A. We've just been very fortunate that we found two really good ones here of lights that are great fits for Bioventus. And our ability to drive long-term accretive growth, which both acquisitions we feel will do for our shareholders.

Great. And then just last question for me is it sounds like the CartiHeal data looks pretty good, at least from a top line perspective, understand all the timelines and just trying to understand maybe from your side, what would prevent you from moving forward with the deal, as is already structured? Thank you.

Thanks, Kyle. Look, we're -- there's not a lot I can comment on. As I said, we're reviewing the data now. We'll look at the data and the market opportunity carefully. We are excited. It's a great technology. It's a great product. We just have to look at this wholistically. And that's what we're in the process of doing. We will announce our decision via press release here. And from our perspective, that's about all we can say at this point in time. So we'll keep everyone posted on next steps there.

Thank you.

Thanks, Kyle.

And sir, we are currently showing no additional participants in the queue. That does concludes our conference call for today. Thank you all for participating. You may now disconnect.