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Item 7. Management’s Discussion and Analysis

2024-03-12 compared with 2023-03-31 · 167 added, 215 removed, 399 unchanged (49% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part I, Item 1A, Risk Factors and our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K (“Annual Report”).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part I, Item 1A.

Risk Factors and our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K (“Annual Report”).

In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

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Risk Factors and elsewhere in this Annual Report.

A discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020 has been reported previously in our 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 11, 2022, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously in our Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Executive Summary

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We operate our business through two reportable segments, U.S.

and International, and our portfolio of products is grouped into three verticals:

• Pain Treatments is comprised of non-surgical joint pain injection therapies as well as peripheral nerve stimulation (“PNS”) products to help the patient get back to their normal activities.

• Surgical Solutions is comprised of bone graft substitutes (“BGS”) to fuse and grow bones, improve results following spinal and other orthopedic surgeries as well as minimally invasive ultrasonic medical devices used for precise bone sculpting, removing tumors and tissue debridement, in various surgeries.

• 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.

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 .

and International, and our portfolio of products is grouped into three areas:

• Pain Treatments is comprised of non-surgical pain injection therapies as well as peripheral nerve stimulation (“PNS”) products to help the patient get back to their normal activities.

• Surgical Solutions is comprised of bone graft substitutes (“BGS”) that increase bone formation to stimulate bone healing in spinal fusions and other orthopedic surgeries, as well as a portfolio of ultrasonic products used for precise bone cutting and sculpting, soft tissue management (i.e., tumor and liver resections) and tissue debridement, in various surgeries, including minimally invasive applications.

• Restorative Therapies is comprised of a bone stimulation system, as well as devices designed to help patients regain leg or hand function due to stroke, multiple sclerosis or other central nervous system disorders.

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

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Net sales $ 512,345 $ 512,117

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

Net loss from continuing operations $ (121,196) $ (144,651)

Adjusted EBITDA (1)

$ 88,862 $ 68,610

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

Loss per Class A common stock, basic and diluted

Continuing operations $ (1.54) $ (1.70)

Discontinued operations (0.95) (0.89)

Loss per Class A common stock, basic and diluted $ (2.49) $ (2.59)

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

Significant transactions

Wound Business

On May 22, 2023, we closed the sale of certain assets within our Wound Business, including the TheraSkin and TheraGenesis products (collectively, the “Wound Business” or the “Disposal Group”), for potential consideration of $84.7 million, including $34.7 million at closing, $5.0 million deferred for 18 months and up to $45.0 million in potential earn-out payments (“Earn-out Payments”), which are based on the achievement of certain revenue thresholds by the purchaser of the Wound Business for sales of the TheraSkin and TheraGenesis products during the 2024, 2025 and 2026 fiscal years.

We incurred $3.9 million in transactional fees resulting from the sale of the Wound Business.

The deconsolidation of the Disposal Group resulted in the recognition of a $1.5 million loss on disposal of a business recorded within the consolidated statements of operations and comprehensive (loss) income for the year ended December 31, 2023.

The proceeds were used to prepay $30.0 million of long-term debt principal obligations.

We evaluated the Wound Business for impairment prior to its sale and recorded a $78.6 million impairment within the consolidated statements of operations and comprehensive (loss) income during the year ended December 31, 2023 as a result of this evaluation to reduce the intangible assets of the Disposal Group to reflect their respective fair values, less any costs to sell.

The fair value of the Disposal Group’s intangibles were determined based on the consideration received for the Wound Business.

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 purchased CartiHeal (the “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.

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 during the third quarter of 2022.

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

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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.

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 of 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.

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(“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.

Pursuant to the Settlement Agreement, Elron, on behalf of the Former Securityholders, 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.

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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.

We had 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, deconsolidated CartiHeal (the “Deconsolidation”, or “Disposal”) effective February 27, 2023.

We treated the Disposal as a discontinued operation.

The loss upon disposal totaled $60.6 million and was recorded within loss from discontinued operations, net.

Credit and Guaranty Agreement

On July 11, 2022, we amended our Credit and Guaranty Agreement, dated as of December 6, 2019 (as previously amended on August 29, 2021 and October 29, 2021) 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 Credit and Guaranty Agreement to, among other things, modify certain financial covenant provisions, waive the noncompliance at December 31, 2022 and increase the applicable interest rate.

We were in compliance as of December 31, 2023 with the financial covenants as stated within the Credit and Guaranty Agreement.

On January 18, 2024, we further amended our Credit and Guaranty Agreement to modify certain financial covenants.

