Bioventus (US:BVS)2023-11-06 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated condensed financial statements for Bioventus Inc. for the three and nine months ended September 30, 2023, and October 1, 2022 Consolidated Condensed Statements of Operations and Comprehensive Loss The company reported a net loss from continuing operations of $8.8 million for Q3 2023, a significant improvement from the $101.0 million loss in the same period of 2022 Q3 & Nine Months 2023 vs 2022 Operating Results (in thousands) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $120,794 | $128,662 | $376,922 | $386,283 | | Gross Profit | $78,850 | $84,535 | $241,892 | $256,891 | | Operating Income (Loss) | $2,418 | $(126,839) | $(82,890) | $(151,597) | | Net Loss from Continuing Operations | $(8,791) | $(101,035) | $(113,540) | $(123,174) | | Net Loss Attributable to Bioventus Inc. | $(7,303) | $(108,245) | $(150,134) | $(126,774) | | Loss Per Share (Basic & Diluted) | $(0.12) | $(1.76) | $(2.40) | $(2.07) | Consolidated Condensed Balance Sheets Total assets decreased to $811.1 million as of September 30, 2023, from $1.37 billion at year-end 2022, primarily due to divestitures Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $249,452 | $272,575 | | Total Assets | $811,104 | $1,372,649 | | Total Current Liabilities | $160,843 | $304,017 | | Total Liabilities | $584,648 | $960,427 | | Total Stockholders' Equity | $226,456 | $412,222 | Consolidated Condensed Statements of Cash Flows Net cash from operating activities significantly improved to $5.0 million for the nine months ended September 30, 2023, from a net cash use of $18.8 million in the prior-year period Nine Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | Sep 30, 2023 | Oct 1, 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $4,970 | $(18,781) | | Net cash from investing activities | $16,398 | $(113,033) | | Net cash from financing activities | $(26,639) | $67,514 | | Net change in cash, cash equivalents and restricted cash | $(5,010) | $(64,831) | | Cash at end of period | $26,827 | $34,382 | Notes to the Unaudited Consolidated Condensed Financial Statements The notes detail significant accounting policies and events, including a "Going Concern" warning and details on recent divestitures and acquisitions - The company has substantial doubt about its ability to continue as a going concern due to the risk of violating financial covenants under its Credit and Guaranty Agreement in 20245960292 - On May 22, 2023, the company sold its Wound Business (TheraSkin and TheraGenesis products) for potential consideration of $84.9 million, including $34.9 million at closing and up to $45.0 million in earn-outs69187 - On February 27, 2023, the company deconsolidated its subsidiary CartiHeal, transferring shares to a trustee and relieving $60.6 million in deferred consideration and milestone obligations72190 - The company identified and is correcting immaterial misstatements from prior periods related to the calculation of noncontrolling interest and deferred income taxes3334 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's perspective on the company's financial performance, condition, and liquidity, highlighting key transactions and the "Going Concern" issue Results of Operations Net sales decreased 6.1% to $120.8 million in Q3 2023, driven by the Wound Business divestiture and lower pricing in Pain Treatments, partially offset by growth in Surgical Solutions and International sales Net Sales by Segment and Vertical - Q3 2023 vs Q3 2022 (in thousands) | Segment / Vertical | Q3 2023 | Q3 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | U.S. Total | $106,227 | $116,288 | $(10,061) | (8.7%) | | Pain Treatments | $48,416 | $47,010 | $1,406 | 3.0% | | Restorative Therapies | $24,855 | $38,096 | $(13,241) | (34.8%) | | Surgical Solutions | $32,956 | $31,182 | $1,774 | 5.7% | | International Total | $14,567 | $12,374 | $2,193 | 17.7% | | Total Net Sales | $120,794 | $128,662 | $(7,868) | (6.1%) | Adjusted EBITDA Reconciliation Summary (in thousands) | Line Item | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss from continuing operations | $(8,791) | $(101,035) | $(113,540) | $(123,174) | | Adjustments (Depreciation, Interest, Taxes, etc.) | $30,526 | $122,958 | $180,384 | $174,598 | | Adjusted EBITDA | $21,735 | $21,923 | $66,844 | $51,424 | - The decrease in U.S. Restorative Therapies sales was primarily due to the divestiture of the Wound Business and volume decline in the Advanced Rehabilitation business223 - SG&A expenses decreased by $9.1 million (11.6%) in Q3 2023 due to lower equity-based compensation, reduced bad debt, and cost-saving initiatives251 Liquidity and Capital Resources The company's liquidity is under pressure, leading to a "Going Concern" disclosure due to the risk of violating financial covenants in 2024 - The company's financial position and forecasts raise substantial doubt about its ability to continue as a going concern, primarily due to the risk of breaching debt covenants in 202429259 - Cash, cash equivalents and restricted cash decreased to $26.8 million as of September 30, 2023, from $30.2 million at December 31, 20221 - The company amended its credit agreement on March 31, 2023, to modify financial covenants, waive prior noncompliance, and modify interest rates, requiring liquidity of at least $10.0 million96274 - For the nine months of 2023, net cash from continuing operations was $7.1 million, a $25.1 million improvement from the prior year, driven by lower compensation and cost reductions276324 Controls and Procedures Management concluded that due to ongoing material weaknesses, the company's disclosure controls and procedures were not effective as of September 30, 2023 - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to ongoing material weaknesses302 - A material weakness exists in the control environment due to an ineffective risk assessment process, inadequate personnel resources, and high employee turnover279 - A separate material weakness was identified related to the Q3 2022 rebates accrual, where processes were insufficient, leading to a subsequent $8.4 million revenue reduction281 - Remediation efforts include reinforcing control execution and accountability, hiring additional resources, prioritizing key projects, and implementing new processes and controls for the rebates accrual, though not yet fully remediated305331 PART II. OTHER INFORMATION Legal Proceedings The company is involved in several legal proceedings, including a putative class action lawsuit and a related derivative shareholder lawsuit - A class action lawsuit (Ciarciello v. Bioventus) was filed in January 2023, alleging failure to disclose information on rebate practices and financial prospects, with Exchange Act claims proceeding to discovery176308 - A related derivative shareholder lawsuit (Grogan v. Reali) was filed in October 2023, alleging similar misconduct, with the company seeking to stay this case176308 - Litigation related to the Bioness acquisition has been largely resolved, with Bioventus being dismissed from one case in April 2023 and another matter settled in December 2022201335 Risk Factors This section updates the company's risk factors, highlighting the potential adverse impact of the ongoing conflict in Israel on its business operations - A new risk factor highlights the ongoing conflict in Israel, which could adversely impact the company's manufacturing facility in Hod Hasharon, producing rehabilitation products accounting for less than 10% of total net sales313 - Potential impacts from the conflict include manufacturing disruptions, export delays, inability of regulatory bodies to visit the facility, and employee shortages due to military call-ups313 - The company reiterates that its international operations subject it to various economic, political, and regulatory risks, including currency fluctuations, trade barriers, and geopolitical actions313340