Bioventus Inc. — Q2 2022 Form 10-Q
Reporting period: Second quarter and six months ended July 2, 2022; comparisons are to periods ended July 3, 2021. Financial statement amounts below are in millions unless otherwise noted. The company develops and sells minimally invasive medical treatments through U.S. and International segments and Pain Treatments, Restorative Therapies, and Surgical Solutions product verticals.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $140.3 | $109.8 | $257.6 | $191.6 |
| Gross profit | $96.7 | $76.3 | $172.4 | $135.9 |
| Gross margin | 68.9% | 69.5% | 66.9% | 70.9% |
| Operating income (loss) | $(3.3) | $(5.7) | $(24.8) | $16.3 |
| Net income (loss) | $(8.0) | $(10.8) | $(22.8) | $13.7 |
| Net income (loss) attributable to Bioventus Inc. | $(7.3) | $(4.1) | $(18.5) | $20.8 |
| Adjusted EBITDA, non-GAAP | $22.9 | $19.9 | $30.0 | $31.0 |
| Basic and diluted loss per Class A share | $(0.11) | $(0.10) | $(0.30) | $(0.12) |
Sales increased 27.8% in Q2 and 34.5% for the six-month period. Acquisitions contributed $18.1 million of Q2 U.S. growth and $41.2 million of six-month U.S. growth; International growth also benefited from acquisitions. For the six months, gross margin declined 4.0 percentage points, reflecting product mix, acquired products, and inventory step-up amortization. SG&A rose 69.4% year over year for the six months, with higher compensation, equity compensation, consulting and travel costs among the drivers. Six-month U.S. segment Adjusted EBITDA fell 11.9%, while International segment Adjusted EBITDA rose 60.6%.
For the six months, operating cash flow was $(18.1) million, investing cash flow $(56.7) million, and financing cash flow $16.9 million. Cash, cash equivalents and restricted cash declined $58.2 million to $41.0 million; the $50.0 million CartiHeal deposit was transferred to a payment agent and reported in investment and other assets. Receivables were $143.0 million and inventory $69.1 million at July 2.
At quarter-end, debt carrying value was approximately $374.0 million, including $25.0 million drawn on the $50.0 million revolver; cash was $41.0 million. The company reported compliance with credit agreement covenants. Current assets were $277.2 million and current liabilities $198.9 million. The company said existing cash, revolver availability and expected operating cash flow should cover anticipated needs for at least twelve months, while warning additional funding may be needed for CartiHeal consideration.
Material developments, outlook and risks
- CartiHeal acquisition: Closed July 12, 2022, after quarter-end, following FDA premarket approval of its Agili-C implant. The stated purchase price was approximately $315 million, including $100 million paid at closing; $215 million was deferred in five tranches from 2023 through 2027 and accrues 8% annual interest. A further $135 million is contingent on achieving $75 million in trailing-twelve-month sales. The deferred obligation is secured by CartiHeal shares, intellectual property and acquired assets; late payment carries 10% penalty interest. An $80 million term loan facility was arranged after quarter-end in connection with the acquisition.
- Product and reimbursement: CMS began using newly reported pricing information in July 2022 to adjust provider Medicare payments for Durolane and Gelsyn-3, potentially affecting demand or profitability. Agili-C had no established reimbursement at the filing date, and obtaining coverage may require costly studies. FDA review of the EXOGEN metatarsal-fracture indication remained unresolved; the company planned to submit a scaphoid-fracture supplement in Q4 2022 and gave no assurance of approval.
- MOTYS: Development was discontinued in Q2 before Phase 2 results, to redirect resources. The company expected $4 million to $6 million of remaining regulatory-trial costs over the following year, mostly in the second half of 2022, and may consider other strategic options later.
- Outlook and operating risks: No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management cited uncertainty from COVID-19, inflation and supply-chain costs, procedure volumes, reimbursement and pricing pressure, regulatory approvals, acquisition integration, and the ability to fund CartiHeal deferred payments.
- Contingencies: The company disclosed ongoing Bioness shareholder litigation, including a fee dispute with approximately $1.2 million paid into escrow and a separate case for which dismissal motions were pending. A former Misonix distributor stated an intention to appeal rulings in the company’s favor. Bioventus also filed a patent-infringement suit against Aretech; Aretech denied infringement and asserted counterclaims after quarter-end. Management could not estimate possible losses for certain matters.
Most important facts for investors to verify
- CartiHeal’s commercialization, reimbursement prospects and sales progress toward the $75 million milestone, as well as the company’s ability to meet the $215 million deferred-payment schedule and related interest.
- Post-acquisition financing, leverage, liquidity and covenant headroom, including the effect of the $80 million term loan and any further funding required.
- Whether organic sales and segment profitability can offset acquisition-related costs, margin compression and elevated SG&A.
- CMS payment changes for Durolane and Gelsyn-3 and progress toward reimbursement for Agili-C.
- FDA decisions on EXOGEN indication supplements, and actual remaining MOTYS costs.
- Developments and potential financial exposure from disclosed litigation and other contingencies.