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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-37844
BIOVENTUS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware81-0980861
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
4721 Emperor Boulevard, Suite 100
Durham, North Carolina
27703
(Address of Principal Executive Offices)(Zip Code)
(919) 474-6700
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareBVSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ☒   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No  ☒
As of November 9, 2021, there were 59,438,082 shares of Class A common stock outstanding and 15,786,737 shares of Class B common stock outstanding.


Table of Contents
BIOVENTUS INC.
TABLE OF CONTENTS
Consolidated Condensed Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended October 2, 2021 and September 26, 2020
Consolidated Condensed Balance Sheets as of October 2, 2021 and December 31, 2020
Consolidated Condensed Statements of Changes in Stockholders’ and Members’ Equity for the three and nine months ended October 2, 2021 and September 26, 2020
Consolidated Condensed Statements of Cash Flows for the nine months ended October 2, 2021 and September 26, 2020




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
As used in this Quarterly Report on Form 10-Q, unless expressly indicated or the context otherwise requires, references to "Bioventus," "we," "us," "our," "the Company," and similar references refer to Bioventus Inc. and its consolidated subsidiaries, including Bioventus LLC (BV LLC).
This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended (Securities Act), concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements including, without limitation, statements regarding our business strategy, including, without limitation, expectations relating to our acquisitions of Misonix and Bioness, potential acquisitions and expected expansion of our pipeline and research and development investment, new therapy launches, our operations and expected financial performance and condition, and impacts of the COVID-19 pandemic. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.


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Forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Important factors that may cause actual results to differ materially from current expectations include, among other things, our business may continue to experience adverse impacts as a result of the COVID-19 pandemic; we are highly dependent on a limited number of products; our long-term growth depends on our ability to develop, acquire and commercialize new products, line extensions or expanded indications; we may be unable to successfully commercialize newly developed or acquired products or therapies in the United States; demand for our existing portfolio of products and any new products, line extensions or expanded indications depends on the continued and future acceptance of our products by physicians, patients, third-party payers and others in the medical community; our commercial success depends on our ability to differentiate the hyaluronic acid (HA) viscosupplementation therapies that we own or distribute from alternative therapies for the treatment of osteoarthritis; the proposed down classification of non-invasive bone growth stimulators, including our Exogen system, by the U.S. Food and Drug Association (FDA) could increase future competition for bone growth stimulators and otherwise adversely affect the Company’s sales of Exogen; if we are unable to achieve and maintain adequate levels of coverage and/or reimbursement for our products, the procedures using our products, or any future products we may seek to commercialize, including any potential changes by Centers for Medicare and Medicaid Services in the manner in which our HA viscosupplementation products are reimbursed, the commercial success of these products may be severely hindered; if we choose to acquire or invest in new businesses, products or technologies, we may be unable to complete these acquisitions or to successfully integrate them in a cost-effective and non-disruptive manner; we compete and may compete in the future against other companies, some of which have longer operating histories, more established products or greater resources than we do, which may prevent us from achieving increased market penetration or improved operating results; the reclassification of our HA products from medical devices to drugs in the United States by the FDA could negatively impact our ability to market these products and may require that we conduct costly additional clinical studies to support current or future indications for use of those products; our ability to maintain our competitive position depends on our ability to attract, retain and motivate our senior management team and highly qualified personnel, and our failure to do so could adversely affect our business, results of operations and financial condition; if our facilities are damaged or become inoperable, we will be unable to continue to research, develop and manufacture our products and, as a result, our business, results of operations and financial condition may be adversely affected until we are able to secure a new facility; our products and operations are subject to extensive governmental regulation, and our failure to comply with applicable requirements could cause our business to suffer; we may be subject to enforcement action if we engage in improper claims submission practices and resulting audits or denials of our claims by government agencies could reduce our net sales or profits; the FDA regulatory process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products; our HCT/P products are subject to extensive government regulation and our failure to comply with these requirements could cause our business to suffer; if clinical studies of our future products do not produce results necessary to support regulatory clearance or approval in the United States or elsewhere, we will be unable to expand the indications for or commercialize these products; we may be subject to enforcement action if we engage in improper marketing or promotion of our products, that could lead to costly investigations, fines or sanctions by regulatory bodies, any of which could be costly to our business; and other important factors described in Part I, Item 1A. Risk Factors in our 2020 Annual Report on Form 10-K as updated by this Form 10-Q. You are urged to consider these factors carefully in evaluating these forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.


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Part I. Financial Information
Item 1. Financial Statements
Bioventus Inc.
