What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-11 · 332 added, 394 removed, 282 unchanged (72% of the section changed)

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• Restorative Therapies is comprised of a bone healing system, skin allografts and products used to support healing of wounds as well as devices designed to help patients regain leg or hand function due to stroke, multiple sclerosis or other central nervous system disorders.

Table of Co n tents

The following table sets forth notable financial results in 2021 and 2020:

As further discussed below, there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern.

In light of this, the Company is actively pursuing plans to mitigate these conditions and events;

however, there can be no assurances that it is probable these plans will be successfully implemented or that they will successfully mitigate these conditions and events.

For additional information, see Going Concern section below and Part I, Item 1A.

Risk Factors .

The following table sets forth total net sales, net (loss) income and Adjusted EBITDA for the periods presented:

Years Ended December 31,

(in thousands, except for loss per share) 2022 2021

Net sales $ 512,117 $ 430,898

Net income $ 9,586 $ 14,722

Net (loss) income $ (213,391) $ 9,586

Adjusted EBITDA (1)

$ 66,309 $ 80,759

Loss per share, basic and diluted $ (0.15) NM

(1) See below under results of operations-Adjusted EBITDA for a reconciliation of net income to Adjusted EBITDA.

Strategic transactions

We have pursued and continue to pursue business development opportunities that leverage our significant customer presence across orthopedics, broaden our portfolio and increase our global footprint.

Below is a summary of some of our recent transactions:

Misonix Acquisition

On October 29, 2021, we acquired Misonix, Inc.

(Misonix) in a cash-and-stock transaction.

We provided merger consideration totaling $525.3 million, including Class A common stock valued at $274.6 million, cash of $183.0 million, fully vested Bioventus stock options valued at $27.6 million and additional cash used to pay debt and expenses on Misonix’s behalf totaling $40.1 million.

The cash consideration was primarily funded through taking on additional debt.

The acquisition includes the entire portfolio of Misonix products as well as its research and development pipeline.

Misonix manufactures minimally invasive surgical ultrasonic medical devices used for precise bone sculpting, removal of soft and hard tumors, and tissue debridement, primarily in the areas of neurosurgery, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery.

Misonix also exclusively distributes skin allografts and wound care products used to support healing of wounds.

The Misonix Acquisition provided additional net sales in 2021 totaling $15.4 million since the date of acquisition.

We incurred transaction costs of $8.0 million.

We expect to benefit from the Misonix Acquisition by capitalizing on the processes below:

• Accelerating Misonix’s BoneScalpel and Nexus adoption through our extensive spine surgical solutions footprint;

• Augmenting our leading lower extremity offerings and commercial footprint to accelerate growth in this call point;

• Significantly expanding the direct wound salesforce that covers the entire customer continuum, including physicians’ offices, ambulatory surgical centers, wound clinics, and hospitals;

• Extending Misonix’s international access through our direct channels and infrastructure in the Netherlands, Canada, Germany, and the UK.

Bioness Acquisition

On March 30, 2021, we acquired Bioness, Inc.

(Bioness), in a cash transaction.

We provided upfront cash of $48.9 million funded exclusively through the use of cash on hand and we could be required to pay up to an additional $50.0 million related to the achievement of certain key milestones.

This discounted contingent consideration is currently valued at $15.5 million based on the probability of reaching the key milestones.

We currently estimate the payments to be made in 2024 and 2025.

The acquisition includes the entire portfolio of Bioness products as well as its research and development pipeline.

Bioness manufactures neuromodulation and advanced rehabilitation medical devices through its PNS system and premium advanced rehabilitation solutions.

PNS Systems help patients suffering from pain after surgery on an extremity, which affects over 16 million patients each year globally, and addresses the growing need to reduce opioid usage.

Rehabilitation solutions includes electrical stimulation exoskeletal devices for both the upper and lower extremities, robotic gait and fall safety systems, and high-tech, interactive software learning and recovery assessment platforms.

Table of Co n tents

The Bioness acquisition provided additional net sales in 2021 totaling $34.0 million since the date of acquisition.

We incurred transaction costs of $8.0 million and restructuring charges of $2.5 million related to the Bioness Acquisition during 2021.

We expect total restructuring expenses related to the Bioness Acquisition to be $2.9 million.

We expect to benefit significantly from the Bioness Acquisition by capitalizing on the processes below:

• Accelerating Bioness’ revenue growth by leveraging our existing global network of sales representatives calling on orthopedic, pain and podiatric physicians;

• Expanding market access and reimbursement processing capabilities as we estimate Bioness medical devices address total global market opportunities approaching $8 billion per year.

On July 15, 2020, we entered into an Option and Equity Purchase Agreement (Option Agreement) with CartiHeal (2009) Ltd.

(CartiHeal), a privately-held company headquartered in Israel and the developer of the proprietary Agili-C™ implant for the treatment of joint surface lesions in traumatic and osteoarthritic joint, and its shareholders.

The agreement provides us with an exclusive option to acquire 100% of CartiHeal’s shares under certain conditions (Call Option), and provides CartiHeal with a put option that would require us to purchase 100% of CartiHeal’s shares under certain conditions (Put Option).

On August 2, 2021, CartiHeal provided us the required evidence of the Agili-C device clinical trial’s success demonstrating the superiority of the Agili-C implant over the surgical standard of care, including microfracture and debridement, for the treatment of cartilage or osteochondral defects, in both osteoarthritic knees and knees without degenerative changes.

As a result, with Board of Director approval, we deposited $50.0 million into escrow towards the potential purchase price of CartiHeal.

In order to support the completion, if needed, we will purchase an additional 338,089 of CartiHeal Series G Preferred Shares for $5.0 million.

We intend to exercise our Call Option upon FDA approval of the Agili-C device with a label consistent in all respects with the clinical trial.

CartiHeal submitted the non-clinical module of the PMA in January 2021 and submitted the final, clinical module of a Modular PMA in the August 2021 seeking FDA approval.

The review process is progressing according to plan and regulatory feedback received to date from the FDA has been addressed in a timely manner.

We currently believe the required FDA approval will occur in the first half of 2022 and expect to acquire all of the shares of CartiHeal, excluding those we already own, for $314.9 million, payable at closing in the second quarter of 2022.

Upon the achievement of certain sales milestones, an additional $135.0 million could become payable after closing.

Loss per share - basic and diluted $ (2.59) $ (0.15)

(1) See below under Results of Operations-Adjusted EBITDA for a reconciliation of net (loss) income to Adjusted EBITDA.

Significant transactions

On July 12, 2022, we acquired 100% of CartiHeal (2009) Ltd.

(“CartiHeal”), a privately held company headquartered in Israel and the developer of the proprietary Agili-C implant for the treatment of joint surface lesions in traumatic and osteoarthritic joints.

We purchased CartiHeal (“CartiHeal Acquisition”) for an aggregate purchase price of approximately $315.0 million and an additional $135.0 million, becoming payable after closing upon the achievement of a certain sales milestone (Sales Milestone Consideration).

We paid $100.0 million of the aggregate purchase price upon closing, consisting of a $50.0 million escrow deposit and $50.0 million from a financing arrangement.

We also paid approximately $8.6 million of CartiHeal’s transaction-related fees and expenses and deferred $215.0 million (“Deferred Amount”) of the aggregate purchase price otherwise due at closing until the earlier of the achievement of certain milestones or the occurrence of certain installment payment dates.

We recognized a gain of $23.7 million due to the change in fair value of our equity method investment in CartiHeal as a result of the purchase.

The gain was recognized in other income within the consolidated statement of operations and comprehensive (loss) income.

We previously entered into an Option and Equity Purchase Agreement with CartiHeal (“Option Agreement”) in July 2020.

The Option Agreement provided us with an exclusive option to acquire 100% of CartiHeal’s shares (“Call Option”), and provided CartiHeal with a put option that would require us to purchase 100% of CartiHeal’s shares under certain conditions.

In August 2021, CartiHeal achieved pivotal clinical trial success, as defined in the Option Agreement, for the Agili-C implant.

In order to preserve our Call Option, in accordance with the Option Agreement and upon approval of the Board of Directors (“BOD”), we deposited $50.0 million into escrow in August 2021 for the potential acquisition of CartiHeal, which was included in restricted cash on the consolidated balance sheet at December 31, 2021.

In April 2022, we exercised our Call Option to acquire all of the remaining shares of CartiHeal, excluding shares we already owned.

Our decision to exercise the Call Option followed the FDA’s March 29, 2022 premarket approval of CartiHeal’s Agili-C implant.

On June 17, 2022 the Company entered into an amendment to the Option Agreement with CartiHeal (“CartiHeal Amendment”) and Elron Ventures Limited, in its capacity as the shareholder representative, that provided for deferred payment of the consideration for CartiHeal to be paid in multiple tranches, one of which was $50.0 million due upon the earliest to occur — the publication in a peer-reviewed orthopedic journal of an article that presents the results of the pivotal clinical trial (“First Paper Milestone”) or July 1, 2023.

Pursuant to the CartiHeal Amendment, we agreed to pay interest on each tranche of the Deferred Amount at a rate of 8.0% annually, until such tranche is paid.

The First Paper Milestone under the Option Agreement occurred on February 13, 2023, triggering our obligation to make the first $50.0 million payment, plus applicable interest, under the Option Agreement.

On February 27, 2023, we entered into a settlement agreement (the “Settlement Agreement”) with Elron Ventures Ltd.

(“Elron” and together with the Company, the “Parties”) as representative of CartiHeal’s selling securityholders under the Option Agreement collectively, the “Former Securityholders”).

Pursuant to the Settlement Agreement, Elron, on behalf of the Former Securityholders, have agreed to forbear from initiating any legal action or proceedings relating to non-payment of any obligations arising under the Option Agreement during a period of 30 calendar days (the “Interim Period”) in exchange for (i) a one-time non-refundable amount of $10.0 million and (ii) a one-time non-refundable payment of $0.2 million to Elron to be used in accordance with the expense fund provisions of the Option Agreement.

The Interim Period expired on March 29, 2023 and we did not exercise our right to extend the Interim Period.

In addition, the Parties mutually released any further claims under the Option Agreement and related transaction documents, including without limitation a release by the Former Securityholders of any rights to enforce the provisions of the Option Agreement or make further monetary claims against us and/or our respective affiliates and representatives.

