Bioventus Inc.: Form 10-Q for the period ended Sep 28, 2024

The following discussion and analysis of Bioventus Inc.’s (sometimes referred to as “we,” “us,” “our,” “Bioventus” or “the Company”) financial condition and results of operations should be read in conjunction with the “Special Note Regarding Forward-Looking Statements” and our unaudited consolidated condensed financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 12, 2024 (“2023 10-K”).

Executive Summary

We are a global medical device company focused on developing and commercializing clinically differentiated, cost efficient and minimally invasive treatments that engage and enhance the body’s natural healing process. We operate our business through two reportable segments, U.S. and International, and our portfolio of products is grouped into three businesses:

• Pain Treatments is comprised of non-surgical joint pain injection therapies as well as peripheral nerve stimulation (“PNS”) products to help the patient get back to their normal activities.
• Surgical Solutions is comprised of bone graft substitutes (“BGS”) that increase bone formation to stimulate bone healing in spinal fusions and other orthopedic surgeries, as well as a portfolio of ultrasonic products used for precise bone cutting and sculpting, soft tissue management (i.e., tumor and liver resections) and tissue debridement, in various surgeries, including minimally invasive applications.
• Restorative Therapies is comprised of a bone healing system, as well as devices designed to help patients regain leg or hand function due to stroke, multiple sclerosis or other central nervous system disorders.

The following table sets forth total net sales, net loss and Adjusted EBITDA for the periods presented:

(1) See below under results of operations-Adjusted EBITDA for a reconciliation of net loss to Adjusted EBITDA.

Significant developments

Advanced Rehabilitation Business

On September 30, 2024, we entered into a Purchase Agreement with a third-party purchaser to sell certain products within our Advanced Rehabilitation Business. The Advanced Rehabilitation Business is considered non-core and requires additional research and development expenditures to achieve its next stage of growth. The consideration for the transactions includes $25.0 million at closing, subject to a post-closing adjustment for net working capital adjustments, indebtedness, transaction expenses and cash, and up to an aggregate of $20.0 million in potential Earn-out Payments, which are based on the achievement of certain revenue and financial metric thresholds in respect to sales of products from the Advanced Rehabilitation Business during the 2025 and 2026 fiscal years.

The divestiture of the Advanced Rehabilitation Business is expected to close near the end of 2024 or early 2025 and is expected to simplify our business structure and improve liquidity, as the proceeds, net of transactional fees, are required to be used to reduce long-term debt obligations. As of September 28, 2024, we had incurred $2.5 million in transactional fees resulting from the planned divestiture of the Advanced Rehabilitation Business.

We evaluated the Advanced Rehabilitation Business for impairment due to its planned divestiture. As a result of this evaluation, we recorded impairments totaling $2.0 million and $33.9 million for the three and nine months ended September 28, 2024, respectively, under the U.S. reporting segment within the consolidated condensed statements of operations and comprehensive loss. The impairment losses reduced the intangible assets of the Advanced Rehabilitation Business to reflect their respective fair values less any costs to sell. The fair value of its intangibles was based on the consideration agreed to with the purchaser for the Advanced Rehabilitation Business.

Reclassification

We reclassified revenue and expense of the SonicOne Ultrasonic Cleansing and Debridement Systems (“SonicOne”) from the Restorative Therapies to the Surgical Solutions business in the first quarter of 2024. SonicOne’s capabilities to remove devitalized or necrotic tissue and fiber deposits more closely aligns with Surgical Solutions’ soft tissue management. SonicOne revenue reclassified for the three and nine months ended September 30, 2023 totaled $1.8 million and $5.3 million, respectively, for the U.S. reporting segment and $0.1 million and $0.2 million for the International reporting segment during the three and nine months ended September 28, 2024, respectively.

Allograft Delivery Device

The Allograft Delivery Device, a customized delivery system for our OSTEOAMP® Flowable product, received FDA clearance in June 2024. OSTEOAMP® is an allograft-derived bone graft with growth factors used for reconstructive bone grafting procedures. The Allograft Delivery Device is intended to be used for the delivery of hydrated allograft to an orthopedic site, therefore assisting with the use of OSTEOAMP® Flowable, the fastest growing product in our bone graft substitutes portfolio, in minimally invasive surgical procedures as well as open procedures. FDA clearance of the Allograft Delivery Device will also allow us to bring the product to market in the US, starting with a limited launch planned in the fourth quarter of 2024.