Consolidated condensed statements of operations and comprehensive (loss) income
Three and nine months ended October 2, 2021 and September 26, 2020
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months EndedNine Months Ended
October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Net sales$108,890 $85,908 $300,484 $222,570 
Cost of sales (including depreciation and amortization
    of $6,637, $5,477, $17,491 and $16,076 respectively)
29,821 23,444 85,546 62,521 
Gross profit79,069 62,464 214,938 160,049 
Selling, general and administrative expense69,636 50,295 173,372 131,104 
Research and development expense6,153 3,569 11,936 8,311 
Restructuring costs1,798  1,798  
Change in fair value of contingent consideration651  1,292  
Depreciation and amortization1,878 1,667 5,655 5,305 
Impairment of variable interest entity assets  5,674  
Operating (loss) income(1,047)6,933 15,211 15,329 
Interest expense1,347 1,880 152 7,095 
Other expense (income)757 (3,285)2,821 (4,539)
Other expense (income)2,104 (1,405)2,973 2,556 
(Loss) income before income taxes(3,151)8,338 12,238 12,773 
Income tax (benefit) expense(882)373 759 302 
Net (loss) income(2,269)7,965 11,479 12,471 
Loss attributable to noncontrolling interest1,198 492 8,260 1,164 
Net (loss) income attributable to Bioventus Inc.$(1,071)$8,457 $19,739 $13,635 
Net (loss) income$(2,269)$7,965 $11,479 $12,471 
Other comprehensive (loss) income, net of tax
Change in foreign currency translation adjustments(366)943 (1,225)687 
Comprehensive (loss) income(2,635)8,908 10,254 13,158 
Comprehensive loss attributable to noncontrolling interest1,300 492 8,182 1,164 
Comprehensive (loss) income attributable to Bioventus Inc.$(1,335)$9,400 $18,436 $14,322 
Loss per share of Class A common stock, basic and diluted(1):
$(0.03)$(0.15)
Weighted-average shares of Class A common stock outstanding, basic and diluted(1):
41,837,581 41,816,706 
(1) Per share information for the nine months ended October 2, 2021 represents loss per share of Class A common stock and weighted-average shares of Class A common stock outstanding from February 16, 2021 through October 2, 2021, the period following Bioventus Inc.'s initial public offering and related transactions described in Note 1. Organization and Note 7. Earnings per share within the Notes to the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed balance sheets as of October 2, 2021 (Unaudited) and December 31, 2020
(Amounts in thousands, except share amounts )
October 2, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$80,917 $86,839 
Accounts receivable, net105,442 88,283 
Inventory36,565 29,120 
Prepaid and other current assets23,154 7,552 
Total current assets246,078 211,794 
Restricted cash50,000  
Property and equipment, net10,297 6,879 
Goodwill52,885 49,800 
Intangible assets, net248,794 191,650 
Operating lease assets16,938 14,961 
Deferred tax assets481  
Investment and other assets29,317 19,382 
Total assets$654,790 $494,466 
Liabilities and Stockholders' and Members’ Equity
Current liabilities:
Accounts payable$10,897 $4,422 
Accrued liabilities107,554 88,187 
Accrued equity-based compensation10,875 11,054 
Current portion of long-term debt15,000 15,000 
Current portion of contingent consideration13,386  
Other current liabilities2,993 3,926 
Total current liabilities160,705 122,589 
Long-term debt, less current portion162,437 173,378 
Accrued equity-based compensation, less current portion 29,249 
Deferred income taxes47,687 3,362 
Contingent consideration, less current portion30,906  
Other long-term liabilities22,558 21,728 
Total liabilities424,293 350,306 
Commitments and contingencies (Note 10)
Stockholders’ and Members’ Equity:
Members' equity— 144,160 
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued
Class A common stock, $0.001 par value 250,000,000 shares authorized,
   41,097,292 shares issued and outstanding
41 — 
Class B common stock, $0.001 par value, 50,000,000 shares authorized,
    15,786,737 shares issued and outstanding
16 — 
Additional paid-in capital158,480 — 
Accumulated deficit(6,238)— 
Accumulated other comprehensive income204 — 
Total stockholders’ equity attributable to Bioventus Inc. and members’ equity152,503 144,160 
Noncontrolling interest77,994  
Total stockholders’ and members’ equity230,497 144,160 
Total liabilities and stockholders’ and members’ equity$654,790 $494,466 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed statements of changes in stockholders’ and members’ equity
Three and nine months ended October 2, 2021 and September 26, 2020
(Amounts in thousands, except share amounts)
(Unaudited)

Three Months Ended October 2, 2021
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
other
comprehensive
income
Accumulated
Deficit
Non-
controlling
interest
Total
Stockholders'
and
members’
equity
Balance at July 2, 202141,062,652 $41 15,786,737 $16 $146,199 $468 $(5,167)$77,807 $219,364 
Effect of Organizational Transactions(1)
— — — — 7,437 — — — 7,437 
Issuance of Class A common stock34,640 — — — 417 — — — 417 
Distribution of Continuing LLC Owner— — — — — — — (24)(24)
Net loss— — — — — — (1,071)(1,198)(2,269)
Equity based compensation— — — — 4,427 — — 1,511 5,938 
Translation adjustment— — — — — (264)— (102)(366)
Balance at October 2, 202141,097,292$41 15,786,737$16 $158,480 $204 $(6,238)$77,994 $230,497 
(1) Refer to Note 9. Income taxes within the Notes to the unaudited consolidated condensed financial statements for further details
Three Months Ended September 26, 2020
Members’
equity
Balance at June 27, 2020$141,791 
Profits interest forfeiture39 
Distribution to members(5,399)
Net income7,965 
Translation adjustment943 
Balance at September 26, 2020$145,339 




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Nine Months Ended October 2, 2021
Class A Common StockClass B Common Stock
Members’
equity
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
other
comprehensive
income
Accumulated DeficitNon-
controlling
interest
Total Stockholders' and
members’
equity