Upon execution of the Settlement Agreement, we transferred 100% of our shares in CartiHeal to a trustee (the “Trustee”) for the benefit of the Former Securityholders.

This transfer is irrevocable, unless and until the Former Securityholders receive the entire amount of the aggregate purchase price and corresponding milestones and any interest to be accrued thereon in accordance with the provisions of the Option Agreement prior to the expiration of the Interim Period.

We have no ownership interest and no voting rights during the Interim Period.

We have concluded that upon execution of the Settlement Agreement, the Company ceased to control CartiHeal for accounting purposes, and therefore, have deconsolidated CartiHeal (the “Deconsolidation”, or “Disposal”) effective February 27, 2023.

We also concluded that this disposal will be treated as a discontinued operation.

The loss upon disposal is estimated to be $60.6 million and will be recorded within loss from discontinued operations due at closing.

Amended 2019 Credit Agreement

On July 11, 2022, we amended our Credit and Guaranty Agreement, dated as of December 6, 2019 (as amended on October 29, 2021, July 11, 2022 and March 31, 2023, the “Amended 2019 Credit Agreement”) in conjunction with the CartiHeal Acquisition to, among other things, provide for an $80.0 million term loan facility (“Term Loan Facility”).

On March 31, 2023, we further amended our Amended 2019 Credit Agreement to, among other things, modify certain financial covenant provisions, waive the noncompliance at December 31, 2022 and increase the applicable interest rate.

Refer to Liquidity and Capital Resources—Credit Facilities for further information.

We submitted a premarket approval (“PMA”) supplement to the FDA in December 2020 seeking approval of an expanded indication for EXOGEN, specifically, for the adjunctive treatment of acute and delayed metatarsal fractures to reduce the risk of non-union.

This PMA supplement was based on and supported by clinical data in metatarsal fractures from the ongoing B.O.N.E.S.

In April 2021, we received a letter from the FDA identifying certain deficiencies in the PMA supplement that must be addressed before the FDA can complete its review of the PMA supplement.

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study, and requests for re-analyses of certain data and provision of other information to support the findings.

We are in the process of performing ancillary analysis on the data as requested by the FDA and remain engaged in discussions with the FDA to address the agency’s concerns.

In addition, in December 2021, we completed the follow up of all patients in the scaphoid B.O.N.E.S.

We plan on submitting a PMA supplement for this indication in the fourth quarter of 2022.

We can give no assurance that we will be able to resolve the deficiencies identified by the FDA in a timely manner, or at all.

Consequently, the FDA’s decision on the PMA supplements may be delayed beyond the time originally anticipated.

Moreover, if our responses do not satisfy the FDA’s concerns, the FDA may not approve our PMA supplements seeking to expand the indications for use of EXOGEN in metatarsal and scaphoid fractures as proposed.

We continue to make equity investments in companies that commercialize or could in the future commercialize technologies for sports medicine, wound healing and orthopedic surgical procedures to align with our strategy of expanding our offerings.

Our investments totaling $11 million in 2021 permit, in certain cases, exclusive sales and distribution rights, co-development arrangements, and/or insight into the research and development progress.

In December 2021, we completed the follow-up of all patients in the scaphoid B.O.N.E.S.

In October 2022, we elected to withdraw our PMA submission on metatarsal fractures.

Presently, we are in the process of finalizing our PMA supplement for the scaphoid indication.

In the scaphoid study analysis plan, the applicable feedback received from the FDA in the prior metatarsal submission was applied prospectively and as such we believe this second filing will address the FDA’s concerns on the study design.

Assuming positive outcome with the FDA of the scaphoid review, we would consider resubmitting the metatarsal data at a later date.

We can, however, give no assurance that the scaphoid review will be accepted by the FDA of, if accepted, that we will be able to resolve the deficiencies in the PMA supplements identified by the FDA in a timely manner, or at all.

Consequently, the FDA’s decision on the PMA supplements might be delayed beyond the time originally anticipated.

Moreover, if our responses do not satisfy the FDA’s concerns, the FDA might not approve our PMA supplements seeking to expand the indications for use of EXOGEN in scaphoid and metatarsal fractures as proposed.

During the second quarter of 2022, prior to obtaining the results from our Phase 2 trial, we elected to discontinue the development of MOTYS, to focus our resources on other priorities, including the integration of our acquisitions and our expanded R&D and product development portfolio we inherited with these acquisitions.

We incurred $4.3 million during the year ended December 31, 2022, and we expect to incur approximately $5.0 million to $6.0 million exclusively to fulfill our remaining regulatory obligations related to our Phase 2 trial (“MOTYS Costs”).

Consolidated Appropriations Act

In July 2022, in connection with the Consolidated Appropriations Act, 2021 (“CAA”), the Centers for Medicare and Medicaid Services (“CMS”) began utilizing new pricing information the Company reported to it pursuant to the newly adopted reporting obligations to adjust the Medicare payment to healthcare providers using our Durolane and Gelsyn-3 products.

COVID-19 pandemic impact

In 2020, the COVID-19 pandemic spread around the world and in the United States.

New variants of the virus have emerged, some of which have shown to be more contagious.

The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices.

Federal and state governments have implemented measures in an effort to prevent or minimize the spread of the virus, and ongoing effects of the pandemic, including social distancing, travel restrictions, border closures, limitations on public gatherings, mandatory closure or reduced capacity of businesses, work from home, supply chain logistical changes and other measures, which caused global business disruptions and significant volatility in U.S.

and international debt and equity markets.

Our business, results of operations and financial condition have been and may continue to be, materially impacted by fluctuations in patient visits and elective procedures and any future temporary cessations of elective procedures and could be further impacted by delays in payments from customers, supply chain interruptions, extended “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic.

Furthermore, the long-term impact of COVID-19 on our business will depend on many factors, including, but not limited to, the duration and severity of the pandemic, the spread of new variants of the virus, new and ongoing measures taken in response to the pandemic, the availability, adoption and effectiveness of vaccines and treatments, the impact on economic activity from the pandemic and actions taken in response and the resulting impact it has on our partners, patients and communities in which we operate, all of which continue to be uncertain.

As of the date of this Annual Report on Form 10-K, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results of operations is uncertain.

To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial condition, it may also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products or therapies, consolidation in the healthcare industry, intensified pricing pressure as a result of changes in the purchasing behavior of hospitals and maintenance of our numerous contractual relationships.

For additional information on the risks we may face as a result of COVID-19, refer to Part I, Item 1A.

Risk Factors – Our business may continue to experience adverse impacts as a result of the COVID-19 pandemic in our 2021 10-K.

Our business, results of operations and financial condition have been and may continue to be materially impacted by fluctuations in patient visits and elective procedures and any future temporary cessations of elective procedures as a result of the COVID-19 pandemic and could be further impacted by delays in payments from customers, supply chain interruptions, “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic.

As of the date of these financial statements, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results of operations is uncertain.

To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial condition, it might also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products or therapies, consolidation in the healthcare industry, intensified pricing pressure as a result of changes in the purchasing behavior of hospitals and maintenance of our numerous contractual relationships.

Components of our results of operations

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In certain international markets, we also sell to independent distributors on prearranged business terms, who manage or maintain the sales relationship with their physician customers.

Refer to Note 2.

Summary of significant accounting policies to our Notes to consolidated financial statements for further information.

We generally recognize revenue at the point in time when control is transferred to the customer, for example, when the product are shipped to the customer, when the patient has accepted the product or upon consumption in a surgical procedure.

Refer to Item 8.

Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 2.

Summary of significant accounting policies for further information.

We generally recognize revenue at the point in time when control is transferred to the customer, for example, when the product is shipped to the customer, when the patient has accepted the product or upon consumption in a surgical procedure.

Cost of sales

Our cost of sales primarily consist of costs of products purchased from our third-party suppliers, direct labor and allocated overhead associated with manufacturing and assembly, excess and obsolete inventory charges, shipping, inspection and related costs incurred in making our products available for sale or use.

Our cost of sales primarily consists of costs of products purchased from our third-party suppliers, direct labor and allocated overhead associated with manufacturing and assembly, excess and obsolete inventory charges, shipping, inspection and related costs incurred in making our products available for sale or use.

In addition, cost of sales includes depreciation related to production as well as amortization of product-related intellectual property and distribution rights associated with commercialized products.

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We expect net sales and product mix to vary quarter by quarter and therefore our gross profit will likely fluctuate from quarter to quarter.

Table of Co n tents

Selling, general and administrative expense

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Our research and development expenses may vary substantially from period to period based on the timing of research and development activities.

We are focused on internal research and development to broaden our product portfolio across all verticals, expand our Exogen system product label and undertake clinical research to support commercialization of all of our products.

As a result, we expect our research and development expenses to increase to the mid-single digits as a percentage of net sales as we introduce new products, extend existing product lines and expand indications.

We are focused on internal research and development to broaden our product portfolio across all verticals and undertake clinical research to support commercialization of all of our products.

As a result, we expect our research and development expenses to vary from low to the mid-single digits as a percentage of net sales as we introduce new products, extend existing product lines and expand indications.

We see significant opportunity to develop innovative and clinically differentiated products in-house with our experienced research and development team.

In addition, we are planning preclinical and animal model studies for MOTYS and PROcuff.

Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

Restructuring costs

We have restructured portions of our operations and future restructuring activities are possible.

Identifying and calculating the cost to exit operations requires certain assumptions to be made, the most significant of which are anticipated future liabilities.

Although our estimates have been reasonably accurate in the past, significant judgment is required, and these estimates and assumptions may change as additional information becomes available and facts or circumstances change.

Restructuring costs are recorded at estimated fair value.

Key assumptions in determining the restructuring costs include negotiated terms and payments to terminate contractual obligations.

Restructuring costs primarily consist of employee severance, legal, consulting and temporary labor expenses.

During the periods presented, restructuring costs were associated in 2021 with headcount reductions related to 2021 acquisitions and in 2020 with restructuring efforts in our international business to improve operating efficiency.

Key assumptions in determining the restructuring costs include headcount reductions, as well as terms and negotiated payments to terminate certain contractual obligations.

