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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 1, 2022
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 16, 2022, there were 61,951,858 shares of Class A common stock outstanding and 15,786,737 shares of Class B common stock outstanding.


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BIOVENTUS INC.
TABLE OF CONTENTS
Consolidated Condensed Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended October 1, 2022 and October 2, 2021
Consolidated Condensed Balance Sheets as of October 1, 2022 and December 31, 2021
Consolidated Condensed Statements of Changes in Stockholders’ and Members’ Equity for the three and nine months ended October 1, 2022 and October 2, 2021
Consolidated Condensed Statements of Cash Flows for the nine months ended October 1, 2022 and October 2, 2021



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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 Quarterly Report on 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 recent acquisitions of Misonix, Bioness and CartiHeal, expected expansion of our pipeline and research and development investment, new therapy launches, expected costs related to, and potential future options for, MOTYS, our operations and expected financial performance and condition, and impacts of the COVID-19 pandemic and inflation. 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 on Form 10-Q 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: the risk that the material weakness we identified or a new material risk could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner; our ability to complete acquisitions or successfully integrate new businesses, such as CartiHeal, products or technologies in a cost-effective and non-disruptive manner; we might not be able to continue to fund our operations for at least the next twelve months as a going concern; we might not meet certain of our debt covenants under our Credit Agreement and might be required to repay our indebtedness; we might not be able to fund the remainder of the deferred consideration for the acquisition of CartiHeal as it becomes due; 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; the proposed down classification of non-invasive bone growth stimulators, including our Exogen system, by the U.S. Food and Drug Administration (FDA) could increase future competition for bone growth stimulators and otherwise adversely affect the Company’s sales of Exogen; failure to achieve and maintain adequate levels of coverage and/or reimbursement for our products or future products, the procedures using our products, such as our hyaluronic acid (HA) viscosupplements, or future products we may seek to commercialize, such as our recently acquired Agili-C product; pricing pressure and other competitive factors; governments outside the United States might not provide coverage or reimbursement of our products; 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; 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; our failure to properly manage our anticipated growth and strengthen our brands; risks related to product liability claims; fluctuations in demand for our products; issues relating to the supply of our products, potential supply chain disruptions and the increased cost of parts and components used to manufacture our products due to inflation; our reliance on a limited number of third-party manufacturers to manufacture certain of our products; if our facilities are damaged or become inoperable, we will be unable to continue to research, develop and manufacture our products; failure to maintain contractual relationships; security breaches, unauthorized disclosure of information, denial of service attacks or the perception that confidential information in our possession is not secure; failure of key information technology and communications systems, process or sites; risks related to international sales and operations; risks related to our debt and future capital needs; failure to comply with extensive governmental regulation relevant to us and our products; 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; 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; legislative or regulatory reforms; risks related to intellectual property matters; and other important factors described in Part I. Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K as updated by our subsequent Quarterly Reports on Form 10-Q, this Quarterly Report on Form 10-Q and as may be further updated from time to time in our other filings with the SEC. 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 1, 2022 and October 2, 2021
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net sales$128,662 $108,890 $386,283 $300,484 
Cost of sales (including depreciation and amortization of
  $11,331, $6,637, $30,233 and $17,491, respectively)
44,127 29,821 129,392 85,546 
Gross profit84,535 79,069 256,891 214,938 
Selling, general and administrative expense79,194 69,636 254,938 173,372 