Balance at December 31, 2020$144,160 — $— — $— $— $— $— $— $144,160 
Refund from members prior to Organizational Transactions123 — — — — — — — — 123 
Other equity forfeiture(39)— — — — — — — — (39)
Net income prior to Organizational Transactions25,977 — — — — — — — — 25,977 
Translation adjustment prior to Organizational Transactions(1,507)— — — — — — — — (1,507)
Effect of Organizational Transactions(168,714)31,838,58932 15,786,73716 41,060 — — 79,119(48,487)
Initial public offering, net of offering costs— 9,200,0009 — — 106,441 — — — 106,450 
Issuance of Class A common stock— 58,703  — — 731 — — — 731 
Distribution to Continuing LLC Owner— — — — — — — — (215)(215)
Net loss subsequent to Organizational Transactions— — — — — — — (6,238)(8,260)(14,498)
Deconsolidation of variable interest entity— — — — — — — — 3,746 3,746 
Equity based compensation subsequent to Organizational Transactions— — — — — 10,248 — — 3,526 13,774 
Translation adjustment subsequent to Organizational Transactions— — — — — — 204 — 78 282 
Balance at October 2, 2021$ 41,097,292$41 15,786,737$16 $158,480 $204 $(6,238)$77,994 $230,497 
Nine Months Ended September 26, 2020
Members’
equity
Balance at December 31, 2019$145,617 
Profits interest forfeiture26 
Distribution to members(14,111)
Debt conversion649 
Net income12,471 
Translation adjustment687 
Balance at September 26, 2020$145,339 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed statements of cash flows
Nine months ended October 2, 2021 and September 26, 2020
(Amounts in thousands)
(Unaudited)
Nine Months Ended
October 2,
2021
September 26,
2020
Operating activities:
Net income$11,479 $12,471 
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Depreciation and amortization23,185 21,789 
(Recovery) provision for expected credit losses(138)1,089 
Equity-based compensation from 2021 Stock Incentive Plan13,735  
Profits interest plan, liability-classified and other equity awards compensation(24,356)619 
Change in fair value of contingent consideration1,292  
Change in fair value of interest rate swap(1,391)1,980 
Change in fair value of Equity Participation Rights(2,774)(788)
Impairments related to variable interest entity7,043  
Other, net(72)(266)
Changes in operating assets and liabilities:
Accounts receivable(13,149)3,361 
Inventories1,496 (7,004)
Accounts payable and accrued expenses7,247 11,568 
Other current assets and liabilities(13,723)1,933 
Net cash from operating activities - continuing operations9,874 46,752 
Net cash from operating activities - discontinued operations (400)
Net cash from operating activities9,874 46,352 
Investing activities:
Purchase of Bioness, Inc., net of cash acquired(46,790) 
Investments(11,124)(16,630)
Purchase of property and equipment(4,568)(2,331)
Net cash from investing activities - continuing operations(62,482)(18,961)
Net cash from investing activities - discontinued operations 172 
Net cash from investing activities(62,482)(18,789)
Financing activities:
Proceeds from issuance of Class A common stock sold in initial public offering,
     net of underwriting discounts and offering costs
107,777  
Proceeds from issuance of Class A and B common stock 747  
Borrowing on revolver 49,000 
Payment on revolver (49,000)
Payments on long-term debt(11,250)(5,000)
Distributions to members(183)(14,691)
Other, net(28) 
Net cash from financing activities97,063 (19,691)
Effect of exchange rate changes on cash(377)86 
Net change in cash, cash equivalents and restricted cash44,078 7,958 
Cash, cash equivalents and restricted cash at the beginning of the period86,839 64,520 
Cash, cash equivalents and restricted cash at the end of the period$130,917 $72,478 
Supplemental disclosure of noncash investing and financing activities
Accrued member distributions$123 $607 
Accounts payable for purchase of property, plant and equipment$612 $580 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Notes to the unaudited consolidated condensed financial statements
(Amounts in thousands, except unit and share amounts)
1. Organization
The Company
Bioventus Inc. (the Company, we, us or our) was formed as a Delaware corporation for the purpose of facilitating an initial public offering (IPO) and other related transactions in order to carry on the business of Bioventus LLC and its subsidiaries (BV LLC). The Company is headquartered in Durham, North Carolina. BV LLC, is a limited liability company formed under the laws of the state of Delaware on November 23, 2011 and operates as a partnership. BV LLC commenced operations in May 2012. BV LLC is a global medical device company, conducting business in various countries, primarily in North America and Europe, with approximately 900 employees. The Company is focused on developing and commercializing clinically differentiated, cost efficient and minimally invasive treatments that engage and enhance the body’s natural healing processes.
Initial Public Offering
On February 16, 2021, the Company closed an IPO of 9,200,000 shares of Class A common stock at a public offering price of $13.00 per share, which includes 1,200,000 shares issued pursuant to the underwriters' over-allotment option. The Company received $111,228 in proceeds, net of underwriting discounts and commissions of $8,372, which was used to purchase newly-issued membership interests from BV LLC at a price per interest equal to the IPO price of $13.00. The Company also incurred offering expenses totaling $4,778 in addition to the underwriting discounts and commissions. Offering expenses of $1,327 were paid in 2020 and $3,451 were paid in 2021. Subsequent to the IPO and related transactions that occurred in connection with the IPO (the Transactions), the Company is the sole managing member of BV LLC and owns 72.3% of BV LLC. The Company has a majority economic interest, the sole voting interest in, and controls the management of BV LLC. As a result, the Company consolidates the financial results of BV LLC and reports a non-controlling interest representing the 27.7% interest not held by the Company.