Restructuring costs recorded in 2022 are the result of:

i) aligning our organizational and management cost structure to improve profitability and cash flow and ii) headcount reductions related to 2021 acquisitions.

Restructuring costs recorded in 2021 were the result of headcount reductions related to acquisitions.

Restructuring costs recorded in 2020 relate to efforts in our international business to improve operating efficiency.

Depreciation and amortization

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Interest expense

Interest expense primarily consists of interest on our indebtedness, which currently consists of our term loan and revolving credit facility, which was incurred pursuant to the Credit Agreement, as amended.

We have entered into interest rate swaps to limit our exposure to changes in the variable interest rate on our term loan.

We have previously entered into interest rate swaps to limit our exposure to changes in the variable interest rate on our term loan.

Interest expense includes any fair value gain or losses on these swaps.

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Other expense (income) may also include certain nonrecurring items.

Table of Co n tents

Income tax expense

Bioventus LLC (BV LLC) is a partnership for U.S.

The Company’s subsidiary Bioventus LLC (“BV LLC”) is a partnership for U.S.

federal tax purposes.

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The TRA obligates us to pay to the Continuing LLC Owner 85% of the amount of any realized tax benefits (or in some circumstances are deemed to realize) resulting from (i) increases in the tax basis of assets of BV LLC as a result of (a) any future redemptions or exchanges of LLC Interests and (b) certain distributions (or deemed distributions) by BV LLC and (ii) certain other tax benefits arising from our making payments under the TRA.

For more information, see Part II.

Financial Statements—Note 11.

Income Taxes to our consolidated financial statements for additional information.

For more information, see Item 8.

Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 11.

Income taxes for additional information.

Income tax expense includes U.S.

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Non-GAAP Financial Measures - Adjusted EBITDA

We present Adjusted EBITDA, a non-GAAP financial measure because we believe it is a useful indicator of our operating performance.

Our management uses Adjusted EBITDA principally as a measure of our operating performance and believes that Adjusted EBITDA is useful to our investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours.

Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections.

We define Adjusted EBITDA as net income from continuing operations before depreciation and amortization, provision of income taxes and interest expense, adjusted for the impact of certain cash, non-cash and other items that we do not consider in our evaluation of ongoing operating performance.

These items include equity compensation, change in fair value of contingent consideration, COVID-19 benefits, succession and transition charges, loss on impairment of intangible assets, losses associated with debt refinancing, restructuring costs, acquisition and integration costs, inventory step-up costs, equity loss in non-consolidated investments, change in fair value of contingent consideration, impairments related to variable interest entity, foreign currency impact and other costs.

Adjusted EBITDA by segment is comprised of net sales and costs directly attributable to a segment, as well as an allocation of corporate overhead costs.

The allocation of corporate overhead costs is determined based on various methods but is primarily based on a ratio of net sales by segment to total consolidated net sales.

See table within results of operations for a reconciliation of net income to Adjusted EBITDA.

We present Adjusted EBITDA, a non-GAAP financial measure, because we believe it is a useful indicator that management uses as a measure of operating performance as well as for planning purposes, including the preparation of our annual operating budget and financial projections.

We believe that Adjusted EBITDA is useful to our investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours.

We define Adjusted EBITDA as net (loss) income from continuing operations before depreciation and amortization, provision of income taxes and interest expense, net, adjusted for the impact of certain cash, non-cash and other items that we do not consider in our evaluation of ongoing operating performance.

These items include acquisition and related costs, remeasurement gains and losses on investments, impairments on goodwill, restructuring and succession charges, equity compensation expense, equity loss in unconsolidated investments, foreign currency impact, and other items.

Adjusted EBITDA by segment is comprised of net sales and costs directly attributable to a segment, as well as an allocation of corporate overhead costs primarily based on a ratio of net sales by segment to total consolidated net sales.

Non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S.

These measures might exclude certain normal recurring expenses.

Therefore, these measures might not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the U.S.

GAAP financial measures.

Additionally, other companies might define their non-GAAP financial measures differently than we do.

Investors are encouraged to review the reconciliation of the non-GAAP measure provided in this Annual Report, including in the table above, to its most directly comparable U.S.

GAAP measure.

Results of Operations

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Research and development expense 5.1 % 4.4 %

Change in fair value of contingent consideration 0.2 % — %

Restructuring costs 1.3 % 0.6 %

Change in fair value of contingent consideration 1.3 % 0.2 %

Depreciation and amortization 4.1 % 2.0 %

Impairment of goodwill 36.9 % — %

Impairment of variable interest entity assets — % 1.3 %

Operating income 2.8 % 6.6 %

Table of Co n tents

The following table presents a reconciliation of net income to Adjusted EBITDA for the periods presented:

Operating (loss) income (49.0 %) 2.8 %

The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:

Years Ended December 31,

(in thousands) 2022 2021

Net income $ 9,586 $ 14,722

Income tax (benefit) expense (1,966) 1,192

Interest expense 1,112 9,751

Net (loss) income $ (213,391) $ 9,586

Interest expense, net 25,795 1,112

Income tax benefit (50,508) (1,966)

Depreciation and amortization (a)

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Acquisition and related costs (b)

Restructuring and succession charges (c)

Impairments related to variable interest entity (d)

27,081 22,964

Remeasurement gain on equity method investment (c)

Restructuring and succession charges (d)

Equity compensation (e)

17,585 (4,512)

COVID-19 benefits, net (f)

Equity loss in unconsolidated investments (g)

Foreign currency impact (h)

Other items (i)

Equity loss in unconsolidated investments (f)

Foreign currency impact (g)

Impairment of goodwill (h)

Asset impairment charges (i)

Impairments related to variable interest entity (j)

Other items (k)

Adjusted EBITDA $ 66,309 $ 80,759

(a) Includes depreciation and amortization of $26,471 and $21,169 in cost of sales and $8,363 and $7,439 in operating expenses, with the balance in research and development, presented in the consolidated statements of operations and comprehensive income.

(a) Includes for the years ended December 31, 2022 and 2021, respectively, depreciation and amortization of $45,622 and $26,471 in cost of sales and $21,181 and $8,404 in operating expenses presented in the consolidated statements of operations and comprehensive (loss) income.

(b) Includes acquisition and integration costs related to completed acquisitions, amortization of inventory step-up associated with acquired entities, and changes in fair value of contingent consideration.

(c) Costs incurred during 2021 were the result of adopting acquisition related restructuring plans to reduce headcount, reorganize management structure, consolidate certain facilities, and costs related to executive transitions.

Costs incurred during 2020 related to a shift from direct to an indirect distribution model in our International business to improve performance.

Various international subsidiaries were dissolved and/or merged into other BV LLC entities.

(d) Represents loss on impairment of Harbor’s long-lived assets and the Company’s investment in Harbor.

(e) The year ended December 31, 2021 includes compensation expense resulting from awards granted under the Company’s equity based compensation plans in effect after its IPO.

These expenses were entirely offset and resulted in income due to the change in fair market value of the BV LLC Phantom Profits Interest Plan (Phantom Plan) accrued liability due to expected pricing with our IPO.

The year ended December 31, 2020 includes compensation expense resulting from the BV LLC’s management incentive plan and Phantom Plan as well as the change in fair market value of the associated liability due to the impact of the COVID-19 pandemic on our business.

(f) Includes income resulting from the CARES Act offset by additional cleaning and disinfecting expenses and contract termination fees for canceled events.

(g) Includes CartiHeal equity investment losses.

(h) Includes realized and unrealized gains and losses from fluctuations in foreign currency.

(i) Other items primarily includes charges associated with strategic transactions, such as potential acquisitions, debt retirement and modification costs and public company preparation costs, which primarily includes accounting and legal fees.

We define Adjusted EBITDA as net income before depreciation and amortization, provision of income taxes and interest expense, adjusted for the impact of certain cash, non-cash and other items that we do not consider in our evaluation of ongoing operating performance.

These items include acquisition and related costs, restructuring and succession charges, impairments related to variable interest entity, equity compensation, COVID-19 expense (benefit), equity loss in unconsolidated investments, foreign currency impact, and other items.

Table of Co n tents

(c) Represents the gain on remeasurement of the Company’s equity method investment in CartiHeal based upon the fair value of consideration transferred for the CartiHeal Acquisition.

(d) Costs incurred were the result of adopting restructuring plans to reduce headcount, reorganize management structure, and to consolidate certain facilities, and costs related to executive transitions .

(e) The year ended December 31, 2022 includes compensation expense resulting from awards granted under the Company’s equity-based compensation plans in effect after its initial public offering (“IPO”).

The year ended December 31, 2021 also includes the expense and the change in fair value of the liability-classified awards granted under the compensation plans in effect prior to the Company’s IPO.

(f) Represents CartiHeal equity investment losses.

(g) Includes realized and unrealized gains and losses from fluctuations in foreign currency.

(h) Represents a non-cash impairment charge due to the decline in the Company’s market capitalization.

(i) Represents an asset impairment charge of our investment in Trice Medical, Inc.

(j) Represents the loss on impairment of Harbor Medtech Inc.’s (“Harbor”) long-lived assets and the Company’s investment in Harbor.

(k) Other items primarily includes charges associated with strategic transactions, such as potential acquisitions;

public company preparation costs, which primarily includes accounting and legal fees;

and MOTYS Costs.

We incurred $4.3 million during the year ended December 31, 2022 and we expect to incur approximately $5.0 million to $6.0 million exclusively to fulfill our remaining MOTYS Costs.

Years Ended December 31, Change

(in thousands, except for percentage) 2022 2021 $ %

$ 387,553 $ 293,697 $ 93,856 32.0 %

International 43,345 27,464 15,881 57.8 %

Pain Treatments $ 194,830 $ 201,068 $ (6,238) (3.1 %)

Restorative Therapies 134,214 103,009 31,205 30.3 %

Surgical Solutions 126,207 83,476 42,731 51.2 %

net sales 455,251 387,553 67,698 17.5 %

Net sales increased $93.9 million, or 32.0%, of which acquisitions contributed $39.4 million.

Revenue also increased due to volume growth as revenue in 2020 was negatively affected by the economic impact of the COVID-19 pandemic.

These increases were partially offset by more treatments being sold under contracts with major insurers at lower prices.

