Bioventus Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter ended July 3, 2021 (13 weeks); comparative quarter ended June 27, 2020. Unless noted, amounts are USD millions. Comparisons are affected by COVID-19 disruption in 2020, the February 2021 IPO and the March 30 acquisition of Bioness.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $109.8 | $58.0 | $191.6 | $136.7 |
| Gross profit | $76.3 | $40.3 | $135.9 | $97.6 |
| Gross margin | 69.5% | 69.5% | 70.9% | 71.4% |
| Operating income (loss) | $(5.7) | $(4.6) | $16.3 | $8.4 |
| Net income (loss), consolidated | $(10.8) | $(6.0) | $13.7 | $4.5 |
| Net income (loss) attributable to Bioventus Inc. | $(4.1) | $(5.8) | $20.8 | $5.2 |
| Adjusted EBITDA (non-GAAP) | $19.9 | $6.9 | $31.0 | $21.2 |
- Q2 sales increased 89.3%; six-month sales increased 40.2%. Management attributed growth mainly to higher sales volumes as markets recovered from pandemic-related effects in 2020, plus Bioness contributions. U.S. sales were $98.7 million in Q2 and international sales were $11.1 million.
- Q2 gross margin was flat year over year; six-month margin declined 0.5 percentage points. Q2 selling, general and administrative expense increased 70.4% to $69.1 million, reflecting recovery-related expenses, Bioness, compensation, equity compensation and public-company costs.
- Q2 results included $5.7 million of Harbor long-lived-asset impairment, $1.4 million impairment of the Harbor investment, $1.8 million of Bioness acquisition and integration costs, $2.1 million of Bioness inventory step-up costs and a $0.6 million increase in contingent consideration fair value. These items and other adjustments contribute to the gap between GAAP loss and Adjusted EBITDA.
- Six-month operating cash flow was $(0.7) million, versus $25.5 million provided in the prior-year period. Investing cash use was $49.3 million, including the Bioness purchase; financing provided $101.4 million, principally reflecting IPO proceeds. Cash, cash equivalents and restricted cash were $138.1 million at period end.
Balance sheet and liquidity
- July 3 cash and cash equivalents were $136.1 million, plus $2.0 million restricted cash. Current assets were $290.1 million and current liabilities $158.2 million.
- Term-loan principal was $182.5 million, due December 2024; carrying value was $181.1 million, including current debt and net of issuance costs and discount. The $50 million revolving facility had no borrowings. The company reported compliance with its debt covenants.
- Management stated existing cash, revolving capacity, operating cash flow and IPO proceeds were expected to cover anticipated requirements for at least 12 months. It also noted that additional liquidity may be needed to execute its strategy.
Developments, outlook and risks
- Bioness: Acquired for $48.9 million cash plus $43.0 million fair value of contingent consideration; potential earn-outs could total up to $65 million. The acquisition expanded the company into peripheral nerve stimulation and advanced rehabilitation products.
- Misonix: After quarter-end, Bioventus agreed to acquire Misonix in a cash-and-stock transaction valued at approximately $518 million, subject to approvals and closing conditions. A Wells Fargo commitment letter provides for up to $262 million of term financing, including an $80 million prepayment of existing term debt. Management expected closing in Q4 2021; this is a stated expectation, not financial guidance.
- CartiHeal: The company was reviewing pivotal-trial results received August 2. If contractual conditions are met and it does not terminate the options, the potential purchase price is approximately $314.9 million, with up to $150 million in sales milestones; a $50 million escrow deposit may be required. The agreement also allows termination subject to a $30 million break fee.
- Regulatory: FDA identified deficiencies in the EXOGEN B.O.N.E.S. study submission in April. The company was evaluating the comments and cautioned that approval could be delayed or denied. More broadly, risks include COVID-19 effects on procedures and supply chains, product concentration, reimbursement and pricing pressure, competition, and regulatory requirements.
- Other contingencies: A December 2020 voluntary ultrasound-gel recall had an estimated probable loss of approximately $2.1 million, with $0.4 million of reserves recorded at July 3. A claim seeking $1.2 million in legal fees related to the Bioness acquisition was being defended; the company stated it was indemnified under the acquisition agreement.
- No full-year revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management’s outlook emphasizes continued uncertainty from COVID-19 and the financing, approval and integration risks of acquisitions.
Key investor verification points
- Separate underlying sales growth from the pandemic-affected comparison and Bioness contribution; assess whether improved volumes persist.
- Reconcile GAAP results with Adjusted EBITDA, including the large non-recurring and equity-compensation adjustments.
- Monitor cash conversion, working-capital needs, debt repayment capacity and the terms and closing of Misonix financing.
- Verify CartiHeal trial and FDA outcomes, potential acquisition obligations and any required escrow or break-fee payments.
- Track EXOGEN regulatory progress, reimbursement changes, recall costs and the outcome of the Bioness-related legal claim.