EU MDR

The European Union (“EU”) Medical Devices Regulation (“MDR”), which became effective in May 2021, was adopted with the aim of ensuring better protection of public health and patient safety. Among other things, the EU MDR imposed changes to clinical evidence for medical devices, post-market clinical follow-up evidence, annual reporting of safety information for Class III products, and bi-annual reporting for Class II products, Unique Device Identification (“UDI”) for all products, submission of core data elements to a European UDI database prior to placement of a device on the market, reclassification of medical devices, and multiple labeling changes. We were able to continue marketing our currently certified products in the EU after the effective date of EU MDR until the associated certifications expire. In April 2024, we received EU Certification for our Exogen Bone Stimulation System, which will allow us to market it throughout the EU. The certificate is valid for 5 years.

Wound Business

On May 22, 2023, we closed the sale of certain assets within our Wound Business, including the TheraSkin and TheraGenesis products (collectively, the “Wound Business”), for potential consideration of $84.7 million, including $34.7 million at closing, $5.0 million deferred for 18 months and up to $45.0 million in potential earn-out payments, which 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. We incurred $3.9 million in transactional fees resulting from the sale of the Wound Business and used the proceeds from the sale of the Wound Business to prepay $30.0 million of long-term debt obligations.

We evaluated the Wound Business for impairment prior to its sale and recorded a $78.6 million 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 Wound Business to reflect their respective fair values, less any costs to sell. The fair values of its intangibles were determined based on the consideration received for the Wound Business.

Amended 2019 Credit Agreement

On January 18, 2024, we further amended the 2019 Credit Agreement in order to modify certain financial covenants under the 2019 Credit Agreement. Refer to Part I. Item 1. Financial Information—Notes to the consolidated condensed financial statements—Note 4. Financial instruments for further information regarding the January 2024 amendment.

Consolidated Appropriations Act

In July 2022, in connection with the Consolidated Appropriations Act, 2021 (“CAA”), the Centers for Medicare and Medicaid Services (“CMS”) began utilizing new pricing information the Company reported to it pursuant to the newly adopted reporting obligations to adjust the Medicare payment to healthcare providers using our Durolane and Gelsyn-3 products.

Results of Operations

For a description of the components of our results of operations, refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 10-K.

The following table sets forth components of our consolidated condensed statements of operations as a percentage of net sales for the periods presented:

The following table presents a reconciliation of net loss to Adjusted EBITDA for the periods presented:

(in thousands)

(a) Includes for the three months ended September 28, 2024 and September 30, 2023 and the nine months ended September 28, 2024 and September 30, 2023, respectively, depreciation and amortization of $10.2 million, $11.5 million, $31.3 million and $38.1 million in cost of sales and $2.1 million, $2.3 million, $5.9 million and $6.8 million in operating expenses presented in the consolidated statements of operations and comprehensive loss.

(b) Includes acquisition and integration costs related to completed acquisitions and changes in fair value of contingent consideration.

(c) Costs incurred as a result of certain shareholder litigation unrelated to our ongoing operations.

(d) Costs incurred were the result of adopting restructuring plans to reduce headcount, reorganize management structure, and consolidate certain facilities.

(e) Includes compensation expense resulting from awards granted under our equity-based compensation plans. The three and nine months ended September 30, 2023 includes the reversal of equity compensation expenses totaling $3.8 million related to the transition of our executive leadership.

(f) Financial restructuring costs include advisory fees and debt amendment related costs.

(g) Represents a non-cash impairment charge for intangible assets solely attributable to our Advanced Rehabilitation Business in 2024 due to our decision to divest the business. Activity in 2023 relates to the non-cash impairment charge attributable to our divested Wound Business.

(h) Represents the loss on disposal of the Wound Business.

(i) Other items primarily includes charges associated with strategic transactions, including potential acquisitions or divestitures and a transformative project to redesign systems and information processing. Divestiture costs related to our Advanced Rehabilitation Business, including transactional fees, totaled $1.6 million and $3.5 million during the three and nine months ended September 28, 2024, respectively. Strategic transactions and transformative project expenses amounted to $0.4 million and $1.3 million, respectively, for the nine months ended September 28, 2024.

Strategic transactions and divestiture expenses totaled $0.7 million and $4.2 million for the three and nine months ended September 30, 2023, respectively. Transformative project costs incurred amounted to $1.0 million and $3.1 million during the three and nine months ended September 30, 2023, respectively. We incurred $1.2 million in costs during the nine months ended September 30, 2023 related to MOTYS. Other items for the nine months ended September 30, 2023 also includes severance costs totaling $2.3 million related to the transition of our executive leadership.

Non-GAAP Financial Measures - Adjusted EBITDA

We present Adjusted EBITDA, a non-GAAP financial measure, because we believe it is a useful indicator that management uses as a measure of operating performance as well as for planning purposes, including the preparation of our annual operating budget and financial projections. We believe that Adjusted EBITDA is useful to our investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We define Adjusted EBITDA as net loss from continuing operations before depreciation and amortization, provision of income taxes and interest expense, net, adjusted for the impact of certain cash, non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include acquisition and related costs, certain shareholder litigation costs, impairments of assets, restructuring and succession charges, equity compensation expense, financial restructuring costs and other items. Adjusted EBITDA by segment is comprised of net sales and costs directly attributable to a segment, as well as an allocation of corporate overhead costs primarily based on a ratio of net sales by segment to total consolidated net sales.

Non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. These measures might exclude certain normal recurring expenses. Therefore, these measures might not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the U.S. GAAP financial measures. Additionally, other companies might define their non-GAAP financial measures differently than we do. Investors are encouraged to review the reconciliation of the non-GAAP measure provided in this Quarterly Report on Form 10-Q, including all tables referencing Adjusted EBITDA to its most directly comparable U.S. GAAP measure.

Net Sales

(in thousands, except for percentage)

26

U.S.

Net sales increased $16.7 million, or 15.7%, compared to the three months ended September 30, 2023. Changes by business were: (i) Pain Treatments—$7.9 million increase due to volume growth primarily driven by Durolane; (ii) Restorative Therapies—$2.3 million increase primarily due to volume growth related to our Exogen Bone Stimulation System; and (iii) Surgical Solutions—$6.4 million increase due to volume growth.

International

Net sales increased compared with the prior year comparable period. The net sales in Pain Treatments increased $1.5 million due to volume growth, partially offset by a decrease of $0.7 million in Restorative Therapies.

(in thousands, except for percentage)

U.S.

Net sales increased $40.5 million, or 12.2%, compared to the prior year period. Changes by business were: (i) Pain Treatments—$27.1 million increase due to volume growth primarily driven by Durolane; (ii) Restorative Therapies—$5.7 million decrease due to the divestiture of our Wound Business and larger volumes in 2023 related to our Vector rehabilitation product, partially offset by larger volumes and higher average selling price related to our Exogen Bone Stimulation System in 2024; and (iii) Surgical Solutions—$19.1 million increase due to volume growth.

International

Net sales increased compared with the prior year comparable period. The net sales in Pain Treatments increased $3.3 million due to volume growth, partially offset by a decrease of $1.6 million in Restorative Therapies.

Gross profit and gross margin

(in thousands, except for percentage)

U.S.

Gross profit increased $13.7 million, or 19.6%, primarily due to volume growth in Pain Treatments, Surgical Solutions and our Exogen Bone Stimulation System. Gross margin increased due to product mix.

International

Gross profit increased $1.0 million, or 10.9%, primarily due to growth in Pain Treatments and gross margin slightly increased due to product mix, partially offset with a decline in Restorative Therapies.

(in thousands, except for percentage)

U.S.

Gross profit increased $42.3 million, or 19.7%, primarily due to volume growth in Pain Treatments, Surgical Solutions and our Exogen Bone Stimulation System, partially offset by the Wound Business divestiture. Gross margin increased due to product mix.

International

Gross profit increased $1.4 million, or 5.2%, primarily due to volume growth in Pain Treatments, partially offset with a volume decrease for Restorative Therapies. Gross margin slightly increased due to product mix.

Selling, general and administrative expense

(in thousands, except for percentage)

Selling, general and administrative expenses increased $11.3 million, or 16.1%, primarily due to increases in (i) compensation related costs of $7.1 million; (ii) bad debt expenses of $1.3 million due to a reversal of bad debt expense in the prior year related to favorable collection activity that did not recur in the current year; (iii) employee related insurance costs of $0.8 million; (iv) accounting and legal costs of $0.6 million; and (v) equity-based compensation of $0.4 million.

(in thousands, except for percentage)

Selling, general and administrative expenses increased $28.8 million, or 12.8%, due to increases in: (i) compensation-related costs of $14.2 million; (ii) accounting and legal costs of $11.4 million, primarily related to the settlement of shareholder litigation; and (iii) equity-based compensation of $7.9 million. These increases were partially offset with a decline in consulting expenses of $9.1 million.