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.

The deficiencies include concerns about the data and endpoints from the B.O.N.E.S.

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

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”).

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 2021 and 2022 acquisitions and our expanded R&D and product development portfolio we inherited with these acquisitions.

We incurred $1.0 million and $4.3 million in expenditures during the years ended December 31, 2023 and 2022, respectively, related to MOTYS.

No further costs are expected on MOTYS.

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

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

Summary of significant accounting policies for further information.

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.

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Certain products are manufactured by or obtained from third-party suppliers primarily located in Japan, Switzerland, Sweden and the United States.

We receive the components for our Exogen system from suppliers and assemble each system in-house at our Cordova, Tennessee facility.

In the future, we expect our cost of sales to increase due to increased sales volume.

Gross profit and gross margin

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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 and undertake clinical research to support commercialization of all of our products.

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

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.

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

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 2023 and 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 includes any fair value gain or losses on these swaps.

Interest expense also includes the revaluation for the liability related to our Equity Participation Right (EPR) Unit.

The EPR Unit’s entitlement is 0.55% of available distributions arising from a distribution event as defined in the Bioventus LLC Agreement and was settled in cash as part of our IPO.

Other expense (income)

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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.

These items include acquisition and related costs, impairment of goodwill, impairment of assets, restructuring and succession charges, equity compensation expense, financial restructuring costs, loss on disposal of a business 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.

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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.

Investors are encouraged to review the reconciliation of the non-GAAP measure provided in this Annual Report, including in all tables referencing Adjusted EBITDA, to its most directly comparable U.S.

GAAP measure.

Results of Operations

Results of Continuing Operations

The following table sets forth components of our consolidated statements of operations as a percentage of net sales for the periods presented:

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Depreciation and amortization 1.7 % 1.9 %

Impairment of assets 15.4 % — %

Impairment of goodwill — % 24.3 %

Impairment of variable interest entity assets — % 1.3 %

Operating (loss) income (49.0 %) 2.8 %

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

Loss on disposals 0.7 % — %

Operating loss (16.0 %) (32.7 %)

The following table presents a reconciliation of net loss from continuing operations to Adjusted EBITDA for the periods presented:

Years Ended December 31,

(in thousands) 2023 2022

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

Net loss from continuing operations $ (121,196) $ (144,651)

Interest expense, net 40,676 12,021

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

Income tax expense (benefit), net 85 (44,374)

Depreciation and amortization (a)

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Acquisition and related costs (b)

27,081 22,964

Remeasurement gain on equity method investment (c)

Restructuring and succession charges (d)

Equity compensation (e)

Restructuring and succession charges (c)

Equity compensation (d)

Financial restructuring costs (e)

Impairment of assets (f)

78,615 10,285

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)

Impairment of goodwill (g)

Loss on disposal of a business (h)

Other items (i)

Adjusted EBITDA $ 88,862 $ 68,610

(a) Includes for the years ended December 31, 2023 and 2022, respectively, depreciation and amortization of $48,503 and $45,622 in cost of sales and $8,862 and $9,776 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) 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.

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

(c) Costs incurred were the result of adopting restructuring plans to reduce headcount, contract termination, reorganize management structure and consolidate certain facilities.

(d) Includes compensation expense resulting from awards granted under our equity-based compensation plans.

The year ended December 31, 2023 includes the reversal of equity compensation expenses totaling $3.8 million related to the transition of our executive leadership.

(e) Financial restructuring costs include advisory fees and debt amendment related costs.

(f) Represents a non-cash impairment charge for intangible assets attributable to our Wound Business due to its divestiture during the year ended December 31, 2023.

Represents asset impairment charges on Trice Medical, Inc.

for the year ended December 31, 2022.

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

(h) Represents the loss on the disposal of the Wound Business.

(i) Other items primarily includes charges associated with strategic transactions, such as potential acquisitions or divestitures, projects associated with improving business capabilities/efficiencies and costs attributable to MOTYS.

During the 2022 fiscal year, 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 $1.0 million and $4.3 million in costs during the years ended December 31, 2023 and 2022, respectively, related to MOTYS.

No further costs are expected on MOTYS.

Years Ended December 31, Change

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Restorative Therapies 20,222 20,420 (198) (1.0 %)

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

Surgical Solutions 19,416 14,951 4,465 29.9 %

Total International net sales 62,485 56,866 5,619 9.9 %

Total net sales $ 512,345 $ 512,117 $ 228 — %

(NM = Not Meaningful)

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

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.