IPO Transactions
The Company and BV LLC completed the following Transactions in connection with the IPO. BV LLC amended and restated the Bioventus LLC Agreement, to, among other things, (i) provide for a new single class of common membership interests in BV LLC (LLC Interests), (ii) exchange all of the existing membership interests in BV LLC for new LLC Interests and (iii) appoint Bioventus Inc. as the sole managing member of BV LLC. The Company amended and restated its certificate of incorporation to, among other things, provide for the (i) authorization of 250,000,000 shares of Class A common stock with a par value of $0.001 per share; (ii) authorization of 50,000,000 shares of Class B common stock with a par value of $0.001 per share; (iii) authorization of 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company's Board of Directors (BOD) in one or more series; and (iv) establishment of a classified BOD, divided into three classes, each of whose members will serve for staggered three-year terms. Holders of Class A / Class B common stock are entitled to one vote per share and, except as otherwise required, will vote together as a single class on all matters on which stockholders generally are entitled to vote. Holders of Class B common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the liquidation, dissolution or winding up of the Company. Shares of Class B common stock may only be issued to the extent necessary to maintain the one-to-one ratio between the number of LLC Interests held by the only member of BV LLC that remained a member following the Transactions (Continuing LLC Owner) and the number of shares of Class B common stock held by the Continuing LLC Owner. Shares of Class B common stock are transferable only together with an equal number of LLC Interests. Shares of Class B common stock will be canceled on a one-for-one basis if the Company, at the election of a Continuing LLC Owner, redeem or exchange LLC Interests.
The Company’s amended and restated certificate of incorporation and the Bioventus LLC Agreement requires that the Company and BV LLC at all times maintain a one-to-one ratio between the number of shares of Class A common stock issued by the Company and the number of LLC Interests owned by the Company, as well as a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing LLC Owner and the number of LLC Interests owned by the Continuing LLC Owner. The Company acquired, by merger, ten entities that were members of BV LLC (Former LLC Owners), for which the Company issued 31,838,589 shares of Class A common stock as merger consideration (Merger). The only assets held by the Former LLC Owners were 31,838,589 LLC Interests and a corresponding number of shares of Class B common stock. Upon consummation of the Merger, the Company canceled the 31,838,589 shares of Class B common stock and recognized the 31,838,589 LLC Interests at carrying value, as the Merger is considered to be a recapitalization transaction. As of October 2, 2021, the Company held 41,097,292 LLC Interests, which represented a 72.3% ownership interest in BV LLC.
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The financial statements for periods prior to the IPO and Transactions have been adjusted to combine the previously separate entities for presentation purposes. Prior to the Transactions, Bioventus Inc. had no operations.
Interim periods
The Company reports quarterly interim periods on a 13-week basis within a standard calendar year. Each annual reporting period begins on January 1 and ends on December 31. Each quarter ends on the Saturday closest to calendar quarter-end, with the exception of the fourth quarter, which ends on December 31. The 13-week quarterly periods for fiscal year 2021 end on April 3, July 3 and October 2. Comparable periods for 2020 ended on March 28, June 27 and September 26. The fourth and first quarters may vary in length depending on the calendar year.
Unaudited interim financial information
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations they do not include all information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. As such, the information included in this report should be read in conjunction with the Company’s 2020 Annual Report on Form 10-K. The balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements of the Company but does not include all the disclosures required by U.S. GAAP.
COVID-19 pandemic impact
In 2020, the COVID-19 pandemic spread around the world including the United States. New variants of the virus have emerged, some of which have shown to be more contagious. The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices. Federal and state governments implemented measures in an effort to prevent or minimize the spread of the virus, and ongoing effects of the pandemic, including social distancing, travel restrictions, border closures, limitations on public gatherings, mandatory closure or reduced capacity of businesses, work from home, supply chain logistical changes and other measures, which caused global business disruptions and significant volatility in U.S. and international debt and equity markets. Our business, results of operations and financial condition have been and may continue to be, materially impacted by fluctuations in patient visits and elective procedures and any future temporary cessations of elective procedures and could be further impacted by delays in payments from customers, supply chain interruptions, extended “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic. Furthermore, the long-term impact of COVID-19 on our business will depend on many factors, including, but not limited to, the duration and severity of the pandemic, new and ongoing measures taken in response to the pandemic, the availability, adoption and effectiveness of vaccines and treatments, the impact on economic activity from the pandemic and actions taken in response and the resulting impact it has on our partners, patients and communities in which we operate, all of which continue to be uncertain. As of the date of issuance of these consolidated financial statements, the extent to which COVID-19 could materially impact the Company’s financial conditions, liquidity or results of operations is uncertain.
To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial condition, it may also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products or therapies, consolidation in the healthcare industry, intensified pricing pressure as a result of changes in the purchasing behavior of hospitals and maintenance of our numerous contractual relationships.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law, which was aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations.