Research and development expense

(in thousands, except for percentage)

Research and development increased by $0.8 million, or 26.3%, primarily due to an increase in consulting costs.

(in thousands, except for percentage)

Research and development expense remained consistent with the prior year comparable period.

Restructuring costs

(in thousands, except for percentage)

(in thousands, except for percentage)

Restructuring activity related to our previously announced restructuring plans were completed in 2023. Costs incurred during the three and nine months ended September 30, 2023 are primarily the result of an initiative to align the Company’s organizational and management cost structure to improve profitability and cash flow through headcount reduction and cutting third-party related costs.

Change in fair value of contingent consideration

(in thousands, except for percentage)

(in thousands, except for percentage)

Activity relating to the change in fair value of contingent consideration for both periods relates to contingent consideration associated with the acquisition of Bioness in March 2021.

Depreciation and amortization

(in thousands, except for percentage)

Depreciation and amortization decreased during the three months ended September 28, 2024 compared to the prior year comparable period. The decline is the result of the discontinuance of amortization and depreciation on Advanced Rehabilitation Business’ intangible and fixed assets that are classified as held for sale.

(in thousands, except for percentage)

Depreciation and amortization decreased during the nine months ended September 28, 2024 compared to the prior year comparable period. The decrease was primarily the result of the impairment of intellectual property intangible assets associated with the Wound Business, which was divested during the second quarter of 2023 and the discontinuance of amortization and depreciation on Advanced Rehabilitation Business’ intangible and fixed assets that are classified as held for sale.

Impairment of assets

(in thousands, except for percentage)

(in thousands, except for percentage)

29

Our decision to enter into an agreement to divest the Advanced Rehabilitation Business in 2024 and the divestiture the Wound Business in 2023 required us to evaluate whether certain of their assets were impaired. We recorded a $2.0 million and $33.9 million non-cash impairment charge as a result of the evaluation of the Advanced Rehabilitation Business during the three and nine months ended September 28, 2024, respectively. The $78.6 million non-cash impairment charge during the nine months ended September 30, 2023 related to our Wound Business. Impairments for both transactions resulted from their respective evaluations to reduce intangible assets to their fair values less costs to sell. The fair value of intangibles for the Advanced Rehabilitation and Wound Businesses were determined based on the consideration offered.

Loss on disposals

(in thousands, except for percentage)

(in thousands, except for percentage)

Loss on disposals during the three and nine months ended September 30, 2023 resulted from $1.3 million in working capital adjustments associated with the sale of our Wound Business and a $1.1 million loss on fixed assets due to the integration of acquisitions.

Other (income) expense

(in thousands, except for percentage)

Interest expense, net decreased slightly during the three months ended September 28, 2024 compared to the prior year comparable period primarily due to less debt outstanding. Other (income) expense changed due to fluctuations in foreign currency.

(in thousands, except for percentage)

Interest expense, net decreased slightly during the nine months ended September 28, 2024 compared to the prior year comparable period primarily due to less debt outstanding. Activity for other (income) expense during the nine months ended September 30, 2023 changed $0.2 million due to the 2023 receipt of $1.5 million from the settlement of a legal claim, partially offset with changes in foreign currency.

Income tax expense (benefit), net

(in thousands, except for percentage)

The change in rate for the three months ended September 28, 2024 compared to the prior year comparable period was primarily due to losses in certain entities.

(in thousands, except for percentage)

The rate change for the nine months ended September 28, 2024 compared to the prior year comparable period was due to the recognition of deferred tax benefits resulting from the impairments recorded.

Noncontrolling interest

Subsequent to the IPO and related transactions, we are the sole managing member of BV LLC in which we owned 80.5% and 80.0% at September 28, 2024 and December 31, 2023, respectively. We have a majority economic interest and the sole voting interest in, and control the management of BV LLC. As a result, we consolidate the financial results of BV LLC and report a noncontrolling interest representing the 19.5% that is owned by the Continuing LLC Owner. Noncontrolling interest activity during the three and nine months ended September 28, 2024 was the result of losses recorded.

Segment Adjusted EBITDA

(in thousands, except for percentage)

U.S.

Adjusted EBITDA increased $0.7 million, or 3.8%, primarily due to higher gross profit, partially offset with an increase in compensation costs and other administrative expenses.

International

Adjusted EBITDA increased $1.1 million or 39.8%, due to higher gross profits.

(in thousands, except for percentage)

U.S.

Adjusted EBITDA increased $12.6 million, or 21.6%, primarily due higher gross profit, partially offset with an increase in compensation costs and other administrative expenses.

International

Adjusted EBITDA increased $1.2 million or 13.6% due to higher gross profit.

Liquidity and Capital Resources

Sources of liquidity

Our principal liquidity needs have historically been for acquisitions, working capital, research and development, clinical trials, and capital expenditures. We expect these needs to continue as we carry out our operations, develop and commercialize our existing product candidates and any new product candidates and possibly further our expansion into international markets.

On September 30, 2024, we entered into a Purchase Agreement with a third-party purchaser to sell our Advanced Rehabilitation Business. The Advanced Rehabilitation Business is considered non-core and requires additional research and development expenditures to achieve its next stage of growth. The consideration for the transaction includes $25.0 million payable to the purchaser at closing, subject to a post-closing adjustment for net working capital, indebtedness, transaction expenses and cash, and up to an aggregate of $20.0 million in potential Earn-out Payments. The divestiture of the Advanced Rehabilitation Business is expected to close near the end of 2024 or early 2025 and is expected to simplify our business structure and improve liquidity, as the proceeds, net of transactional fees, are required to be used to reduce long-term debt obligations.

As previously discussed, on May 22, 2023, we closed the sale of our Wound Business for consideration of $84.7 million, including $34.7 million at closing, $5.0 million deferred for 18 months and up to $45.0 million in potential earn-out payments. The proceeds were used to prepay $30.0 million of long-term debt principal obligations during the second quarter of 2023.

We anticipate that to the extent that we require additional liquidity, we will obtain funding through additional equity financings or the incurrence of other indebtedness or a combination of these potential sources of liquidity. We may explore additional divestiture opportunities for non-core assets to improve our liquidity position, as we did with the Wound Business and our Advanced Rehabilitation Business. In addition, we may raise additional funds to finance future cash needs through receivables or royalty financings or corporate collaboration and licensing arrangements. If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. The covenants under the Amended 2019 Credit Agreement limit our ability to obtain additional debt financing. Debt financing, if allowed under the Amended 2019 Credit Agreement and if available, would result in increased payment obligations and might involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, or making capital expenditures. If we raise additional funds through collaboration and licensing arrangements with third-parties, it might be necessary to relinquish valuable rights to our products, future revenue streams or product candidates, or to grant licenses on terms that might not be favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all.

Any failure to raise capital in the future might have a negative impact on our financial condition and our ability to pursue our business strategies. Considering recent market conditions and our business assumptions, we have reevaluated our operating cash flows and cash requirements and believe that current cash, cash equivalents, future cash flows from operating activities and cash available under our 2019 Credit Facility will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the unaudited consolidated condensed financial statements included herein.

Cash Requirements

There have been no material changes to our future cash requirements as disclosed in Part II. Item 7 of our 2023 10-K.

We enter into contracts in the normal course of business with various third parties for development, collaboration and other services for operating purposes. These contracts generally provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. Certain agreements include contingent events that upon occurrence would require payment. For information regarding commitments and contingencies, refer to Item 1. Financial Information—Notes to the unaudited consolidated condensed financial statements—Note 11. Commitments and contingencies.

Tax Receivable Agreement

The BV LLC Agreement provides for the payment of certain distributions to the Continuing LLC Owner in amounts sufficient to cover the income taxes imposed with respect to the allocation of taxable income from BV LLC as well as obligations within the tax receivable agreement (“TRA”) with the Continuing LLC Owner. Under the TRA, we are required to make cash payments to the Continuing LLC Owner equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in the tax basis of assets of BV LLC resulting from (a) any future redemptions or exchanges of LLC Interests, and (b) certain distributions (or deemed distributions) by BV LLC and (2) certain other tax benefits arising from payments under the TRA. We expect the amount of the cash payments required to be made under the TRA will be significant. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing LLC Owner, the amount of gain recognized by the Continuing LLC Owner, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing LLC Owner under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore accelerate payments due under the TRA.

Indebtedness

On January 18, 2024 (the “Closing Date”), the Company entered into the Amended 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 our 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 our assets, as well as limitations on making changes to the business and organizational documents. 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 our financial statements for the fiscal quarter ending October 29, 2025, we 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 $10.0 million 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. We were in compliance with the financial covenants as stated with the Amended 2019 Credit Agreement as of September 28, 2024.