Net sales decreased $5.4 million, or 1.2%, compared to the prior year.

Changes by major product groups were:

(i) Pain Treatments—$3.1 million increase due to volume partially offset with lower reported ASP during most of 2023, thereby generating lower reimbursement levels;

(ii) Restorative Therapies—$17.4 million net sales decrease due primarily to the divestiture of our Wound Business;

and (iii) Surgical Solutions—$8.8 million net sales increase due to 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.

Net sales increased $5.6 million, or 9.9%, due to volume growth in Pain Treatments and Surgical Solutions, partially offset with a volume decline in Restorative Therapies from advanced rehabilitation.

Gross profit and gross margin

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Total 64.1 % 64.6 % (0.5 %)

Gross profit increased $23.1 million, or 8.4%, primarily due to the increase in net sales.

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

Gross profit decreased $2.4 million, or 0.8%, primarily due to the divestiture of our Wound Business, the decrease in selling price within Pain Treatments and an increase in cost of sales due to inventory write-offs.

The change in gross margin included a decrease from product mix and selling price, offset with a decrease in rebates and the absence of amortization of acquisition related assets in 2022 compared with 2023.

International

Gross profit increased $5.3 million, or 18.2%, primarily due to the increase in net sales.

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

Gross profit remained consistent with prior period.

Gross margin decreased due to product mix.

Selling, general and administrative expense

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Selling, general and administrative expense $ 303,879 $ 332,134 $ (28,255) (8.5 %)

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

(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.

Selling, general and administrative expense decreased $28.3 million, or 8.5%, primarily due to a decrease in equity-based compensation of $14.5 million due to employee turnover and the decline in stock price and cost saving initiatives.

These initiatives resulted in a decrease of $7.3 million in other administrative and marketing related costs and a decline of $6.3 million in bad debt due to increased collections.

Research and development expense

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Research and development expense $ 13,446 $ 23,854 $ (10,408) (43.6 %)

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.

Research and development expense decreased $10.4 million, or 43.6%, primarily due to:

(i) a decrease of $8.2 million in consulting costs;

(ii) a decline of $1.0 million in supplies expense due to cost reduction efforts;

and (iii) a decrease of $0.4 million in equity-based compensation due to employee turnover.

Restructuring costs

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Restructuring costs $ 840 $ 6,779 $ (5,939) (87.6 %)

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.

Restructuring costs for the year ended December 31, 2023 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 reducing third-party related costs.

Costs incurred for the year ended December 31, 2022 included costs to reduce headcount, reorganize management structure and to consolidate certain facilities for acquired businesses.

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(in thousands, except for percentage) 2023 2022 $ %

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.

Change in fair value of contingent consideration $ 719 $ 1,102 $ (383) (34.8 %)

The fair value of contingent consideration during year ended December 31, 2023 remained consistent with the prior year comparable period.

The activity for both periods relates to contingent consideration associated with the acquisition of Bioness in March 2021.

Depreciation and amortization

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Depreciation and amortization $ 8,842 $ 9,748 $ (906) (9.3 %)

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.

Depreciation and amortization decreased during year ended December 31, 2023 compared with the prior year primarily due to:

(i) the impairment of intellectual property intangible assets associated with the Wound Business, which was divested during the second quarter of 2023;

and (ii) a decline in amortization for certain customer relationships that became fully amortized during the first quarter of 2023.

These decreases were partially offset with an increase in depreciation expense for information technology assets, right-of-use assets associated with finance leases and consignment and demo assets.

Impairment of assets

Our decision to divest the Wound Business required us to evaluate whether certain of its assets were impaired.

We recorded a $78.6 million non-cash impairment charge as a result of this evaluation to reduce the intangible assets to their fair values less costs to sell.

The fair value of intangibles of the Wound Business was determined based on the consideration offered for the Wound Business.

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 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.

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

reporting unit exceeded its fair value and recorded a non-cash goodwill impairment charge of $189.2 million during the year ended December 31, 2022, of which $124.7 million was recorded in the impairment of assets and $64.5 million in loss on discontinued operations, net of tax, respectively, within the consolidated statements of operations and comprehensive (loss) income.

Loss on disposals

The loss on disposals during the year ended December 31, 2023 resulted from $1.5 million in working capital adjustments associated with the sale of our Wound Business and a $2.0 million loss on fixed assets disposed of during the integration of acquisitions.