Research and development expense5,840 6,153 19,134 11,936 
Restructuring costs575 1,798 2,159 1,798 
Change in fair value of contingent consideration3,142 651 3,684 1,292 
Depreciation and amortization7,442 1,878 13,392 5,655 
Impairment of goodwill189,197  189,197  
Impairment of variable interest entity assets   5,674 
Operating (loss) income(200,855)(1,047)(225,613)15,211 
Interest expense, net9,894 1,347 10,922 152 
Other (income) expense(23,272)757 (22,350)2,821 
Other (income) expense(13,378)2,104 (11,428)2,973 
(Loss) income before income taxes(187,477)(3,151)(214,185)12,238 
Income tax (benefit) expense, net(41,779)(882)(45,667)759 
Net (loss) income(145,698)(2,269)(168,518)11,479 
Loss attributable to noncontrolling interest37,453 1,198 41,744 8,260 
Net (loss) income attributable to Bioventus Inc.$(108,245)$(1,071)$(126,774)$19,739 
Net (loss) income$(145,698)$(2,269)$(168,518)$11,479 
Other comprehensive loss, net of tax
Change in foreign currency translation adjustments(723)(366)(1,912)(1,225)
Comprehensive loss(146,421)(2,635)(170,430)10,254 
Comprehensive loss attributable to noncontrolling interest37,600 1,300 42,137 8,182 
Comprehensive (loss) income attributable to Bioventus Inc.$(108,821)$(1,335)$(128,293)$18,436 
Loss per share of Class A common stock, basic and diluted(1):
$(1.76)$(0.03)$(2.07)$(0.15)
Weighted-average shares of Class A common stock
    outstanding, basic and diluted(1):
61,674,254 41,837,58161,208,94141,816,706
(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 8. 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 1, 2022 (Unaudited) and December 31, 2021
(Amounts in thousands, except share amounts)
October 1, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$34,359 $43,933 
Restricted cash23 5,280 
Accounts receivable, net132,185 124,963 
Inventory76,952 61,688 
Prepaid and other current assets27,563 27,239 
Total current assets271,082 263,103 
Restricted cash, less current portion 50,000 
Property and equipment, net26,643 22,985 
Goodwill15,359 147,623 
Intangible assets, net1,055,601 695,193 
Operating lease assets16,304 17,186 
Deferred tax assets 481 
Investment and other assets13,033 29,291 
Total assets$1,398,022 $1,225,862 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$19,075 $16,915 
Accrued liabilities116,890 131,473 
Accrued equity-based compensation 10,875 
Current portion of long-term debt31,302 18,038 
Current portion of deferred consideration117,615  
Other current liabilities3,491 3,558 
Total current liabilities288,373 180,859 
Long-term debt, less current portion393,102 339,644 
Deferred income taxes159,300 133,518 
Deferred consideration71,923  
Contingent consideration81,914 16,329 
Other long-term liabilities24,264 21,723 
Total liabilities1,018,876 692,073 
Commitments and contingencies (Note 11)
Stockholders’ Equity:
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 as of October 1, 2022 and
   December 31, 2021, 61,777,875 and 59,548,504 shares issued and outstanding as of October 1, 2022 and
   December 31, 2021, respectively
64 59 
Class B common stock, $0.001 par value, 50,000,000 shares authorized,
    15,786,737 shares issued and outstanding as of October 1, 2022 and December 31, 2021
16 16 
Additional paid-in capital478,033 465,272 
Accumulated deficit(133,376)(6,602)
Accumulated other comprehensive (loss) income(1,340)179 
Total stockholders’ equity attributable to Bioventus Inc.343,397 458,924 
Noncontrolling interest35,749 74,865 
Total stockholders’ equity379,146 533,789 
Total liabilities and stockholders’ equity$1,398,022 $1,225,862 
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 1, 2022 and October 2, 2021
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months Ended October 1, 2022
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-in CapitalAccumulated other comprehensive (loss) incomeAccumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at July 2, 202261,656,499 $64 15,786,737 $16 $473,796 $(764)$(25,131)$72,209 $520,190 
Issuance of Class A common stock
for equity plans
121,376  — — 482 — — — 482 
Net (loss) income— — — — — — (108,245)(37,453)(145,698)
Equity based compensation— — — — 3,755 — — 893 4,648 
Deconsolidation of noncontrolling
interest
— — — — — — — 247 247 
Translation adjustment— — — — — (576)— (147)(723)
Balance at October 1, 202261,777,875 $64 15,786,737 $16 $478,033 $(1,340)$(133,376)$35,749 $379,146 

Three Months Ended October 2, 2021
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-in CapitalAccumulated other comprehensive (loss) incomeAccumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at July 3, 202141,062,652 $41 15,786,737 $16 $146,199 $468 $(5,167)$77,807 $219,364 
Effect of Organizational
Transactions
— — — — 7,437 — — — 7,437 
Issuance of Class A common stock
for equity plans
34,640 — — — 417 — — — 417 
Distribution to Controlling 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 

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Nine Months Ended October 1, 2022
