Bioventus Inc. — Q1 2023 Form 10-Q
Reporting period: 13 weeks ended April 1, 2023; comparison period ended April 2, 2022. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and financial performance
Bioventus develops and commercializes minimally invasive medical treatments. It reports U.S. and International segments and three product verticals: Pain Treatments, Restorative Therapies, and Surgical Solutions. The quarter’s results include the Wound Business in continuing operations and CartiHeal as a discontinued operation following its deconsolidation in February 2023.
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Net sales | $119.1 | $117.3 | Up 1.5% |
| Gross profit / margin | $73.9 / 62.1% | $75.7 / 64.5% | Margin down 2.4 percentage points |
| Operating loss | $(92.1) | $(21.5) | Includes $78.6 non-cash impairment charge in 2023 |
| Net loss from continuing operations | $(100.0) | $(14.4) | 2023 includes higher interest expense and impairment |
| Discontinued-operations loss | $(74.4) | $(0.4) | Includes $60.6 CartiHeal deconsolidation loss |
| Net loss attributable to Bioventus Inc. | $(139.2) | $(11.3) | Basic and diluted loss per Class A share: $(2.24) vs. $(0.19) |
| Adjusted EBITDA, non-GAAP | $17.0 | $7.2 | Company-reported measure; excludes specified items |
Sales were nearly flat in the U.S. ($104.0 million, down 0.1%) and increased internationally to $15.1 million (up 14.2%). U.S. Pain Treatments declined 14.4%, primarily due to lower selling prices associated with reimbursement levels, partly offset by volume growth. U.S. Restorative Therapies and Surgical Solutions grew 12.2% and 11.9%, respectively. International sales growth reflected volume increases.
Gross margin fell as lower U.S. selling prices and increased amortization in cost of sales weighed on results; international margin also declined, principally due to product mix. Selling, general and administrative expense decreased 6.1% to $80.9 million and research and development expense decreased 45.6% to $3.8 million, reflecting cost reductions and lower compensation and consulting costs. Net interest expense was $9.7 million versus net interest income of $1.6 million, reflecting higher rates and leverage-related margins, revolver interest, and the absence of a prior-year interest-rate-swap gain.
Cash flow, debt, and liquidity
- Cash and cash equivalents were $47.1 million at April 1, 2023, compared with $30.2 million at December 31, 2022.
- Operating cash flow was $4.7 million from continuing operations and $2.5 million including discontinued operations, versus $(21.0) million in the prior-year quarter. Continuing-operations cash flow improved mainly on lower compensation costs and improved collections, partly offset by inventory purchases and interest payments.
- Investing cash outflow was $15.1 million, including $11.5 million from discontinued operations; continuing-operations investing outflow was $3.6 million, primarily capital expenditures. Financing cash inflow was $27.4 million, including net revolver borrowings of $29.0 million.
- Balance-sheet debt was $445.6 million, including current debt of $41.3 million; gross term-loan and revolver borrowings were approximately $449.7 million before unamortized discounts and issuance costs. The term loan bears 9.19% and the revolver 9.28% as of April 1, 2023.
- The March 2023 credit amendment waived covenant noncompliance at December 31, 2022, revised financial covenants, and increased borrowing rates. It also requires at least $10 million of defined liquidity at each month-end during a specified period. On April 6, the company repaid $15 million of its revolver.
Material developments, outlook, and risks
- Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern. Without successful mitigating actions, it is at substantial risk of breaching certain financial covenants in 2024; a breach could accelerate repayment. Management’s plans do not alleviate the substantial doubt.
- Wound Business sale: On May 10, 2023, the company agreed to sell TheraSkin and TheraGenesis for up to $85 million: $35 million at closing, $5 million deferred for 18 months, and up to $45 million in earn-outs. It expected approximately $30 million net at closing after fees and expenses, to repay debt. The filing anticipated closing before the end of May.
- CartiHeal: The company transferred its CartiHeal shares to a trustee after settling with former securityholders, paying $10 million plus approximately $0.2 million in non-refundable amounts and receiving releases from further claims under the transaction documents. CartiHeal was deconsolidated and reported as a discontinued operation.
- Cost reductions and spending: Restructuring efforts were expected to generate $9–$10 million in annualized savings upon completion. Management expected a further $5–$6 million of MOTYS-related costs to fulfill remaining regulatory obligations; $0.9 million was incurred in the quarter.
- Management change: The CEO resigned effective April 4, 2023; Anthony P. Bihl III became interim CEO effective April 5.
- Controls and reporting: Disclosure controls were not effective as of April 1 because material weaknesses in the control environment and rebate accrual process had not been fully remediated. The company also disclosed immaterial prior-period balance-sheet and equity misstatements, to be revised prospectively; management said they did not affect revenue, total assets, or cash flows.
- Other risks: A securities class action alleges inadequate disclosure concerning rebates, business prospects, and financial-reporting controls; the company disputes the claims. The filing also highlights reimbursement and pricing pressure, regulatory uncertainty, competition, supply-chain and inflation risks, and the possibility of further financing needs. No annual revenue or earnings guidance is stated in the provided filing text.
Most important facts for investors to verify
- Progress and closing terms of the Wound Business sale, including cash actually received and debt repaid.
- Monthly liquidity and compliance with revised credit covenants, particularly the $10 million minimum and the risk of a 2024 breach.
- Cash generation, borrowing costs, and debt balances after the April revolver repayment and anticipated divestiture proceeds.
- Whether the rebate accrual and broader internal-control material weaknesses are remediated, and whether further financial-statement revisions are required.
- Underlying sales, pricing, reimbursement trends, and margins by product vertical, alongside the exclusions used in Adjusted EBITDA.
- Actual restructuring savings, remaining MOTYS costs, and the outcome or financial exposure of pending litigation and regulatory matters.