Other (income) expense

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(in thousands, except for percentage) 2023 2022 $ %

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

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

Interest expense, net $ 40,676 $ 12,021 $ 28,655 238.4 %

Other (income) expense $ (1,290) $ 9,770 $ (11,060) (113.2 %)

Interest expense, net increased $28.7 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

(i) an increase in interest of $16.0 million due to higher interest rates;

(ii) the absence of $6.4 million benefit resulting from the change in fair value of our interest rate swap, which was discontinued during the fourth quarter of 2022;

(iii) an increase of $3.9 million due to higher margin rates on our Term Loan;

(iv) a $0.9 million increase in amortization of discount and deferred financing costs;

and (v) an increase of $0.8 million in lease finance interest expense.

Other (income) expense changed $11.1 million due to the $10.3 million impairment of the Trice Medical, Inc.

investment during 2022 and the receipt of $1.5 million from the settlement of a legal claim during 2023, partially offset with changes in foreign currency.

Income tax expense (benefit), net

Years Ended December 31, Change

(in thousands, except for percentage) 2023 2022 $ %

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

Income tax expense (benefit), net $ 85 $ (44,374) $ 44,459 (100.2) %

Effective tax rate 0.1 % 23.5 % (23.4 %)

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.

The $44.5 million change in income taxes was driven by movement in net losses before income taxes and the implementation of a full valuation allowance during the first quarter of 2023.

Noncontrolling interest

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(in thousands, except for percentage) 2023 2022 $ %

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

Continuing LLC Owner $ 39,395 $ 54,240 $ (14,845) (27.4 %)

Other noncontrolling interest — 447 (447) (100.0 %)

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As a result, we consolidate the financial results of BV LLC and report a non-controlling interest representing the 20.0% 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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International $ 10,194 $ 12,097 $ (1,903) (15.7) %

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.

Adjusted EBITDA increased $22.2 million, or 39.2%, primarily due to cost saving initiatives, a reduction in bad debt and declines in administrative and travel expenses as previously discussed, partially offset with lower 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.

Adjusted EBITDA decreased $1.9 million primarily due to increased compensation costs and a slight decline in gross profit.

Liquidity and Capital Resources

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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.

These restructuring efforts delivered $9.0 million to $10.0 million in cost savings on an annualized basis.

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.

Restructuring costs 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.

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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

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and (ii) cover Bioventus Inc.

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

operating expenses, including payments under the TRA.

Future cash requirements

The following table summarizes certain estimated future cash requirements under our various contractual obligations committed to as of December 31, 2023 in total and disaggregated into current and long-term obligations.

Current Long-Term Total

(in thousands) Current Long-Term Total

Long-term debt (a)

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37,615 58,585 96,200

Operating lease liabilities (b)

Lease liabilities (b)

4,816 20,959 25,775

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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.

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

(c) Amounts that are contractually committed to as of December 31, 2023 related to multi-year exclusive supply agreements.

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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.

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.

Our 2019 Credit Agreement (as amended on August 29, 2021 and October 29, 2021), and 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 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 in effect as of December 31, 2022.

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

We were in compliance with the financial covenants as of December 31, 2023 as stated within the 2019 Credit Agreement then in effect.

On January 18, 2024 (the “Closing Date”), we further amended the 2019 Credit Agreement (collectively, with the August 2021, October 2021, July 2022 and March 2023 amendments, the “Amended 2019 Credit Agreement”), to modify certain financial covenants under the 2019 Credit 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.

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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.

SOFR loans and base rate loans had a margin of 3.25% and 2.25%, respectively, subsequent to July 11, 2022 and prior to March 31, 2023.

As of the March 2023 amendment, 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.

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The Revolver will mature on October 29, 2025.

The capacity on the Revolver was reduced to $43.2 million at December 31, 2023 and will be further reduced by $5.0 million at June 30, 2024 in accordance with the Amended 2019 Credit Agreement.

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 covenant requirements include:

(i) a maximum debt leverage ratio of not greater than 5.65 to 1.00 for the testing period ending March 31, 2024, 5.00 to 1.00 for the testing period ending June 30, 2024, 4.75 to 1.00 for the testing period ending September 30, 2024, 4.50 to 1.00 for the testing period ending December 31, 2024, 4.25 to 1.00 for testing period ending March 31, 2025, 4.00 to 1.00 for testing period ending June 30, 2025 and each testing period thereafter, and, beginning with the testing period ending March 31, 2025, 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 1.75 to 1.00 for the testing period ending March 31, 2024, 1.75 to 1.00 for the testing period ending June 30, 2024, 1.75 to 1.00 for the testing period ending September 30, 2024, 2.00 to 1.00 for the testing period ending December 31, 2024, 2.00 to 1.00 for the testing period ending March 31, 2025, 2.25 to 1.00 for the testing period ending June 30, 2025, 2.50 to 1.00 for the testing period ending September 20, 2025 and 3.00 to 1.00 for the testing period ending December 31, 2025 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 October 29, 2025, 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 $10.0 million as of the end of each calendar month during such period.

