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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 September 30, 2023
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 October 27, 2023, there were 62,965,830 shares of Class A common stock outstanding and 15,786,737 shares of Class B common stock outstanding.



BIOVENTUS INC.
TABLE OF CONTENTS
Consolidated Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and October 1, 2022
Consolidated Condensed Balance Sheets as of September 30, 2023 and December 31, 2022
Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and October 1, 2022
Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and October 1, 2022



Table of Contents


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 acquisitions of Misonix and Bioness, expected expansion of our pipeline and research and development investment, new therapy launches, expected costs related to, and potential future options for, MOTYS, recent dispositions of non-core assets, our domestic and international operations and expected financial performance and condition, and impacts of the COVID-19 pandemic, inflation and ongoing conflicts in Israel. 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.
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 previously identified material weaknesses or new material weaknesses could adversely affect our ability to report our results of operations and financial condition accurately and in a timely 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; risks associated with the disposition of our Wound Business and expected impacts on our business; restrictions on operations and other costs associated with our indebtedness; our ability to complete acquisitions or successfully integrate new businesses, products or technologies in a cost-effective and non-disruptive manner; we maintain cash at financial institutions, often in balance that exceed federally insured limits; we are subject to securities class action litigation and may be subject to similar or other litigation in the future, which will require significant management time and attention, result in significant legal expenses and may result in unfavorable outcomes; our ability to maintain our competitive position depends on our ability to attract, retain and motivate our senior management team and highly qualified personnel; 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; 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 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


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inoperable, we will be unable to continue to research, develop and manufacture certain of our products; economic, political, regulatory and other risks related to international sales, manufacturing and operations; 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 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 product candidates 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; our business may continue to experience adverse impacts as a result of the COVID-19 pandemic or similar epidemics; risks related to intellectual property matters; and other important factors described in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, as updated by our subsequent Quarterly Report on Form 10-Q for the quarter ended April 1, 2023, 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
Three and Nine Months Ended September 30, 2023 and October 1, 2022
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months EndedNine Months Ended
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Net sales$120,794 $128,662 $376,922 $386,283 
Cost of sales (including depreciation and amortization of
    $11,506, $11,331, $38,146 and $30,233 respectively)
41,944 44,127 135,030 129,392 
Gross profit78,850 84,535 241,892 256,891 
Selling, general and administrative expense69,820 78,955 225,522 254,699 
Research and development expense3,015 4,614 10,184 17,908 
Restructuring costs(26)575 911 2,159 
Change in fair value of contingent consideration(98)278 429 820 
Depreciation and amortization2,317 2,255 6,740 8,205 
Impairments of assets 124,697 78,615 124,697 
Loss on disposals1,404  2,381  
Operating income (loss)2,418 (126,839)(82,890)(151,597)
Interest expense, net10,115 3,604 30,396 4,632 
Other expense (income)494 115 (581)356 
Other expense10,609 3,719 29,815 4,988 
Loss before income taxes(8,191)(130,558)(112,705)(156,585)
Income tax expense (benefit), net600 (29,523)835 (33,411)
Net loss from continuing operations(8,791)(101,035)(113,540)(123,174)
Loss from discontinued operations, net of tax (44,663)(74,429)(45,344)
Net loss(8,791)(145,698)(187,969)(168,518)
Loss attributable to noncontrolling interest -
    continuing operations
1,488 28,202 22,898 32,493 
Loss attributable to noncontrolling interest -
    discontinued operations
 9,251 14,937 9,251 
Net loss attributable to Bioventus Inc.$(7,303)$(108,245)$(150,134)$(126,774)
Net loss from continuing operations$(8,791)$(101,035)$(113,540)$(123,174)
Other comprehensive (loss) income, net of tax
Change in foreign currency translation adjustments(324)(723)636 (1,912)
Comprehensive loss(9,115)(101,758)(112,904)(125,086)
Comprehensive loss attributable to noncontrolling interest -
    continuing operations
1,554 28,349 22,769 32,886 
Comprehensive loss attributable to noncontrolling interest -
    discontinued operations
 9,251 14,937 9,251 
Comprehensive loss attributable to Bioventus Inc.$(7,561)$(64,158)$(75,198)$(82,949)
Loss per share of Class A common stock from continuing
    operations, basic and diluted:
$(0.12)$(1.18)$(1.45)$(1.48)
Loss per share of Class A common stock from discontinued
    operations, basic and diluted:
 (0.58)(0.95)(0.59)
Loss per share of Class A common stock,
    basic and diluted
$(0.12)$(1.76)$(2.40)$(2.07)
Weighted-average shares of Class A common stock
    outstanding, basic and diluted:
62,824,318 61,674,25462,494,68661,208,941
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated Condensed Balance Sheets as of September 30, 2023 and December 31, 2022
(Amounts in thousands, except share amounts)
(Unaudited)
September 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$26,827 $30,186 
Accounts receivable, net112,899 136,295 
Inventory97,563 84,766 
Prepaid and other current assets12,163 18,551 
Current assets attributable to discontinued operations 2,777 
Total current assets249,452 272,575 
Property and equipment, net39,704 27,456 
Goodwill7,462 7,462 
Intangible assets, net493,324 639,851 
Operating lease assets14,298 16,690 
Investment and other assets6,864 2,621 
Long-term assets attributable to discontinued operations 405,994 
Total assets$811,104 $1,372,649 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$17,637 $36,697 
Accrued liabilities118,896 111,570 
Current portion of long-term debt19,584 33,056 
Other current liabilities4,726 3,607 
Current liabilities attributable to discontinued operations 119,087 
Total current liabilities160,843 304,017 
Long-term debt, less current portion375,033 385,010 
Deferred income taxes 2,248 
Contingent consideration17,860 17,431 
Other long-term liabilities30,912 22,810 
Long-term liabilities attributable to discontinued operations 228,911 
Total liabilities584,648 960,427 
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 September 30, 2023 and
   December 31, 2022, 62,964,482 and 62,063,014 shares issued and outstanding as of September 30, 2023
   and December 31, 2022, respectively
63 62 
Class B common stock, $0.001 par value, 50,000,000 shares authorized,
    15,786,737 shares issued and outstanding as of September 30, 2023 and December 31, 2022
16 16 
Additional paid-in capital492,493 490,576 
Accumulated deficit(315,440)(165,306)
Accumulated other comprehensive income (loss)397 (110)
Total stockholders’ equity attributable to Bioventus Inc.177,529 325,238 
Noncontrolling interest48,927 86,984 
Total stockholders’ equity226,456 412,222 
Total liabilities and stockholders’ equity$811,104 $1,372,649 
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’ Equity
Three and Nine Months Ended September 30, 2023 and October 1, 2022
(Amounts in thousands, except share amounts)
(Unaudited)

Three Months Ended September 30, 2023
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-in CapitalAccumulated other comprehensive (loss) incomeAccumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at July 1, 202362,804,506 $63 15,786,737 $16 $490,598 $655 $(308,137)$50,146 $233,341 
Issuance of Class A common stock
for equity plans
159,976 — — — 397 — — — 397 
Net loss— — — — — — (7,303)(1,488)(8,791)
Change in noncontrolling interest allocation— — — — (8)— — 8  
Equity based compensation— — — — 1,506 — — 327 1,833 
Translation adjustment— — — — — (258)— (66)(324)
Balance at September 30, 202362,964,482 $63 15,786,737 $16 $492,493 $397 $(315,440)$48,927 $226,456 

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 $482,452 $(764)$(25,131)$135,443 $592,080 
Issuance of Class A common stock
for equity plans
121,376 — — — 482 — — — 482 
Net loss— — — — — — (108,245)(37,453)(145,698)
Change in noncontrolling interest allocation— — — — (49)— — 49  
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 $486,640 $(1,340)$(133,376)$99,032 $451,036 

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Nine Months Ended September 30, 2023
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, 202262,063,014 $62 15,786,737 $16 $490,576 $(110)$(165,306)$86,984 $412,222 
Issuance of Class A common stock for equity plans901,468 1 — — 619 — — — 620 
Net loss— — — — — — (150,134)(37,835)(187,969)
Change in noncontrolling interest allocation— — — — 377 — — (377) 
Equity based compensation— — — — 921 — — 26 947 
Translation adjustment— — — — — 507 — 129 636 
Balance at September 30, 202362,964,482 $63 15,786,737 $16 $492,493 $397 $(315,440)$48,927 $226,456 

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 $473,318 $179 $(6,602)$140,686 $607,656 
Issuance of Class A common stock for equity plans2,229,371 5 — — 4,734 — — 4,739 
Deferred taxes on equity rebalancing— — — — (1,977)— — — (1,977)
Net loss— — — — — — (126,774)(41,744)(168,518)
Change in noncontrolling interest allocation— — — — 2,538 — — (2,538) 
Equity based compensation— — — — 11,379 — — 2,774 14,153 
Tax withholdings on equity compensation awards— — — — (3,352)— — — (3,352)
Deconsolidation of noncontrolling interest— — — — — — — 247 247 
Translation adjustment— — — — — (1,519)— (393)(1,912)
Balance at October 1, 202261,777,875 $64 15,786,737 $16 $486,640 $(1,340)$(133,376)$99,032 $451,036 

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 September 30, 2023 and October 1, 2022
(Amounts in thousands)
(Unaudited)
Nine Months Ended
September 30, 2023October 1, 2022
Operating activities:
Net loss$(187,969)$(168,518)
Less: Loss from discontinued operations, net of tax(74,429)(45,344)
Loss from continuing operations(113,540)(123,174)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization44,900 38,456 
(Benefit) provision for expected credit losses(695)3,874 
Equity based compensation947 14,153 
Change in fair value of contingent consideration429 820 
Change in fair value of interest rate swap (6,418)
Deferred income taxes(3,540)(34,889)
Impairment of assets78,615 124,697 
Loss on disposals2,381  
Unrealized loss on foreign currency fluctuations1,397 1,926 
Other, net1,401 166 
Changes in operating assets and liabilities:
Accounts receivable19,247 (12,840)
Inventories(14,123)(8,621)
Accounts payable and accrued expenses(11,067)(17,410)
Other current and noncurrent assets and liabilities787 1,338 
Net cash from operating activities - continuing operations7,139 (17,922)
Net cash from operating activities - discontinued operations(2,169)(859)
Net cash from operating activities4,970 (18,781)
Investing activities:
Proceeds from sale of a business34,897  
Purchase of property and equipment(6,993)(6,639)
Investments and acquisition of distribution rights (1,478)
Other (75)
Net cash from investing activities - continuing operations27,904 (8,192)
Net cash from investing activities - discontinued operations(11,506)(104,841)
Net cash from investing activities16,398 (113,033)
Financing activities:
Proceeds from issuance of Class A common stock620 4,739 
Tax withholdings on equity-based compensation (3,352)
Proceeds from the issuance of long-term debt, net of issuance costs 79,659 
Borrowing on revolver64,000 25,000 
Payment on revolver(49,000)(25,000)
Debt refinancing costs(3,661) 
Payments on long-term debt(38,264)(13,528)
Other, net(334)(4)
Net cash from financing activities(26,639)67,514 
Effect of exchange rate changes on cash261 (531)
Net change in cash, cash equivalents and restricted cash(5,010)(64,831)
Cash, cash equivalents and restricted cash at the beginning of the period31,837 99,213 
Cash, cash equivalents and restricted cash at the end of the period$26,827 $34,382 
Supplemental disclosure of noncash investing and financing activities
Accrued liabilities for intellectual property$709 $ 
Accounts payable for purchase of property, plant and equipment$1,304 $1,270 
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 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.
On February 16, 2021, the Company completed its initial public offering (“IPO”), which was conducted through what is commonly referred to as an umbrella partnership C Corporation (“UP-C”) structure. The Company has majority interest, sole voting interest and controls the management of BV LLC. As a result, the Company consolidates the financial results of BV LLC and reports a noncontrolling interest representing the interest of BV LLC held by its continuing LLC owner.
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 970 employees.
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 2023 end on April 1, July 1 and September 30. Comparable periods for 2022 ended on April 2, July 2 and October 1. 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, and the adjustments discussed in Note 1. Organization) 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 Annual Report on Form 10-K for the year ended December 31, 2022. The consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by U.S. GAAP.
Correction of immaterial misstatements
During the quarter ended April 1, 2023 and as part of the balance sheet review process, the Company identified misstatements in its calculation of the carrying amount of noncontrolling interest as it applies to the Company’s complex UP-C tax and ownership structure as prescribed in the amended and restated limited liability company agreement of BV LLC. Specifically, the Company failed to adjust the carrying amount of its noncontrolling interest to reflect changes in ownership interests relating to BV LLC. As a result, the previously issued consolidated financial statements reflect an understatement of noncontrolling interest and an overstatement of additional paid-in capital.
As a result of further research conducted, the Company discovered an additional error related to historical deferred income tax balances. The Company concluded that it had inappropriately calculated deferred income taxes by using an incorrect book basis in its investment of BV LLC during the Company’s IPO, which resulted in an overstatement of deferred tax liabilities, an understatement of noncontrolling interest and an understatement of additional paid-in capital.
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The statements affected by these errors include the consolidated balance sheets and consolidated statements of stockholders’ and members’ equity issued in the Company’s Annual Report on Form 10-K for the years ended December 31, 2022 and December 31, 2021. There was no impact to any other financial statements for the periods presented. The Company concluded that these misstatements were not material, individually or in the aggregate, as evaluated under the Securities and Exchange Commission Staff Bulletin No. 99, Materiality; No. 108, Considering the Effects of Prior Year Misstatements in Current Year Financial Statements; and Financial Accounting Standards Board ASC 250-10, Accounting Changes and Error Corrections. However, because of the significance of these items, and to facilitate comparison among periods, the Company has decided to revise its previously issued consolidated financial statements on a prospective basis. The Company will correct its prior period presentation for this error in its future 2023 quarterly financial statements included in its Forms 10-Q and 2023 Annual Report on Form 10-K for the period ended December 31, 2023. The adjustments did not have an impact on revenues, total assets or cash flows.
The following are selected line items from our aforementioned impacted financial statements illustrating the effect of the error corrections thereon:
Consolidated Balance Sheets — December 31, 2022As Previously ReportedAdjustmentsAs Adjusted
Deferred income taxes (b)(d)(e)$74,138 $(71,890)$2,248 
Total liabilities1,032,317 (71,890)960,427 
Additional paid-in capital (a)(b)(c)(d)481,919 8,657 490,576 
Noncontrolling interest (a)(c)23,751 63,233 86,984 
Total stockholders’ equity340,332 71,890 412,222 
Consolidated Balance Sheets — December 31, 2021As Previously ReportedAdjustmentsAs Adjusted
Deferred income taxes (b)$133,518 $(73,867)$59,651 
Total liabilities692,073 (73,867)618,206 
Additional paid-in capital (a)(b)465,272 8,046 473,318 
Noncontrolling interest (a)74,865 65,821 140,686 
Total stockholders’ equity533,789 73,867 607,656 
The Company’s consolidated statements of changes in stockholders’ and members equity as of December 31, 2022 and December 31, 2021 have been corrected to reflect the above adjustments. The Company revised the amounts originally reported for the years ended December 31, 2022 and December 31, 2021 for the following items:
(a)Recorded a $65,821 decrease to additional paid-in capital and a corresponding increase to noncontrolling interest. This action effectively rebalanced equity appropriately between the Company and its noncontrolling interests according to their respective BV LLC ownership interests.
(b)Recorded a $73,867 decrease to deferred income tax balances and an increase to additional paid in capital to reflect the correction of an error that occurred during the calculation of deferred taxes at the Company’s IPO.
(c)Reflects the entry as discussed in (a) above and additional rebalancing activity of $2,588 relating to the issuance of Class A common stock for equity plans during the year ended December 31, 2022.
(d)Reflects the entry as discussed in (b) and an additional $1,977 increase to deferred income tax balances and a reduction to additional paid in capital to reflect the deferred tax impact during the year ended December 31, 2022.
(e)The previously reported amount reflects a reclassification of $79,863 of deferred tax liabilities associated with the deconsolidation of CartiHeal (2009) Ltd. into long-term liabilities attributable to discontinued operations as illustrated in the December 31, 2022 consolidated condensed balance sheets. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details.
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 violating certain of its financial covenants under the Credit and Guaranty Agreement, dated December 6, 2019 (as amended on October 29, 2021, July 11, 2022 and March 31, 2023).
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If mitigating steps are not taken or are not successful, the Company is at substantial risk of failing its covenants in 2024. A breach of a financial covenant under the Credit and Guaranty Agreement could accelerate repayment of our obligations under the agreement. Refer to Note 4. Financial instruments for further discussion concerning the Company’s long-term debt obligations.
The Company is actively pursuing plans to mitigate these conditions and events, such as considering various additional cost cutting measures, exploring additional divestiture opportunities such as the divestiture of certain assets within the Company’s Wound Business (as defined in Note 3. Acquisitions and divestitures), and exploring opportunities to amend as needed or refinance our existing debt obligations; 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.
As part of efforts to improve its financial condition, on February 27, 2023, the Company reached an agreement to return the assets and liabilities of CartiHeal (2009) Ltd. (“CartiHeal”), a wholly-owned subsidiary of the Company, to its former securityholders. The deconsolidation of CartiHeal relieved deferred consideration liabilities and milestone obligations related to the acquisition of CartiHeal. Refer to Note 3. Acquisitions and divestitures for further information regarding the acquisition and subsequent deconsolidation of CartiHeal. In addition, the Company announced a restructuring plan in December 2022 to align the Company’s organizational and management cost structure to improve profitability and cash flow. Refer to Note 9. Restructuring costs for further information.
Recent accounting pronouncements
The Company is an accelerated public company filer. Therefore, 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
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:
September 30, 2023December 31, 2022
Accounts receivable(a)
$117,935 $143,317 
Less: Allowance for credit losses(5,036)(7,022)
$112,899 $136,295 
(a)Other receivables of $350 attributable to CartiHeal was reclassified to current assets attributable to discontinued operations within the December 31, 2022 consolidated balance sheets. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
Due to the short-term nature of the Company’s receivables, the estimate of expected credit losses is based on aging of the account receivable balances. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. The Company has a diverse customer base with no single customer representing ten percent or more of sales. The Company has one customer representing approximately 15.4% of the accounts receivable balance as of September 30, 2023. Historically, the Company’s reserves have been adequate to cover credit losses.
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Changes in credit losses were as follows:
Three Months EndedNine Months Ended
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Beginning balance$(7,141)$(5,292)$(7,022)$(3,402)
Benefit (provision) for expected credit losses1,335 (1,369)695 (3,874)
Write-offs1,298 1,082 2,352 1,907 
Recoveries(528)(265)(1,491)(475)
Disposition  430  
Ending balance$(5,036)$(5,844)$(5,036)$(5,844)
Inventory
Inventory consisted of the following as of:
September 30, 2023December 31, 2022
Raw materials and supplies(a)
$26,432 $19,133 
Finished goods75,003 67,484 
Gross101,435 86,617 
Excess and obsolete reserves(3,872)(1,851)
$97,563 $84,766 
(a)Raw material inventory of $642 attributable to CartiHeal has been reclassified to current assets attributable to discontinued operations within the December 31, 2022 consolidated balance sheets. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
Prepaid and other current assets
Prepaid and other current assets consisted of the following as of:
September 30, 2023December 31, 2022
Prepaid taxes$2,130 $4,442 
Prepaid and other current assets(a)
10,033 14,109 
$12,163 $18,551 
(a)Prepaid and other current assets of $134 attributable to CartiHeal was reclassified to current assets attributable to discontinued operations within the December 31, 2022 balance sheet. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
Property, plant & equipment, net
The Company incurred a $1,064 disposal loss on fixed assets during the three and nine months ended September 30, 2023 as a result of the integration of acquisitions. The loss is recorded in loss on disposals within the consolidated condensed statements of operations and comprehensive loss.
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Intangible assets, net
Intangible assets consisted of the following as of:
September 30, 2023December 31, 2022
Intellectual property(a)(b)
$677,258 $790,049 
Distribution rights61,325 61,325 
Customer relationships(b)
57,950 67,450 
IPR&D5,500 5,500 
Developed technology and other13,998 13,998 
Total carrying amount816,031 938,322 
Less accumulated amortization:
Intellectual property(a)(b)
(208,084)(187,767)
Distribution rights(48,054)(44,319)
Customer relationships(b)
(57,950)(58,842)
Developed technology and other(7,210)(6,276)
Total accumulated amortization(321,298)(297,204)
Intangible assets, net before currency translation494,733 641,118 
Currency translation(1,409)(1,267)
$493,324 $639,851 
(a)Intellectual property and accumulated depreciation attributable to CartiHeal totaling $410,200 and $11,327, respectively, were reclassified to long-term assets attributable to discontinued operations within the December 31, 2022 consolidated balance sheets. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
(b)The Company recorded an impairment loss of $78,615 for the nine months ended September 30, 2023 in the U.S. reporting segment of net intellectual property attributable to the TheraSkin and TheraGenesis products, which were sold in May 2023. The loss was recorded in impairment of assets within the consolidated condensed statements of operations and comprehensive loss. Refer to Refer to Note 3. Acquisitions and divestitures for further details regarding businesses held for sale.
Estimated amortization expense for intangibles subsequent to reclassifications, impairment and additions for the remainder of 2023 and for the years ended December 31, 2024 through 2027 is expected to be $6,907, $26,590, $23,939, $20,461 and $20,109, respectively.
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. The Company then reconciles the values of all reporting units to the market capitalization of the Company.
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The Company’s goodwill resides within the International segment, of which $6,297 related to CartiHeal and was reclassified to long-term assets attributable to discontinued operations within the December 31, 2022 consolidated balance sheets. The amount was recorded in discontinued operations, net of tax on the consolidated condensed statements of operations for the nine months ended September 30, 2023 as a result of CartiHeal’s deconsolidation. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details concerning the deconsolidation of CartiHeal.
On November 8, 2022, due to a significant decline in the Company’s Class A common stock price, circumstances became evident that a possible goodwill impairment existed as of the third quarter 2022 balance sheet date. The Company concluded that the carrying value of the U.S. reporting unit exceeded its fair value and recorded a non-cash goodwill impairment charge of $189,197 during three and nine months ended October 1, 2022, of which $124,697 was recorded in the impairment of assets and $64,500 in loss on discontinued operations, net of tax, respectively, within the consolidated condensed statements of operations and comprehensive loss. There were no impairment losses or indicators of impairment during the nine months ended September 30, 2023. There were also no accumulated impairment losses prior to the year ended December 31, 2022.
Accrued liabilities
Accrued liabilities consisted of the following as of:
September 30, 2023December 31, 2022
Gross-to-net deductions$69,631 $71,227 
Bonus and commission13,558 9,179 
Compensation and benefits7,499 11,428 
Accrued interest6,742 217 
Income and other taxes4,689 2,572 
Other liabilities(a)
16,777 16,947 
$118,896 $111,570 
(a)Other liabilities attributable to CartiHeal of $384 were reclassified into current liabilities attributable to discontinued operations within December 31, 2022 consolidated balance sheets. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details.
3. Acquisitions and divestitures
Wound Business
On May 22, 2023, the Company closed the sale of certain assets within its Wound Business, including the TheraSkin and TheraGenesis products (collectively, the “Wound Business” or the “Disposal Group”), for potential consideration of $84,897, including $34,897 at closing, $5,000 deferred for 18 months and up to $45,000 in potential earn-out payments (“Earn-out Payments”). The Company incurred $3,880 in transactional fees resulting from the sale of the Wound Business. The loss resulting from the deconsolidation of the Disposal Group was $340 and $1,317 for the three and nine months ended September 30, 2023, respectively, recorded in loss on disposals within the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023.
The Company used the proceeds from the sale of its Wound Business to prepay $30,000 of long-term debt obligations. Refer to Note 4. Financial Instruments for further details regarding the Company’s outstanding long-term debt obligations.
The Earn-out Payments are based on the achievement of certain revenue thresholds by the purchaser of the Wound Business for sales of the TheraSkin and TheraGenesis products during the 2024, 2025 and 2026 fiscal years. The net revenue thresholds are as follows:
2024 Earn-out Payment—$5,000 due if net revenue for the period January 1, 2024 through December 31, 2024 is equal to or greater than $54,300 or zero if net revenue is less than $54,300.
2025 Earn-out Payment—$20,000 due if net revenue for the period January 1, 2025 through December 31, 2025 is equal to or greater than $69,700 or $10,000 due if net revenue is greater than or equal to $55,760 but less than $69,700 or zero if net revenue is less than $55,760.
2026 Earn-out Payment—$20,000 due if net revenue for the period January 1, 2026 through December 31, 2026 is equal to or greater than $83,700 or $10,000 due if net revenue is greater than or equal to $66,960 but less than $83,700 or zero if net revenue is less than $66,960.
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The Company evaluated the Wound Business for impairment prior to its sale and recorded a $78,615 ($63,337 after tax) impairment within the consolidated statements of operations and comprehensive loss during the nine months ended September 30, 2023 as a result of this evaluation to reduce the intangible assets of the Disposal Group to reflect their respective fair values less any costs to sell. The fair value of the Disposal Group’s intangibles was determined based on the consideration received for the Wound Business.
CartiHeal (2009) Ltd
On July 12, 2022, the Company completed the acquisition of 100% of the remaining shares in CartiHeal, a privately held company headquartered in Israel and the developer of the proprietary Agili-C implant for the treatment of joint surface lesions in traumatic and osteoarthritic joints. The Company previously held an equity interest in CartiHeal’s fully diluted shares with a carrying value of $15,768 and $16,771 as of July 12, 2022 and December 31, 2021, respectively. Net equity losses associated with CartiHeal for the three and nine months ended October 1, 2022 totaled $322 and $1,003, respectively, which were included in discontinued operations, net on the consolidated condensed statements of operations and comprehensive loss.
The Company acquired CartiHeal (the “CartiHeal Acquisition”) for an aggregate purchase price of approximately $315,000 and an additional $135,000, payable after closing upon the achievement of a certain sales milestone (“Sales Milestone”, or “CartiHeal Contingent Consideration”). The Company paid $100,000 of the aggregate purchase price upon closing consisting of a $50,000 deposit held in trust and $50,000 from a financing arrangement (Refer to Note 4. Financial instruments for further information regarding financing arrangements). The Company also paid approximately $8,622 of CartiHeal’s transaction-related fees and expenses and deferred $215,000 (“Deferred Amount”) of the aggregate purchase price otherwise due at closing.
The Deferred Amount was to be paid in five tranches commencing in 2023 and ending no later than 2027 as follows:
$50,000 due upon the earliest to occur — the publication in a peer-reviewed orthopedic journal of an article that presents the results of the pivotal clinical trial (“First Paper Milestone”) or July 1, 2023;
$50,000 due upon the earliest to occur — the implantation of Agili-C devices in 100 patients in the United States or September 1, 2023;
$25,000 due upon the earliest to occur — the publication in a peer-reviewed orthopedic journal of an article that presents any new or additional clinical data subsequent to the First Paper Milestone with respect to Agili-C (“Second Paper Milestone”) or January 1, 2025;
$25,000 due upon the earliest to occur — the publication in a peer-reviewed orthopedic journal of an article that presents any new or additional clinical data subsequent to the First and Second Paper Milestone with respect to Agili-C or January 1, 2026; and
$65,000 due upon the earliest to occur — obtaining a U.S. Category 1 Current Procedural Terminology (“CPT”) code from Centers for Medicare and Medicaid Services (“CMS”) for Agili-C or January 1, 2027.
Pursuant to the CartiHeal Amendment (as defined below), the Company owed interest on each tranche of the Deferred Amount at a rate of 8.0% annually, until such tranche is paid. The Sales Milestone was payable upon the achievement of $75,000 in trailing twelve month sales pursuant to the CartiHeal Amendment.
The Company had entered into an Option and Equity Purchase Agreement with CartiHeal (“Option Agreement”) in January 2020 and a subsequent amendment in June 2022 (“CartiHeal Amendment”). The Option Agreement provided the Company with an exclusive option to acquire 100% of CartiHeal’s shares (“Call Option”), and provided CartiHeal with a put option that would require the Company to purchase 100% of CartiHeal’s shares under certain conditions. In August 2021, CartiHeal achieved pivotal clinical trial success, as defined in the Option Agreement, for the Agili-C implant. In order to preserve the Company’s Call Option, in accordance with the Option Agreement and upon approval of the Company’s Board of Directors (“BOD”), the Company deposited $50,000 into escrow in August 2021.
The First Paper Milestone under the Option Agreement occurred on February 13, 2023, which obligated the Company to make the first $50,000 payment, plus applicable interest, under the Option Agreement. On February 27, 2023, the Company entered into a settlement agreement (the “Settlement Agreement”) with Elron Ventures Ltd. (“Elron” and together with the Company, the “Parties”) as representative of CartiHeal’s selling securityholders under the Option Agreement (collectively, the “Former Securityholders”). Pursuant to the Settlement Agreement, Elron, on behalf of the Former Securityholders, agreed to forbear from initiating any legal action or proceedings relating to non-payment of any obligations arising under the Option Agreement during a period of 30 calendar days (the “Interim Period”) in exchange for (i) a one-time non-refundable amount of $10,000 and (ii) a one-time non-refundable payment of $150 to Elron to be used in accordance with the expense fund provisions of the Option Agreement. The Interim Period expired on March 29, 2023 and the Company did not exercise its right to extend the Interim Period. In addition, the Parties mutually released any further claims under the Option Agreement and related transaction documents, including without limitation a release by the Former Securityholders of any rights to enforce the provisions of the Option Agreement or make further monetary claims against the Company and/or its respective affiliates and representatives.
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The Company transferred 100% of its shares in CartiHeal to a trustee (the “Trustee”) for the benefit of the Former Securityholders pursuant to the Settlement Agreement. The Company had no ownership interest and no voting rights during the Interim Period. Accordingly, the Company concluded that upon execution of the Settlement Agreement, the Company ceased to control CartiHeal for accounting purposes, and therefore, deconsolidated CartiHeal effective February 27, 2023. CartiHeal was part of the Company’s international reporting segment. The Company treated the deconsolidation of CartiHeal as a discontinued operation. The loss upon disposal was $60,639 and was recorded within discontinued operations, net within the consolidated condensed statements of operations and comprehensive loss. The loss on disposal is comprised of the book value of CartiHeal’s net assets at the time of disposal, goodwill attributable to CartiHeal and the previously discussed non-refundable payments made to Elron. The Company allowed the Interim Period to expire on March 29, 2023 as the Company was not able to find a financing solution to fund the payment obligations under the Option and Equity Purchase Agreement on terms the Company believed to be favorable to it and its shareholders.
The fair value of consideration for the CartiHeal Acquisition was comprised of the following:
Cash consideration$100,000 
Transaction related costs8,622 
Subtotal of cash at closing108,622 
Deferred Amount183,400 
Sales Milestone61,901 
Fair value of previously held equity interest(a)
39,477 
Total consideration$393,400 
(a)    Remeasurement of the Company’s equity method investment in CartiHeal, net of equity losses as a result of the purchase. The remeasurement included a gain of $23,709 calculated as the difference between the fair value and the carrying value of the Company’s investment in CartiHeal at the acquisition date and was recognized in other income during the third quarter of 2022 on the consolidated condensed statements of operations and comprehensive loss. The fair value was based upon: (i) the consideration transferred to members owning 89.97% of CartiHeal’s fully diluted shares; (ii) calculating the value of CartiHeal’s fully diluted shares based upon the transferred consideration; and (iii) applying the calculated value to the Company’s 10.03% ownership in CartiHeal’s fully diluted shares at the acquisition date.
The Company accounted for the CartiHeal Acquisition using the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:
Fair value of consideration$393,400 
Assets acquired and liabilities assumed:
Cash and cash equivalents and restricted cash3,781 
Inventory642 
Prepaid and other current assets552 
Property and equipment259 
Intangibles410,200 
Investment and other assets727 
Accounts payable(18)
Accrued liabilities(459)
Other current liabilities(171)
Deferred income taxes(79,863)
Other liabilities(2,544)
Net assets acquired333,106 
Resulting goodwill$60,294 
Nearly 100% of the goodwill represents estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized and is attributable to expected revenue growth in new markets. The goodwill was not deductible for tax purposes and $55,295 and $4,999 was allocated to the U.S. and International reporting units, respectively.
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CartiHeal’s intangibles consisted of the following:
Useful LifeFair Value
Intellectual Property - US Segment20 years$351,500 
Intellectual Property - International Segment8 years58,700 
$410,200 
The estimated fair value of the acquired CartiHeal intangibles was determined using an income approach, a valuation technique that estimates the fair value of an asset based on market participant expectations of the cash flows that an asset would generate over its remaining useful life. The determination of the useful lives was based upon consideration of market participant assumptions and transaction specific factors.
4. Financial instruments
Long-term debt consisted of the following as of:
September 30, 2023December 31, 2022
Amended Term Loan due October 2026 (9.88% at September 30, 2023)
$382,448 $420,712 
Revolver due October 2025 (9.88% at September 30, 2023)
15,000  
Less:
Current portion of long-term debt(19,584)(33,056)
Unamortized debt issuance cost(998)(1,338)
Unamortized discount(1,833)(1,308)
$375,033 $385,010 
On December 6, 2019, the Company entered into a Credit and Guaranty Agreement (the “2019 Credit Agreement”) that was comprised of a $200,000 term loan (“Original Term Loan”) and a $50,000 revolving facility (the “Revolver”). The Company amended the 2019 Credit Agreement on October 29, 2021 in connection with the Misonix Acquisition in which the Company prepaid $80,000 on the Original Term Loan. The 2019 Credit Agreement, as amended, subsequent to the prepayment, was comprised of a $360,750 term loan (“Term Loan”) and the Revolver.
On July 11, 2022, the Company further amended the 2019 Credit Agreement, as amended on October 29, 2021 (the “First Amended 2019 Credit Agreement”), in conjunction with the CartiHeal Acquisition. Pursuant to the First Amended 2019 Credit Agreement, an $80,000 term loan facility (the “July 2022 Term Loan” and, together with the Term Loan, the “Term Loan Facilities”) was extended to the Company to be used for: (i) the financing of the CartiHeal Acquisition; (ii) the payment of related fees and expenses; (iii) repayment of the draws made on the Revolver; and (iv) working capital needs and general corporate purposes of the Company, including without limitation for permitted acquisitions.
The Company was not in compliance with certain financial covenants as of December 31, 2022. As a result, on March 31, 2023 (the “Closing Date”), the Company entered into another amendment to the 2019 Credit Agreement (collectively, with the October 2021 and July 2022 amendments, the “Amended 2019 Credit Agreement”) to, among other things, modify certain financial covenants, waive the noncompliance at December 31, 2022, and to modify interest rates applicable to borrowings under the 2019 Credit Agreement.
The Amended 2019 Credit Agreement contains customary affirmative and negative covenants, including those related to financial reporting and notification, restrictions on the declaration or payment of certain distributions on or in respect of Bioventus LLC’s equity interests, restrictions on acquisitions, investments and certain other payments, limitations on the incurrence of new indebtedness, limitations on transfers, sales and other dispositions of assets of Bioventus LLC and its subsidiaries, as well as limitations on making changes to the business and organizational documents of Bioventus LLC and its subsidiaries. Financial covenant requirements include a maximum debt leverage ratio and an interest coverage ratio. In addition, during the period commencing on the Closing Date and ending upon the satisfaction of certain conditions occurring not prior to the delivery of financial statements of the Company for the fiscal quarter ending June 30, 2024, the Company will be subject to certain additional requirements and covenants, including a requirement to maintain Liquidity (as defined in the Amended 2019 Credit Agreement) of not less than $10,000 as of the end of each calendar month during such period. The Term Loan Facilities will mature on October 29, 2026. The Revolver will mature on October 29, 2025.
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The Amended 2019 Credit Agreement had deferred financing costs of $3,661, of which $1,617 were recorded in selling, general and administrative expense within the consolidated condensed statements of operations and comprehensive loss and $2,044 were capitalized on the consolidated condensed balance sheets. There was no loss on debt refinancing and modification as a result of the March 2023 amendment.
As of September 30, 2023, $379,617 was outstanding on the Term Loan Facilities, net of original issue discount of $1,833 and deferred financing costs of $998. As previously discussed in Note 3. Acquisitions and divestitures, the Company made a prepayment of $30,000 on its Term Loan Facilities with the proceeds from the Wound Business divestiture during the second quarter of 2023. Capitalized deferred fees are amortized to interest expense on a straight-line basis over the term of the Term Loan Facilities, which approximates the effective interest method. Interest expense includes deferred cost amortization of $262, $203, $1,400 and $610 for the three months ended September 30, 2023 and October 1, 2022 and the nine months ended September 30, 2023 and October 1, 2022, respectively. The Company had $15,000 and no outstanding borrowings on its Revolver as of September 30, 2023 and December 31, 2022, respectively.
The estimated fair value of the Term Loan Facilities was $378,146 as of September 30, 2023. The fair value of these obligations was determined based on the midpoint of the Bloomberg Valuation. This is classified as a Level 2 instruments within the fair value hierarchy.
The Company historically entered into interest rate swap agreements to limit its exposure to changes in the variable interest rate on its long-term debt. The Company had one non-designated interest rate swap agreement that was terminated on October 28, 2022. The Company received $7,738 upon the swap’s termination. The swap was carried at fair value on the balance sheet with changes in fair value recorded as interest income or expense within the consolidated condensed statements of operations and comprehensive loss. Net interest income of $2,222 and $6,418 was recorded related to the change in fair value of the interest rate swap for the three and nine months ended October 1, 2022.
5. Fair value measurements
The process for determining fair value has not changed from that described in the Annual Report on Form 10-K for the year ended December 31, 2022.
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 assets and liabilities measured at fair value on a recurring basis using Level 2 and Level 3 inputs:
September 30, 2023December 31, 2022
TotalLevel 3TotalLevel 3
Liabilities:
Deferred Amount - Current(a)
$ $ $117,615 $117,615 
Deferred Amount - Long Term(a)
  79,269 79,269 
CartiHeal contingent consideration- Sales Milestone(a)
  67,251 67,251 
Bioness contingent consideration17,860 17,860 17,431 17,431 
Total liabilities:$17,860 $17,860 $281,566 $281,566 
(a)The Deferred Amount and contingent consideration attributable to CartiHeal have been reclassified to discontinued operations within the December 31, 2022 balance sheet. CartiHeal was fully deconsolidated during the first quarter of 2023. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
Deferred Amount
The Deferred Amount that resulted from the CartiHeal Acquisition was calculated based on the total amount payable on each due date for the five payment tranches including applicable interest. As previously discussed, the Company reached a settlement Agreement with the Former Securityholders. Pursuant to the Settlement Agreement, the Company was relieved of the obligations under the Deferred Amount. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
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 for certain milestones. For other milestones, the Company used a variation of the income approach where revenue was simulated in a risk-neutral framework using Geometric Brownian Motion, a stock price behavior model.
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Key assumptions used to estimate the fair value of contingent consideration include projected financial information, market data and the probability and timing of achieving the specific targets. After the initial valuation, the Company generally uses its best estimate to measure contingent consideration at each subsequent reporting period using unobservable Level 3 inputs. As previously discussed, the Company reached a settlement agreement with the Former Securityholders and was relieved of the CartiHeal Contingent Consideration obligations. Refer to Note 3. Acquisitions and divestitures and Note 14. Discontinued operations for further details regarding the deconsolidation of CartiHeal.
Unobservable inputs
A summary of unobservable Level 3 inputs utilized for the above liabilities are as follows:
Valuation TechniqueUnobservable inputsRange
Bioness contingent considerationDiscounted cash flowPayment discount rate
6.4% - 6.8%
Payment period
2024 - 2025
Significant changes in these assumptions could result in a significantly higher or lower fair value. The contingent consideration reported in the table above resulted from the acquisition of Bioness on March 30, 2021. Contingent consideration is adjusted quarterly based upon the passage of time or the anticipated success or failure of achieving certain milestones. Changes in contingent consideration related to Bioness for the three months ended September 30, 2023 and October 1, 2022 and the nine months ended September 30, 2023 and October 1, 2022 total a gain of $98 and losses of $278, $429 and $820, respectively, and were recorded as the change in fair value of contingent consideration within the consolidated condensed statements of operations and comprehensive loss. Changes in contingent consideration related to the CartiHeal Acquisition totaled $1,710 for the nine months ended September 30, 2023 and is reported within discontinued operations, net within the consolidated condensed statements of operations and comprehensive loss. Pursuant to the Settlement Agreement, the Company was relieved of CartiHeal related obligations. The Company deconsolidated the remaining $68,961 contingent consideration liability as a result. Refer to Note 3. Acquisitions and divestitures for further details regarding the deconsolidation of CartiHeal.
6. Equity-based compensation
2021 Plan
The Company operates an equity-based compensation plan (the “2021 Plan”), which allows for the issuance of stock options (incentive and nonqualified), restricted stock, dividend equivalents, restricted stock units (“RSUs”), other stock-based awards, and cash awards (the “2021 Plan Awards”). As of September 30, 2023, 14,781,895 shares of Class A common stock were authorized to be awarded under the 2021 Plan and 7,658,566 shares were available for 2021 Plan Awards.
