Bioventus Inc. — Q3 2021 Form 10-Q
Reporting period: 13 weeks ended October 2, 2021; comparisons are to the 13 weeks ended September 26, 2020. Financial figures below are in millions of dollars unless stated otherwise. The company is a global medical-device business focused on minimally invasive treatments, with U.S. and International segments and three product verticals: Pain Treatments and Joint Preservation, Restorative Therapies, and Bone Graft Substitutes.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Net sales | $108.9 | $85.9 | +26.8% |
| Gross profit / margin | $79.1 / 72.6% | $62.5 / 72.7% | Margin down 0.1 percentage point |
| Operating income (loss) | ($1.0) | $6.9 | Lower |
| Consolidated net income (loss) | ($2.3) | $8.0 | Lower |
| Net income (loss) attributable to Bioventus Inc. | ($1.1) | $8.5 | Lower |
| Adjusted EBITDA | $21.3 | $23.1 | Down 7.7% |
U.S. sales grew 25.7% and International sales grew 38.5%. Growth reflected higher volumes versus pandemic-affected 2020 results and Bioness sales following its March 2021 acquisition. Quarterly SG&A rose 38.5% to $69.6 million, and R&D rose 72.4% to $6.2 million. The company attributed higher expenses to normalized activity, public-company costs, Bioness, and compensation-related costs. Adjusted EBITDA is a non-GAAP measure; its reconciliation includes adjustments for equity compensation, acquisition costs, restructuring, impairments, and other items.
Nine months: Sales were $300.5 million, up 35.0%; gross margin was 71.5% versus 71.9%; consolidated net income was $11.5 million versus $12.5 million; and Adjusted EBITDA was $52.3 million versus $44.3 million. Nine-month operating cash flow was $9.9 million, compared with $46.4 million in the prior-year period. Investing cash use was $62.5 million and financing cash provided was $97.1 million.
At October 2, cash and cash equivalents were $80.9 million, plus $50.0 million of restricted cash escrowed for a potential CartiHeal acquisition. Current assets were $246.1 million and current liabilities $160.7 million. Term-loan principal was $178.8 million; the company reported no revolver borrowings at period-end and compliance with its debt covenants. Cash, cash equivalents, and restricted cash totaled $130.9 million.
Material developments and unusual items
- Bioness: Acquired March 30 for $48.9 million cash plus contingent consideration initially valued at $43.0 million, tied to product, sales, and reimbursement milestones. It contributed $10.8 million of Q3 sales. A restructuring plan for the acquired business incurred $1.8 million of charges; expected total charges were $2.9 million, with completion anticipated in Q1 2022.
- Misonix: The acquisition closed October 29, after the reporting period, for total consideration of approximately $513.2 million, including $183.0 million cash, 18.34 million Bioventus Class A shares, and settled or assumed options. It was not included in Q3 results or the October 2 balance sheet. The filing reports subsequent financing actions: a $20.0 million revolver draw on October 25 and an amended term loan with $360.8 million outstanding after the October 29 transaction and an $80.0 million prepayment.
- CartiHeal: Following pivotal-trial success, the company deposited $50.0 million in escrow. The potential purchase price for the remaining shares is $314.9 million, inclusive of that deposit, with up to a further $150.0 million payable on sales milestones. FDA approval and customary closing conditions remain relevant.
- Harbor: Termination of the collaboration led to a $5.7 million impairment of Harbor long-lived assets and a $1.4 million impairment of the company’s remaining investment. The company retained license rights and continued product development.
- IPO and reporting structure: Bioventus completed its IPO in February 2021 and owned 72.3% of BV LLC at period-end; the remaining 27.7% is reflected as noncontrolling interest. This change affects comparability, including per-share data, which is presented only for the post-IPO period.
Outlook, risks, and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management stated that cash, borrowing capacity, operating cash flow, and IPO proceeds were expected to cover anticipated requirements for at least the next 12 months, while noting that additional liquidity may be needed to execute its strategy. That assessment preceded the Misonix closing and related financing described as subsequent events.
- COVID-19, new variants, elective-procedure volumes, supply interruptions, and customer payment delays may continue to affect operations; the magnitude remains uncertain.
- Product demand depends on physician and patient acceptance, competition, and adequate coverage and reimbursement. The FDA identified deficiencies in the EXOGEN B.O.N.E.S. supplemental application; approval could be delayed or denied.
- CartiHeal creates a substantial potential cash commitment. The filing also reports a $10.0 million investment in Trice Medical and associated commercial and development arrangements.
- Several lawsuits challenged Misonix merger disclosures; the company warned that defense costs or adverse outcomes could materially affect results or financial condition. A separate Bioness-related fee dispute had approximately $1.0 million placed in escrow; the ultimate amount remained uncertain.
- Other risks include acquisition integration and execution, pricing pressure, concentration in key products, regulatory requirements, and the ability to develop and commercialize products.
Investor verification priorities
- Reconcile revenue growth and margins with acquisition contributions, underlying volumes, pricing, and product mix.
- Review cash conversion and working-capital trends given the decline in nine-month operating cash flow.
- Assess post-Misonix debt, interest expense, repayment obligations, covenant headroom, and integration costs using subsequent filings.
- Track CartiHeal FDA review, potential acquisition funding, and milestone-payment exposure.
- Monitor Bioness restructuring progress, contingent consideration, and merger-related litigation outcomes.
- Evaluate whether recurring operating performance supports Adjusted EBITDA after considering the sizable adjustments and equity-compensation effects.