Refer to Item 8.

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

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.

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Cash, cash equivalents and restricted cash as of December 31, 2023 totaled $37.0 million, compared to $30.2 million as of December 31, 2022.

The decrease in cash was primarily due to the following:

The change in cash was primarily due to the following:

Years Ended December 31, Change

(in thousands, except for percentage) 2023 2022 $ %

Cash flows from continuing operations:

Net cash from operating activities $ 17,513 $ (11,407) $ 28,920 (253.5 %)

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Net cash from financing activities (26,653) 62,076 (88,729) (142.9 %)

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

Net cash from discontinued operations (13,675) (106,971) 93,296 (87.2 %)

Effect of exchange rate changes on cash 629 521 108 20.7 %

Net change in cash, cash equivalents and restricted cash $ 5,127 $ (67,376) $ 72,503 (107.6 %)

Operating Activities

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.

Net cash in operating activities from continuing operations increased $28.9 million, primarily due to lower employee compensation and cost reduction efforts.

These inflows were partially offset with an increase in interest payments, taxes and inventory payments.

Investing Activities

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.

Net cash flows in investing activities from continuing operations increased $38.9 million, primarily due to the $34.7 million receipt of cash resulting from the sale of the Wound Business, $2.7 million less in capital expenditures and $1.5 million less in other investments and acquisitions in 2023.

Financing Activities

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.

Cash flows from financing activities decreased $88.7 million, primarily due to:

(i) borrowings of $79.7 million in long-term debt to fund the acquisition of CartiHeal in 2022;

(ii) an increase of $18.2 million in debt principal payments;

and (iii) $5.0 million less in proceeds from the issuance of stock as there were significantly more option exercises in 2022.

These financing outflows were partially offset with $15.0 million in net additional borrowings under our revolving credit facility in 2023.

Discontinued Operations

Net cash flows from discontinued operations in 2023 were primarily the result of $10.2 million in fees used to settle the CartiHeal disposition and $1.4 million in cash held by the CartiHeal entity at the time of disposal.

Net cash flows from discontinued operations in 2022 primarily related to the $104.8 million purchase of CartiHeal.

Recently Issued Accounting Pronouncements

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

Refer to Item 8.

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

Significant accounting policies for information regarding accounting pronouncements that may impact our financial statements in future periods.

Critical Accounting Estimates

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By their nature, these judgments are subject to an inherent degree of uncertainty.

On an ongoing basis, we evaluate our judgments, including those related to inventories, recoverability of long-lived assets and the fair value of our common stock.

On an ongoing basis, we evaluate our judgments, including those related to inventories and the recoverability of long-lived assets.

We use historical experience and other assumptions as the basis for our judgments in making these estimates.

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

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.

Significant accounting policies 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.

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We used independent third-party valuation specialists in 2023 and 2022 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 determine the fair value of U.S.

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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.

We recorded a non-cash goodwill impairment charge within the U.S.

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.

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

Emerging Growth Company and Smaller Reporting Company Status

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

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• The date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt;

• The date on which we are deemed to be a “large accelerated filer”, which will occur at such time as we (1) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second quarter, (2) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months, (3) have filed at least one annual report pursuant to the Exchange Act, and (4) are not eligible to use the requirements for smaller reporting companies as defined in Rule 12b-2 under the Exchange Act (annual revenue less than $100 million and either no public float or a public float of less than $700 million).

• The date on which we are deemed to be a “large accelerated filer”, which will occur at such time as we (1) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our second fiscal quarter, (2) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months, (3) have filed at least one annual report pursuant to the Exchange Act, and (4) are not eligible to use the requirements for smaller reporting companies as defined in Rule 12b-2 under the Exchange Act (annual revenue less than $100 million and either no public float or a public float of less than $700 million).

Additionally, we are considered a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, which was determined as of the last day of our second fiscal quarter of 2023 (a “determination date”).

We will continue to be categorized as a smaller reporting company—accelerated filer until our public float reaches $250 million at a future determination date.

If we are a smaller reporting company at the time we cease to be an emerging growth company, we may rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations including regarding executive compensation.

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