As a result of the CARES Act and at the direction of the U.S. Department of Health and Human Services (HHS), the Company received $1,247 and $2,854 in Provider Relief Fund Payments in April and July 2020, respectively. The Company determined it complied with the conditions to be able to keep and use the funds to reimburse for health care related expenses and lost revenue attributable to the public health emergency resulting from COVID-19. The payments were recorded as other income on the consolidated statement of operations and comprehensive (loss) income for the three and nine months ended September 26, 2020.
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Recent accounting pronouncements
The Company has elected to comply with non-accelerated public company filer effective dates of adoption. Therefore, the required effective dates for adopting new or revised accounting standards as described below are generally earlier than when emerging growth companies are required to adopt.
Accounting Pronouncements Recently Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2019-12, Income Taxes (ASU 2019-12), which amended the accounting for income taxes. ASU 2019-12 eliminates certain exceptions to the guidance for income taxes related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences as well as simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted ASU 2019-12 on January 1, 2021 and it did not have a material impact on its consolidated financial statements.
2. Balance sheet information
Cash, cash equivalents and restricted cash
A summary of cash and cash equivalents and restricted cash is as follows:
October 2, 2021December 31, 2020
Cash and cash equivalents$80,917 $86,839 
Restricted cash50,000  
$130,917 $86,839 
Restricted cash consists of a $50,000 escrow deposit with a financial institution for a potential future acquisition, refer to Note 3. Business combinations and investments for further information.
Accounts receivable, net
Accounts receivable, net are amounts billed and currently due from customers. The Company records the amounts due net of allowance for credit losses. Collection of the consideration that the Company expects to receive typically occurs within 30 to 90 days of billing. The Company applies the practical expedient for contracts with payment terms of one year or less which does not consider the effects of the time value of money. Occasionally, the Company enters into payment agreements with patients that allow payment terms beyond one year. In those cases, the financing component is not deemed significant to the contract.
Accounts receivable, net of allowances, consisted of the following as of:
October 2, 2021December 31, 2020
Accounts receivable$108,504 $92,273 
Less: Allowance for credit losses(3,062)(3,990)
$105,442 $88,283 
The Company maintains an allowance for credit losses for estimated losses resulting from the inability of its customers to make required payments. The allowance for credit losses is calculated by region and by customer type, where appropriate considering several factors including age of accounts, collection history, historical account write-offs, current economic conditions, and supportable forecasted economic expectations. Due to the short-term nature of its receivables, the estimate of expected credit losses is based on aging of the account receivable balances. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. An increase in the provision for credit losses may be required when the financial condition of the Company’s customers or its collection experience deteriorates. The Company has a diverse customer base with no single customer representing ten percent of sales or accounts receivable. Historically, the Company’s reserves have been adequate to cover credit losses. The Company’s exposure to credit losses may increase if its customers are adversely affected by changes in health care laws, coverage and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the COVID-19 pandemic, or other customer-specific factors. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted. Estimates are used to determine the allowance, which are based on an assessment of anticipated payment and all other historical, current and future information that is reasonably available.
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Changes in credit losses were as follows:
Three Months EndedNine Months Ended
October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Beginning balance$(3,019)$(5,249)$(3,990)$(4,146)
Recovery (provision)(221)73 138 (1,089)
Write-offs243 376 927 628 
Recoveries(65)(84)(137)(277)
Ending balance$(3,062)$(4,884)$(3,062)$(4,884)
Inventory
Inventory consisted of the following as of:
October 2, 2021December 31, 2020
Raw materials and supplies$3,381 $3,665 
Finished goods34,710 26,323 
Gross38,091 29,988 
Excess and obsolete reserves(1,526)(868)
$36,565 $29,120 
Accrued liabilities
Accrued liabilities consisted of the following as of:
October 2, 2021December 31, 2020
Gross-to-net deductions$63,195 $43,656 
Bonus and commission16,483 15,188 
Compensation and benefits6,987 5,875 
Income and other taxes21 2,434 
Other liabilities20,868 21,034 
$107,554 $88,187 
3. Business combinations and investments
Acquisitions
Misonix, Inc.
On July 29, 2021, the Company entered into an Agreement and Plan of Merger (the Misonix Merger Agreement) to acquire Misonix, Inc. (Misonix) in a cash-and-stock transaction (the Misonix Merger). On October 29, 2021, the Company completed the Misonix Merger. Misonix manufactures minimally invasive surgical ultrasonic medical devices used for precise bone sculpting, removal of soft and hard tumors and tissue debridement, primarily in the areas of neurosurgery, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery. Misonix also exclusively distributes skin allografts and wound care products used to support healing of wounds. Please refer to Note 13. Subsequent events for further details regarding the transaction.
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Bioness, Inc.