Revenue increases by vertical were:

i) Pain Treatments—$44.5 million;

ii) Restorative Therapies—$26.4 million;

and iii) Surgical Solutions—$23.0 million.

International

Pain Treatments 21,495 20,539 956 4.7 %

Restorative Therapies 20,420 18,563 1,857 10.0 %

Surgical Solutions 14,951 4,243 10,708 NM

Total International net sales 56,866 43,345 13,521 31.2 %

Total net sales $ 512,117 $ 430,898 $ 81,219 18.8 %

(NM = Not Meaningful)

Net sales increased $67.7 million, or 17.5%, of which acquisitions contributed $65.3 million.

Revenue also increased due to sales volume growth, as revenue in 2020 was negatively affected by the economic impact of the COVID-19 pandemic.

Changes by vertical were:

(i) Pain Treatments—slightly declined due to more treatments being sold under contracts with major insurers resulting from higher than expected rebate claims and price competition within osteoarthritic joint pain treatment market, partially offset with an increase in sales volume;

ii) Restorative Therapies—$31.2 million net sales increase due to acquisitions, partially offset with a volume decline;

and (iii) Surgical Solutions—$42.7 million net sales increase due to acquisitions and volume growth.

International

Net sales increased $13.5 million, or 31.2%, due to acquisitions.

Net sales also slightly increased due to volume growth as sales during the first quarter of 2021 were negatively affected by the economic impact of the COVID-19 pandemic.

Gross profit and gross margin

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Total $ 331,080 $ 302,706 $ 28,374 9.4 %

Gross margin Years Ended December 31,

Years Ended December 31,

2022 2021 Change

4 unchanged sentences

Gross margin decreased due to product mix including products introduced as a result of acquisitions.

Gross margin was also negatively impacted by 1.3% from additional amortization of acquisition related assets in 2021 compared with the prior year.

In addition, we have experienced higher expense related to supply chain delays.

International

5 unchanged sentences

Selling, general and administrative expense $ 332,606 $ 254,253 $ 78,353 30.8 %

Table of Co n tents

Selling, general and administrative expenses increased $78.4 million, or 30.8%, primarily due to:

i) the impact of the COVID-19 pandemic on our business in 2020 compared to normalized spending in 2021;

ii) costs incurred as a result of being a public company in 2021 and iii) acquisitions.

The rise in expenses were primarily within increased compensation related expenses of $38.0 million, increased equity compensation excluding the change in fair value of $16.0 million, increased legal and accounting expenses of $13.5 million, increased consulting and travel related expenses of $11.0 million and increased corporate insurance and employee health insurance of $7.5 million.

These increases were partially offset by a higher change in fair value of our accrued equity-based compensation resulting in an increased net recovery of $29.9 million in expense compared to the prior year.

The change in fair value for 2021 was due to adjustments to reflect the difference between the expected pricing from the then-pending IPO and the actual offering price.

The change in fair value for 2020 was due to the impact of the COVID-19 pandemic on our business.

Research and development expenses

(i) an increase in compensation related expenses of $38.2 million, partially driven by acquisitions;

(ii) an increase in equity-based compensation of $20.9 million, which includes a $23.4 million decrease in fair market value during 2021 of accrued equity-based compensation resulting from the difference between the pricing from the anticipated offering price of the IPO and the actual offering price;

and (iii) an increase in consulting and travel related expenses of $13.6 million.

Research and development expense

Years Ended December 31, Change

1 unchanged sentence

Research and development expense $ 25,941 $ 19,039 $ 6,902 36.3 %

Research and development expense increased by $7.8 million, or 70.0%, partially due to our 2021 acquisitions contributing an additional $3.8 million as well as more normalized spending versus our cost reduction efforts implemented during 2020 as a result of the COVID-19 pandemic.

In addition, compensation related expenses increased $3.1 million and equity compensation excluding the change in fair value increased by $1.2 million in 2021 compared to prior year.

These increases were partially offset by a higher change in fair value of our accrued equity-based compensation resulting in an increased net recovery of $2.0 million in expense.

The change in fair value during 2021 was due to adjustments to reflect the difference between the expected pricing from the then-pending IPO and the actual offering price.

The change in fair value during 2020 was due to the impact of the COVID-19 pandemic on our business.

Research and development expense increased by $6.9 million, or 36.3%, primarily due to:

(i) an increase of $2.8 million in compensation related expenses partially driven by acquisitions;

(ii) an increase of $2.1 million in consulting costs;

and (iii) an increase in equity-based compensation of $1.2 million, which includes a $1.8 million decrease in fair market value during 2021 of accrued equity-based compensation resulting from the difference between the anticipated public offering price of the IPO and the actual offering price.

Restructuring costs

Years Ended December 31, Change

(in thousands, except for percentage) 2022 2021 $ %

Restructuring costs $ 6,779 $ 2,487 $ 4,292 172.6 %

Restructuring costs for the year ended December 31, 2022 primarily included costs incurred as a result of an initiative to align the Company’s organizational and management cost structure to improve profitability and cash flow through headcount reduction and cutting third-party related costs.

Restructuring in 2022 also included costs to reduce headcount and to reorganize management structure for acquired businesses.

Costs incurred for the year ended December 31, 2021 included costs to reduce headcount, reorganize management structure and to consolidate certain facilities for acquired businesses.

Change in fair value of contingent consideration

The $0.8 million change in fair value of Bioness Acquisition contingent consideration for the year ended December 31, 2021 resulted from the change in present value of discounted cash flows due to the passage of time.

Years Ended December 31, Change

(in thousands, except for percentage) 2022 2021 $ %

Change in fair value of contingent consideration $ 6,452 $ 829 $ 5,623 NM

The increase in expense due to the change in fair value of contingent consideration during the year ended December 31, 2022 compared to the prior year was primarily due to the $5.4 million of expense stemming from the contingent consideration generated by the CartiHeal Acquisition.

Depreciation and amortization

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Depreciation and amortization $ 21,153 $ 8,363 $ 12,790 152.9 %

Depreciation and amortization increased primarily due to acquisitions.

Depreciation and amortization increased during the year ended December 31, 2022 compared with the prior year primarily due to acquisitions, partially offset by lower amortization expense in the current year as certain assets became fully amortized.

Impairment of goodwill

We incurred a $189.2 million non-cash goodwill impairment charge during the year ended December 31, 2022 due to the decline in our market capitalization.

The non-cash goodwill impairment charge removed all of the goodwill associated with the U.S.

Impairment of variable interest entity assets

We terminated the Harbor Collaboration Agreement on June 8, 2021 which resulted in a $5.7 million impairment on Harbor’s long-lived asset balances, of which $5.2 million was recorded in loss attributable to noncontrolling interest.

Other expense (income)

We terminated the Collaboration Agreement with Harbor on June 8, 2021 resulting in a $5.7 million impairment on Harbor’s long-lived asset balances, of which $5.2 million was recorded in loss attributable to noncontrolling interest.

Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4.

Acquisitions and investments of this Annual Report for further details concerning the impairment and deconsolidation of Harbor.

Other (income) expense

Years Ended December 31, Change

(in thousands, except for percentage) 2022 2021 $ %

Interest expense $ 1,112 $ 9,751 $ (8,639) (88.6 %)

Other expense (income) $ 3,329 $ (4,428) $ 7,757 (175.2 %)

Interest expense decreased $8.6 million due to the following:

i) the change in fair value of our interest rate swap resulting in interest income during 2021 compared to interest expense in 2020;

ii) the settlement of our equity participation right (EPR) liability during 2021 resulting in interest income compared to EPR interest expense in 2020;

and iii) decrease in interest from a lower outstanding credit facility balance during 2021.

Other expense (income) increased $7.8 million primarily due to i) receiving $4.1 million in Provider Relief Funds in 2020 under the CARES Act;

ii) an impairment of $1.4 million from our Harbor investment in 2021 and iii) an increase of $1.4 million in net losses resulting from our equity investment in CartiHeal.

Table of Co n tents

Income tax expense

Interest expense, net $ 25,795 $ 1,112 $ 24,683 NM

Other (income) expense $ (12,944) $ 3,329 $ (16,273) NM

Interest expense, net increased $24.7 million due to:

(i) an increase of 13.5 million for interest on the Deferred Amount related to the CartiHeal Acquisition;

(ii) an increase of $2.9 million for interest associated with our October 2021 debt refinancing;

(iii) an increase in interest of $4.9 million due to higher interest rates;

(iv) an increase of $2.7 million on the additional debt used to partially fund the CartiHeal Acquisition;

(v) an increase of $2.3 million due to higher margin rates;

and (vi) the settlement of our equity participation right (EPR) liability in 2021 resulting in interest income of $2.8 million.

These changes were partially offset by a $3.7 million increase in interest income resulting from the change in the fair value of our interest rate swap.

Other (income) expense changed $16.3 million due to:

(i) the $23.7 million fair market value remeasurement gain on the CartiHeal equity investment in 2022;

(ii) an impairment of our Harbor investment of $1.4 million in 2021;

and (iii) less equity losses of $0.9 million in 2022 as CartiHeal was acquired in July 2022.

These gains were partially offset with an asset impairment charge of $10.3 million on our investment in Trice Medical, Inc.

Income tax (benefit) expense

Years Ended December 31, Change

(in thousands, except for percentage) 2022 2021 $ %

Income tax (benefit) expense $ (1,966) $ 1,192 $ (3,158) (264.9) %

Income tax (benefit) expense $ (50,508) $ (1,966) $ (48,542) NM

Effective tax rate 19.1 % 25.8 % (6.7 %)

We incurred an income tax benefit in 2021 primarily due to the change in structure resulting from our IPO and associated Up C partnership structure.

Income tax benefit for the year ended December 31, 2022 was primarily due to net losses and uncertain tax positions.

The income tax benefit for the year ended December 31, 2021 resulted from our IPO and associated Up C partnership structure.

Noncontrolling interest

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Continuing LLC Owner $ 54,240 $ 4,124 $ 50,116 NM

Harbor 5,665 1,689 3,976 NM

Other noncontrolling interest 447 5,665 (5,218) (92.1 %)

Total $ 54,687 $ 9,789 $ 44,898

NM = Not meaningful

Subsequent to the IPO and Transactions, we are the sole managing member of BV LLC.

Subsequent to the IPO and related transactions, we are the sole managing member of BV LLC in which we own 79.7%.

We have a majority economic interest, the sole voting interest in, and control the management of BV LLC.

As a result, we consolidate the financial results of BV LLC and report a non-controlling interest representing the portion owned by Smith & Nephew, Inc.

(Continuing LLC Owner).

Since the IPO until the Misonix Acquisition, the Continuing LLC Owner non-controlling interest was 27.8%.

After the Misonix Acquisition it decreased to 21.0%.

We stopped consolidating Harbor upon the termination of the Collaboration Agreement, as we ceased being the primary beneficiary because we no longer had the power to direct Harbor’s significant activities.

Prior to the deconsolidation, our partial ownership and exclusive Collaboration Agreement with Harbor resulted in loss attributable to noncontrolling interest through June 8, 2021.

The $4.0 million increase in loss was primarily due to the $5.7 million impairment on Harbor’s long-lived asset balances of which $5.2 million is attributable to the non-controlling interest.

This increase was partially offset by lower Harbor losses resulting from only one quarter in 2021 versus four quarters in 2020.

As a result, we consolidate the financial results of BV LLC and report a non-controlling interest representing the 20.3% that is owned by the Continuing LLC Owner.

The decline in losses associated with other noncontrolling interest resulted from our deconsolidation of Harbor upon the termination of the Collaboration Agreement during the second quarter of 2021.

We incurred an impairment charge of $5.7 million as a result of which $5.2 million was attributable to noncontrolling interest.

Segment Adjusted EBITDA

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$ 56,231 $ 70,640 $ (14,409) (20.4 %)

International $ 10,119 $ 3,191 $ 6,928 NM

Adjusted EBITDA increased $1.4 million or 2.0% primarily due to a $59.1 million increase in gross profit resulting from the increase in sales.

This increase was partially offset by the increase in compensation related charges previously discussed, operating costs of acquired companies, as well as travel related expenses and public company costs.

International $ 10,078 $ 10,119 $ (41) (0.4) %

Adjusted EBITDA increased $6.9 million primarily due to a $10.1 million increase in gross profit resulting from the increase in sales.

This increase was partially offset by the increase in compensation related charges previously discussed as well as an increase in consulting expenses.

Adjusted EBITDA decreased $14.4 million, or 20.4%, primarily due to an increase in compensation related charges as previously discussed as well as higher public company costs, partially offset by an increase in gross profit.

International

Adjusted EBITDA slightly decreased primarily due to acquisitions and increases in consulting and travel related expenses.

These increases were mostly offset with an increase in gross profit resulting from larger net sales.

Liquidity and Capital Resources

2 unchanged sentences

We expect these needs to continue as we develop and commercialize new products and further our expansion into international markets.

We believe that our existing cash and cash equivalents, borrowing capacity under our revolving credit facility and cash flow from operations will be enough to meet our anticipated cash requirements for at least the next twelve months.

We anticipate that to the extent that we require additional liquidity, we will obtain funding through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity.

We have implemented previously announced restructuring initiatives to enhance our current financial position and sources of liquidity.

These restructuring efforts are expected to result in $9.0 million to $10.0 million in cost savings on an annualized basis upon completion.

Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 10.

Restructuring for further details regarding these cost cutting efforts.

We anticipate that to the extent that we require additional liquidity, we will obtain funding through additional equity financings or the incurrence of other indebtedness or a combination of these potential sources of liquidity.

We may explore divestiture opportunities for non-core assets to improve our liquidity position.

In addition, we may raise additional funds to finance future cash needs through receivables or royalty financings or corporate collaboration and licensing arrangements.

If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution.

Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, or making capital expenditures.

If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates, or to grant licenses on terms that may not be favorable to us.

The covenants under our credit agreement limit our ability to obtain additional debt financing.

The covenants under the Amended 2019 Credit Agreement limit our ability to obtain additional debt financing.

Debt financing, if allowed under the Amended 2019 Credit Agreement and if available, would result in increased payment obligations and might involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, or making capital expenditures.

If we raise additional funds through collaboration and licensing arrangements with third-parties, it might be necessary to relinquish valuable rights to our products, future revenue streams or product candidates, or to grant licenses on terms that might not be favorable to us.

We cannot be certain that additional funding will be available on acceptable terms, or at all.

Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.

Any failure to raise capital in the future might have a negative impact on our financial condition and our ability to pursue our business strategies.

Going Concern

The accompanying consolidated financial statements have been prepared under the going concern basis of accounting, which presumes that the Company’s liquidation is not imminent;

however, certain conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

As of December 31, 2022, we were not in compliance with the maximum debt leverage requirement under the Amended 2019 Credit Agreement.

On March 31, 2023, we entered into an amendment to the Amended 2019 Credit Agreement to modify certain financial covenants and to avoid an event of default by waiving the noncompliance at December 31, 2022.

For additional information regarding this amendment, see Indebtedness below.

Although management has concluded that there is substantial doubt regarding our ability to continue as a going concern, this conclusion is based on our analysis under generally applicable accounting principles.

If the Company’s current operating projections are met, the Company believes that it should be able to meet its obligations as they come due within the twelve month period after the date the financial statements contained herein are issued.

However, we have based this estimate on assumptions of revenues and operating costs that may prove to be wrong.

Moreover, given the risks associated with employee turnover and retention of key talent, and the previously disclosed material weaknesses in internal controls over financial reporting, there is substantial risk that we might not meet our projections.

If we do not meet our projections, there is substantial risk that we might not be able to meet our obligations as they come due within the twelve month period after the date the financial statements were issued.

It is therefore probable that there is substantial doubt about our ability to continue as a going concern, despite the covenant relief from our lenders.

In light of this, we are continuing to actively pursue plans to mitigate these conditions and events, including seeking covenant waivers or amendments from our lenders, and other potential actions such as implementing various cost cutting measures and exploring divestiture opportunities for non-core assets;

however, there can be no assurances that it is probable these measures will successfully mitigate these conditions and events.

Therefore, these plans do not alleviate the substantial doubt about our ability to continue as a going concern.

However, if mitigating steps are not taken or are not successful, we are at substantial risk of failing to comply with the financial covenants in the Amended 2019 Credit Agreement in the second quarter of 2024.

A breach of a financial covenant under the Amended 2019 Credit Agreement could accelerate repayment of our obligations under the agreement.

Refer to I tem 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5.

Financial instruments for further discussion concerning the Company’s long-term debt obligations.

As part of efforts to improve our financial condition, on February 27, 2023, we reached an agreement to return the assets and liabilities of CartiHeal (2009) Ltd.

(“CartiHeal”), a wholly-owned subsidiary of the Company, to its former securityholders.

The deconsolidation of CartiHeal relieved deferred consideration liabilities and milestone obligations related to the acquisition of CartiHeal.

See Strategic Transactions – CartiHeal above as well as Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4.

Acquisitions and investments and Note 15.

Subsequent events for further information regarding the acquisition and subsequent deconsolidation of CartiHeal.

In addition, we announced a restructuring plan in December 2022 to align our organizational and management cost structure to improve profitability and cash flow.

Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 10.

Restructuring costs for further information.

Interest rate swap

On October 28, 2022, we terminated our non-designated interest rate swap agreement and subsequently received a settlement of $7.7 million.

Initial public offering

1 unchanged sentence

Bioventus Inc.

is a holding company and has no material assets other than the ownership of LLC Interests and has no independent means of generating revenue.

is a holding company and has no material assets other than the ownership of LLC Interests in BV LLC and has no independent means of generating revenue.

Deterioration in the financial condition, earnings, or cash flow of BV LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions.

In addition, the terms of our financing arrangements, including the 2019 Credit Agreement, contain covenants that may restrict BV LLC and its subsidiaries from paying such distributions, subject to certain exceptions.

In addition, the terms of our financing arrangements, including the Amended 2019 Credit Agreement, contain covenants that may restrict BV LLC and its subsidiaries from paying such distributions, subject to certain exceptions.

Further, BV LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of BV LLC (with certain exceptions), as applicable, exceed the fair value of its assets.

Subsidiaries of BV LLC are generally subject to similar legal limitations on their ability to make distributions to BV LLC.

Bioventus Inc., as the managing member, causes BV LLC to make cash distributions to the owners of LLC Interests in an amount sufficient to (i) fund tax obligations in respect of allocations of taxable income from BV LLC and (ii) cover Bioventus Inc.

and (ii) cover Bioventus Inc.

operating expenses, including payments under the Tax Receivable Agreement (“TRA”).

1 unchanged sentence

The following table summarizes certain estimated future cash requirements under our various contractual obligations committed to as of December 31, 2022 in total and disaggregated into current and long-term obligations.

(in thousands)

Current Long-Term Total

Long-term debt (a)

$ 33,056 $ 387,656 $ 420,712

Interest payments on long-term debt (a)

Interest payments on long-term debt obligations (a)

30,452 74,841 105,293

4 unchanged sentences

$ 92,056 $ 508,940 $ 600,996

(a) Refer to Note 5.

Financial Instruments in Part II, Item 8.

Financial Statements and Supplementary Data in this Annual Report for further information regarding long-term debt obligations.

(b) Refer to Note 12.

Commitment and contingencies in Part II, Item 8.

Financial Statements and Supplementary Data in this Annual Report for further information regarding operating lease liabilities.

(a) Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5.

Financial instruments in this Annual Report for further information regarding long-term debt obligations.

Does not reflect the increase to margin applicable for our interest payments that became effective as of March 31, 2023

(b) Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12.

Commitments and contingencies in this Annual Report for further information regarding operating lease liabilities.

(c) Amounts that are contractually committed to as of December 31, 2022 related to multi-year exclusive supply agreements.

Generally, our purchase obligations under these supply agreements are based on forecasted requirements, subject in some cases to an annual contractual minimum.

Table of Co n tents

Other cash requirements

3 unchanged sentences

Certain agreements include contingent events that upon occurrence would require payment.

For information regarding Commitments and Contingencies, refer to Note 12.

Commitment and contingencies in Part II, Item 8.

Financial Statements and Supplementary Data in this Annual Report for further information regarding other matters.

The BV LLC Agreement provides for the payment of certain distributions to the Continuing LLC Owner in amounts sufficient to cover the income taxes imposed with respect to the allocation of taxable income from BV LLC as well as obligations under the TRA.

For information regarding Commitments and Contingencies, refer to Item 8.

Financial Statements and Supplementary Data in this Annual Report.

Tax Receivable Agreement

Under the TRA, we are required to make cash payments to the Continuing LLC Owner equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in the tax basis of assets of BV LLC resulting from (a) any future redemptions or exchanges of LLC Interests, and (b) certain distributions (or deemed distributions) by BV LLC and (2) certain other tax benefits arising from payments under the TRA.

4 unchanged sentences

provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore accelerate payments due under the TRA.

We entered into a lease agreement during November 2021 to expand our current manufacturing operations in Memphis, Tennessee.

The above table does not reflect the future cash requirements related to this lease.

The lease term is 10 years and occupancy is expected to begin in July 2022, contingent upon certain improvements.

In connection with this lease, we expect to make cash payments of $769 during the year ended December 31, 2022, and aggregate cash payments of $16,076 thereafter.

Contingent events requiring significant payments that we anticipate will occur in 2022 include the exercise of our Call Option upon FDA approval of the Agili-C device discussed above in the CartiHeal strategic transaction.

We intend to finance the acquisition through additional debt.

As described in Part I, Item 1.

Business , we currently believe the required FDA approval will occur in the first half of 2022 and expect to acquire all of the shares of CartiHeal, excluding those we already own, for $314.9 million, payable at closing which is anticipated to occur in the second quarter of 2022.

Upon the achievement of certain sales milestones, an additional $135.0 million could become payable after closing.

Our Amended 2019 Credit Agreement, as in effect from October 29, 2021 to July 11, 2022, consisted of a $360.8 million term loan (“Term Loan”) and a $50.0 million revolving credit facility (the “Revolver”).

On July 11, 2022, we amended the Amended 2019 Credit Agreement in conjunction with the CartiHeal Acquisition to provide for an incremental $80.0 million term loan facility (together with the Term Loan, the “Term Loan Facilities”) to be used in part to fund the CartiHeal Acquisition.

The Company was not in compliance with certain of its covenants under the 2019 Credit Agreement as of December 31, 2022.

As a result, on March 31, 2023 (the “Closing Date”), we entered into another amendment to the Amended 2019 Credit Agreement to, among other things, modify certain financial covenants, waive the noncompliance at December 31, 2022 and to modify interest rates applicable to borrowings under the agreement.

With respect to Term Loan Facilities and the Revolver outstanding as of the Closing Date, we may elect either SOFR or Base Rate interest rate options for the entire amount or certain portions of the loans and have interest rates equal to a formula driven base interest rate plus a margin, tied to a leverage ratio.

The leverage ratio is the ratio of debt to Consolidated Adjusted EBITDA as defined in the Amended 2019 Credit Agreement for four consecutive quarters as of the end of each period.

Pursuant to the Amended 2019 Credit Agreement, the margin at each applicable leverage ratio will be increased by 1.00% per annum.

SOFR loans and base rate loans had a margin of 3.25% and 2.25%, respectively, subsequent to July 12, 2022 and prior to the Closing Date.

As of the Closing Date, SOFR loans and base rate loans had a margin of 4.25% and 3.25%, respectively.

All obligations under the Amended 2019 Credit Agreement are guaranteed by the Company and certain wholly owned subsidiaries where substantially all the assets of the Company collateralize the obligations.

The Term Loan Facilities will mature on October 29, 2026.

The Revolver will mature on October 29, 2025.

The Amended 2019 Credit Agreement contains customary affirmative and negative covenants, including those related to financial reporting and notification, restrictions on the declaration or payment of certain distributions on or in respect of Bioventus LLC’s equity interests, restrictions on acquisitions, investments and certain other payments, limitations on the incurrence of new indebtedness, limitations on transfers, sales and other dispositions of assets of Bioventus LLC and its subsidiaries, as well as limitations on making changes to the business and organizational documents of Bioventus LLC and its subsidiaries.

Financial covenant requirements include (i) a maximum debt leverage ratio of not greater than 6.84 to 1.00 for the testing period ending March 31, 2023, 6.50 to 1.00 for the testing period ending June 30, 2023, 7.26 to 1.00 for the testing period ending September 30, 2023, 5.64 for the testing period ending December 31, 2023, 5.65 to 1.00 for the testing period ending March 31, 2024, 4.25 for the testing period ending June 30, 2024, 4.25 to 1.00 for the testing period ending September 30, 2024, and 4.00 to 1.00 for the testing period ending December 31, 2024 and each testing period thereafter, and, beginning with the testing period ending December 31, 2024, to be subject to a temporary increase to 4.50 to 1.00 upon certain events, and (ii) an interest coverage ratio not less than 2.25 to 1.00 for the testing period ending March 31, 2023, 2.21 to 1.00 for the testing period ending June 30, 2023, 1.70 to 1.00 for the testing period ending September 30, 2023, 1.98 to 1.00 for the testing period ending December 31, 2023, 2.25 to 1.00 for the testing period ending March 31, 2024, 2.25 to 1.00 for the testing period ending June 30, 2024, 2.25 to 1.00 for the testing period ending September 30, 2024 and 3.00 to 1.00 for the testing period ending December 31, 2024 and each testing period thereafter.

In addition, during the period commencing on the Closing Date and ending upon the satisfaction of certain conditions occurring not prior to the delivery of financial statements of the Company for the fiscal quarter ending June 30, 2024, the Company will be subject to certain additional requirements and covenants, including a requirement to maintain Liquidity (as defined in the Amended 2019 Credit Agreement) of not less than $10,000 as of the end of each calendar month during such period.

During January and February 2023, the Company borrowed $49,000 on its Revolver for working capital needs.

However, on the Closing Date of the amendment to the Amended 2019 Credit Agreement, as part of the closing conditions, the Company repaid $20,000 of these borrowings.

Additionally, the Company paid $1,250 in closing fees, and will be required to pay an additional $600 by December 31, 2023 unless the Total Net Leverage Ratio as at September 30, 2023 is below 5.25 to 1.00.

Refer to Item 9B.

Other Information and Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 1.

Organization for further details on the Company’s covenant compliance and Note 5.

Financial instruments in this Annual Report for further details on the Company’s indebtedness.

Information regarding cash flows

Cash, cash equivalents and restricted cash as of December 31, 2022 totaled $31.8 million, compared to $99.2 million as of December 31, 2021.

The increase in cash was primarily due to the following:

The decrease in cash was primarily due to the following:

Years Ended December 31, Change

(in thousands, except for percentage) 2022 2021 $ %

Net cash from operating activities - continuing operations $ 22,991 72,199 $ (49,208) (68.2 %)

Net cash from investing activities - continuing operations (283,760) (20,672) (263,088) NM

Net cash from financing activities 273,371 (29,569) 302,940 NM

Net cash from discontinued operations — (228) 228 (100.0 %)

Effect of exchange rate changes on cash (228) 589 (817) (138.7 %)

Net change in cash, cash equivalents and restricted cash $ 12,374 $ 22,319 $ (9,945) (44.6 %)

Net cash from operating activities $ (13,537) $ 22,991 $ (36,528) (158.9 %)

Net cash from investing activities (116,436) (283,760) 167,324 (59.0 %)

Net cash from financing activities 62,076 273,371 (211,295) (77.3 %)

Effect of exchange rate changes on cash 521 (228) 749 NM

Net change in cash, cash equivalents and restricted cash $ (67,376) $ 12,374 $ (79,750) NM

NM = Not Meaningful

Operating Activities

Net cash from operating activities decreased $49.2 million during 2021, primarily due to completed acquisitions and resulting integration costs, higher employee compensation, and increased general and administrative expense as a result of becoming a public company.

These decreases were partially offset by increased collections from higher sales and the economic impact of COVID-19 during 2020.

Net cash from operating activities decreased $36.5 million, primarily due to completed acquisitions and the resulting integration costs, higher employee compensation, increased operating expenses and a rise in interest payments.

These outflows were partially offset by increased collections from higher sales.

Investing Activities

Cash flows used in investing activities increased $263.1 million, primarily due to the acquisitions of Misonix and Bioness as well as $3.3 million in capital expenditures.

These increases were partially offset by a $3.1 million decrease in investments.

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Cash flows from investing activities increased $167.3 million, primarily due to the $262.9 million acquisition of Bioness and Misonix in 2021 and $12.0 million less in other investments and distribution rights during 2022.

These changes in cash were partially offset with the $104.8 million acquisition of CartiHeal and an increase of $2.7 million in capital expenditures.

Financing Activities

Cash flows provided by financing activities increased $302.9 million, primarily due to the $257.5 million in proceeds from the issuance of long-term debt, $107.8 million in net proceeds from the issuance of Class A common stock sold during our IPO and a $19.5 million decrease in net partner distributions.

These increases were partially offset by a $81.3 million increase in debt payments primarily due to the $80.0 million debt prepayment in conjunction with the Misonix Acquisition and the scheduled escalation in quarterly principal payments.

On December 6, 2019, we entered into the 2019 Credit Agreement and during 2021 we executed two amendments in connection with the Misonix Acquisition (as amended, the Amended 2019 Credit Agreement).

The Amended 2019 Credit Agreement is comprised of our $360.8 million term loan and our $50.0 million revolving credit facility.

All obligations under the Amended 2019 Credit Agreement are guaranteed by certain of our wholly owned domestic subsidiaries, are secured by substantially all our and the guarantors’ assets and mature on October 29, 2026.

On October 29, 2021, in conjunction with the Misonix Acquisition, we prepaid $80.0 million on the pre-amendment term loan.

On the same date, we used the $262.0 million in proceeds from an amendment to the 2019 Credit Agreement to finance the $223.1 million in Misonix Acquisition cash consideration, transaction costs of $8.0 million and fees and expenses associated with the amendment totaling $4.5 million.

The remaining $26.3 million will be used for ongoing operations.

The Amended 2019 Credit Agreement contains various restrictive covenants, including a quarterly covenant not to exceed a consolidated leverage ratio of 3.50 to 1.00 (with the option to increase the leverage ratio up to 4.00 to 1.00 after a permitted acquisition) and an interest coverage ratio of 3.00 to 1.00 for the prior four consecutive quarters.

The leverage and interest coverage ratios are based on Consolidated EBITDA as defined in the Amended 2019 Credit Agreement, which includes several differences from Adjusted EBITDA as calculated in this Annual Report.

Consolidated EBITDA as defined in the Amended 2019 Credit Agreement permits, among other things, the exclusion of (1) certain extraordinary, unusual and/or other expenses, some of which are subject to an aggregate cap, including but not limited to severance, acquisitions, dispositions, debt refinancing/amendment and IPO-related, (2) foreign currency gains/losses recognized in the statement of operations and (3) franchise, excise and property taxes recognized in the statement of operations.

The restrictive covenants include limitations on (1) the declaration or payment of certain distributions on or in respect of our equity interests, (2) restrictions on acquisitions, investments and certain other payments, (3) limitations on the incurrence of new indebtedness, (4) limitations on transfers, sales and other dispositions and (5) limitations on making changes to our business and organizational documents.

As of December 31, 2021, we were in compliance with all covenants under the Amended 2019 Credit Agreement and there was $357.7 million of outstanding borrowings under the term loan.

Refer to Note 5.

Financial instruments in Part II, Item 8.

Financial Statements and Supplementary Data in this Annual Report for repayment obligations.

We have one nominal outstanding letter of credit.

Our revolving credit facility had $49.9 million in borrowing capacity as of December 31, 2021.

Recent accounting pronouncements

Refer to Note 2.

Summary of significant accounting policies in Part II, Item 8.

Financial Statements and Supplementary Data for further information regarding recently adopted and proposed accounting pronouncements.

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Critical accounting policies and estimates

Cash flows provided by financing activities decreased $211.3 million, primarily due to the $107.8 million in net proceeds from the issuance of Class A common stock sold during our 2021 IPO and $177.8 million less in proceeds from the issuance of long-term debt in 2022 compared with 2021.

These decreases in cash were partially offset by $71.2 million less in payments on long-term debt in 2022 compared to 2021.

Recently Issued Accounting Pronouncements

There were no recently issued accounting pronouncements that are expected to materially impact our financial statements at December 31, 2022.

Critical Accounting Estimates

The preparation of the consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of sales and expenses during the reporting periods.

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Any changes in these estimates will be reflected in our consolidated financial statements as they occur.

Refer to Note 1.

Organization and basis of presentation of financial information in Part II, Item 8.

Financial Statements and Supplementary Data for a further description of our significant accounting policies, however, we believe that the following accounting policies and estimates that are considered critical to our business in order to obtain a full understanding and to evaluate our reported financial results.

The critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue recognition

Sale of products

We derive revenue primarily from product sales within our (i) Pain Treatments portfolio, which includes osteoarthritic (OA) joint pain treatments, which are hyaluronic acid (HA), viscosupplementation therapies and peripheral nerve stimulation products (ii) Surgical Solutions, which includes bone graft substitutes, tissue resection, ultrasonic bone cutting and sculpting systems and other surgical products, and (iii) Restorative Therapies, which includes minimally invasive fracture treatments, rehabilitation and wound products.

We sell products directly to healthcare institutions, patients, distributors and dealers.

We also enter into arrangements with pharmacy and health benefit managers that provide for privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products.

Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 1.

Organization and basis of presentation of financial information for a further description of our significant accounting policies, however, we believe that the following accounting estimates are considered critical to our business in order to obtain a full understanding and to evaluate our reported financial results.

The critical accounting estimates addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue recognition estimates

Variable consideration estimates

We recognize revenue generally at a point in time upon transfer of control of the promised product to customers in an amount that reflects the consideration we expect to receive in exchange for those products.

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There were no significant adjustments arising from the change in estimates of variable consideration for the years ended December 31, 2022 and 2021.

Pain Treatments

Revenue from customers such as healthcare providers, distribution centers or specialty pharmacies is recognized at the point in time when control is transferred to the customer, typically upon shipment.

Distributor chargebacks

We have preexisting contracts with established rates with many of the distributors’ customers that require the distributors to sell our product at their established rate.

We offer chargebacks to distributors who supply these customers with our products.

We reduce revenue at the time of sale for the estimated future chargebacks.

We record chargeback reserves as a reduction of accounts receivable and base the reserves on the expected value by using probability-weighted estimates of volume of purchases, inventory holdings and historical chargebacks requested for each distributor.

Discounts and gross-to-net deductions

We offer retrospective discounts and gross-to-net deductions linked to the volume of purchases which may increase at negotiated thresholds within a contract-buying period.

We reduce revenue and record the reserve as a reduction to accounts receivable for the estimated discount and rebate at the most likely amount the customer will earn, based on historical buying trends and forecasted purchases.

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Surgical Solutions

The majority of our product sales related to bone graft substitutes are through consignment inventory with hospitals, where ownership remains with us until the hospital performs a surgery and consumes the consigned inventory.

We recognize the revenue when the surgery has been performed.

The customer does not have control of the product until the customer consumes it, as we are able to require the return or transfer of the product to a third-party.

An unconditional obligation to pay for the product does not exist until the customer consumes it.

We typically recognize revenue from sales of our ultrasonic products acquired through the Misonix acquisition in accordance with shipping terms.

Control is transferred to the customer when the product is shipped or received, and revenue is recognized accordingly.

Restorative Therapies

We recognize revenue from third-party payers, such as governmental agencies, insurance companies or managed care providers, when we transfer control to the patient, typically when the patient has accepted the product or upon delivery.

We record this revenue at the contracted rate, net of contractual allowances and estimated third-party payer settlements at the time of sale, or an estimated price based on historical data and other available information for non-contracted payers.

We record contractual allowances based on probability weighting historical data and collections.

Settlements with third-party payers for retroactive revenue adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price using the expected outcome method.

These settlements are estimated based on the terms of the payment agreement with the payer, correspondence from the payer and historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved.

Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews and investigations.

We are not aware of any claims, disputes or unsettled matters with any payer that would materially affect revenues for which we have not been adequately provided.

We recognize revenue from patients (self-pay and insured patients with coinsurance and deductible responsibilities) based on billed amounts giving effect to any discounts and implicit price concessions.

Implicit price concessions represent differences between amounts billed and the amounts we expect to collect from patients, which considers historical collection experience and current market conditions.

We recognize revenue from other restorative therapies products generally at the point in time when control is transferred to the customer, either upon shipment or reaching the destination depending on the product.

Product returns

We estimate the amount of returns and reduce revenue in the period the related product revenue is recognized.

We record a liability for expected returns based on probability weighted historical data.

Accounts receivable, net

Accounts receivable, net are amounts billed and currently due from customers.

We record the amounts due net of allowance for credit losses.

Accounts receivable allowances for credit losses

We maintain allowances for credit losses to provide for receivables we do not expect to collect.

We base the allowance on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other information as applicable.

Collection of the consideration that we expect to receive typically occurs within 30 to 90 days of billing.

We apply the practical expedient for contracts with payment terms of one year or less which does not consider the effects of the time value of money.

Occasionally, we enter into payment agreements with patients that allow payment terms beyond one year.

In those cases, the financing component is not deemed significant to the contract.

Contract assets

Contract assets consist of unbilled amounts resulting from estimated future royalties from an international distributor that exceeds the amount billed.

Contract assets are included in prepaid and other current assets on the consolidated balance sheets.

Contract liabilities

Contract liabilities consist of customer advance payments or deposits and deferred revenue.

Occasionally for certain international customers, we require payments in advance of shipping product and recognizing revenue resulting in contract liabilities.

Contract liabilities are included in accrued liabilities on the consolidated balance sheets.

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Shipping and handling

We classify amounts billed for shipping and handling as a component of net sales.

The related shipping and handling fees and costs as well as other distribution costs are included in cost of sales.

We have elected to recognize shipping and handling activities that occur after control of the related product transfers to the customer as fulfillment costs and are included in cost of sales.

Contract costs

We apply the practical expedient of recognizing the incremental costs of obtaining contracts as an expense when incurred as the amortization period of the assets that we otherwise would have recognized is one year or less.

These incremental costs include our sales incentive programs for the internal sales force and third-party sales agents as the compensation is commensurate with annual sales activities.

These costs are included in selling, general and administrative expense on the consolidated statements of operations and comprehensive income.

We record certain assets and liabilities at fair value.

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Each of these factors and assumptions can significantly affect the value of the intangible asset.

Acquired in-process research and development, or IPR&D, is the fair value of projects for which the related products have not received regulatory approval and have no alternative future use and is capitalized as an indefinite-lived intangible asset.

Acquired in-process research and development (“IPR&D”) is the fair value of projects for which the related products have not received regulatory approval and have no alternative future use and is capitalized as an indefinite-lived intangible asset.

Due to inherent uncertainty related to research and development, actual results could differ materially from the assumptions used in the discounted cash flow model.

Additionally, there are risks including, but not limited to, delay or failure to receive regulatory requirements to conduct clinical trials, required market clearances, or patent issuance, and that the research and development project does not result in a successful commercial product.

Development costs incurred after the acquisition are expensed as incurred.

Upon receipt of regulatory approval of the related technology or product, the indefinite-lived intangible asset is accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life.

If the research and development project is abandoned, the indefinite-lived asset is charged to expense.

We recognize contingent consideration liabilities resulting from business combinations at estimated fair value on the acquisition date.

Contingent consideration liabilities are revalued subsequent to the acquisition date with changes in fair value recognized in earnings.

Contingent payments related to acquisitions consist of development, regulatory and commercial milestone payments, and are valued using discounted cash flow techniques.

Significant estimates and assumptions required for these valuations include the probability of achieving regulatory approval under specified time frames, product sales projections under various scenarios and discount rates used to calculate the present value of the estimated payments.

Changes in the fair value of contingent consideration liabilities result from changes in these estimates and assumptions.

Significant judgment is employed in determining the appropriateness of the estimates and assumptions as of the acquisition date and in post-acquisition periods.

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Contingent consideration

We recognize contingent consideration liabilities resulting from business combinations at estimated fair value on the acquisition date, and at each subsequent reporting period.

Significant judgment is employed in determining the appropriateness of the estimates and assumptions as of the acquisition date and in post-acquisition periods.

The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows.

Key assumptions used to estimate the fair value of contingent consideration include revenue and the probability of achieving the specific targets.

After the initial valuation, the Company will use its best estimate to measure contingent consideration at each subsequent reporting period.

Gains and losses are recorded with selling, general and administrative expenses within the consolidated statements of operations and comprehensive income.

We evaluate goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Gains and losses are recorded with selling, general and administrative expenses within the consolidated statements of operations and comprehensive (loss) income.

Impairment of goodwill and indefinite-lived intangible assets

We evaluate goodwill for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

We analyze all other indefinite-lived intangible assets qualitatively to determine if it is more likely than not that an impairment exists.

If we meet the criteria, we perform a quantitative analysis to determine if an impairment exists.

Our reporting units are U.S.

and International and we analyze each reporting unit separately in our goodwill impairment evaluation.

We used independent third-party valuation specialists in 2021 and 2020 using year-to-date October data in each year to assist management in performing the annual review of goodwill for impairment.

and International and we analyze each reporting unit separately in our impairment evaluations.

Our impairment process includes applying a quantitative impairment analysis to the fair value of the reporting unit and comparing it to its carrying value.

We used independent third-party valuation specialists in 2022 and 2021 using year-to-date October data in each year to assist management in performing our annual impairment evaluation.

We also utilized valuation specialists in April 2020 as we believed COVID-19 represented a triggering event that might indicate impairment.

The specialists assist management in the determination of fair value of reporting units based upon inputs and assumptions provided by management, which management uses for its impairment assessment.

We analyze all other indefinite-lived intangible assets qualitatively to determine if it is more likely than not for an impairment to exist.

If we meet the criteria, we perform a quantitative analysis to determine if an impairment exists.

Our goodwill impairment process includes applying a quantitative impairment analysis where the fair value of the reporting unit and compare it to its carrying value (including goodwill).

We determine the fair value of U.S.

and International reporting units based primarily on an income approach, which incorporates the use of a discounted free cash flow analysis.

The discounted free cash flow analyses is based on significant judgments, including the current operating budgets, estimated long-term growth projections and future forecasts for each reporting unit.

The discounted free cash flow analysis is based on significant judgments, including the current operating budgets, estimated long-term growth projections and future forecasts for each reporting unit.

We discount future cash flows based on a market comparable weighted average cost of capital rate for each reporting unit.

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Significant judgments inherent in this analysis include estimating the amount and timing of future cash flows and the selection of appropriate discount rates, royalty rate and long-term growth rate assumptions.

Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit and for some of the reporting units and could result in an impairment charge, which could be material to our financial position and results of operations.

As of December 31, 2021, the fair value of our reporting units is significantly in excess of the carrying value.

There has been no impairment of our goodwill related to our U.S.

and International reporting units since our formation.

Changes in estimates and assumptions could materially affect the determination of fair value for each reporting unit and could result in an impairment charge, which could be material to our financial position and results of operations.

On November 8, 2022, due to a significant decline in the value of our Class A common stock, circumstances became evident that a possible impairment existed as of the third quarter balance sheet date.

We concluded that the carrying value of the U.S.

reporting unit exceeded its fair value.

We recorded a non-cash goodwill impairment charge within the United States reporting unit for the year ended December 31, 2022.

The impairment was recorded within impairment of goodwill on the consolidated statements of operations and comprehensive (loss) income.

There were no goodwill impairment charges for the years ended December 31, 2021 and 2020.

Refer to Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3.

Balance sheet information.

Equity-based compensation

We operate an equity-based compensation plan (2021 Plan).

The 2021 Plan is designed to grant incentive awards to eligible employees and other service providers in order to attract, motivate and retain the talent for which we compete.

The 2021 Plan allows for the issuance of stock options (incentive and nonqualified), restricted stock, dividend equivalents, restricted stock units (RSUs), other stock-based awards, and cash awards.

(collectively, Awards).

Generally, non-cash Awards granted under the 2021 Plan are equity-classified.

Equity-based compensation expense is primarily included in selling, general and administrative expense with a nominal amount in research and development expense on the consolidated statement of operations and comprehensive income based upon the classification of the employee.

Equity-based compensation expense generated from the granting restricted stock units represents the fair value of the stock measured at the market price on the date of grant.

Equity-based compensation expense generated from the granting of restricted stock units represents the fair value of the stock measured at the market price on the date of grant.

Restricted stock equity-based compensation expense is recognized over the vesting period.

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Treasury security rate with a contractual life that approximates the expected term of the option.

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Prior to the IPO, we operated two equity-based compensation plans, the MIP and the Phantom Plans, which had allowed our employees to share our future profit without granting any additional voting rights.

Awards granted under the MIP and certain Phantom Plan awards granted in 2015 and thereafter, or the 2015 Phantom Plan Units, were liability-classified.

Those Phantom Plan awards granted from inception in 2012 and until the grant of the 2015 Phantom Plan Units, or the 2012 Phantom Plan Units, were equity-classified, as they did not contain a put option or other features requiring them to be liability-classified.

Equity compensation included compensation expense for all equity awards made to employees that are part of continuing operations and were based on estimated fair values as of the grant date for the 2012 Phantom Plan Units and period end fair value for the MIP units and 2015 Phantom Plan Units.

We recognized expense for performance-based awards when we expected them to be earned.

We recognized timed-based awards over the requisite service period, which was generally the vesting period of the award.

Forfeitures were recognized as they occurred.

We used independent third-party valuation specialists in 2020 and 2019 using year-to-date October data in each year to assist management in performing the annual valuation of MIP and 2015 Phantom Plan Units.

Prior to the IPO, we operated two equity-based compensation plans, the Management Incentive Plan (“MIP”) and the Phantom Profits Interest Plan (“Phantom Plans”).

We used independent third-party valuation specialists in 2020 using year-to-date October data in each year to assist management in performing the annual valuation of MIP and 2015 Phantom Plan Units.

We utilized valuation specialists in April 2020 as we believed COVID-19 represented a triggering event that might indicate impairment.

The specialists assist management in the determination of fair value of awards granted using the Monte Carlo option pricing model.

The specialists assisted management in the determination of the fair value of the awards granted using the Monte Carlo option pricing model.

The subjective assumptions and the application of judgment in determining the fair value of the awards represent management’s best estimates.

The most significant assumptions utilized in the MIP and Phantom Plans were expected volatility, time outstanding, risk-free rate and expected dividend yield.

The most significant assumptions utilized in the MIP and Phantom Plan were expected volatility, time outstanding, risk-free rate and expected dividend yield.

Expected volatility was based on the historical volatility of our peer group.

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The expected dividend yield assumption had the rate of zero as we have not previously issued dividends and did not anticipate paying dividends in the foreseeable future.

As a result of the IPO, Bioventus Inc.

became the sole managing member of BV LLC, which is treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, BV LLC is not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by BV LLC is passed through to and included in the taxable income or loss of its members, including the Company following the Transactions, on a pro rata basis.

Bioventus Inc.

is subject to U.S.

federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income of BV LLC following the Transactions.

We are also subject to taxes in foreign jurisdictions.

The tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period.

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The quarterly tax provision, and estimate of our annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how we conduct business, and tax law developments.

We maintain a valuation allowance on certain deferred tax assets that has determined are not more-likely-than-not to be realizable and assess the need for an adjustment to this valuation allowance on a quarterly basis.

We maintain a valuation allowance on certain deferred tax assets that we have determined are not more-likely-than-not to be realizable and assess the need for an adjustment to this valuation allowance on a quarterly basis.

The assessment is based on estimates of future sources of taxable income for the jurisdictions in which we operate and the periods over which deferred tax assets will be realizable.

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Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

Tax Receivable Agreement

We expect to obtain an increase in the share of the tax basis of the assets of BV LLC when LLC Interests are redeemed or exchanged by the Continuing LLC Owner and other qualifying transactions.

This increase in tax basis may have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities.

The increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

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On February 16, 2021, we entered into a tax receivable agreement (TRA) with the Continuing LLC Owner that provides for the payment by us to the Continuing LLC Owner of 85% of the amount of tax benefits, if any, that we actually realize as a result of (i) increases in the tax basis of assets of BV LLC resulting from any redemptions or exchanges of LLC Interests or any prior sales of interests in BV LLC and (ii) certain other tax benefits related to our making payments under the TRA.

We will maintain a full valuation allowance against deferred tax assets related to the tax attributes generated as a result of redemptions of LLC Interests or exchanges described above until it is determined that the benefits are more-likely-than-not to be realized.

As of December 31, 2021, Continuing LLC Owner had not exchanged LLC Interests for shares of Class A common stock and therefore we had not recorded any liabilities under the TRA.

Long-lived assets

Property and equipment are stated at cost and are depreciated using the straight-line method over the shorter of the asset’s estimated useful life, or the lease term if related to leased property, as follows in years:

Computer software and hardware 3 - 5

Demonstration and consignment inventory 5

Furniture and fixtures 3 - 7

Leasehold improvements 3 - 7

Machinery and equipment 3 - 7

We amortize finite-lived identifiable intangible assets using the straight-line method over their estimated remaining weighted average useful lives as follows in years:

Intellectual property 17.7

Distribution rights 11.6

Customer relationships 11.6

Developed technology 9.5

We capitalize costs incurred from third-party vendors for software design, configuration, coding and testing and amortizes these costs on a straight-line basis over the estimated useful life of the product, not to exceed three years.

We do not capitalize costs that are precluded from capitalization in authoritative guidance, such as preliminary project phase costs, planning, oversight, process re-engineering costs, training costs or data conversion costs.

The carrying values of property, equipment and finite lived intangible assets are reviewed for recoverability if the facts and circumstances suggest that a potential impairment may have occurred.

If this review indicates that carrying values may not be recoverable, we will perform an assessment to determine if an impairment charge is required to reduce carrying values to estimated fair value.

There were no events, facts or circumstances for the years ended December 31, 2021 and 2020 that resulted in any impairment charges to our property, equipment or finite lived intangible assets.

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act.

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Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

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We will continue to qualify as an emerging growth company until the earliest of:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis