Bioventus Inc.: Form 10-Q for the period ended Mar 29, 2025

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, 2024 filed with the Securities and Exchange Commission (“SEC”) on March 11, 2025 (“2024 10-K”).

Executive Summary

We are a global medical device company focused on helping patients recover and live life to the fullest by relieving pain and addressing musculoskeletal challenges through a diverse portfolio of high-quality, innovative, and clinically proven solutions. We operate our business through two reporting segments, U.S. and International, and our portfolio of products is comprised of five patient-focused areas, grouped into three businesses based on clinical use: (i) Pain Treatments, (ii) Surgical Solutions and (iii) Restorative Therapies.

• Pain Treatments, comprised of:
• Knee Osteoarthritis (“KOA”) area: Our product portfolio includes a range of intra-articular, hyaluronic acid (“HA”) injections that help relieve patient discomfort and improve quality of life.
• Peripheral Nerve Stimulation (“PNS”) area: We are focused on developing a full portfolio of peripheral nerve stimulation products with solutions for acute, temporary and chronic pain.
• Surgical Solutions, comprised of:
• Ultrasonics: Our Ultrasonics business offers precision bone resection for patients with degenerative spine conditions and spinal deformities. This portfolio also enables precision ultrasonic neuro and general surgery to address brain tumors and pathologies of the liver and other organs.
• Bone Graft Substitutes (“BGS”): Our product portfolio includes a range of products that facilitate optimal bone fusion following a surgical procedure.
• Restorative Therapies, comprised of:
• Fracture Care: We provide low-intensity pulse ultrasound to help patients who suffer from bone fractures that do not heal through traditional methods. We plan to expand our U.S. clinical indications to address the healing of fresh fractures, especially for high-risk patients.

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 December 31, 2024, we closed the sale of certain products within our advanced rehabilitation business, including the L100, L300 Go, L360, H200, Vector Gait & Safety System and Bioness Integrated Therapy System (collectively, the “Advanced Rehabilitation Business”). The Advanced Rehabilitation Business was considered non-core and required additional research and development expenditures to achieve its next stage of growth. We received $24.7 million at closing, net of transactional fees, subject to a post-closing adjustment for net working capital expected to be settled in the second quarter of 2025. The proceeds were used to pay $20.0 million in long-term debt obligations on December 31, 2024. We may also receive 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.

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 2024 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 March 29, 2025 and March 30, 2024, respectively, depreciation and amortization of $10.3 million and $10.0 million in cost of sales and $1.6 million and $1.8 million in operating expenses presented in the consolidated condensed 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) Comprised of costs incurred as a result of certain shareholder litigation unrelated to our ongoing operations.

(d) Costs incurred were the result of contract terminations.

(e) Includes compensation expense resulting from awards granted under our equity-based compensation plans.

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

(g) Represents the loss on the disposal of the Advanced Rehabilitation Business.

(h) Other items includes charges associated with strategic transactions, such as potential acquisitions or divestitures and a transformative project to redesign systems and information processing. Other items during the three months ended March 29, 2025 primarily consisted of $0.5 million of divestiture expenses related to the Advanced Rehabilitation Business sold on December 31, 2024.

During the three months ended March 30, 2024, other items primarily consisted of: (i) strategic transactions and divestiture expenses of $0.5 million, primarily related to the Advanced Rehabilitation Business; and (ii) transformative project costs of $0.8 million.

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 to measure operating performance and 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 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 divestiture 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)

22

U.S.

Net sales decreased $3.8 million, or 3.3%, compared to the prior year period. Changes by business were: (i) Pain Treatments—$2.0 million increase due to volume growth primarily driven by Durolane partially offset by a decline in Supartz and Gelsyn-3, in part, due to inventory reductions by certain distributors following higher purchases at the end of last year; (ii) Surgical Solutions—$2.5 million increase due to volume growth in Ultrasonics; and (iii) Restorative Therapies—$8.3 million decrease was comprised of a net decline of $9.6 million reflecting the divestiture of our Advanced Rehabilitation Business, partially offset with $1.3 million growth increase for our EXOGEN Bone Stimulation System.

International

Net sales decreased compared to the prior year comparable period primarily due to the divestiture of our Advanced Rehabilitation Business, which totaled $1.9 million.

Gross profit and gross margin

(in thousands, except for percentage)

U.S.

Gross profit decreased $3.8 million, or 4.8%, primarily due to the $5.1 million decline resulting from the divestiture of our Advanced Rehabilitation Business. This decrease was partially offset with volume growth in Pain Treatments, Surgical Solutions and our EXOGEN Bone Stimulation System. The slight change in gross margin as a percent of sales resulted from a decrease in selling price in certain Pain Treatment products as a result of temporary shifts in channel mix.

International

Gross profit decreased $1.5 million, or 16.5%, primarily due to the $1.1 million decline resulting from the divestiture of our Advanced Rehabilitation Business. Gross margin declined due to product and country mix.

Selling, general and administrative expense

(in thousands, except for percentage)

Selling, general and administrative expenses decreased by $5.3 million, or 6.7%, due to decreases compensation-related costs of $5.2 million from less commissions on lower sales and reduced compensation related accruals, which were partially driven by the sale of the Advanced Rehabilitation Business.

Research and development expense

(in thousands, except for percentage)

Research and development expense increased due to certain equity-based compensation forfeitures during the first quarter of 2024.

Change in fair value of contingent consideration

(in thousands, except for percentage)

Activity relating to the change in fair value of contingent consideration relates to contingent consideration associated with the acquisition of Bioness in March 2021. Certain milestones were achieved during the fourth quarter of 2024 and as a result, we ceased revaluing the contingent consideration liability. We paid $9.0 million of contingent consideration in February 2025 and will pay the remaining $10.6 million during 2025.

Depreciation and amortization

(in thousands, except for percentage)

Depreciation and amortization decreased during the three months ended March 29, 2025 compared to the prior year comparable period due to certain information technology assets being fully depreciated in 2025.

Loss on disposals

(in thousands, except for percentage)

Loss on disposals during the three months ended March 29, 2025 resulted from working capital adjustments associated with the sale of our Advanced Rehabilitation Business.

Other expense

(in thousands, except for percentage)

Interest expense, net decreased during the three months ended March 29, 2025 compared to the prior year comparable period due to less debt outstanding and a decrease in interest rates. The increase in other expense, net of $0.7 million was due to fluctuations in foreign currency compared to the prior year comparable period.

Income tax (benefit) expense, net

(in thousands, except for percentage)

The rate change for the three months ended March 29, 2025 compared to the prior year comparable period was due to the divestiture of the Advanced Rehabilitation Business and foreign income tax offset by the release of certain reserves for uncertain tax positions in 2025. The effective tax rate for the three months ended March 30, 2024 was based upon taxable income in certain entities including activity generated from the Advance Rehabilitation Business.

Noncontrolling interest

Subsequent to the IPO and related transactions, we are the sole managing member of BV LLC in which we owned 80.8% and 80.6% at March 29, 2025 and December 31, 2024, 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 19.2% that is owned by the Continuing LLC Owner. Noncontrolling interest activity during the three months ended March 29, 2025 was the result of losses recorded.

Segment Adjusted EBITDA

(in thousands, except for percentage)

U.S.

Adjusted EBITDA decreased $2.7 million, or 13.7%, primarily due to lower gross profit resulting from the divestiture of our Advanced Rehabilitation Business, partially offset with lower compensation related expenses.

International

Adjusted EBITDA decreased $0.7 million or 24.8%, primarily due to lower gross profit resulting from the divestiture of our Advanced Rehabilitation Business, partially offset with lower administrative expenses.

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 develop and market new products and further expand into international markets.

On December 31, 2024, we closed the sale of the Advanced Rehabilitation Business, which was considered non-core and required additional research and development expenditures to achieve its next stage of growth. We received $24.7 million at closing, net of transactional fees, subject to a post-closing adjustment for net working capital expected to be settled in the second quarter of 2025. The proceeds were used to pay $20.0 million in long-term debt obligations on December 31, 2024. We may also receive 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.

We believe that we have enough liquidity to continue operations for the next twelve months and to repay the $10.0 million due October 29, 2025. We anticipate that to the extent that we require capital, we will obtain funding through additional equity financings or the incurrence of other indebtedness or a combination of these potential sources of capital. As of March 29, 2025, we had the ability to borrow up to an additional $27.8 million on our Revolving Credit Facility and available letters of credit. We may explore divestiture opportunities for non-core assets to improve our liquidity position. 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.

Cash Requirements

There have been no material changes to our future cash requirements as disclosed in Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2024 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 10. 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 TRA. 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

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 October 29, 2025, 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 $10.0 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 March 29, 2025.

We have an outstanding Revolver balance of $10.0 million as of March 29, 2025, which was borrowed and used for working capital needs. The Revolver matures on October 29, 2025.

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 10. Commitments and contingencies and —Note 3. Divestitures of this Quarterly Report on Form 10-Q.

Information regarding cash flows

Cash and cash equivalents as of March 29, 2025 totaled $22.8 million, compared to $41.6 million as of December 31, 2024. The change in cash was primarily due to the following:

(in thousands, except for percentage)

26

Operating Activities

Net cash from operating activities decreased $13.3 million, due to larger compensation payments in 2025 compared to the prior year and a decline in sales and an increase in inventory purchases. These operating cash outflows were partially offset by a decrease in interest payments resulting from the timing of interest payments and less debt outstanding.

Investing Activities

Net cash from investing activities increased $0.2 million, due to the $0.7 million purchase of distribution rights for one of our HA products in 2024, partially offset by a $0.5 million increase in capital expenditures primarily related to information technology.

Financing Activities

Net cash flows from financing activities increased $5.2 million, due to $10.0 million in net borrowings on our Revolver and $4.2 million less in principal and deferred financing payments during 2024. These financing cash inflows were partially offset by a $9.0 million payment for contingent consideration related to a previous acquisition.

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 2024 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 Part II. Item 7. Management’s Discussion and Analysis of Financial condition and Results of Operations of our 2024 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 2024. 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 March 29, 2025 (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 March 29, 2025, 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 first quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 2024 10-K, which could materially affect our businesses, financial condition, or future results. There have been no material changes in our risk factors from those described in our 2024 Form 10-K.