On March 30, 2021, in order to broaden its portfolio and increase its global footprint, the Company acquired 100% of the capital stock of Bioness, Inc. (Bioness Acquisition). Bioness, Inc. (Bioness) is a global leader in neuromodulation and advanced rehabilitation medical devices through its innovative peripheral nerve stimulation therapy and premium advanced rehabilitation solutions. The Company had previously made a $1,500 convertible debt investment in Bioness on January 4, 2021 as part of an exclusive negotiation to purchase Bioness, which was subsequently repaid in conjunction with the acquisition. The consideration paid for Bioness is comprised of the following:
Consideration
Cash consideration at closing$48,933 
Contingent consideration at fair value43,000 
Total Bioness consideration$91,933 
Contingent consideration is comprised of future earn-out payments contingent upon the achievement of certain research and development projects as well as sales milestones related to Bioness products. Contingent earn-out payments could total up to $65,000 for the achievement of the following:
$15,000 for obtaining FDA approval for U.S. commercial distribution of a certain product for certain indications on or before June 30, 2022;
$20,000 for meeting net sales targets for certain implantable products over a three year period ending on June 30, 2025 at the latest;
Up to $10,000 for meeting net sales milestones for certain implantable products over a three year period ending on June 30, 2025 at the latest; and
$20,000 for maintaining Centers for Medicare & Medicaid Services coverage and reimbursement for certain products at specified levels as of December 31, 2024.
The allocation of the purchase price is preliminary and subject to change. The primary areas of the purchase price that are not yet finalized are related to contingent consideration (specifically related to timeline of milestones), intangible assets and the residual goodwill. Accordingly, adjustments may be made to the values of assets and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the acquisition date. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date and the resulting goodwill, which is expected to be deductible for tax purposes:
Fair value of consideration$91,933 
Assets acquired and liabilities assumed:
Cash and cash equivalents2,143 
Accounts receivable4,124 
Inventory7,318 
Prepaid and other current assets1,947 
Property and equipment673 
Intangible assets86,250 
Operating lease assets3,616 
Other assets132 
Accounts payable and accrued liabilities(11,405)
Other current liabilities(1,020)
Other liabilities(4,930)
Net assets acquired88,848 
Resulting goodwill(a)
$3,085 
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(a)The U.S. segment was allocated the resulting goodwill from the Bioness acquisition.
The following table summarizes the preliminary fair values of identifiable intangible assets and their useful lives:
Useful Life (in years)Fair Value
Intellectual property
10 years
$44,750 
IPR&DN/A41,250 
Customer relationships2 years250 
$86,250 
The aggregate amortization expense related to acquired intangible assets for the following five periods is as follows: $1,150 - remainder of 2021, $4,600 - 2022, $4,506 - 2023, $4,475 - 2024 and $4,475 - 2025.
The Company incurred $1,575 and $6,604 in acquisition and integration costs during the three and nine months ended October 2, 2021, respectively, which are included in selling general and administrative expense within the consolidated condensed statement of operations and comprehensive (loss) income.
Bioness’ advanced rehabilitation revenue is comprised of Exoskeletal Systems, Vector Units and Bioness Integrated Therapy Systems (BITS), which is included within the Company’s Restorative Therapies vertical. The Company’s Pain Treatment and Joint Preservation vertical will encompass Bioness’ peripheral nerve stimulation therapy products, which includes the StimRouter, an implantable neuromodulation device used to treat chronic peripheral nerve pain.
Revenue from Bioness’ products is primarily recognized at a point in time upon transfer of control of its products to customers such as medical facilities and individual patients. Revenue is recognized net of discounts, which can be offered through a variety of factors.
Consolidated Pro Forma Results
The Company’s consolidated condensed statements of operations reflect net sales of $10,798 and $22,668 and net loss attributable to Bioness of $5,396 and $8,925 for the three and nine months ended October 2, 2021, respectively. Consolidated unaudited pro forma results of operations for the Company are presented below assuming the Bioness Acquisition had occurred January 1, 2020. Pro forma operating results for the three and nine months ended September 26, 2020 include operating expenses of $1,575 and $8,710, respectively, for acquisition integration costs and inventory related adjustments.
Three Months EndedNine Months Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net sales$108,890 $94,907 $309,431 $252,477 
Net (loss) income$(694)$2,816 $15,608 $(8,591)
Weighted-average shares of Class A common stock outstanding, basic and diluted(1):
$ $(0.08)
(1) Per share information for the nine months ended October 2, 2021 represents loss per share of Class A common stock and weighted-average shares of Class A common stock outstanding from February 16, 2021 through October 2, 2021, the period following Bioventus Inc.'s initial public offering and related transactions described in Note 1. Organization and Note 7. Earnings per share.
Investments
VIE
The Company had a fully diluted 8.8% ownership of Harbor Medtech Inc.’s (Harbor) Series C Preferred Stock. The Company and Harbor entered into an exclusive Collaboration Agreement in 2019 for purposes of developing a product for orthopedic uses to be commercialized by the Company and supplied by Harbor. The Company’s partial ownership and exclusive Collaboration Agreement created a variable interest in Harbor. The Company terminated the Collaboration Agreement on June 8, 2021. As a result, Harbor had been consolidated in the Company’s consolidated financial statements from the third quarter of 2019 through June 8, 2021 when the Company ceased being the primary beneficiary because it no longer had the power to direct Harbor’s significant activities.