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-in CapitalAccumulated other comprehensive (loss) incomeAccumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at December 31, 202159,548,504 $59 15,786,737 $16 $465,272 $179 $(6,602)$74,865 $533,789 
Issuance of Class A common stock for equity plans2,229,371 5 — — 4,734 — — — 4,739 
Net loss— — — — — — (126,774)(41,744)(168,518)
Equity based compensation— — — — 11,379 — — 2,774 14,153 
Deconsolidation of noncontrolling interest— — — — — — — 247 247 
Tax withholdings on equity compensation awards— — — — (3,352)— — — (3,352)
Translation adjustment— — — — — (1,519)— (393)(1,912)
Balance at October 1, 202261,777,875 $64 15,786,737 $16 $478,033 $(1,340)$(133,376)$35,749 $379,146 

Nine Months Ended October 2, 2021
Class A Common StockClass B Common Stock
Members’
Equity
SharesAmountSharesAmountAdditional Paid-in CapitalAccumulated other comprehensive (loss) incomeAccumulated DeficitNon-
controlling
Interest
Total Stockholders' and
Members’
Equity
Balance at December 31, 2020$144,160  $  $ $ $ $ $ $144,160 
Prior to Organizational Transactions:
Refund from members123 — — — — — — — — 123 
Equity-based compensation(39)— — — — — — — — (39)
Net income25,977 — — — — — — — — 25,977 
Other comprehensive loss(1,507)— — — — — — — — (1,507)
Effect of Organizational Transactions(168,714)31,838,589 32 15,786,737 16 41,060 — — 79,119 (48,487)
Subsequent to Organizational Transactions:
Initial public offering, net of offering costs— 9,200,000 9 — — 106,441 — — — 106,450 
Issuance of Class A common stock for equity plans— 58,703 — — — 731 — — — 731 
Distribution to Continuing LLC Owner— — — — — — — — (215)(215)
Net loss— — — — — — — (6,238)(8,260)(14,498)
Deconsolidation of variable interest entity— — — — — — — — 3,746 3,746 
Equity based compensation— — — — — 10,248 — — 3,526 13,774 
Other comprehensive income— — — — — — 204 — 78 282 
Balance at October 2, 2021$ 41,097,292$41 15,786,737$16 $158,480 $204 $(6,238)$77,994 $230,497 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed statements of cash flows
Nine months ended October 1, 2022 and October 2, 2021
(Amounts in thousands)
(Unaudited)
Nine Months Ended
October 1, 2022October 2, 2021
Operating activities:
Net (loss) income$(168,518)$11,479 
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization43,643 23,185 
Provision (recovery) for expected credit losses3,874 (138)
Equity-based compensation from 2021 Stock Incentive Plan14,153 13,735 
Profits interest plan, liability-classified and other equity awards compensation (24,356)
Change in fair value of contingent consideration3,684 1,292 
Change in fair value of interest rate swap(6,418)(1,391)
Deferred income taxes(47,154)(1,703)
Change in fair value of Equity Participation Rights (2,774)
Impairment of goodwill189,197  
Impairments related to variable interest entity 7,043 
Revaluation gain on previously held equity interest in CartiHeal(23,709) 
Unrealized loss on foreign currency fluctuations2,926 1,224 
Other, net166 407 
Changes in operating assets and liabilities:
Accounts receivable(12,840)(13,149)
Inventories(8,621)1,496 
Accounts payable and accrued expenses(10,947)7,247 
Other current and noncurrent assets and liabilities1,783 (13,723)
Net cash from operating activities(18,781)9,874 
Investing activities:
Acquisition of CartiHeal, net of cash acquired(104,841) 
Acquisition of Bioness, net of cash acquired (46,790)
Purchase of property and equipment(6,639)(4,568)
Investments and acquisition of distribution rights(1,478)(11,124)
Other(75) 
Net cash from investing activities(113,033)(62,482)
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 4,739 747 
Tax withholdings on equity-based compensation(3,352) 
Borrowing on revolver25,000  
Payment on revolver(25,000) 
Proceeds from the issuance of long-term debt, net of issuance costs79,659  
Payments on long-term debt(13,528)(11,250)
Distributions to members (183)
Other, net(4)(28)
Net cash from financing activities67,514 97,063 
Effect of exchange rate changes on cash(531)(377)
Net change in cash, cash equivalents and restricted cash(64,831)44,078 
Cash, cash equivalents and restricted cash at the beginning of the period99,213 86,839 
Cash, cash equivalents and restricted cash at the end of the period$34,382 $130,917 
Supplemental disclosure of noncash investing and financing activities
Accrued member distributions$ $123 
Accounts payable for purchase of property, plant and equipment$1,270 $612 
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. (together with its subsidiaries, the Company) 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). Bioventus Inc. functions as a holding company with no direct operations, material assets or liabilities other than the equity interest in BV LLC. 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. 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. The Company is headquartered in Durham, North Carolina and has approximately 1,160 employees.