We have an outstanding Revolver balance of $15.0 million as of September 28, 2024, which was borrowed and used for working capital needs.

Refer to Item 1. Financial Information—Notes unaudited consolidated condensed financial statements—Note 1. Organization for further details on the Company’s covenant compliance and Note 4. Financial instruments for further details on the Company’s indebtedness.

Other

For information regarding Commitments and Contingencies, refer to Item 1. Financial Information—Notes to the unaudited consolidated condensed financial statements—Note 11. Commitments and contingencies and —Note 3. Acquisitions and divestitures of this Quarterly Report on Form 10-Q.

Information regarding cash flows

Cash, cash equivalents and restricted cash as of September 28, 2024 totaled $43.1 million, compared to $37.0 million as of December 31, 2023. The increase in cash was primarily due to the following:

(in thousands, except for percentage)

Operating Activities

Net cash from operating activities from continuing operations increased $12.3 million, due to cash collections from the growth in sales and timing of working capital payments. These operating inflows were partially offset with: (i) increases in employee compensation due to higher bonus payments in 2024 compared to prior year; (ii) an increase in inventory purchases; and (iii) a rise in interest payments.

Investing Activities

Net cash from investing activities from continuing operations decreased $29.0 million, due to the $34.9 million receipt of cash resulting from the sale of our Wound Business in 2023 and a $0.7 million purchase of distribution rights for one of our HA products in 2024. These were partially offset with a $6.6 million decrease in capital expenditures, primarily within information technology.

Financing Activities

Net cash flows from financing activities changed $14.9 million, primarily due to $29.4 million less in principal and deferred financing payments during 2024, partially offset with $15.0 million in net borrowings on our Revolver during 2023.

Discontinued Operations

Net cash flows from discontinued operations in 2023 were primarily the result of $10.2 million in fees used to settle the CartiHeal disposition and $1.4 million in cash held by the CartiHeal entity at the time of disposal.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

There have been no material changes to our contractual obligations as disclosed in our 2023 10-K.

Critical Accounting Estimates

Our discussion of operating results is based upon the unaudited consolidated condensed financial statements and accompanying notes, which have been prepared in accordance with U.S. GAAP. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our estimates are based on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from these estimates. In the event we dispose of assets before the end of their previously stated useful life, we may incur an impairment charge. Our critical accounting estimates are detailed in Item 7 of our 2023 10-K and we have no material changes to such disclosures.

Emerging Growth Company and Smaller Reporting Company Status

The Company is an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act (the “JOBS ACT”). An emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has chosen to “opt out” of such extended transition periods, and as a result, the Company plans to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that the decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

The Company is also considered a “smaller reporting company,” as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”), which was determined as of the last day of the Company’s second fiscal quarter of 2023. The Company will continue to be categorized as a smaller reporting company-accelerated filer until the Company’s public float reaches a certain threshold. The Company may rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, including our President and Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of September 28, 2024 (the end of the period covered by this Quarterly Report on Form 10-Q). Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of September 28, 2024, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except for changes to inventory and procure to pay controls resulting from the final phase of ERP conversion related to our acquisition of Misonix, Inc.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading Risk Factors included in our 2023 10-K, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results. Except for such additional information and the risk factor set forth below, we believe there have been no material changes in our risk factors from those described in our 2023 Form 10-K:

The issuance of the Class A common stock issuable upon the exchange of common membership interests in Bioventus will dilute the ownership interests of our Class A common stockholders and the resale of such shares could cause the market price of our Class A common stock to fall.

As provided in the amended and restated limited liability agreement of Bioventus LLC (“BV LLC”), the holders (the “Selling Securityholders”) of common membership interests in BV LLC (the “LLC Interests”) may, from time to time, exchange their LLC Interests for newly issued shares of our Class A common stock on a one-for-one basis. On October 25, 2024, the Company filed a registration statement on Form S-3 (“Form S-3”) to in part register for resale 35,038,052 shares of our Class A common stock held by the Selling Securityholders, of which 15,786,737 shares are issuable upon the exchange of their outstanding LLC Interests. The issuance of shares of our Class A common stock upon the exchange of LLC Interests would significantly dilute the ownership interest of our Class A common stockholders and the resale of such shares by the Selling Securityholders pursuant to the Form S-3 once declared effective, or the perception in the market that the Selling Securityholders intend to sell such shares, could adversely affect the market price of our Class A common stock.