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The Company determined that the termination was a triggering event requiring an impairment assessment of Harbor’s long lived assets. The assessment resulted in an impairment of $5,674, representing Harbor’s long-lived asset balance, which was recorded within impairment of variable entity assets for the nine months ended October 2, 2021 in the consolidated condensed statements of operations and comprehensive (loss) income, of which $5,176 is attributable to the non-controlling interest. The Company also assessed its Harbor investment post deconsolidation, which resulted in a $1,369 impairment, representing the remaining investment balance in Harbor and was recorded within other expense for the nine months ended October 2, 2021 in the consolidated condensed statements of operations and comprehensive (loss) income. The Company continues to have license rights to certain technology obtained from Harbor and is continuing product development initiated under the Collaboration Agreement.
Harbor assets that could only be used to settle Harbor obligations and Harbor liabilities for which creditors did not have recourse to the general credit of the Company were as follows at December 31, 2020:
December 31, 2020
Cash and cash equivalents$803 
Property and equipment, net173 
Intangible assets, net5,635 
Operating lease assets178 
Other assets74 
$6,863 
Accounts payable and accrued liabilities$366 
Other current liabilities2,004 
Other long-term liabilities659 
$3,029 
Equity Method
The Company has an equity investment in CartiHeal Ltd. (CartiHeal), a privately held entity that does not have a readily determinable fair value, which the Company began recording as an equity investment during the third quarter of 2020. The CartiHeal investment carrying value totaled $17,318 as of October 2, 2021, yielding a 10.03% fully diluted equity ownership. Net losses from CartiHeal for the three and nine months ended October 2, 2021 totaled $419 and $1,320, respectively, which are included in other expense within the consolidated condensed statement of operations and other comprehensive (loss) income. Net losses from CartiHeal for the three and nine months ended September 26, 2020 were nominal.
On July 15, 2020, the Company entered into an Option and Equity Purchase Agreement with CartiHeal (Option Agreement). In August 2021, CartiHeal achieved pivotal clinical trial success, as defined in the Option Agreement, for a CartiHeal product, which provides the Company with an exclusive option to acquire 100% of CartiHeal’s shares (Call Option), and provides CartiHeal with a put option that would require the Company to purchase 100% of CartiHeal’s shares under certain conditions (Put Option). In order to preserve the Company’s Call Option, in accordance with the Option Agreement and upon approval of the BOD, the Company deposited $50,000 into escrow in August 2021 for the potential acquisition of CartiHeal, which is included in restricted cash on the consolidated balance sheet. Consideration for the acquisition of all of the remaining shares of CartiHeal, excluding those the Company owns, pursuant to the Call Option or Put Option would be $314,895, inclusive of the existing deposit, all of which would be payable at closing, with an additional $150,000 payable upon achievement of certain sales milestones related to Agili-C. Such closing would be subject to customary closing conditions.
The Call Option may be exercised at any time up to and within 45 days following notice of the U.S. Food and Drug Administration (FDA) approval for a CartiHeal product currently in development. In addition, upon the same FDA approval, CartiHeal may exercise the Put Option within 45 days, which requires the Company to complete the acquisition of the remaining equity in CartiHeal.
CartiHeal submitted the final clinical module of a Modular Premarket Approval Application (PMA) seeking FDA approval during the fourth quarter of 2021. In order to support the completion of the PMA, if needed, the Company will purchase an additional 338,089 of CartiHeal Series G Preferred Shares for $5,000.
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Other
On August 23, 2021, the Company purchased 413,896,609 shares of Trice Medical, Inc.’s (Trice) Series D Preferred Stock for $10,000, representing an 11.7% ownership interest. Trice is a privately held company that develops and commercializes minimally invasive technologies for sports medicine and orthopedic surgical procedures and it does not have a readily determinable fair value. Under the measurement alternative, the Trice investment is recorded at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
4. Financial instruments
Long-term debt consists of the following:
October 2, 2021December 31, 2020
Term Loan due December 2024 (2.33% at October 2, 2021)
$178,750 $190,000 
Less:
Current portion of long-term debt(15,000)(15,000)
Unamortized debt issuance cost(889)(1,098)
Unamortized discount(424)(524)
$162,437 $173,378 
The 2019 Credit Agreement requires the Company to comply with financial and other covenants. The Company complied with all covenants as of October 2, 2021. The 2019 Credit Agreement contains a $50,000 revolving credit facility, from which there were no outstanding borrowings as of October 2, 2021 and December 31, 2020.
The estimated fair value of the Term Loan as of October 2, 2021 was $180,421. The fair value of these obligations was determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar obligations and are classified as Level 2 instruments within the fair value hierarchy.
On August 29, 2021, the Company amended the 2019 Credit Agreement (the First Amendment). The First Amendment provided additional flexibility allowing for future establishment and incurrence of a senior secured term loan facility (Term Loan Facility) in the aggregate principal amount of up to $262,000 plus, at the Company’s election, an amount sufficient to fund any original issue discount or upfront fees. The Term Loan Facility, if any, will be established pursuant to, and become effective upon the execution of a subsequent amendment, which will set forth the amount, terms and conditions of the Term Loan Facility. The proceeds of the Term Loan Facility, if any, would be available through a single draw on the closing date of the Misonix Merger and the Company would be required to use the proceeds to finance the cash consideration related to the Misonix Merger, to repay debt and related fees, premiums and expenses. After these uses, the remaining proceeds, if any, can be used for working capital needs and general corporate purposes. Concurrently with the Misonix Merger and the incurrence of the Term Loan Facility, if at all, the First Amendment requires a prepayment of $80,000 on the existing Term Loan under the 2019 Credit Agreement. Wells is providing committed financing through a Backstop Term Facility in the amount of $102,500 if additional capital is needed to fund the Misonix Merger. Please refer to Note 13. Subsequent events for further details concerning changes to the Company’s financial instruments.
