Bioventus Inc. — Q1 2021 Form 10-Q
Reporting period: 13 weeks ended April 3, 2021; comparison is the 13 weeks ended March 28, 2020. Bioventus is a global medical-device company focused on minimally invasive treatments. It completed its IPO on February 16, 2021 and acquired Bioness on March 30, 2021, so the quarter includes significant changes in ownership and reporting structure.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $81.8 million | $78.6 million | Up 4.0% |
| Gross profit / margin | $59.6 million / 72.8% | $57.2 million / 72.8% | Margin unchanged |
| Operating income | $22.0 million | $13.0 million | Higher, in part reflecting equity-compensation fair-value changes |
| Net income | $24.5 million | $10.5 million | Includes significant non-operating items; not directly comparable across the IPO transition |
| Adjusted EBITDA | $11.1 million | $14.2 million | Down 22.3%; non-GAAP measure |
| Operating cash flow | $(18.0) million | $17.7 million | Decrease driven by compensation, insurance, acquisition-related and other payments, among other items |
U.S. sales grew 3.6% to $74.5 million; International sales grew 8.5% to $7.2 million. Bone Graft Substitutes sales increased to $18.4 million from $13.9 million, while Restorative Therapies declined to $21.8 million from $23.5 million. Pain Treatments and Joint Preservation was approximately flat at $41.5 million.
The reported $24.5 million consolidated net income includes income before the IPO transactions; the company reported a $1.0 million net loss attributable to Bioventus Inc. Class A stockholders for the post-IPO period, or $(0.02) per share. The filing’s EPS calculation covers February 16 through April 3, rather than the full quarter.
Balance sheet and liquidity
- Cash and cash equivalents were $124.2 million at April 3, 2021, plus $5.2 million of restricted cash; cash and restricted cash totaled $129.5 million.
- Total debt was approximately $184.7 million in principal, including $15.0 million current; the term loan carried a 2.71% rate. No revolver borrowings were outstanding, and $50 million of revolving capacity was available.
- Current assets were $270.7 million and current liabilities were $149.0 million. The company reported compliance with all credit agreement covenants.
- Financing cash flow included $110.4 million of net IPO proceeds. Investing cash flow included $45.8 million paid for the Bioness acquisition.
Material developments, outlook and risks
- Bioness acquisition: Consideration was $91.9 million, comprising $48.9 million cash and $43.0 million fair-valued contingent consideration. Additional earn-out payments could reach $65 million if specified milestones are met. Purchase accounting remains preliminary.
- Outlook: No numerical revenue or earnings guidance is provided in the filing. Management said existing cash, borrowing capacity, operating cash flows and IPO proceeds should meet anticipated needs for at least the next 12 months, while noting additional liquidity may be needed to execute its strategy.
- FDA review: In April, FDA identified deficiencies in the EXOGEN supplemental PMA for an expanded metatarsal-fracture indication. The company was preparing a response; approval may be delayed or denied.
- COVID-19: The company cited ongoing uncertainty around patient visits, elective procedures, customer payments and supply chains, and said the ultimate financial impact remained uncertain.
- Contingencies: The estimated probable loss for a 2020 voluntary ultrasound-gel recall was approximately $1.8 million, with $0.5 million reserved at quarter-end. The company also maintained a $2.0 million reserve for estimated third-party-payor overpayments. A Bioness-related legal action seeks $1.2 million in fees; Bioness is defending the matter and is indemnified under the merger agreement.
- Other items: The company’s tax receivable agreement provides for payments to the continuing LLC owner equal to 85% of certain tax benefits actually realized. No liability had been recorded at quarter-end because no LLC interests had been exchanged.
Most important facts for investors to verify
- How much of the operating-income and net-income improvement reflects recurring operations versus IPO-related equity-compensation and fair-value changes.
- Bioness’s post-acquisition sales, integration costs, purchase-price allocation and likelihood of contingent earn-outs.
- Progress and outcome of the FDA review of the EXOGEN PMA supplement.
- Whether operating cash flow recovers after the quarter’s unusually high cash payments and acquisition spending.
- Developments in recall costs, reimbursement reserves, the Bioness-related legal action and future tax receivable agreement obligations.