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. The Company is the sole managing member of, has a majority economic interest in, has 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 for the interest not held by the Company.
IPO Transactions
In connection with the IPO, the Company completed the following transactions (Transactions).
Amended and restated the limited liability company agreement of BV LLC (BV 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 (Original BV LLC Owners) for new LLC Interests; and (iii) appoint Bioventus Inc. as the sole managing member of BV LLC. Refer to Note 7. Stockholders’ equity for further information.
Amended and restated the Bioventus Inc. certificate of incorporation to, among other things, (i) provide for an increase in the authorized shares of Class A common stock; (ii) provide for Class B common stock with voting rights but no economic interest, which shares were issued to the Original BV LLC Owners on a one-for-one basis with the number of LLC Interests they owned; and (iii) provide for undesignated preferred stock. Refer to Note 7. Stockholders’ equity for further information.
Acquired, by merger, ten entities that were Original BV LLC Owners (Former LLC Owners), for which the Company issued 31,838,589 shares of Class A common stock as merger consideration (IPO Mergers). 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 IPO Mergers, the 31,838,589 shares of Class B common stock were canceled, and the Company recognized the 31,838,589 LLC Interests at carrying value, as the IPO Mergers are considered to be a recapitalization transaction.
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 2022 end on April 2, July 2 and October 1. Comparable periods for 2021 ended on April 3, July 3 and October 2. The fourth and first quarters may vary in length depending on the calendar year.
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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 2021 Annual Report on Form 10-K. The consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by U.S. GAAP.
Going Concern
The accompanying unaudited consolidated financial statements have been prepared under the going concern basis of accounting, which presumes that the Company’s liquidation is not imminent; however, based on the Company’s current financial position and liquidity sources, including current cash balances, and forecasted future cash flows, the Company is at risk of not being able to make the two initial Deferred Payments for the CartiHeal transaction, each in the principal sum of $50 million, due under the terms of the amended Option and Equity Purchase Agreement no later than July 2023 and September 2023, respectively, which may result in a cross default under the Amendment No. 3 to the Credit and Guaranty Agreement entered into with the Company’s lenders at the time of the CartiHeal transaction. In addition, should the Company fail to meet certain financial thresholds established in the Credit Agreement, the Company may be at risk of violating certain of its financial covenants under that agreement. If any of the financial covenants are not met, or if the Company is otherwise deemed to be in default of its other obligations under that agreement, the aggregate outstanding principal amounts become due and payable to our lenders. Considering current liquidity sources, the Company would not be able to make the Deferred Payments due in connection with the CartiHeal transaction or repay the Company’s total outstanding debt balance in the event of a default. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern. In light of this, the Company is actively pursuing plans to mitigate these conditions and events, such as considering various cost cutting measures, exploring divestiture opportunities for non-core assets, considering seeking temporary covenant waivers from our lenders, and pursuing strategic options with respect to the CartiHeal transaction such as attempting to renegotiate the timing of the CartiHeal Deferred Payments or exiting that agreement by transferring back to the former CartiHeal owners all of the share capital, intellectual property and other assets of CartiHeal acquired in the transaction pursuant to the escrow and pledge agreements entered into as part of the CartiHeal acquisition if such measures fail; however, there can be no assurances that it is probable these plans will be successfully implemented or that they will successfully mitigate these conditions and events. Therefore, these plans do not alleviate the substantial doubt about the Company’s ability to continue as a going concern.