The Company enters into interest rate swap agreements to limit its exposure to changes in the variable interest rate on its long-term debt. The Company has one non-designated interest rate swap agreement and has no other active derivatives. The swap is carried at fair value on the balance sheet (Refer to Note 5. Fair value measurements) with changes in fair value recorded as interest income or expense within the consolidated statements of operations and comprehensive (loss) income. Nominal net interest was recorded during the three months ended October 2, 2021 and September 26, 2020 related to the change in fair value of the interest rate swap. Net interest income of $1,391 and expense of $1,980 was recorded related to the change in fair value of the interest rate swap for the nine months ended October 2, 2021 and September 26, 2020, respectively.
The notional amount of the swap totaled $100,000, or 55.9% of the Term Loan outstanding principal at October 2, 2021. The swap locked in the variable portion of the interest rate on the $100,000 notional at 0.64%.
5. Fair value measurements
Our process for determining fair value has not changed from that described in the Company’s 2020 Annual Report on Form 10-K.
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There were no assets measured at fair value on a recurring basis and there were no liabilities valued at fair value using Level 1 inputs. The following table provides information for liabilities measured at fair value on a recurring basis using Level 2 and Level 3 inputs:
October 2, 2021December 31, 2020
TotalLevel 2Level 3TotalLevel 2Level 3
Interest rate swap$211 $211 $ $1,602 $1,602 $ 
Contingent consideration44,292  44,292    
Management incentive
    plan and liability-
    classified awards
   40,303  40,303 
Equity Participation Right   6,101  6,101 
Total liabilities$44,503 $211 $44,292 $48,006 $1,602 $46,404 
Interest rate swap
The Company values interest rate swaps using discounted cash flows. Forward curves and volatility levels are used to estimate future cash flows that are not certain. These are determined using observable market inputs when available and based on estimates when not available. The fair value of the swap was recorded in the Company’s consolidated balance sheets within accrued liabilities. Changes in fair value are recognized as interest expense within the consolidated statements of operations and comprehensive (loss) income.
Contingent consideration
The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenue and the probability of achieving the specific targets as discussed in Note 3. Business combinations and investments. After the initial valuation, the Company will use its best estimate to measure contingent consideration related to the Bioness Acquisition at each subsequent reporting period using the following unobservable Level 3 inputs:
Valuation TechniqueUnobservable inputsRange
Bioness contingent considerationDiscounted cash flowPayment discount rate
5.0% - 6.8%
Payment period
2021 - 2025
The contingent consideration reported in the above table resulted from the March 30, 2021 Bioness acquisition, which is adjusted on a monthly basis based upon the passage of time or success or failure of achieving certain milestones. Refer to Note 3. Business combinations and investments for further details. Changes in contingent consideration related to the Bioness acquisition totaled $651 and $1,292 for the three and nine months ended October 2, 2021, respectively, which were recorded as the change in fair value of contingent consideration within the consolidated statements of operations and comprehensive (loss) income.
Management incentive plan (MIP) and liability-classified awards
BV LLC had operated two equity-based compensation plans, the management incentive plan (MIP) and the BV LLC Phantom Profits Interest Plan (Phantom Plan and, together with the MIP, the Plans), which were terminated on February 11, 2021 in connection with the Company’s IPO. Awards granted under the MIP Plan and the 2015 Phantom Units were liability-classified and the 2012 Phantom Units were equity-classified. Prior to the IPO and during the nine months ended October 2, 2021, the Company settled the remaining 183,078 units with the sole MIP awardee for $10,802. No awards under the Plans were granted post-IPO and the Phantom Plan awards will be settled 12 months following the termination. Vested awardees whose BV LLC employment terminated prior to the IPO will have their awards settled for $10,875, which is included in accrued equity-based compensation on the consolidated condensed balance sheets. Awardees that were active BV LLC employees at the IPO will receive an aggregate of 798,422 shares of Class A common stock.
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The following table provides a reconciliation of the beginning and ending balances for the MIP and liability-classified awards at fair value using significant unobservable inputs or Level 3:
Balance at December 31, 2020$40,303 
Change in fair value(25,185)
Initial estimate (vesting)829 
Payments(11,281)
Phantom plan conversion to Class A common stock(4,666)
Balance at October 2, 2021$ 
Equity Participation Right (EPR) Unit
Prior to the IPO, the Continuing LLC owner owned the only EPR Unit and its only entitlement was 0.55% of available distributions arising from a distribution event such as the IPO. The EPR Unit was redeemed in exchange for $3,327 in connection with the IPO in February 2021, at which time the EPR ceased to exist and all entitlements ended. The revaluation for the EPR liability is recognized in interest (income) expense on the consolidated statements of operations and comprehensive (loss) income.
The following table provides a reconciliation of the beginning and ending balances for the EPR Unit at fair value using significant unobservable inputs Level 3: