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Bioventus Inc. - Quarter Report: 2022 July (Form 10-Q)

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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 July 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-37844
BIOVENTUS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware81-0980861
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
4721 Emperor Boulevard, Suite 100
Durham, North Carolina
27703
(Address of Principal Executive Offices)(Zip Code)
(919) 474-6700
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareBVSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ☒   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐   No  ☒
As of August 5, 2022, there were 61,664,158 shares of Class A common stock outstanding and 15,786,737 shares of Class B common stock outstanding.


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BIOVENTUS INC.
TABLE OF CONTENTS
Consolidated Condensed Statements of Operations and Comprehensive (Loss) Income for the three and six months ended July 2, 2022 and July 3, 2021
Consolidated Condensed Statements of Cash Flows for the six months ended July 2, 2022 and July 3, 2021



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



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Forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Important factors that may cause actual results to differ materially from current expectations include, among other things: our ability to complete acquisitions or successfully integrate new businesses, such as CartiHeal, products or technologies in a cost-effective and non-disruptive manner; we might not be able to fund the remainder of the deferred consideration for the acquisition of CartiHeal as it becomes due; our business may continue to experience adverse impacts as a result of the COVID-19 pandemic; we are highly dependent on a limited number of products; our long-term growth depends on our ability to develop, acquire and commercialize new products, line extensions or expanded indications; we may be unable to successfully commercialize newly developed or acquired products or therapies in the United States; demand for our existing portfolio of products and any new products, line extensions or expanded indications depends on the continued and future acceptance of our products by physicians, patients, third-party payers and others in the medical community; the proposed down classification of non-invasive bone growth stimulators, including our Exogen system, by the U.S. Food and Drug Administration (FDA) could increase future competition for bone growth stimulators and otherwise adversely affect the Company’s sales of Exogen; failure to achieve and maintain adequate levels of coverage and/or reimbursement for our products or future products including potential changes to the reimbursement rates available for our hyaluronic acid (HA) viscosupplement products; pricing pressure and other competitive factors; governments outside the United States might not provide coverage or reimbursement of our products; we compete and may compete in the future against other companies, some of which have longer operating histories, more established products or greater resources than we do; the reclassification of our HA products from medical devices to drugs in the United States by the FDA could negatively impact our ability to market these products and may require that we conduct costly additional clinical studies to support current or future indications for use of those products; our ability to maintain our competitive position depends on our ability to attract, retain and motivate our senior management team and highly qualified personnel; our failure to properly manage our anticipated growth and strengthen our brands; risks related to product liability claims; fluctuations in demand for our products; issues relating to the supply of our products, potential supply chain disruptions and the increased cost of parts and components used to manufacture our products due to inflation; and our reliance on a limited number of third-party manufacturers to manufacture certain of our products; if our facilities are damaged or become inoperable, we will be unable to continue to research, develop and manufacture our products; failure to maintain contractual relationships; security breaches, unauthorized disclosure of information, denial of service attacks or the perception that confidential information in our possession is not secure; failure of key information technology and communications systems, process or sites; risks related to international sales and operations; risks related to our debt and future capital needs; failure to comply with extensive governmental regulation relevant to us and our products; we may be subject to enforcement action if we engage in improper claims submission practices and resulting audits or denials of our claims by government agencies could reduce our net sales or profits; the FDA regulatory process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products; if clinical studies of our future products do not produce results necessary to support regulatory clearance or approval in the United States or elsewhere, we will be unable to expand the indications for or commercialize these products; legislative or regulatory reforms; risks related to intellectual property matters; and other important factors described in Part I, Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K as updated by this Quarterly Report on Form 10-Q and as may be further updated from time to time in our other filings with the SEC. You are urged to consider these factors carefully in evaluating these forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.


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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Bioventus Inc.
Consolidated condensed statements of operations and comprehensive (loss) income
Three and six months ended July 2, 2022 and July 3, 2021
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Net sales$140,331 $109,816 $257,621 $191,594 
Cost of sales (including depreciation and amortization of $9,684, $5,618, $18,902 and $10,854 respectively)
43,677 33,503 85,265 55,725 
Gross profit96,654 76,313 172,356 135,869 
Selling, general and administrative expense89,620 69,050 175,744 103,736 
Research and development expense6,366 4,836 13,294 5,783 
Restructuring costs1,007 — 1,584 — 
Change in fair value of contingent consideration273 641 542 641 
Depreciation and amortization2,696 1,852 5,950 3,777 
Impairment of variable interest entity assets— 5,674 — 5,674 
Operating (loss) income(3,308)(5,740)(24,758)16,258 
Interest expense (income), net2,578 1,681 1,028 (1,195)
Other expense884 1,645 922 2,064 
Other expense3,462 3,326 1,950 869 
(Loss) income before income taxes(6,770)(9,066)(26,708)15,389 
Income tax expense (benefit), net1,244 1,714 (3,888)1,641 
Net (loss) income(8,014)(10,780)(22,820)13,748 
Loss attributable to noncontrolling interest762 6,654 4,291 7,062 
Net (loss) income attributable to Bioventus Inc.$(7,252)$(4,126)$(18,529)$20,810 
Net (loss) income$(8,014)$(10,780)$(22,820)$13,748 
Other comprehensive (loss) income, net of tax
Change in foreign currency translation adjustments(507)23 (1,189)(859)
Comprehensive (loss) income(8,521)(10,757)(24,009)12,889 
Comprehensive loss attributable to noncontrolling interest868 6,648 4,537 6,882 
Comprehensive (loss) income attributable to Bioventus Inc.$(7,653)$(4,109)$(19,472)$19,771 
Loss per share of Class A common stock, basic and diluted(1):
$(0.11)$(0.10)$(0.30)$(0.12)
Weighted-average shares of Class A common stock outstanding, basic and diluted(1):
61,475,350 41,805,34760,977,55641,802,840
(1) Per share information for the six months ended July 2, 2021 represents loss per share of Class A common stock and weighted-average shares of Class A common stock outstanding from February 16, 2021 through July 3, 2021, the period following Bioventus Inc.'s initial public offering and related transactions described in Note 1. Organization and Note 8. Earnings per share within the Notes to the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed balance sheets as of July 2, 2022 (Unaudited) and December 31, 2021
(Amounts in thousands, except share amounts)
July 2, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$41,001 $43,933 
Restricted cash— 5,280 
Accounts receivable, net143,018 124,963 
Inventory69,078 61,688 
Prepaid and other current assets24,060 27,239 
Total current assets277,157 263,103 
Restricted cash, less current portion— 50,000 
Property and equipment, net25,112 22,985 
Goodwill143,156 147,623 
Intangible assets, net666,523 695,193 
Operating lease assets18,342 17,186 
Deferred tax assets— 481 
Investment and other assets78,486 29,291 
Total assets$1,208,776 $1,225,862 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$25,735 $16,915 
Accrued liabilities146,758 131,473 
Accrued equity-based compensation— 10,875 
Current portion of long-term debt22,547 18,038 
Other current liabilities3,833 3,558 
Total current liabilities198,873 180,859 
Long-term debt, less current portion351,433 339,644 
Deferred income taxes98,892 133,518 
Contingent consideration16,871 16,329 
Other long-term liabilities22,517 21,723 
Total liabilities688,586 692,073 
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued
Class A common stock, $0.001 par value, 250,000,000 shares authorized as of July 2, 2022 and
   December 31, 2021, 61,656,499 and 59,548,504 shares issued and outstanding as of July 2, 2022 and
   December 31, 2021, respectively
64 59 
Class B common stock, $0.001 par value, 50,000,000 shares authorized,
    15,786,737 shares issued and outstanding as of July 2, 2022 and December 31, 2021
16 16 
Additional paid-in capital473,796 465,272 
Accumulated deficit(25,131)(6,602)
Accumulated other comprehensive (loss) income(764)179 
Total stockholders’ equity attributable to Bioventus Inc.447,981 458,924 
Noncontrolling interest72,209 74,865 
Total stockholders’ equity520,190 533,789 
Total liabilities and stockholders’ equity$1,208,776 $1,225,862 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed statements of changes in stockholders’ and members’ equity
Three and six months ended July 2, 2022 and July 3, 2021
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months Ended July 2, 2022
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
other
comprehensive
loss
Accumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at April 2, 202261,357,270 $62 15,786,737 $16 $467,940 $(363)$(17,879)$72,142 $521,918 
Issuance of Class A common stock299,229 — — 2,175 — — — 2,177 
Net loss— — — — — — (7,252)(762)(8,014)
Equity based compensation— — — — 3,681 — — 935 4,616 
Translation adjustment— — — — — (401)— (106)(507)
Balance at July 2, 202261,656,499 $64 15,786,737 $16 $473,796 $(764)$(25,131)$72,209 $520,190 

Three Months Ended July 3, 2021
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
other
comprehensive
income
Accumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at April 3, 202141,038,589 $41 15,786,737 $16 $142,923 $451 $(1,041)$77,892 $220,282 
Issuance of Class A common stock24,063 — — — 314 — — — 314 
Distribution to Controlling LLC Owner— — — — (1,393)— — 1,319 (74)
Net loss— — — — — — (4,126)(6,654)(10,780)
Deconsolidation of variable interest entity— — — — — — — 3,746 3,746 
Equity based compensation— — — — 4,355 — — 1,498 5,853 
Translation adjustment— — — — — 17 — 23 
Balance at July 3, 202141,062,652 $41 15,786,737 $16 $146,199 $468 $(5,167)$77,807 $219,364 

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Six Months Ended July 2, 2022
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
other
comprehensive
income (loss)
Accumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at December 31, 202159,548,504 $59 15,786,737 $16 $465,272 $179 $(6,602)$74,865 $533,789 
Issuance of Class A common stock2,107,995 — — 4,252 — — — 4,257 
Net loss— — — — — — (18,529)(4,291)(22,820)
Equity based compensation— — — — 7,624 — — 1,881 9,505 
Tax withholdings on equity compensation awards— — — — (3,352)— — — (3,352)
Translation adjustment— — — — — (943)— (246)(1,189)
Balance at July 2, 202261,656,499 $64 15,786,737 $16 $473,796 $(764)$(25,131)$72,209 $520,190 

Six Months Ended July 3, 2021
Class A Common StockClass B Common Stock
Members’
Equity
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
Other
Comprehensive
Income
Accumulated DeficitNon-
controlling
Interest
Total Stockholders' and
Members’
Equity
Balance at December 31, 2020$144,160 — $— — $— $— $— $— $— $144,160 
Prior to Organizational Transactions:
Refund from members123 — — — — — — — — 123 
Equity-based compensation(39)— — — — — — — — (39)
Net income25,977 — — — — — — — — 25,977 
Other comprehensive loss(1,507)— — — — — — — — (1,507)
Effect of Organizational Transactions(168,714)31,838,589 32 15,786,737 16 33,623 — — 79,119 (55,924)
Subsequent to Organizational Transactions:
Initial public offering, net of offering costs— 9,200,000 — — 106,441 — — — 106,450 
Issuance of Class A common stock for equity plans— 24,063 — — — 314 — — — 314 
Distribution to Continuing LLC Owner— — — — — — — — (191)(191)
Net loss— — — — — — — (5,167)(7,062)(12,229)
Deconsolidation of variable interest entity— — — — — — — — 3,746 3,746 
Equity based compensation— — — — — 5,821 — — 2,015 7,836 
Other comprehensive income— — — — — — 468 — 180 648 
Balance at July 3, 2021$— 41,062,652$41 15,786,737$16 $146,199 $468 $(5,167)$77,807 $219,364 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Consolidated condensed statements of cash flows
Six months ended July 2, 2022 and July 3, 2021
(Amounts in thousands)
(Unaudited)
Six Months Ended
July 2, 2022July 3, 2021
Operating activities:
Net (loss) income$(22,820)$13,748 
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization24,863 14,663 
Provision (recovery) for expected credit losses2,505 (359)
Equity-based compensation from 2021 Stock Incentive Plan9,505 7,797 
Profits interest plan, liability-classified and other equity awards compensation— (24,356)
Change in fair value of contingent consideration542 641 
Change in fair value of interest rate swap(4,196)(1,310)
Deferred income taxes(27,698)(981)
Change in fair value of Equity Participation Rights— (2,774)
Impairments related to variable interest entity— 7,043 
Other, net1,428 726 
Changes in operating assets and liabilities:
Accounts receivable(21,157)(9,370)
Inventories(2,614)3,913 
Accounts payable and accrued expenses17,747 2,917 
Other current and noncurrent assets and liabilities3,815 (13,011)
Net cash from operating activities(18,080)(713)
Investing activities:
Investment held in trust for the acquisition of CartiHeal(50,000)— 
Acquisitions, net of cash acquired(231)(45,790)
Purchase of property and equipment(4,990)(2,642)
Investments and acquisition of distribution rights(1,478)(864)
Net cash from investing activities(56,699)(49,296)
Financing activities:
Proceeds from issuance of Class A common stock sold in initial public offering,
    net of underwriting discounts and offering costs
— 107,777 
Proceeds from issuance of Class A and B common stock 4,257 330 
Tax withholdings on equity-based compensation(3,352)— 
Borrowing on revolver25,000 — 
Payments on long-term debt(9,019)(7,500)
Refunds from members— 813 
Other, net(26)(11)
Net cash from financing activities16,860 101,409 
Effect of exchange rate changes on cash(293)(171)
Net change in cash, cash equivalents and restricted cash(58,212)51,229 
Cash, cash equivalents and restricted cash at the beginning of the period99,213 86,839 
Cash, cash equivalents and restricted cash at the end of the period$41,001 $138,068 
Supplemental disclosure of noncash investing and financing activities
Accrued member distributions$— $305 
Accounts payable for purchase of property, plant and equipment$67 $695 
The accompanying notes are an integral part of these consolidated financial statements.
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Bioventus Inc.
Notes to the unaudited consolidated condensed financial statements
(Amounts in thousands, except unit and share amounts)
1. Organization
The Company
Bioventus Inc. (together with its subsidiaries, the Company) was formed as a Delaware corporation for the purpose of facilitating an initial public offering (IPO) and other related transactions in order to carry on the business of Bioventus LLC and its subsidiaries (BV LLC). Bioventus Inc. functions as a holding company with no direct operations, material assets or liabilities other than the equity interest in BV LLC. BV LLC is a limited liability company formed under the laws of the state of Delaware on November 23, 2011 and operates as a partnership. BV LLC commenced operations in May 2012. The Company is focused on developing and commercializing clinically differentiated, cost efficient and minimally invasive treatments that engage and enhance the body’s natural healing processes. The Company is headquartered in Durham, North Carolina and has approximately 1,160 employees.
Initial Public Offering
On February 16, 2021, the Company closed an IPO of 9,200,000 shares of Class A common stock at a public offering price of $13.00 per share, which includes 1,200,000 shares issued pursuant to the underwriters' over-allotment option. The Company received $111,228 in proceeds, net of underwriting discounts and commissions of $8,372, which was used to purchase newly-issued membership interests from BV LLC at a price per interest equal to the IPO price of $13.00. The Company also incurred offering expenses totaling $4,778 in addition to the underwriting discounts and commissions. Offering expenses of $1,327 were paid in 2020 and $3,451 were paid in 2021. The Company is the sole managing member of, has a majority economic interest in, has the sole voting interest in, and controls the management of BV LLC. As a result, the Company consolidates the financial results of BV LLC and reports a non-controlling interest for the interest not held by the Company.
IPO Transactions
In connection with the IPO, the Company completed the following transactions (Transactions).
Amended and restated the limited liability company agreement of BV LLC (BV LLC Agreement), to, among other things, (i) provide for a new single class of common membership interests in BV LLC (LLC Interests); (ii) exchange all of the existing membership interests in BV LLC (Original BV LLC Owners) for new LLC Interests; and (iii) appoint Bioventus Inc. as the sole managing member of BV LLC. Refer to Note 7. Stockholders’ equity for further information.
Amended and restated the Bioventus Inc. certificate of incorporation to, among other things, (i) provide for an increase in the authorized shares of Class A common stock; (ii) provide for Class B common stock with voting rights but no economic interest, which shares were issued to the Original BV LLC Owners on a one-for-one basis with the number of LLC Interests they owned; and (iii) provide for undesignated preferred stock. Refer to Note 7. Stockholders’ equity for further information.
Acquired, by merger, ten entities that were Original BV LLC Owners (Former LLC Owners), for which the Company issued 31,838,589 shares of Class A common stock as merger consideration (IPO Mergers). The only assets held by the Former LLC Owners were 31,838,589 LLC Interests and a corresponding number of shares of Class B common stock. Upon consummation of the IPO Mergers, the 31,838,589 shares of Class B common stock were canceled, and the Company recognized the 31,838,589 LLC Interests at carrying value, as the IPO Mergers are considered to be a recapitalization transaction.
The financial statements for periods prior to the IPO and Transactions have been adjusted to combine the previously separate entities for presentation purposes. Prior to the Transactions, Bioventus Inc. had no operations.
Interim periods
The Company reports quarterly interim periods on a 13-week basis within a standard calendar year. Each annual reporting period begins on January 1 and ends on December 31. Each quarter ends on the Saturday closest to calendar quarter-end, with the exception of the fourth quarter, which ends on December 31. The 13-week quarterly periods for fiscal year 2022 end on April 2, July 2 and October 1. Comparable periods for 2021 ended on April 3, July 3 and October 2. The fourth and first quarters may vary in length depending on the calendar year.
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Unaudited interim financial information
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, they do not include all information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. As such, the information included in this report should be read in conjunction with the Company’s 2021 Annual Report on Form 10-K. The balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by U.S. GAAP.
Recent accounting pronouncements
The Company has elected to comply with non-accelerated public company filer effective dates of adoption. Therefore, the required effective dates for adopting new or revised accounting standards are generally earlier than when emerging growth companies are required to adopt.
2. Balance sheet information
Cash, cash equivalents and restricted cash
A summary of cash and cash equivalents and restricted cash is as follows:
July 2, 2022December 31, 2021
Cash and cash equivalents$41,001 $43,933 
Restricted cash
Current— 5,280 
Noncurrent— 50,000 
$41,001 $99,213 
As of December 31, 2021, current restricted cash consisted of an escrow deposit with a financial institution for the purpose of paying a Paycheck Protection Program loan acquired as part of a business combination. This loan was forgiven during the second quarter of 2022.
As of December 31, 2021, noncurrent restricted cash consisted of an escrow deposit with a financial institution for a potential acquisition, which is now reported in investment and other assets on the consolidated balance sheets. Refer to Note 3. Acquisitions and investments for further information.
Accounts receivable, net
Accounts receivable, net are amounts billed and currently due from customers. The Company records the amounts due net of allowance for credit losses. Collection of the consideration that the Company expects to receive typically occurs within 30 to 90 days of billing. The Company applies the practical expedient for contracts with payment terms of one year or less which does not consider the effects of the time value of money. Occasionally, the Company enters into payment agreements with patients that allow payment terms beyond one year. In those cases, the financing component is not deemed significant to the contract.
Accounts receivable, net of allowances, consisted of the following as of:
July 2, 2022December 31, 2021
Accounts receivable$148,310 $128,365 
Less: Allowance for credit losses(5,292)(3,402)
$143,018 $124,963 
Due to the short-term nature of its receivables, the estimate of expected credit losses is based on aging of the account receivable balances. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. The Company has a diverse customer base with no single customer representing ten percent or more of sales or accounts receivable. Historically, the Company’s reserves have been adequate to cover credit losses.
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Changes in credit losses were as follows:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Beginning balance$(4,254)$(3,811)$(3,402)$(3,990)
Provision(1,353)550 (2,505)359 
Write-offs456 278 825 684 
Recoveries(141)(36)(210)(72)
Ending balance$(5,292)$(3,019)$(5,292)$(3,019)
Inventory
Inventory consisted of the following as of:
July 2, 2022December 31, 2021
Raw materials and supplies$16,085 $12,213 
Finished goods54,277 50,805 
Gross70,362 63,018 
Excess and obsolete reserves(1,284)(1,330)
$69,078 $61,688 
Prepaid and other current assets
Prepaid and other current assets consisted of the following as of:
July 2, 2022December 31, 2021
Prepaid taxes$4,598 $12,236 
Prepaid and other current assets19,462 15,003 
$24,060 $27,239 
Goodwill
Changes in the carrying amounts of goodwill by reportable segment during the six months ended July 2, 2022 are as follows:
U.S.InternationalConsolidated
Balance at December 31, 2021$138,863 $8,760 $147,623 
Purchase accounting adjustments(4,467)— (4,467)
Balance at July 2, 2022$134,396 $8,760 $143,156 
Purchase accounting adjustments result from the changes in the preliminary fair values of assets acquired and liabilities assumed in acquisitions. Refer to Note 3. Acquisitions and investments for further details concerning these fair value changes. There were no accumulated goodwill impairment losses as of July 2, 2022 or December 31, 2021.
Accrued liabilities
Accrued liabilities consisted of the following as of:
July 2, 2022December 31, 2021
Gross-to-net deductions$71,985 $67,945 
Bonus and commission14,838 23,342 
Compensation and benefits11,521 10,665 
Income and other taxes26,704 8,139 
Other liabilities21,710 21,382 
$146,758 $131,473 
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3. Acquisitions and investments
Misonix, Inc.
On October 29, 2021, in order to broaden its portfolio, the Company acquired 100% of the capital stock of Misonix, Inc. (Misonix) in a cash-and-stock transaction (the Misonix Acquisition). Misonix manufactures minimally invasive surgical ultrasonic medical devices used for precise bone sculpting, removal of soft and hard tumors and tissue debridement, primarily in the areas of neurosurgery, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery. Misonix also exclusively distributes skin allografts and wound care products used to support healing of wounds. The fair value of the consideration for the Misonix Acquisition is comprised of the following:
Common Shares
Price per Share(a)
Amount
Cash$182,988 
Bioventus Class A shares18,340,790 $14.97 274,562 
Value of Misonix options settled in Bioventus options
27,636 
Merger consideration485,186 
Other cash consideration40,130 
Total Misonix consideration$525,316 
(a)Closing price of the Company’s Class A common stock as of October 28, 2021.
The Company accounted for the Misonix Acquisition using the acquisition method of accounting whereby the total purchase price was preliminarily allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
Fair value of consideration$525,316 
Assets acquired and liabilities assumed:
Cash and cash equivalents7,126 
Accounts receivable13,301 
Inventory23,428 
Prepaid and other current assets419 
Property and equipment, net10,280 
Intangible assets486,500 
Operating lease assets1,049 
Deferred tax assets6,448 
Other assets77 
Accounts payable and accrued liabilities(16,888)
Other current liabilities(589)
Deferred income taxes(94,012)
Other liabilities(1,351)
Net assets acquired435,788 
Resulting goodwill$89,528 
As of July 2, 2022, the purchase price allocation for the Misonix Acquisition was preliminary in nature and subject to completion. Adjustments to the current fair value estimates in the above table may occur as the process conducted for various valuations and assessments is finalized, including tax liabilities and other working capital accounts. Changes to the preliminary purchase price allocation during the six months ended July 2, 2022 related to a deferred tax asset recognition of $6,448 and a reduction in inventory and property and equipment, net of $1,292 and $291, respectively.
Nearly 100% of the goodwill represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Misonix Acquisition. The goodwill is not tax deductible and was allocated to the U.S. reporting unit for purposes of the evaluation for any future goodwill impairment.
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The following table summarizes the preliminary fair values of identifiable intangible assets and their useful lives:
Useful Life (in years)Fair Value
Intellectual property
15 - 20 years
$477,000 
Customer relationships12 years9,500 
$486,500 
The preliminary fair value of the Misonix intellectual property was determined using a variation of the income approach or the multi-period excess earnings method, with projected earnings discounted at a rate of 12.0%. The preliminary fair value of the customer relationship asset was determined using the income approach or the profit-split method, with projected cash flow discounted at a rate of 12.0%. The determination of the useful lives was based upon consideration of market participant assumptions and transaction specific factors.
Bioness, Inc.
On March 30, 2021, the Company acquired 100% of the capital stock of Bioness, Inc. (Bioness Acquisition) for $48,933 in cash and future contingent consideration payments. Bioness, Inc. (Bioness) is a global leader in neuromodulation and advanced rehabilitation medical devices through its innovative peripheral nerve stimulation therapy and premium advanced rehabilitation solutions.
Contingent consideration is comprised of future earn-out payments contingent upon the achievement of certain research and development projects as well as sales milestones related to Bioness products. The Bioness Acquisition Agreement includes maximum earn-out payments of $65,000 as follows:
$15,000 for obtaining FDA approval for U.S. commercial distribution of a certain product for certain indications on or before June 30, 2022;
$20,000 for meeting net sales targets for certain implantable products over a three year period ending on June 30, 2025 at the latest;
Up to $10,000 for meeting net sales milestones for certain implantable products over a three year period ending on June 30, 2025 at the latest; and
$20,000 for maintaining Centers for Medicare & Medicaid Services coverage and reimbursement for certain products at specified levels as of December 31, 2024.
In December 2021, it became clear that the $15,000 FDA approval milestone would not be met, therefore, was assigned no value and was recorded as a measurement period adjustment. As of December 31, 2021, the maximum contingent earn-out payment decreased to $50,000 as a result.
Consolidated Pro Forma Results
The results of operations of Misonix have been included in the accompanying consolidated financial statements since the October 29, 2021 acquisition date. The Company’s consolidated statements of operations reflect net sales of $21,604 and $41,027 and a net loss of $2,969 and $10,316, attributable to Misonix, for the three and six months ended July 2, 2022, respectively.