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 are generally earlier than when emerging growth companies are required to adopt.
2. Balance sheet information
Cash, cash equivalents and restricted cash
A summary of cash and cash equivalents and restricted cash is as follows:
October 1, 2022December 31, 2021
Cash and cash equivalents$34,359 $43,933 
Restricted cash
Current23 5,280 
Noncurrent 50,000 
$34,382 $99,213 
As of December 31, 2021, current restricted cash consisted of an escrow deposit with a financial institution for the purpose of paying a Paycheck Protection Program loan acquired as part of a business combination. This loan was forgiven during the second quarter of 2022.
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As of December 31, 2021, noncurrent restricted cash consisted of an escrow deposit with a financial institution for the acquisition of CartiHeal (2009) Ltd. Refer to Note 3. Acquisitions 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 1, 2022December 31, 2021
Accounts receivable$138,029 $128,365 
Less: Allowance for credit losses(5,844)(3,402)
$132,185 $124,963 
Due to the short-term nature of its receivables, the estimate of expected credit losses is based on aging of the account receivable balances. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. The Company has a diverse customer base with no single customer representing ten percent or more of sales. The Company has one customer representing approximately 11.6% of the accounts receivable balance as of October 1, 2022. Historically, the Company’s reserves have been adequate to cover credit losses.
Changes in credit losses were as follows:
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Beginning balance$(5,292)$(3,019)$(3,402)$(3,990)
(Provision) recovery(1,369)(221)(3,874)138 
Write-offs1,082 243 1,907 927 
Recoveries(265)(65)(475)(137)
Ending balance$(5,844)$(3,062)$(5,844)$(3,062)
Inventory
Inventory consisted of the following as of:
October 1, 2022December 31, 2021
Raw materials and supplies$17,380 $12,213 
Finished goods60,812 50,805 
Gross78,192 63,018 
Excess and obsolete reserves(1,240)(1,330)
$76,952 $61,688 
Prepaid and other current assets
Prepaid and other current assets consisted of the following as of:
October 1, 2022December 31, 2021
Prepaid taxes$4,492 $12,236 
Prepaid and other current assets23,071 15,003 
$27,563 $27,239 
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Goodwill
Goodwill is evaluated for impairment annually or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company assesses goodwill impairment by applying a quantitative impairment analysis comparing the carrying value of the Company’s reporting units to their respective fair values. A goodwill impairment exists if the carrying value of the reporting unit exceeds its fair value.
The Company has two reporting units and assesses impairment based upon qualitative factors and if necessary, quantitative factors. A reporting unit's fair value is determined using the income approach and discounted cash flow models by utilizing Level 3 inputs and assumptions such as future cash flows, discount rates, long-term growth rates, market value and income tax considerations. Specifically, the value of each reporting unit is determined on a stand-alone basis from the perspective of a market participant and represents the price estimated to be received in a sale of the reporting unit in an orderly transaction between market participants at the measurement date. On November 8, 2022, due to a significant decline in the Company’s Class A common stock, circumstances became evident that a possible goodwill impairment existed as of the balance sheet date.
The Company concluded that the carrying value of the U.S. reporting unit exceeded its fair value. The Company recorded preliminary non-cash goodwill impairment charges of $189,197 within the U.S. reporting unit for both the three and nine months ended October 1, 2022. The impairment was recorded within impairment of goodwill on the consolidated condensed statements of operations and comprehensive (loss) income.
Changes in the carrying amounts of goodwill by reportable segment during the nine months ended October 1, 2022 are as follows:
U.S.InternationalConsolidated
Balance at December 31, 2021$138,863 $8,760 $147,623 
Additions55,295 6,599 61,894 
Deconsolidation of noncontrolling interest(494) (494)
Purchase accounting adjustments(4,467) (