2023 Plan
The Company also operates the 2023 Retention Equity Award Plan (the “2023 Plan” and, together with the 2021 Plan, the “Plans”), the purpose of which is to retain and motivate critical personnel over the short-term by providing them additional incentives in the form of RSUs (the “Retention Awards” and together with the “2021 Plan Awards,” the “Awards”). As of September 30, 2023, 600,000 shares of Class A common stock were authorized to be awarded under the 2023 Plan and 49,200 shares were available for Retention Awards.
Activity under the Plans
Expense
Equity-based compensation, net for Awards granted under the Plans for the three and nine months ended September 30, 2023 totaled $1,734 and $655, respectively, in expense reduction as a result of expense reversals due to executive leadership transitions. Equity compensation expense for Awards granted under the Plans for three and nine months ended October 1, 2022, totaled $4,512 and $13,765, respectively. Expenses and expense reductions are primarily included in selling, general and administrative expense with a nominal amount in research and development expense within the consolidated condensed statements of operations and comprehensive loss based upon the department of the employee. There were no income tax benefits related to equity-based compensation expense for the three and nine months ended September 30, 2023. Income tax benefits related to equity-based compensation expense for three and nine months ended October 1, 2022 totaled $23 and $2,313, respectively.
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Restricted Stock Units
During the three and nine months ended September 30, 2023, the Company granted time-based RSUs which vest at various dates through May 8, 2027. RSU compensation expense is recognized over the vesting period, which is typically between 1 and 4 years. Unamortized compensation expense related to the RSUs totaled $7,910 at September 30, 2023, and is expected to be recognized over a weighted average period of approximately 2.02 years. A summary of the RSU award activity for the nine months ended September 30, 2023 is as follows (number of units in thousands):
Number of unitsWeighted-average grant-date fair value per unit
Unvested at December 31, 20221,189 $11.96 
Granted2,030 2.35 
Vested(396)11.16 
Forfeited or canceled(469)8.77 
Unvested at September 30, 20232,354 $4.44 
Stock Options
During the three and nine months ended September 30, 2023, the Company granted time-based stock options which vest over 1 to 4 years following the date of grant and expire within 10 years. The fair value of time-based stock options is determined using the Black-Scholes valuation model, with such value recognized as expense over the service period, which is typically 1 to 4 years, net of actual forfeitures. A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the nine months ended September 30, 2023 is shown in the following table.
Risk-free interest rate
3.49% - 4.4%
Expected dividend yield %
Expected stock price volatility
35.2% - 36.4%
Expected life of stock options (years)
5.50 - 6.25
The weighted-average grant date fair value of options granted during the nine months ended September 30, 2023 was $0.50 per share. The expected term of the options granted is estimated using the simplified method. Expected volatility is based on the historical volatility of the Company’s peers’ common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option. Unamortized compensation expense related to the options totaled $6,861 at September 30, 2023, and is expected to be recognized over a weighted average period of approximately 5.47 years.
A summary of stock option activity is as follows for the nine months ended September 30, 2023 (number of options in thousands):
Number of optionsWeighted-average exercise priceWeighted average remaining contractual termAggregate intrinsic value
Outstanding at December 31, 20228,910 $11.65 
Granted1,182 1.21 
Exercised(65)2.69 
Forfeited or canceled(4,596)12.44 
Outstanding at September 30, 20235,431 8.82 7.09 years$2,179 
Exercisable and vested at September 30, 20232,988 $9.82 5.71 years$ 
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Class A common stock for options that had exercise prices lower than $3.30 per share, the closing price of the Company’s Class A common stock on the last trading day of the third quarter, September 29, 2023.
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Employee Stock Purchase Plan
The Company operates a non-qualified Employee Stock Purchase Plan (“ESPP”), which provides for the issuance of shares of the Company’s Class A common stock to eligible employees of the Company that elect to participate in the plan and purchase shares of Class A common stock through payroll deductions at a discounted price. As of September 30, 2023, the aggregate number of shares reserved for issuance under the ESPP was 963,926. A total of 93,092 and 460,019 shares were issued and $99 and $292 of expense was recognized during the three and nine months ended September 30, 2023. A total of 69,334 and 172,153 shares were issued and $136 and $388 of expense was recognized during the three and nine months ended October 1, 2022.
7. Stockholders’ equity
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. 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.
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.
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.
Amendment and restatement of certificate of incorporation
On February 16, 2021, the Company amended and restated its certificate of incorporation to, among other things, provide for: (i) the authorization of 250,000,000 shares of Class A common stock with a par value of $0.001 per share; (ii) the authorization of 50,000,000 shares of Class B common stock with a par value of $0.001 per share; (iii) the authorization of 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the BOD in one or more series; and (iv) the establishment of a classified BOD, divided into three classes, each of whose members will serve for staggered three-year terms.
Holders of Class A and 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 and the number of shares of Class B common stock held by Smith & Nephew, Inc. (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 upon the redemption or exchange of any outstanding LLC Interests.
BV LLC recapitalization
The BV LLC Agreement provides that holders of LLC Interests may, from time to time, require the Company to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. The Company may elect to settle any such redemption in shares of Class A common stock or in cash.
The amendment also requires that the Company, at all times, maintain (i) a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of LLC Interests owned by the Company and (ii) 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.
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Noncontrolling interest
In connection with any redemption, the Company will receive a corresponding number of LLC Interests, increasing its ownership interest in BV LLC. Future redemptions of LLC Interests will result in a change in ownership and reduce the amount recorded as noncontrolling interest and increase additional paid-in capital. There were no redemptions during the nine months ended September 30, 2023 or during the year ended December 31, 2022. The following table summarizes the ownership interest in BV LLC as of September 30, 2023 and December 31, 2022 (number of units in thousands):
September 30, 2023December 31, 2022
LLC Interests
Ownership %
LLC Interests
Ownership %
Number of LLC Interests owned
Bioventus Inc.62,964 80.0 %62,063 79.7 %
Continuing LLC Owner15,787 20.0 %15,787 20.3 %
Total78,751 100.0 %77,850 100.0 %
8. Earnings per share
The following table sets forth the computation of basic and diluted loss per share of Class A common stock for the periods presented (amounts in thousands, except share and per share data):
Three Months EndedNine Months Ended
September 30, 2023October 1, 2022