The results of operations of Misonix and Bioness have been included in the accompanying consolidated financial statements since their respective acquisition dates of October 29, 2021 and March 30, 2021. Revenue and earnings including the Bioness and Misonix operations as if the companies were acquired at January 1, 2021 are as follows:
Three Months EndedSix Months Ended
July 3, 2021July 3, 2021
Net sales$129,501 $238,573 
Net income$2,502 $23,333 
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The historical consolidated financial information of the Company, Misonix and Bioness have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to both the Misonix and Bioness acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. The unaudited pro forma results include adjustments to reflect the inventory step-up amortization, the incremental intangible asset amortization to be incurred based on the valuations of the assets acquired, transaction costs that would have been incurred in the prior period, vesting of equity-based compensation that was accelerated due to the Misonix Acquisition, adjustments to financing costs to reflect the new capital structure as well as the income tax effect and the noncontrolling interest impact of these adjustments. These pro forma amounts are not necessarily indicative of the results that would have been obtained if the acquisitions had occurred prior to the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.
Investments
VIE
The Company had a fully diluted 8.8% ownership of Harbor Medtech Inc.’s (Harbor) Series C Preferred Stock. The Company and Harbor entered into an exclusive Collaboration Agreement in 2019 for purposes of developing a product for orthopedic uses to be commercialized by the Company and supplied by Harbor. The Company’s partial ownership and exclusive Collaboration Agreement created a variable interest in Harbor. The Company terminated the Collaboration Agreement on June 8, 2021. As a result, Harbor had been consolidated in the Company’s consolidated financial statements from the third quarter of 2019 through June 8, 2021 when the Company ceased being the primary beneficiary because it no longer had the power to direct Harbor’s significant activities.
The Company determined that the termination of the Collaboration Agreement was a triggering event requiring an impairment assessment of Harbor’s long lived assets. The assessment resulted in an impairment of $5,674, representing Harbor’s long-lived asset balance, which was recorded within impairment of variable entity assets for the three and six months ended July 3, 2021 in the consolidated condensed statements of operations and comprehensive (loss) income, of which $5,176 was attributable to the non-controlling interest. The Company also assessed its Harbor investment post deconsolidation, which resulted in a $1,369 impairment, representing the remaining investment balance in Harbor. This amount was recorded within other expense for the three and six months ended July 3, 2021 in the consolidated condensed statements of operations and comprehensive (loss) income. The Company continues to have license rights to certain technology obtained from Harbor and is continuing product development initiated under the Collaboration Agreement.
Equity Method
On January 30, 2018, the Company purchased 337,397 shares of Series F Convertible Preferred Stock of CartiHeal (2009) Ltd. (CartiHeal), a privately held entity, for $2,500. On January 22, 2020, the Company made an additional $152 investment in CartiHeal, through a Simple Agreement for Future Equity (SAFE). On July 15, 2020, CartiHeal completed the future equity financing and the Company received 12,825 in Series G-1 Preferred Shares resulting in the SAFE being terminated. In addition, on July 15, 2020, the Company entered into an Option and Equity Purchase Agreement with CartiHeal (Option Agreement). In connection with the Company’s entry into the Option Agreement, the Company purchased 1,014,267 shares of CartiHeal Series G Preferred Shares for $15,000. The Company had a 10.03% equity ownership of CartiHeal’s fully diluted shares and its investment carrying value was $16,090 and $16,771 as of July 2, 2022 and December 31, 2021, respectively. The investment does not have a readily determinable fair value and is included within investments and other assets on the consolidated balance sheets. Beginning in July 2020, the Company was able to exercise significant influence over CartiHeal but did not have control and as a result the investment was recognized as an equity method investment. Net losses from equity method investments for the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, totaled $280, $432, $681 and $901, respectively, which are included in other expense on the consolidated statement of operations and comprehensive income.
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 (Put Option). In August 2021, CartiHeal achieved pivotal clinical trial success, as defined in the Option Agreement, for the CartiHeal device. In order to preserve the Company’s Call Option, in accordance with the Option Agreement and upon approval of the Board of Directors (BOD), the Company deposited $50,000 into escrow in August 2021 for the potential acquisition of CartiHeal. The escrow deposit was historically presented as restricted cash on the consolidated balance sheets until it was transferred to a payment agent and held in trust on June 16, 2022. The transferred deposit was held in trust for the benefit of CartiHeal Security Holders as a down payment for the acquisition of CartiHeal and is included within investment and other assets on the consolidated balance sheets as of July 3, 2021.
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In April 2022, the Company exercised its Call Option to acquire all of the remaining shares of CartiHeal, excluding shares already owned by the Company, for approximately $314,895. The Company’s decision to exercise the option followed the U.S. Food and Drug Administration’s March 29, 2022 premarket approval of CartiHeal’s Agili-CTM implant.
On June 17, 2022 the Company entered into an amendment to the Option Agreement with CartiHeal (CartiHeal Amendment) and Elron Ventures Limited, in its capacity as the shareholder representative. The Company will now defer $215,000 of upfront consideration (Deferred Amount) otherwise payable to CartiHeal stockholders at the closing of the acquisition of CartiHeal pursuant to the CartiHeal Amendment. The Deferred Amount will be paid to CartiHeal stockholders upon the earlier of the achievement of certain milestones and the occurrence of certain installment payment dates. The Deferred Amount will be paid in five tranches commencing in 2023 and ending no later than 2027.
Pursuant to the CartiHeal Amendment, the Company will pay interest on each tranche of the Deferred Amount at a rate of 8.0% annually, until such tranche is paid. An additional $134,955 will be payable upon achievement of $75,000 in trailing twelve month sales pursuant to the CartiHeal Amendment. The acquisition of CartiHeal closed on July 12, 2022. At the closing, the Company paid to CartiHeal stockholders an aggregate up-front payment of $100,000 (inclusive of the previously discussed escrow deposit). The Company also paid approximately $8,000 of CartiHeal’s transaction related fees and expenses. Refer to Note 14. Subsequent events for further details regarding the acquisition of CartiHeal.
4. Financial instruments
Long-term debt consisted of the following as of:
July 2, 2022December 31, 2021
Term Loan due December 2026 (3.67% at July 2, 2022)
$351,731 $360,750 
Revolver due December 2026 (3.41% at July 2, 2022)
25,000 — 
Less:
Current portion of long-term debt(22,547)(18,038)
Unamortized debt issuance cost(1,513)(1,687)
Unamortized discount(1,238)(1,381)
$351,433 $339,644 
The Company’s Credit and Guaranty Agreement, dated as of December 6, 2019, as amended (the 2019 Credit Agreement) requires it to comply with financial and other covenants. The Company complied with all covenants as of July 2, 2022. The 2019 Credit Agreement contains a $50,000 revolving credit facility, from which there was $25,000 in outstanding borrowings as of July 2, 2022 and none at December 31, 2021.
The estimated fair value of the Term Loan under the 2019 Credit Agreement as of July 2, 2022 was $328,429. The fair value of these obligations was determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar obligations and are classified as Level 2 instruments within the fair value hierarchy.
The Company enters into interest rate swap agreements to limit its exposure to changes in the variable interest rate on its long-term debt. The Company has one non-designated interest rate swap agreement and has no other active derivatives. The swap is carried at fair value on the balance sheet (Refer to Note 5. Fair value measurements) with changes in fair value recorded as interest income or expense within the consolidated statements of operations and comprehensive (loss) income. Net interest income of $272 and expense of $255 was recorded related to the change in fair value of the interest rate swap for the three months ended July 2, 2022 and July 3, 2021, respectively. Net interest income of $4,196 and $1,310 were recorded related to the change in fair value of the interest rate swap for the six months ended July 2, 2022 and July 3, 2021, respectively.
The notional amount of the swap totaled $100,000, or 28.4% of the Term Loan outstanding principal at July 2, 2022. The swap locked in the variable portion of the interest rate on the $100,000 notional at 0.64%.
Refer to Note 14. Subsequent events for financing details and loan modifications involved in the acquisition of CartiHeal.
5. Fair value measurements
The process for determining fair value has not changed from that described in the Company’s 2021 Annual Report on Form 10-K.
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There were no assets measured at fair value on a recurring basis and there were no liabilities valued at fair value using Level 1 inputs. The following table provides information for assets and liabilities measured at fair value on a recurring basis using Level 2 and Level 3 inputs:
July 2, 2022December 31, 2021
TotalLevel 2Level 3TotalLevel 2Level 3
Assets:
Interest rate swap$5,324 $5,324 $— $1,128 $1,128 $— 
Liabilities:
Contingent consideration$16,871 $— $16,871 $16,329 $— $16,329 
Interest rate swap
The Company values interest rate swaps using discounted cash flows. Forward curves and volatility levels are used to estimate future cash flows that are not certain. These are determined using observable market inputs when available and based on estimates when not available. The fair value of the swap was recorded in the Company’s consolidated balance sheets within prepaid and other current assets. Changes in fair value are recognized as interest income or expense within the consolidated statements of operations and comprehensive (loss) income.
Contingent consideration
The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows 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.
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 as discussed in Note 3. Acquisitions and investments. After the initial valuation, the Company generally uses its best estimate to measure contingent consideration at each subsequent reporting period using the following unobservable Level 3 inputs:
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 above table resulted from the Bioness Acquisition on March 30, 2021, which 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 the Bioness Acquisition totaled $273 and $542 for the three and six months ended July 2, 2022, respectively, and $641 for the three and six months ended July 3, 2021 were recorded as the change in fair value of contingent consideration within the consolidated statements of operations and comprehensive (loss) income.
Management incentive plan (MIP) and liability-classified awards
BV LLC had operated two equity-based compensation plans, the management incentive plan (MIP) and the BV LLC Phantom Profits Interest Plan (Phantom Plan and, together with the MIP, the Plans), which were terminated on February 11, 2021 in connection with the Company’s IPO. Awards granted under the MIP Plan and the 2015 Phantom Units were liability-classified and the 2012 Phantom Units were equity-classified. Prior to the IPO and during the six months ended July 3, 2021, the Company settled the remaining 183,078 units with the sole MIP awardee for $10,802. No awards under the Plans were granted post-IPO and the Phantom Plan awards were settled 12 months following the termination. Vested awardees whose BV LLC employment terminated prior to the IPO had their awards settled in March 2022 for $10,413, which was included in accrued equity-based compensation on the consolidated condensed balance sheets at December 31, 2021. Awardees that were active BV LLC employees at the IPO were entitled to receive an aggregate of 798,422 shares of Class A common stock. In February 2022, awardees received 538,203 shares of Class A common stock, of which 260,219 shares were withheld to satisfy employee payroll taxes.
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6. Equity-based compensation
Terminated plans
Prior to the IPO, BV LLC operated two equity-based compensation plans, the MIP and the Phantom Plan, which were terminated on February 11, 2021 in conjunction with the IPO. Prior to the Plans termination, during the six months ended July 3, 2021, (i) the Company granted 90,000 Phantom Plan units; (ii) there were no MIP awards granted; (iii) 900 Phantom Plan units were forfeited; and (iv) other Phantom Units were redeemed for $479. Compensation expense related to the Phantom Plan totaled $829 for the six months ended July 3, 2021. This amount excludes the $25,185 decrease in fair market value of accrued equity-based compensation due to adjustments to reflect the difference between the expected pricing from the pending IPO and the actual offering price, of which $1,777 was recorded in research and development expense within the consolidated statement of operations and comprehensive (loss) income for the six months ended July 3, 2021.
2021 Plan
The Company operates an equity-based compensation plan (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 (collectively, Awards). As of July 2, 2022, 11,873,784 shares of Class A common stock were authorized to be awarded and 2,327,540 shares were available for Awards.
Equity-based compensation expense for Awards granted under the 2021 Plan for the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, totaled $4,522, $5,778, $9,253 and $7,722, respectively. The expense is primarily included in selling, general and administrative expense with a nominal amount in research and development expense on the consolidated statement of operations and comprehensive (loss) income based upon the classification of the employee. There were $1,065 and $2,290 income tax benefit related to this expense for the three and six months ended July 2, 2022, respectively. There was no income tax benefit related to equity-based compensation expense for the three and six months ended July 3, 2021.
Restricted Stock Units
During the three and six months ended July 2, 2022, the Company granted time-based RSUs which vest at various dates through March 14, 2026. 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 $12,496 at July 2, 2022, and is expected to be recognized over a weighted average period of approximately 3.17 years. A summary of the RSU award activity for the six months ended July 2, 2022 is as follows (number of units in thousands):
Number of unitsWeighted-average grant-date fair value per unit
Unvested at December 31, 20211,024 $14.41 
Granted1,159 12.16 
Vested(739)14.75 
Forfeited or canceled(174)12.87 
Unvested at July 2, 20221,270 $12.37 
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Stock Options
During the six months ended July 2, 2022, the Company granted time-based stock options which vest over 2 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 2 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 six months ended July 2, 2022 is shown in the following table.
Risk-free interest rate
1.8% - 3.1%
Expected dividend yield— %
Expected stock price volatility
33.2% - 33.8%
Expected life of stock options (years)
6.25
The weighted-average grant date fair value of options granted during the six months ended July 2, 2022 was $4.68 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 $16,517 at July 2, 2022, and is expected to be recognized over a weighted average period of approximately 3.43 years.
A summary of stock option activity is as follows for the six months ended July 2, 2022 (number of options in thousands):
Number of optionsWeighted-average exercise priceWeighted average remaining contractual termAggregate intrinsic value
Outstanding at December 31, 20218,364 $11.16 
Granted2,393 12.62 
Exercised(471)7.12 
Forfeited or canceled(469)13.01 
Outstanding at July 2, 20229,817 11.63 8.11$2,550 
Exercisable and vested at July 2, 20224,153 $9.73 6.74$2,550 
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 $7.11 per share, the closing price of the Company’s Class A common stock on July 1, 2022.
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 July 2, 2022, the aggregate number of shares reserved for issuance under the ESPP was 344,706. A total of 53,826 and 102,819 shares were issued and $94 and $252 of expense was recognized during the three and six months ended July 2, 2022, respectively. A total of 24,063 shares were issued and $75 of expense was recognized during the three and six months ended July 3, 2021.
7. Stockholders’ equity
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.
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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 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.
The Company must, at all times, maintain 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.
BV LLC recapitalization
As described in Note 1. Organization, on February 16, 2021, the Company amended and restated the BV LLC Agreement to, among other things, (i) provide for the new LLC Interests; (ii) exchange all of the then-existing membership interests of the Original BV LLC Owners for new LLC Interests; and (iii) appoint Bioventus Inc. as the sole managing member of BV LLC.
The BV LLC Agreement also 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 Bioventus Inc. 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.
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 six months ended July 2, 2022 or during the year ended December 31, 2021. The following table summarizes the ownership interest in BV LLC as of July 2, 2022 and December 31, 2021 (number of units in thousands):
July 2, 2022December 31, 2021
LLC Interests
Ownership %
LLC Interests
Ownership %
Number of LLC Interests owned
Bioventus Inc.61,656 79.6 %59,548 79.0 %
Continuing LLC Owner15,787 20.4 %15,787 21.0 %
Total77,443 100.0 %75,335 100.0 %
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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 Ended
July 2, 2022July 3, 2021Six Months Ended July 2, 2022February 16, 2021 through July 3, 2021
Numerator:
Net loss$(8,014)$(10,780)$(22,820)$(12,229)
Net loss attributable to noncontrolling interests762 6,654 4,291 7,062 
Net loss attributable to Bioventus Inc. Class A common stockholders$(7,252)$(4,126)$(18,529)$(5,167)
Denominator:
Weighted-average shares of Class A common stock outstanding - basic and diluted61,475,350 41,805,347 60,977,556 41,802,840 
Net loss per share of Class A common stock, basic and diluted$(0.11)$(0.10)$(0.30)$(0.12)
Shares of Class B common stock do not share in the losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted losses per share of Class B common stock under the two-class method has not been presented.
The following number of weighted-average potentially dilutive shares as of July 2, 2022 and July 3, 2021 were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion:
Three Months Ended
July 2, 2022July 3, 2021Six Months Ended July 2, 2022February 16, 2021 through July 3, 2021
LLC Interests held by Continuing LLC Owner(a)
15,786,737 15,786,737 15,786,737 15,786,737 
Stock options10,020,106 4,622,287 9,396,023 4,602,747 
RSUs1,137,936 1,221,555 769,809 941,031 
Unvested shares of Class A common stock— 32,458 — 34,698 
Total26,944,779 21,663,037 25,952,569 21,365,213 
(a)Class A Shares reserved for future issuance upon redemption or exchange of LLC Interests by the Continuing LLC Owner.
9. Restructuring costs
Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management. These charges are included in restructuring costs in the consolidated statement of operations and comprehensive (loss) income.
The Company adopted restructuring plans for businesses acquired to reduce headcount, reorganize management structure and consolidate certain facilities during the second half of 2021 (the 2021 Restructuring Plan) and during the first quarter of 2022 (the 2022 Restructuring Plan). The Company planned total pre-tax charges for the 2021 Restructuring Plan to be $3,500, of which $223 and $600 was recognized in the three and six months ended July 2, 2022, respectively, and $2,487 was recorded during the year ended December 31, 2021. Expected pre-tax charges related to the 2022 Restructuring Plan is $2,000, of which $784 and $984 was recognized during the three and six months ended July 2, 2022, respectively.
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The Company’s restructuring charges and payments for plans related to businesses recently acquired comprised of the following:
Employee
severance and
temporary
labor costs
Other
charges
Total
Balance at December 31, 2021$1,400 $136 $1,536 
Expenses incurred1,584 — 1,584 
Payments made(2,034)(136)(2,170)
Balance at July 2, 2022$950 $— $950 
10. Income taxes
As a result of the Transactions, Bioventus Inc. became the sole managing member of BV LLC, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, BV LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by BV LLC is passed through to and included in the taxable income or loss of its members, including the Company following the Transactions, on a pro rata basis. Bioventus Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income of BV LLC following the Transactions. The Company is also subject to taxes in foreign jurisdictions.
The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly tax provision, and estimate of the Company's annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
For the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, the Company's estimated effective tax rate was 18.4%, 18.9%, 14.6% and 10.7%, respectively. The decrease for the three months ended July 2, 2022 was primarily due to a change in our forecasted effective rate. The change for the six months ended July 2, 2022 compared to six months ended July 2, 2021 was primarily due to net losses experienced during the first six months of 2022 compared to capitalized expenses resulted from our IPO in 2021.
Tax Receivable Agreement
The Company expects to obtain an increase in the share of the tax basis of the assets of BV LLC when LLC Interests are redeemed or exchanged by the Continuing LLC Owner and other qualifying transactions. This increase in tax basis may have the effect of reducing the amounts that the Company would otherwise pay in the future to various tax authorities. The increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On February 16, 2021, the Company entered into a tax receivable agreement (TRA) with the Continuing LLC Owner that provides for the payment by the Company to the Continuing LLC Owner of 85% of the amount of tax benefits, if any, that the Company actually realizes as a result of (i) increases in the tax basis of assets of BV LLC resulting from any redemptions or exchanges of LLC Interests or any prior sales of interests in BV LLC; and (ii) certain other tax benefits related to our making payments under the TRA.
The Company will maintain a full valuation allowance against deferred tax assets related to the tax attributes generated as a result of redemptions of LLC Interests or exchanges described above until it is determined that the benefits are more-likely-than-not to be realized. As of July 2, 2022, the Continuing LLC Owner had not exchanged LLC Interests for shares of Class A common stock and therefore the Company had not recorded any liabilities under the TRA.
11. Commitments and contingencies
Leases
The Company leases its office facilities as well as other property, vehicles and equipment under operating leases. The Company also leases certain office equipment under nominal finance leases. The remaining lease terms range from 1 month to 6.25 years.
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The components of lease cost were as follows:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Operating lease cost$1,180 $912 $2,306 $1,614 
Short-term lease cost(a)
145 212 328 329 
Total lease cost$1,325 $1,124 $2,634 $1,943 
(a)Includes variable lease cost and sublease income, which are immaterial.
Supplemental cash flow information and non-cash activity related to operating leases were as follows:
Six Months Ended
July 2, 2022July 3, 2021
Operating cash flows from operating leases$2,418 $1,696 
Right-of-use assets obtained in exchange for operating lease obligations$3,590 $— 
Supplemental balance sheet and other information related to operating leases were as follows:
July 2, 2022December 31, 2021
Operating lease assets$18,342$17,186
Operating lease liabilities- current$3,779$3,504
Operating lease liabilities- noncurrent15,89915,038
Total operating lease liabilities$19,678$18,542
Weighted average remaining lease term (years)
Weighted average remaining lease term (years) for operating leases5.25.6
Weighted average discount rate for operating leases4.3 %4.7 %
Governmental and legal contingencies
In the normal course of business, the Company periodically becomes involved in various claims and lawsuits, and governmental proceedings and investigations that are incidental to the business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and amount of the claim, and an estimate of the possible loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. With respect to governmental proceedings and investigations, like other companies in the industry, the Company is subject to extensive regulation by national, state and local governmental agencies in the U.S. and in other jurisdictions in which the Company and its affiliates operate. As a result, interaction with governmental agencies is ongoing. The Company’s standard practice is to cooperate with regulators and investigators in responding to inquiries.
The Company is presently unable to predict the duration, scope, or result of the following matters. As such, the Company is presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, related to these matters. While the Company intends to defend these matters vigorously, the outcome of such litigation or any other litigation is necessarily uncertain, are not within the Company’s complete control and might not be known for extended periods of time. In the opinion of management, the outcome of any existing claims and legal or regulatory proceedings, other than the specific matters described below, if decided adversely, is not expected to have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows.
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Misonix stockholder
On September 15, 2021, a purported stockholder of Misonix filed an action in the United States District Court for the Eastern District of New York, captioned Stein v. Misonix, Inc., et al., Case No. 2:21-cv-05127 (E.D.N.Y.) (the Stein Complaint). The Stein Complaint named Misonix and members of its board of directors as defendants. The Stein Complaint was dismissed on April 6, 2022. On September 16, 2021, a purported stockholder of Misonix filed an action in the United States District Court for the Southern District of New York, captioned Ciccotelli v. Misonix, Inc. et al., Case No. 1:21-cv-07773 (S.D.N.Y.) (the Ciccotelli Complaint) against Misonix, members of its board of directors, the Company, and its subsidiaries, Merger Sub I and Merger Sub II, as defendants. Plaintiff voluntarily dismissed the Ciccotelli Complaint on November 10, 2021. On October 12, 2021, another purported stockholder of Misonix filed an action in the United States District Court for the Eastern District of New York, captioned Rubin v. Misonix, Inc. et al., Case No. 1:21-cv-05672 (S.D.N.Y.) (the Rubin Complaint) and on October 15, 2021, another purported stockholder of Misonix filed an action in the United States District Court for the Southern District of New York, captioned Taylor v. Misonix, Inc. et al., Case No. 1:21-cv-08513 (S.D.N.Y.) (the Taylor Complaint). The Rubin Complaint and the Taylor Complaint name Misonix and members of its board of directors as defendants. Plaintiffs voluntarily dismissed the Rubin and Taylor Complaints on January 21, 2022 and February 18, 2022, respectively.
Each of the complaints asserted claims under Section 14(a) and Section 20(a) of the Exchange Act and SEC Rule 14a-9, challenging the adequacy of disclosures in the proxy statement/prospectus filed with the SEC on September 8, 2021 or the Definitive Proxy Statement filed with the SEC on September 24, 2021, regarding Misonix and/or Bioventus’ projections and J.P. Morgan’s financial analysis. The complaints had sought, among other relief, (i) injunctive relief preventing the parties from proceeding with the merger; (ii) rescission in the event that the merger is consummated; and (iii) an award of costs, including attorneys’ and experts’ fees.
Misonix former distributor
On March 23, 2017, Misonix’s former distributor in China, Cicel (Beijing) Science & Technology Co., Ltd., filed a lawsuit against Misonix and certain of its officers and directors in the United States District Court for the Eastern District of New York. The complaint alleged that Misonix improperly terminated its contract with the former distributor. The complaint sought various remedies, including compensatory and punitive damages, specific performance and preliminary and post judgment injunctive relief, and asserted various causes of action, including breach of contract, unfair competition, tortious interference with contract, fraudulent inducement, and conversion. On October 7, 2017, the court granted Misonix’s motion to dismiss each of the tort claims asserted against Misonix, and also granted the individual defendants’ motion to dismiss all claims asserted against them. On January 23, 2020, the Court granted Cicel’s motion to amend its complaint, to include claims for alleged defamation and theft of trade secrets in addition to the breach of contract claim. Discovery in the matter ended on August 5, 2021. On January 20, 2022, the Court granted Misonix’s summary judgment motion on Cicel’s breach of contract and defamation claims. Cicel’s motion for reconsideration of the Court’s summary judgment ruling in Misonix’s favor was dismissed by the Court on April 29, 2022. On July 18, 2022, Cicel voluntarily dismissed the remaining claim for trade secret theft and stated its intention to appeal the Court’s January 20, 2022 ruling on the breach of contract and defamation claims to the Court of Appeals. The Company believes that it has various legal and factual defenses to these claims and intends to vigorously defend any appeal of the lower court’s summary judgment rulings in its favor.
Bioness shareholder
Prior to closing the Bioness Acquisition, Bioness had been named as a defendant in a lawsuit, for which the Company is indemnified under the indemnification provisions contained in the Bioness Merger Agreement. The case relates to an action brought in February 2021 in the Delaware State Court of Chancery by a former minority shareholder and director of Bioness, seeking a temporary restraining order contesting the acquisition of Bioness. While the complaint to block the Bioness acquisition was dismissed by the court, a separate action was brought against the Company under the indemnification provisions of the Bioness Certificate of Incorporation to recover attorney fees and other expenses totaling approximately $2,400 incurred by the director and shareholder in connection with the dismissed case.
On August 19, 2021, the court issued a ruling granting, in part, plaintiff’s motion for summary judgment, awarding plaintiff attorney’s fees and related expenses incurred in connection with performance of the plaintiff’s directorial duties, and denying fees and expenses incurred in a non-director capacity. In its ruling, the Court’s order also directed the parties to agree upon a process that will govern the payment of and challenges to plaintiff’s payment requests and required Bioness to pay 50% of the demanded amount into escrow if more than 50% of the total invoiced amount was in dispute. Pursuant to the court’s order, to date, Bioness has paid approximately $1,200 into escrow. The Company awaits the court’s final ruling on the appropriateness of these fees.
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On February 8, 2022, the above referenced minority shareholder of Bioness filed another action in the Delaware State Court of Chancery in connection with our acquisition of Bioness. This action names the former Bioness directors, the Alfred E. Mann Trust (Trust), which was the former majority shareholder of Bioness, the trustees of the Trust and Bioventus as defendants. The complaint alleges, among other things, that the individual directors, the Trust, and the trustees breached their fiduciary duty to the plaintiff in connection with their consideration and approval of our transaction. The complaint also alleges that we aided and abetted the other defendants in breaching their fiduciary duties to the plaintiff and that we breached the Merger Agreement by failing to pay the plaintiff its pro rata share of the merger consideration. We believe that we are indemnified under the indemnification provisions contained in the Bioness Merger Agreement for these claims. On July 20, 2022, we filed a motion to dismiss all claims made against us on various grounds, as did all the other named defendants in the suit. The Court has not yet ruled on any of these motions. We also believe that there are various legal and factual defenses to the claims plaintiff made against us and intend to defend ourselves vigorously.
Other matters
On November 10, 2021, the Company entered into an asset purchase agreement for an HA product and made an upfront payment of $853. An additional maximum payment of $853 is due upon the transfer of certain seller customer data. If the Company is able to obtain a Medical Device Regulation Certification for the product, $1,707 will be paid to the seller within five days. The Company is required to pay royalties through 2026 of 5.0% on the first $569 in sales and 2.5% thereafter.
On August 23, 2019, the Company was assigned a third-party license on a product currently in development and the Company is subject to a 3% royalty on certain commercial sales, or a nominal minimum amount per quarter, beginning in 2023.
On May 29, 2019, the Company and the Musculoskeletal Transplant Foundation, Inc. d/b/a MTF Biologics (MTF), entered into a collaboration and development agreement to develop one or more products for orthopedic application to be commercialized by the Company and supplied by MTF (the Development Agreement). The first phase has been completed, but during the second quarter of 2022, the Company elected to discontinue the development of MOTYS, the initial product candidate under development. The Development Agreement continues until the date when the parties execute a supply agreement for the commercial products or otherwise is terminated under its terms.
On December 9, 2016, the Company entered into an amended and restated license agreement for the exclusive U.S. distribution and commercialization rights of a single injection osteoarthritis (OA) product with the supplier of the Company’s single injection OA product for the non-U.S. market. The agreement requires the Company to meet annual minimum purchase requirements and pay royalties on net sales. Royalties related to this agreement during the three months ended July 2, 2022 and July 3, 2021 and six months ended July 2, 2022 and July 3, 2021 totaled $4,083, $3,548, $7,415 and $5,925, respectively. These royalties are included in cost of sales within the consolidated statement of operations and comprehensive (loss) income.
As part of a supply agreement entered on February 9, 2016 for the Company’s three injection OA product, the Company is subject to annual minimum purchase requirements for 10 years. After the initial 10 years, the agreement will automatically renew for an additional 5 years unless terminated by the Company or the seller in accordance with the agreement.
As part of a supply agreement for the Company’s five injection OA product that was amended and restated on December 22, 2020, the Company is subject to annual minimum purchase requirements for 8 years.
The Company has an exclusive license agreement for bioactive bone graft putty. The Company is required to pay a royalty on all commercial sales revenue from the licensed products with a minimum annual royalty payment through 2023, the date the agreement will expire, upon the expiration of the patent held by the licensor. These royalties are included in cost of sales on the consolidated statement of operations and comprehensive (loss) income.
From time to time, the Company causes letters of credit (LOCs) to be issued to provide credit support for guarantees, contractual commitments and insurance policies. The fair values of the LOCs reflect the amount of the underlying obligation and are subject to fees payable to the issuers, competitively determined in the marketplace. As of July 2, 2022 and December 31, 2021, the Company had one LOC outstanding for a nominal amount.
The Company currently maintains insurance for risks associated with the operation of its business, provision of professional services and ownership of property. These policies provide coverage for a variety of potential losses, including loss or damage to property, bodily injury, general commercial liability, professional errors and omissions and medical malpractice. The Company is self-insured for health insurance covering most of its employees located in the United States. The Company maintains stop-loss insurance on a “claims made” basis for expenses in excess of $200 per member per year.
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12. Revenue recognition
Our policies for recognizing sales have not changed from those described in the Company’s 2021 Annual Report on Form 10-K. The Company attributes net sales to external customers to the U.S. and to all foreign countries based on the legal entity from which the sale originated. The following table presents our net sales by segment disaggregated by geographic markets and major products (Vertical) as follows:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Primary geographic markets:
U.S.$126,310 $98,682 $230,391 $173,220 
International14,021 11,134 27,230 18,374 
Total net sales$140,331 $109,816 $257,621 $191,594 
Vertical:
Pain Treatments
$63,914 $56,704 $115,967 $98,234 
Restorative Therapies39,902 32,511 74,262 54,332 
Surgical Solutions36,515 20,601 67,392 39,028 
Total net sales$140,331 $109,816 $257,621 $191,594 
13. Segments
The Company’s two reportable segments are U.S. and International. The Company’s products are primarily sold to orthopedists, musculoskeletal and sports medicine physicians, podiatrists, neurosurgeons and orthopedic spine surgeons, as well as to their patients. The Company does not disclose segment information by asset as the Chief Operating Decision Maker does not review or use it to allocate resources or to assess the operating results and financial performance. Segment adjusted EBITDA is the segment profitability metric reported to the Company’s Chief Operating Decision Maker for purposes of decisions about allocation of resources to, and assessing performance of, each reportable segment.
The following table presents segment adjusted EBITDA reconciled to (loss) income before income taxes:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Segment adjusted EBITDA
U.S.$19,196 $17,149 $23,924 $27,147 
International3,735 2,738 6,118 3,810 
Interest (expense) income, net(2,578)(1,681)(1,028)1,195 
Depreciation and amortization(12,384)(7,479)(24,863)(14,663)
Acquisition and related costs(3,901)(4,580)(11,304)(7,776)
Restructuring and succession charges(1,695)(187)(2,272)(344)
Impairments related to variable interest entity— (7,043)— (7,043)
Equity compensation(4,616)(5,853)(9,505)16,559 
Equity loss in unconsolidated investments(280)(432)(681)(901)
Foreign currency impact(602)12 (541)64 
Other items(3,645)(1,710)(6,556)(2,659)
(Loss) income before income taxes$(6,770)$(9,066)$(26,708)$15,389 
14. Subsequent events
On July 11, 2022 the Company amended the 2019 Credit Agreement (as amended, the Amended 2019 Credit Agreement) in conjunction with the acquisition of CartiHeal (CartiHeal Acquisition). Pursuant to the Amended 2019 Credit Agreement, an $80,000 term loan facility (Term Loan Facility) was extended to the Company to be used for (i) the financing of the CartiHeal Acquisition; (ii) the payment of related fees and expenses; and (iii) working capital needs and general corporate purposes of the Company, including without limitation for permitted acquisitions. The Term Loan Facility will mature on October 29, 2026. The Company may elect either the secured overnight financial rate (SOFR) or base interest rate options for all borrowings as of July 12, 2022, which includes any outstanding balances under the Term Loan, Term Loan Facility and revolving credit facility. Initial SOFR loans and base rate loans had a margin of 3.25% and 2.25%, respectively, subsequent to July 12, 2022.
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The Company will make quarterly scheduled principal payments of the Term Loan Facility, commencing September 30, 2022, in an amount equal to: (a) for the first two such payments, 1.25% of the initial principal amount of the Term Loan Facility, (b) for the next eight such payments, 1.875% of the initial principal amount of the Term Loan Facility, and (c) for the next eight such payments, 2.50% of the initial principal amount of the Term Loan Facility, with the balance to be paid at maturity.
On July 12, 2022, the Company acquired 100% of CartiHeal for an aggregate purchase price of approximately $315,000 and an additional $135,000 becoming payable after closing upon achievement of certain sales milestones. The Company paid $100,000 of the aggregate purchase price upon closing consisting of $50,000, previously deposited in escrow by the Company and then held by a payment agent and $50,000 from the Term Loan Facility. The Company also paid approximately $8,000 of CartiHeal’s transaction-related fees and expenses and deferred $215,000 of the aggregate purchase price otherwise due at closing until the earlier of the achievement of certain milestones and the occurrence of certain installment payment dates. Refer to Note 3. Acquisitions and investments for further details regarding the agreements and conditions of payment in regard to the acquisition of CartiHeal.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of Bioventus Inc.’s (sometimes referred to as “we,” “us,” “our” or “Bioventus”) 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 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, 2021 filed with the Securities and Exchange Commission (SEC) on March 11, 2022 (2021 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 verticals:
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) to fuse and grow bones, improve results following spinal and other orthopedic surgeries as well as minimally invasive ultrasonic medical devices used for precise bone sculpting, removing tumors and tissue debridement, in various surgeries.
Restorative Therapies is comprised of a bone healing system, skin allografts and products used to support healing of wounds 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) income and Adjusted EBITDA for the periods presented:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Net sales$140,331 $109,816 $257,621 $191,594 
Net (loss) income$(8,014)$(10,780)$(22,820)$13,748 
Adjusted EBITDA(1)
$22,931 $19,887 $30,042 $30,957 
Loss per share, basic and diluted$(0.11)$(0.10)$(0.30)$(0.12)
(1)See below under results of operations-Adjusted EBITDA for a reconciliation of net (loss) income to Adjusted EBITDA.
Strategic transactions
CartiHeal
On July 15, 2020, we entered into an Option and Equity Purchase Agreement (Option Agreement) with CartiHeal (2009) Ltd. (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 joint, and its shareholders. The agreement provided us with an exclusive option to acquire 100% of CartiHeal’s shares under certain conditions (Call Option), and provided CartiHeal with a put option that would require us to purchase 100% of CartiHeal’s shares under certain conditions (Put Option).
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We exercised the Call Option in April 2022 for the acquisition of all the remaining shares of CartiHeal, excluding shares we already owned, for approximately $315.0 million, with an additional $135.0 million payable upon the achievement of certain milestones. The Company’s decision to exercise the Call Option follows the U.S. Food and Drug Administration’s (FDA) March 29, 2022 premarket approval of CartiHeal’s Agili-C implant. In August, 2021, CartiHeal provided us with the required evidence of the Agili-CTM device clinical trial’s success demonstrating the superiority of the Agili-C implant over the surgical standard of care, including microfracture and debridement, for the treatment of cartilage or osteochondral defects, in both osteoarthritic knees and knees without degenerative changes. As a result, we deposited $50.0 million into escrow toward the potential purchase price of CartiHeal, which was subsequently transferred to a payment agent on June 16, 2022.
On June 17, 2022, we entered into an amendment to the Option Agreement with CartiHeal (CartiHeal Amendment) and Elron Ventures Limited, in its capacity as the CartiHeal shareholder representative. Pursuant to the CartiHeal Amendment, we secured the right to defer $215.0 million of upfront consideration (Deferred Amount) otherwise payable to CartiHeal stockholders at the closing of the acquisition (CartiHeal Acquisition). The Deferred Amount will be paid to CartiHeal stockholders upon the earlier of the achievement of certain milestones and the occurrence of certain installment payment dates. The Deferred Amount will be paid in five tranches commencing in 2023 and ending no later than 2027.
Pursuant to the CartiHeal Amendment, we will pay interest on each tranche of the Deferred Amount at a rate of 8.0% annually, until such tranche becomes due and payable and is paid (subject to an interest penalty of 10% per annum in the event of default). The additional $135.0 million payable would be payable upon achievement of $75.0 million in trailing twelve month sales pursuant to the CartiHeal Amendment. The acquisition of CartiHeal closed on July 12, 2022. We paid at closing to CartiHeal stockholders an aggregate up-front payment of $100.0 million (inclusive of the previously discussed escrow deposit). We also paid approximately $8.0 million of CartiHeal’s transaction related fees and expenses.
On July 11, 2022 we amended our credit agreement (as amended, the Amended 2019 Credit Agreement) in conjunction with the CartiHeal Acquisition. Pursuant to the Amended 2019 Credit Agreement, an $80.0 million term loan facility (Term Loan Facility) was extended to us for: (i) the financing of the CartiHeal Acquisition; (ii) the payment of related fees and expenses; and (iii) working capital needs and general corporate purposes of the Company, including without limitation for permitted acquisitions. The Term Loan Facility will mature on October 29, 2026. Refer to the Liquidity and Capital Resources—Credit Facilities for further information.
On July 12, 2022, we closed the CartiHeal Acquisition thereby acquiring all of its remaining shares for an aggregate purchase price of $315.0 million and an additional $135.0 million becoming payable after closing upon achievement of the sales milestones previously discussed. We paid $100.0 million of the aggregate purchase price at the closing consisting of the $50.0 million escrow deposit and the $50.0 million from the Term Loan Facility. We also paid approximately $8.0 million for the previously discussed transaction related fees and expenses of CartiHeal.
B.O.N.E.S. Trial
We submitted a premarket approval (PMA) supplement to the FDA in December 2020 seeking approval of an expanded indication for EXOGEN, specifically, for the adjunctive treatment of acute and delayed metatarsal fractures to reduce the risk of non-union. This PMA supplement was based on and supported by clinical data in metatarsal fractures from the ongoing B.O.N.E.S. study. In April 2021, we received a letter from the FDA identifying certain deficiencies in the PMA supplement that must be addressed before the FDA can complete its review of the PMA supplement. The deficiencies include concerns about the data and endpoints from the B.O.N.E.S. study, and requests for re-analyses of certain data and provision of other information to support the findings. We are in the process of performing ancillary analysis on the data as requested by the FDA and remain engaged in discussions with the FDA to address the agency’s concerns. In addition, in December 2021, we completed the follow-up of all patients in the scaphoid B.O.N.E.S. study. We plan on submitting a PMA supplement for this indication in the fourth quarter of 2022. We can give no assurance that we will be able to resolve the deficiencies identified by the FDA in a timely manner, or at all. Consequently, the FDA’s decision on the PMA supplements may be delayed beyond the time originally anticipated. Moreover, if our responses do not satisfy the FDA’s concerns, the FDA might not approve our PMA supplements seeking to expand the indications for use of EXOGEN in metatarsal and scaphoid fractures as proposed.
MOTYS Update
During the second quarter of 2022, prior to obtaining the results from our Phase 2 trial, we elected to discontinue the development of MOTYS, to focus our resources on other priorities, including the integration of our recent acquisitions and our expanded R&D and product development portfolio we inherited with these acquisitions. We expect to incur approximately $4.0 to $6.0 million in required costs over the next year exclusively to fulfill our remaining regulatory obligations related to our Phase 2 trial (MOTYS Costs) with the majority in the second half of 2022. We may assess further strategic options at a future date.
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Consolidated Appropriations Act - 2021
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.
COVID-19 pandemic impact
Our business, results of operations and financial condition have been and may continue to be, materially impacted by fluctuations in patient visits and elective procedures and any future temporary cessations of elective procedures as a result of the COVID-19 pandemic and could be further impacted by delays in payments from customers, supply chain interruptions, “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic. As of the date of this Quarterly Report on Form 10-Q, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results of operations is uncertain.
To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial condition, it might also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products or therapies, consolidation in the healthcare industry, intensified pricing pressure as a result of changes in the purchasing behavior of hospitals and maintenance of our numerous contractual relationships.
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 2021 10-K.
The following table sets forth components of our condensed consolidated statements of operations as a percentage of net sales for the periods presented:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales (including depreciation and amortization)
31.1 %30.5 %33.1 %29.1 %
Gross profit68.9 %69.5 %66.9 %70.9 %
Selling, general and administrative expense64.0 %62.9 %68.2 %54.1 %
Research and development expense4.5 %4.4 %5.2 %3.0 %
Restructuring costs0.7 %— %0.6 %— %
Change in fair value of contingent consideration0.2 %0.6 %0.2 %0.3 %
Depreciation and amortization1.9 %1.7 %2.3 %2.0 %
Impairment of variable interest entity assets— %5.2 %— %3.0 %
Operating (loss) income(2.4 %)(5.3 %)(9.6 %)8.5 %
The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:
Three Months EndedSix Months Ended
(in thousands)July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Net (loss) income$(8,014)$(10,780)$(22,820)$13,748 
Income tax expense (benefit)1,244 1,714 (3,888)1,641 
Interest expense (income), net2,578 1,681 1,028 (1,195)
Depreciation and amortization(a)
12,384 7,479 24,863 14,663 
Acquisition and related costs(b)
3,901 4,580 11,304 7,776 
Restructuring and succession charges(c)
1,695 187 2,272 344 
Equity compensation(d)
4,616 5,853 9,505 (16,559)
Equity loss in unconsolidated investments(e)
280 432 681 901 
Foreign currency impact(f)
602 (12)541 (64)
Impairments related to variable interest entity(g)
— 7,043 — 7,043 
Other items(h)
3,645 1,710 6,556 2,659 
Adjusted EBITDA$22,931 $19,887 $30,042 $30,957 
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(a)Includes for the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, respectively, depreciation and amortization of $9,684, $5,618, $18,902 and $10,854 in cost of sales and $2,700, $1,861, $5,961 and $3,809 in operating expenses presented in the consolidated statements of operations and comprehensive (loss) income.
(b)Includes acquisition and integration costs related to completed acquisitions, amortization of inventory step-up associated with acquired entities, and changes in fair value of contingent consideration.
(c)Costs incurred during the three and six months ended July 2, 2022 were the result of adopting acquisition related restructuring plans to reduce headcount, reorganize management structure and to consolidate certain facilities. Costs incurred during the corresponding periods in 2021 were primarily related to executive transitions.
(d)The three and six months ended July 2, 2022 and the three months ended July 3, 2021 include compensation expense resulting from awards granted under the Company’s equity-based compensation plans in effect after its initial public offering (IPO). The six months ended July 3, 2021 also includes the expense and the change in fair value of the liability-classified awards granted under the compensation plans in effect prior to the Company’s IPO.
(e)Represents CartiHeal equity investment losses.
(f)Includes realized and unrealized gains and losses from fluctuations in foreign currency.
(g)Represents the loss on impairment of Harbor Medtech Inc.’s (Harbor) long-lived assets and the Company’s investment in Harbor.
(h)Other items primarily includes charges associated with strategic transactions, such as potential acquisitions; public company preparation costs, which primarily includes accounting and legal fees; and MOTYS Costs (as defined below). During the second quarter of 2022, prior to obtaining the results from our Phase 2 trial, we elected to discontinue the development of MOTYS, to focus our resources on other priorities, including the integration of our recent acquisitions and our expanded R&D and product development portfolio we inherited with these acquisitions. In the second quarter of 2022, we incurred $0.8 million, and we expect to incur approximately $4.0 to $6.0 million in required costs over the next twelve months with the majority in the second half of 2022, exclusively to fulfill our remaining regulatory obligations related to our Phase 2 trial (MOTYS Costs).
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) income before depreciation and amortization, provision of income taxes and interest expense (income), 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, restructuring and succession charges, equity compensation, equity loss in unconsolidated investments, foreign currency impact, 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 report, including in the table above, to its most directly comparable U.S. GAAP measure.
Net sales
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
U.S.$126,310 $98,682 $27,628 28.0 %
International14,021 11,134 2,887 25.9 %
Net Sales$140,331 $109,816 $30,515 27.8 %
U.S.
Net sales increased $27.6 million, or 28.0%, of which acquisitions contributed $18.1 million. Revenue also increased due to volume growth. Total increases by vertical were: (i) Pain Treatments—$6.9 million; (ii) Restorative Therapies—$8.2 million; and (iii) Surgical Solutions—$12.5 million.
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International
Net sales increased $2.9 million, or 25.9%, of which acquisitions contributed $3.5 million, partially offset by a decline in sales volume within our Restorative Therapies vertical.
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
U.S.$230,391 $173,220 $57,171 33.0 %
International27,230 18,374 8,856 48.2 %
Net Sales$257,621 $191,594 $66,027 34.5 %
U.S.
Net sales increased $57.2 million, or 33.0%, of which acquisitions contributed $41.2 million. Revenue also increased due to volume growth. Total increases by vertical were: (i) Pain Treatments—$17.0 million; (ii) Restorative Therapies—$18.5 million; and (iii) Surgical Solutions—$21.6 million.
International
Net sales increased $8.9 million, or 48.2%, due to acquisitions. Revenue also slightly increased due to sales volume growth as revenue during the first quarter of 2021 was negatively affected by the economic impact of the COVID-19 pandemic. This growth was partially offset by a decline in sales volume within our Restorative Therapies vertical during the second quarter of 2022.
Gross profit and gross margin
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
U.S.$87,331 $68,814 $18,517 26.9 %
International9,323 7,499 1,824 24.3 %
Total$96,654 $76,313 $20,341 26.7 %
Three Months Ended
July 2, 2022July 3, 2021Change
U.S.69.1 %69.7 %(0.6 %)
International66.5 %67.4 %(0.9 %)
Total68.9 %69.5 %(0.6 %)
U.S.
Gross profit increased $18.5 million, or 26.9%, primarily due to the increase in net sales. Gross margin decreased due to product mix including products introduced as a result of acquisitions, partially offset by less inventory step-up amortization of acquisition related assets in 2022 compared with the prior year.
International
Gross profit increased $1.8 million, or 24.3%, primarily due to the increase in net sales. Gross margin decreased due to product mix including products introduced as a result of acquisitions.
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
U.S.$154,947 $123,429 $31,518 25.5 %
International17,409 12,440 4,969 39.9 %
Total$172,356 $135,869 $36,487 26.9 %
Six Months Ended
July 2, 2022July 3, 2021Change
U.S.67.3 %71.3 %(4.0 %)
International63.9 %67.7 %(3.8 %)
Total66.9 %70.9 %(4.0 %)
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U.S.
Gross profit increased $31.5 million, or 25.5%, primarily due to the increase in net sales. Gross margin decreased due to product mix including products introduced as a result of acquisitions. Gross margin was also negatively impacted by 1.5% from inventory step-up amortization of acquisition related assets in 2022 compared with the prior year.
International
Gross profit increased $5.0 million, or 39.9%, primarily due to the increase in net sales. Gross margin decreased due to product mix including products introduced as a result of acquisitions.
Selling, general and administrative expense
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Selling, general and administrative expense$89,620 $69,050 $20,570 29.8 %
Selling, general and administrative expenses increased $20.6 million, or 29.8%, primarily due to: (i) an increase in compensation related expenses of $12.3 million, primarily resulting from acquisitions; (ii) an increase in consulting and travel related expenses of $4.4 million; and (iii) an increase in bad debt expenses of $1.9 million.
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Selling, general and administrative expense$175,744 $103,736 $72,008 69.4 %
Selling, general and administrative expenses increased $72.0 million, or 69.4%, primarily due to: (i) an increase in compensation related expenses of $29.1 million, primarily resulting from acquisitions; (ii) an increase in equity-based compensation of $24.0 million, which includes a $23.4 million decrease in fair market value during 2021 of accrued equity-based compensation resulting from the difference between the pricing from the pending IPO and the actual offering price; (iii) an increase in consulting and travel related expenses of $8.8 million; (iv) an increase of $2.9 million in bad debt expenses; and (v) an increase of $1.9 million in corporate and employee health insurance primarily resulting from acquisitions.
Research and development expenses
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Research and development expense$6,366 $4,836 $1,530 31.6 %
Research and development expense increased by $1.5 million, or 31.6%, due to: (i) an increase of $0.9 million in consulting costs; and (ii) an increase of $0.8 million in compensation related expenses partially driven by acquisitions.
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Research and development expense$13,294 $5,783 $7,511 129.9 %
Research and development expense increased by $7.5 million, or 129.9%, primarily due to: (i) an increase of $2.7 million in consulting costs; (ii) an increase of $2.3 million in compensation related expenses partially driven by acquisitions; and (iii) an increase in equity-based compensation of $2.0 million, which includes a $1.8 million decrease in fair market value during 2021 of accrued equity-based compensation resulting from the difference between the pricing from the pending IPO and the actual offering price.
Restructuring costs
Restructuring costs of $1.0 million and $1.6 million for the three and six months ended July 2, 2022, respectively, were incurred as a result of restructuring plans for recently acquired businesses to reduce headcount, to reorganize management structure and to consolidate certain facilities.
Change in fair value of contingent consideration
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Change in fair value of contingent consideration$273 $641 $(368)(57.4 %)
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Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Change in fair value of contingent consideration$542 $641 $(99)(15.4 %)
The changes in fair value of contingent consideration during the three and six months ended July 2, 2022 compared with the prior year comparable periods resulted from not meeting the $15,000 FDA approval milestone related to the Bioness Acquisition, thereby decreasing the amount of contingent consideration owed. Fair value changes involving contingent consideration represent changes in the present value of discounted cash flows due to the passage of time.
Depreciation and amortization
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Depreciation and amortization$2,696 $1,852 $844 45.6 %
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Depreciation and amortization$5,950 $3,777 $2,173 57.5 %
Depreciation and amortization increased during three and six months ended July 2, 2022 compared with the prior year comparable periods primarily due to acquisitions, partially offset by lower amortization expense in the current year as certain assets became fully amortized.
Impairment of variable interest entity assets
We terminated its Collaboration Agreement with Harbor on June 8, 2021 resulting in a $5.7 million impairment on Harbor’s long-lived asset balances, of which $5.2 million was recorded in loss attributable to noncontrolling interest. Refer to Note 3. Business combination and investments in the Notes to the unaudited condensed consolidated financial statements Part I, Item 1. Financial Statements of this Form 10-Q for further details concerning the impairment and deconsolidation of Harbor.
Other expense
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Interest expense, net$2,578 $1,681 $897 53.4 %
Other expense$884 $1,645 $(761)(46.3 %)
Interest expense, net increased $0.9 million due to an increase of $1.3 million in interest expense as a result of our October 2021 debt refinancing, partially offset by $0.5 million of interest income from the change in the fair value of our interest rate swap.
Other expense decreased $0.8 million primarily due to the impairment of our Harbor investment of $1.4 million in the prior year, partially offset by a $0.6 million foreign currency impact.
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Interest expense (income), net$1,028 $(1,195)$2,223 (186.0 %)
Other expense$922 $2,064 $(1,142)(55.3 %)
Interest expense (income), net changed $2.2 million due to: (i) the settlement of our equity participation right (EPR) liability in 2021 resulting in interest income of $2.8 million; and (ii) an increase of $2.1 million in interest expense as a result of our October 2021 debt refinancing. These changes were partially offset by a $2.9 million increase in interest income resulting from the change in the fair value of our interest rate swap.
Other expense decreased $1.1 million primarily due to the impairment of our Harbor investment of $1.4 million in the prior year, partially offset by a $0.6 million foreign currency impact.
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Income tax (benefit) expense
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Income tax expense$1,244 $1,714 $(470)(27.4)%
Effective tax rate18.4 %18.9 %(0.5)%
Income tax expense for the three months ended July 2, 2022 and July 3, 2021 was primarily due to a change in our forecasted effective tax rate.
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Income tax (benefit) expense$(3,888)$1,641 $(5,529)NM
Effective tax rate14.6 %10.7 %3.9 %
(NM = Not Meaningful)
Income tax benefit for the six months ended July 2, 2022 and July 3, 2021 was primarily due to net losses experienced during the first six months of 2022. The income tax expense for the six months ended July 3, 2021 was primarily due to capitalized expenses resulting from our IPO.
Noncontrolling interest
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Continuing LLC Owner$545 $1,478 $(933)(63.1)%
Other noncontrolling interest217 5,176 (4,959)(95.8 %)
Total$762 $6,654 $(5,892)
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Continuing LLC Owner$3,956 $1,397 $2,559 183.2 %
Other noncontrolling interest335 5,665 (5,330)(94.1 %)
Total$4,291 $7,062 $(2,771)
Subsequent to the IPO and related transactions, we are the sole managing member of BV LLC in which we own 79.6%. We have a majority economic interest, 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 non-controlling interest representing the 20.4% that is owned by the Continuing LLC Owner.
The decline in losses associated with other noncontrolling interest resulted from our deconsolidation of Harbor upon the termination of the Collaboration Agreement during the second quarter of 2021 in which we incurred a $5.7 million impairment charge. We ceased being the primary beneficiary upon termination as we no longer had the power to direct Harbor’s significant activities.
Segment Adjusted EBITDA
Adjusted EBITDA for each of our reportable segments is as follows:
Three Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
U.S.$19,196 $17,149 $2,047 11.9 %
International$3,735 $2,738 $997 36.4 %
U.S.
Adjusted EBITDA increased $2.0 million, or 11.9%, primarily due to higher gross profit, partially offset with an increase in compensation related charges, consulting and travel related expenses as well as higher public company costs.
International
Adjusted EBITDA increased $1.0 million, or 36.4%, primarily due to an increase in gross profit resulting from the increase in sales. This increase was partially offset by consulting, travel related expenses and the negative impact of foreign currency.
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Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
U.S.$23,924 $27,147 $(3,223)(11.9 %)
International$6,118 $3,810 $2,308 60.6 %
U.S.
Adjusted EBITDA decreased $3.2 million, or 11.9%, primarily due to an increase in compensation related charges of previously discussed as well as higher public company costs, partially offset by an increase in gross profit.
International
Adjusted EBITDA increased $2.3 million, or 60.6%, primarily due to an increase in gross profit resulting from the increase in sales. This increase was partially offset by the increase in consulting, travel related expenses, compensation and the negative impact of foreign currency.
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 commercialize new products and further our expansion into international markets. As discussed below under CartiHeal, additional capital was provided to consummate the CartiHeal Acquisition through the Term Loan Facility, extended to us through the Amended 2019 Credit Agreement, and additional capital will be required to fund the Deferred Amount under the CartiHeal Amendment. We believe that our existing cash and cash equivalents, borrowing capacity under our revolving credit facility and cash flow from operations will be enough to meet our anticipated cash requirements for at least the next twelve months. However, additional capital may be required to fund the Deferred Amount under the CartiHeal Amendment.
We anticipate that to the extent that we require additional liquidity, we will obtain funding through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. 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. Debt financing, if available, would result in increased payment obligations and may 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 may 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. The covenants under the Amended 2019 Credit Agreement limit our ability to obtain additional debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.
Initial public offering
On February 16, 2021, in connection with our IPO, we issued and sold 9,200,000 shares of our Class A common stock at a price to the public of $13.00 per share, resulting in gross proceeds to us of approximately $119.6 million, before deducting the underwriting discount, commissions and estimated offering expenses payable by us. Bioventus Inc. is a holding company and has no material assets other than the ownership of LLC Interests and has no independent means of generating revenue. Deterioration in the financial condition, earnings, or cash flow of BV LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions. In addition, the terms of our financing arrangements, including the Amended 2019 Credit Agreement, contain covenants that may restrict BV LLC and its subsidiaries from paying such distributions, subject to certain exceptions. Further, BV LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of BV LLC (with certain exceptions), as applicable, exceed the fair value of its assets. Subsidiaries of BV LLC are generally subject to similar legal limitations on their ability to make distributions to BV LLC. Bioventus Inc., as the managing member, causes BV LLC to make cash distributions to the owners of LLC Interests in an amount sufficient to (i) fund tax obligations in respect of allocations of taxable income from BV LLC; and (ii) cover Bioventus Inc. operating expenses, including payments under the Tax Receivable Agreement (TRA).
Cash requirements
Except as provided below and the previously discussed capital requirements for the acquisition of CartiHeal, there have been no material changes to our future cash requirements as disclosed in Part II, Item 7 of our 2021 10-K.
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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 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 Note 11. Commitment and contingencies in Part 1, Item 8. Financial Statements and Supplementary Data in this Quarterly Report on Form 10-Q for further information regarding other matters.
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 under the Tax Receivable Agreement (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.
CartiHeal
As disclosed under Strategic Transactions—CartiHeal, we exercised the Call Option in April 2022 for the acquisition of all the remaining shares of CartiHeal, excluding shares we already own, for approximately $315.0 million. An additional $135.0 million is payable contingent upon the achievement of $75.0 million in trailing twelve month sales. Pursuant to the CartiHeal Amendment, we deferred $215.0 million of the aggregate purchase price otherwise due at closing until the earlier of the achievement of certain milestones and the occurrence of certain installment payment dates. The first two milestones, each of which are $50.0 million, will be paid no later than the end of the third quarter of 2023. The next two milestones, each of which are $25.0 million, will be paid by the end of 2024 and 2025, respectively. The final milestone of $65.0 million is to be paid by 2027. We are currently exploring financing options in order to fund Deferred Amount payable in connection with the CartiHeal Acquisition. For additional information, see Part II, Item 1A. Risk Factors.
Credit Facilities
On July 11, 2022 we amended the 2019 Credit Agreement (as amended, the Amended 2019 Credit Agreement) in conjunction with the CartiHeal Acquisition. Through the Amended 2019 Credit Agreement, an $80.0 million Term Loan Facility was extended to us for (i) the financing of the CartiHeal Acquisition; (ii) the payment of related fees and expenses; and (iii) working capital needs and general corporate purposes of the Company. The Term Loan Facility will mature on October 26, 2026. We may elect either the secured overnight financial rate (SOFR) or base interest rate options for all borrowings as of July 12, 2022, which includes any outstanding balances under the Term Loan, Term Loan Facility and revolving credit facility. Initial SOFR loans and base rate loans had a margin of 3.25% and 2.25%, respectively, subsequent to July 12, 2022. The Amended 2019 Credit Agreement includes customary affirmative and negative covenants including financial maintenance covenants.
We were in compliance with all required financial covenants under the 2019 Credit Agreement as of July 2, 2022.
Other
For information regarding Commitments and Contingencies, refer to Note 11. Commitments and contingencies and Note 3. Acquisitions and investments to the Notes to the Unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q.
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Information regarding cash flows
Cash, cash equivalents and restricted cash as of July 2, 2022 totaled $41.0 million, compared to $99.2 million as of December 31, 2021. The decrease in cash was primarily due to the following:
Six Months EndedChange
(in thousands, except for percentage)July 2, 2022July 3, 2021$%
Net cash from operating activities$(18,080)$(713)$(17,367)NM
Net cash from investing activities(56,699)(49,296)(7,403)15.0 %
Net cash from financing activities16,860 101,409 (84,549)(83.4 %)
Effect of exchange rate changes on cash(293)(171)(122)71.3 %
Net change in cash, cash equivalents and restricted cash$(58,212)$51,229 $(109,441)NM
NM = Not Meaningful
Operating Activities
Net cash used in operating activities increased $17.4 million, primarily due to completed acquisitions and the resulting integration costs, higher employee compensation and increased operating expenses. These outflows were partially offset by increased collections from higher sales.
Investing Activities
Cash flows used in investing activities increased $7.4 million, primarily due to the $50.0 million held in trust for the acquisition of CartiHeal and an increase of $2.3 million in capital expenditures, partially offset by the $45.8 million acquisition of Bioness in 2021.
Financing Activities
Cash flows provided by financing activities decreased $84.5 million, primarily due to the $107.8 million in net proceeds from the issuance of Class A common stock sold during our 2021 IPO. This was partially offset by a $25.0 million draw on our revolving credit facility in 2022.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
Except as discussed above, there have been no material changes to our contractual obligations as disclosed in our 2021 10-K.
Critical Accounting Estimates
Our discussion of operating results is based upon the unaudited condensed consolidated financial statements and accompanying notes. 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 critical accounting estimates are detailed in Item 7 of our 2021 10-K and we have no material changes from such disclosures.
Recently Issued Accounting Pronouncements
Refer to Note 1. Organization, in the Notes to the unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q for detailed information regarding the status of recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes to our market risks as disclosed in our 2021 10-K.
Item 4. Controls and Procedures.
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.
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Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of July 2, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 15, 2022, the Company, through its subsidiary Bioness, filed a lawsuit in the United States District Court for the Eastern District of Virginia against Aretech, LLC (“Aretech”) alleging infringement by Aretech of various patents related to our Vector Gait and Safety Support System®. On August 8, 2022, Aretech filed an answer to the lawsuit denying infringement and asserting various affirmative defenses and counterclaims to the Bioness complaint. We are reviewing the answer and counterclaims made by Aretech and plan to aggressively defend our patents in the litigation.
On March 23, 2017, Misonix’s former distributor in China, Cicel (Beijing) Science & Technology Co., Ltd., filed a lawsuit against Misonix and certain of its officers and directors in the United States District Court for the Eastern District of New York. The complaint alleged that Misonix improperly terminated its contract with the former distributor. The complaint sought various remedies, including compensatory and punitive damages, specific performance and preliminary and post judgment injunctive relief, and asserted various causes of action, including breach of contract, unfair competition, tortious interference with contract, fraudulent inducement, and conversion. On October 7, 2017, the court granted Misonix’s motion to dismiss each of the tort claims asserted against Misonix, and also granted the individual defendants’ motion to dismiss all claims asserted against them. On January 23, 2020, the Court granted Cicel’s motion to amend its complaint, to include claims for alleged defamation and theft of trade secrets in addition to the breach of contract claim. Discovery in the matter ended on August 5, 2021. On January 20, 2022, the Court granted Misonix’s summary judgment motion on Cicel’s breach of contract and defamation claims. Cicel’s motion for reconsideration of the Court’s summary judgment ruling in Misonix’s favor was dismissed by the Court on April 29, 2022. On July 18, 2022, Cicel voluntarily dismissed the remaining claim for trade secret theft and stated its intention to appeal the Court’s January 20, 2022 ruling on the breach of contract and defamation claims to the Court of Appeals. We believe that we have various legal and factual defenses to these claims and intend to vigorously defend any appeal of the lower court’s summary judgement rulings in our favor.
Prior to the closing of our acquisition of Bioness, Bioness had been named as a defendant in a lawsuit, for which we are indemnified under the indemnification provisions contained in the Bioness Merger Agreement. The case relates to an action brought in February 2021 in the Delaware State Court of Chancery by a former minority shareholder and director of Bioness, seeking a temporary restraining order contesting our acquisition of Bioness. While the complaint to block the Bioness acquisition was dismissed by the court, a separate action was brought against the Company under the indemnification provisions of the Bioness Certificate of Incorporation to recover approximately $2.4 million in attorney fees and other expenses incurred by the director and shareholder in connection with the dismissed case.
On August 19, 2021, the court issued a ruling granting, in part, plaintiff’s motion for summary judgment, awarding plaintiff attorney’s fees and related expenses incurred in connection with performance of the plaintiff’s directorial duties, and denying fees and expenses incurred in a non-director capacity. In its ruling, the Court’s order also directed the parties to agree upon a process that will govern the payment of and challenges to plaintiff’s payment requests and required Bioness to pay 50% of the demanded amount into escrow if more than 50% of the total invoiced amount was in dispute. Pursuant to the court’s order, to date, Bioness has paid approximately $1.2 million into escrow. We await the court’s final ruling on the appropriateness of these fees.
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On February 8, 2022, the above referenced minority shareholder of Bioness filed another action in the Delaware State Court of Chancery in connection with our acquisition of Bioness. This action names the former Bioness directors, the Alfred E. Mann Trust (Trust), which was the former majority shareholder of Bioness, the trustees of the Trust and Bioventus as defendants. The complaint alleges, among other things, that the individual directors, the Trust, and the trustees breached their fiduciary duty to the plaintiff in connection with their consideration and approval of our transaction. The complaint also alleges that we aided and abetted the other defendants in breaching their fiduciary duties to the plaintiff and that we breached the Merger Agreement by failing to pay the plaintiff its pro rata share of the merger consideration. We believe that we are indemnified under the indemnification provisions contained in the Bioness Merger Agreement for these claims. On July 20, 2022, we filed a motion to dismiss all claims made against us on various grounds, as did all the other named defendants in the suit. The Court has not yet ruled on any of these motions. We also believe that there are various legal and factual defenses to the claims plaintiff made against us and intend to defend ourselves vigorously.
On September 15, 2021, a purported stockholder of Misonix filed an action in the United States District Court for the Eastern District of New York, captioned Stein v. Misonix, Inc., et al., Case No. 2:21-cv-05127 (E.D.N.Y.) (the Stein Complaint). The Stein Complaint named Misonix and members of its board of directors as defendants. The Stein Complaint was dismissed on April 6, 2022. On September 16, 2021, a purported stockholder of Misonix filed an action in the United States District Court for the Southern District of New York, captioned Ciccotelli v. Misonix, Inc. et al., Case No. 1:21-cv-07773 (S.D.N.Y.) (the Ciccotelli Complaint) against Misonix, members of its board of directors, the Company, and its subsidiaries, Merger Sub I and Merger Sub II, as defendants. Plaintiff voluntarily dismissed the Ciccotelli Complaint on November 10, 2021. On October 12, 2021, another purported stockholder of Misonix filed an action in the United States District Court for the Eastern District of New York, captioned Rubin v. Misonix, Inc. et al., Case No. 1:21-cv-05672 (S.D.N.Y.) (the Rubin Complaint) and on October 15, 2021, another purported stockholder of Misonix filed an action in the United States District Court for the Southern District of New York, captioned Taylor v. Misonix, Inc. et al., Case No. 1:21-cv-08513 (S.D.N.Y.) (the Taylor Complaint). The Rubin Complaint and the Taylor Complaint name Misonix and members of its board of directors as defendants. Plaintiffs voluntarily dismissed the Rubin and Taylor Complaints on January 21, 2022 and February 18, 2022, respectively.
Each of the complaints relating to the Misonix Acquisition asserted claims under Section 14(a) and Section 20(a) of the Exchange Act and SEC Rule 14a-9, challenging the adequacy of disclosures in the proxy statement/prospectus filed with the SEC on September 8, 2021 or the Definitive Proxy Statement filed with the SEC on September 24, 2021, regarding Misonix and/or Bioventus’ projections and J.P. Morgan’s financial analysis. The complaints sought, among other relief, (i) injunctive relief preventing the parties from proceeding with the merger; (ii) rescission in the event that the merger is consummated; and (iii) an award of costs, including attorneys’ and experts’ fees.
Please refer to Note 11. Commitments and contingencies in the notes to our financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for information pertaining to legal proceedings. In addition, we are party to legal proceedings incidental to our business. While our management currently believes the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our consolidated financial statements, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial condition and results of operations.
Item 1A. Risk Factors
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 in Part I, Item 1A., Risk Factors included in our 2021 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. There have been no material updates to our Risk Factors presented in our 2021 10-K except for the following:
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If we are unable to fund the remainder of the deferred consideration for the CartiHeal Acquisition as it becomes due, we will be subject to penalty interest payment and might lose the assets acquired in the acquisition.
On April 4, 2022, we exercised our Call Option to acquire CartiHeal., excluding the ownership interest already owned by us, for approximately $315.0 million with an additional approximately $135.0 million payable contingent upon the achievement of $75.0 million in trailing twelve-month sales. Pursuant to the CartiHeal Amendment entered into on June 17, 2022, we deferred $215.0 million of upfront consideration otherwise payable to CartiHeal stockholders at the closing of the CartiHeal Acquisition. We closed the acquisition on July 12, 2022 with an upfront payment of $100.0 million, funded through the $50.0 million previously deposited in escrow and an extension of an $80.0 million Term Loan Facility under the Amended 2019 Credit Agreement. We are required to pay the Deferred Amount in five tranches commencing in 2023 and ending no later than 2027, upon the earlier of the achievement of certain milestones and the occurrence of such installment payment dates. Interest on each tranche of the Deferred Amount is accrued at a rate of 8.0% annually until such tranche becomes due and payable and is paid, subject to a penalty interest at a rate of 10.0% per annum if we are unable to pay the amount when due and payable. Our obligation to pay the Deferred Amount also is secured by a first ranking fixed pledge of all of the share capital and intellectual property of CartiHeal and a first ranking floating pledge of all of the assets acquired in the CartiHeal Acquisition.
We expect to fund the Deferred Amount with cash on hand, in combination with the borrowing availability under our credit facility and our expected cash from operations. However, in the event our expected cash from operations together with the borrowing availability under our credit facility are not sufficient, we might require additional capital. If we were to seek additional funds from public and private stock offerings, borrowings under our existing or new credit facilities or other sources in order to fund the Deferred Amount under the CartiHeal Amendment and other future initiatives related to the expansion of our business, such financing might not be available on acceptable or commercially reasonable terms, if at all. Further, such alternative sources of borrowing might be subject to the approval of the requisite lenders under our credit facilities, which we might not be able to secure under reasonable terms.
Furthermore, if we issue equity or debt securities to raise additional capital, our existing stockholders might experience dilution, and the new equity or debt securities might have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional capital through collaboration, licensing or other similar arrangements, it might be necessary to relinquish valuable rights to our products, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.
If we cannot fund any tranche of the Deferred Amount as such tranche becomes due, such unfunded amount will thereafter bear interest at a penalty rate of 10.0% per annum (as opposed to 8.0%) until paid, and CartiHeal’s former security holders will be entitled to enforce the pledge agreements securing our obligation to pay such Deferred Amounts when due and payable pursuant to the CartiHeal Amendment. If such events were to occur, it could adversely affect our results of operations, financial condition and business.
If we are unable to achieve and maintain adequate levels of coverage and/or reimbursement for our products, the procedures using our products, such as our HA viscosupplements, or any products or future products we may seek to commercialize, such as our recently acquired Agili-C product, the commercial success of these and other products we seek to commercialize may be adversely affected.
Our products are purchased by healthcare providers and customers who typically bill third-party payers or private insurance plans and healthcare networks, to cover all or a portion of the costs and fees associated with our products. These third-party payers and insurers may deny reimbursement if they determine that a device or product provided to a patient or used in a procedure does not meet applicable payment criteria or if the policyholder’s healthcare insurance benefits are limited. Further, limits put on reimbursement by third-party payers, whether foreign or domestic, governmental or commercial, could make it more difficult to buy our products and substantially reduce, or possibly eliminate, patient access to our products. The healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control rising healthcare costs by imposing lower payment rates and negotiating reduced contract rates with providers and suppliers.
Private payers may adopt coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers the Medicare program in the United States, as guidelines in setting their coverage and reimbursement policies. In addition, CMS periodically reviews medical study literature to determine how the literature addresses certain procedures and therapies in the Medicare population. For some governmental programs, such as Medicaid, coverage and reimbursement differs from state to state. Medicaid payments to physicians, facilities and other providers are often lower than payments by other third-party payers and some state Medicaid programs may not pay an adequate amount for the procedures performed with our products, if any payment is made at all. If CMS, other government agencies or private payers lower their reimbursement rates or establish additional limitations on coverage of our products, or if any of the proposed drug pricing executive orders or legislative reforms are enacted, the commercial success of our products may be adversely affected.
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At present, there is no established reimbursement for Agili-C products. As a result, we may also be required to conduct expensive clinical studies of Agili-C to justify reimbursement coverage by Medicare and private payers at the level of reimbursement equal to or greater than existing therapies. Moreover, since there is no uniform policy of coverage and reimbursement for our products or procedures using our products among third-party payers in the United States, even if such studies are successful, coverage and reimbursement for our products and procedures using our products can differ significantly from payer to payer. Further, these payers regularly review new and existing technologies for possible coverage and can, without notice, deny or reverse coverage for new or existing products and treatments. Third-party payers may not consider our products to be medically necessary or cost-effective for certain indications or off-label uses or for all uses, and as a result, might not provide coverage for the products. As a result, securing or maintaining third-party reimbursement for our Agili-C product or other products might be time consuming and expensive and the commercial success of our products may be adversely affected if we are not successful in our efforts to obtain and maintain adequate third-party reimbursement for our products.
Further, legislative or other regulatory reforms that have been adopted or may be adopted in the future may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies or other downward pressure on the pricing or reimbursement we or our customers receive for our products. For example, the Consolidated Appropriations Act, 2021 (CAA), was signed into law on December 27, 2020, and, pursuant to implementing regulations promulgated by CMS, expanded price reporting obligations for manufacturers of certain products reimbursed under Medicare Part B beginning January 1, 2022, including all of our HA viscosupplements. In July 2022, CMS began utilizing the new pricing information we reported to it pursuant to these newly adopted reporting obligations to adjust the Medicare payment to healthcare providers using our Durolane and Gelsyn-3 products. As a result, the rates currently available for those products have been reduced from those previously available and will be subject to future reporting and adjustment, which may affect the demand for those products or our ability to sell them profitably. We cannot predict the extent to which this law, or other reimbursement reform proposals or other healthcare cost containment measures that might be enacted in the future, may impact the demand or commercial success of our HA viscosupplements and other products we sell or plan to commercialize in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the three months ended July 2, 2022.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits
Exhibit No.DescriptionFormFile No.ExhibitFiling Date`Filed / Furnished Herewith
8-K001-378442.17/29/2021
8-K001-378443.12/17/2021
8-K001-378443.22/17/2021
S-8333-26405099.14/1/2022
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Exhibit No.DescriptionFormFile No.ExhibitFiling Date`Filed / Furnished Herewith
S-8333-26405099.24/1/2022
*
8-K001-3784410.16/22/2022
8-K001-3784410.17/12/2022
*
*
**
101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document***
101.SCHInline XBRL Taxonomy Extension Schema Document***
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document***
101.DEFInline XBRL Extension Definition Linkbase Document***
101.LABInline XBRL Taxonomy Extension Label Linkbase Document***
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document***
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)***
*     Filed herewith
**     Furnished herewith
***     Submitted electronically herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.
BIOVENTUS INC.
August 12, 2022/s/ Mark L. Singleton
DateMark L. Singleton
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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