10-Q 1 bvs-20220402.htm 10-Q bvs-20220402
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-37844
BIOVENTUS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware81-0980861
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
4721 Emperor Boulevard, Suite 100
Durham, North Carolina
27703
(Address of Principal Executive Offices)(Zip Code)
(919) 474-6700
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareBVSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ☒   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No  ☒
As of May 2, 2022, there were 61,360,214 shares of Class A common stock outstanding and 15,786,737 shares of Class B common stock outstanding.


BIOVENTUS INC.
TABLE OF CONTENTS
Consolidated Condensed Statements of Cash Flows for the three months ended April 2, 2022 and April 3, 2021




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
As used in this Quarterly Report on Form 10-Q, unless expressly indicated or the context otherwise requires, references to "Bioventus," "we," "us," "our," "the Company," and similar references refer to Bioventus Inc. and its consolidated subsidiaries, including Bioventus LLC (BV LLC).
This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended (Securities Act), concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements including, without limitation, statements regarding our business strategy, including, without limitation, expectations relating to our recent acquisitions of Misonix and Bioness and our pending acquisition of CartiHeal, use of proceeds from our recent notes offering, expected expansion of our pipeline and research and development investment, new therapy launches, our operations and expected financial performance and condition, and impacts of the COVID-19 pandemic and inflation. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.



Forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Important factors that may cause actual results to differ materially from current expectations include, among other things, our business may continue to experience adverse impacts as a result of the COVID-19 pandemic; we are highly dependent on a limited number of products; our long-term growth depends on our ability to develop, acquire and commercialize new products, line extensions or expanded indications; we may be unable to raise the capital necessary to complete the CartiHeal acquisition and our ability to raise additional funds in the future may be limited; if we are unable to consummate the CartiHeal transaction, we will incur substantial costs and may be subject to forfeiture of the $50.0 million advance paid into escrow or other legal action; we may be unable to successfully commercialize newly developed or acquired products or therapies in the United States; demand for our existing portfolio of products and any new products, line extensions or expanded indications depends on the continued and future acceptance of our products by physicians, patients, third-party payers and others in the medical community; the proposed down classification of non-invasive bone growth stimulators, including our Exogen system, by the U.S. Food and Drug Association (FDA) could increase future competition for bone growth stimulators and otherwise adversely affect the Company’s sales of Exogen; failure to achieve and maintain adequate levels of coverage and/or reimbursement for our products or future products including potential changes to the reimbursement rates available for our HA viscosupplement products; pricing pressure and other competitive factors; we may be unable to complete proposed acquisitions or to successfully integrate proposed or recent acquisitions in a cost-effective and non-disruptive manner; governments outside the United States may not provide coverage or reimbursement of our products; we compete and may compete in the future against other companies, some of which have longer operating histories, more established products or greater resources than we do; the reclassification of our HA products from medical devices to drugs in the United States by the FDA could negatively impact our ability to market these products and may require that we conduct costly additional clinical studies to support current or future indications for use of those products; our ability to maintain our competitive position depends on our ability to attract, retain and motivate our senior management team and highly qualified personnel; our failure to properly manage our anticipated growth and strengthen our brands; risks related to product liability claims; fluctuations in demand for our products; issues relating to the supply of our products, potential supply chain disruptions and the increased cost of parts and components using in the manufacturer of our products due to inflation; and our reliance on a limited number of third-party manufacturers to manufacture certain of our products; if our facilities are damaged or become inoperable, we will be unable to continue to research, develop and manufacture our products; failure to maintain contractual relationships; security breaches, unauthorized disclosure of information, denial of service attacks or the perception that confidential information in our possession is not secure; failure of key information technology and communications systems, process or sites; risks related to international sales and operations; risks related to our debt and future capital needs; failure to comply extensive governmental regulation relevant to us and our products; we may be subject to enforcement action if we engage in improper claims submission practices and resulting audits or denials of our claims by government agencies could reduce our net sales or profits; the FDA regulatory process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products; if clinical studies of our future products do not produce results necessary to support regulatory clearance or approval in the United States or elsewhere, we will be unable to expand the indications for or commercialize these products; legislative or regulatory reforms; risks related to intellectual property matters; and other important factors described in Part I, Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K as updated by this Form 10-Q and as may be further from time to time in our other filings with the SEC. You are urged to consider these factors carefully in evaluating these forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.


Part I. Financial Information
Item 1. Financial Statements
Bioventus Inc.
Consolidated condensed statements of operations and comprehensive (loss) income
Three months ended April 2, 2022 and April 3, 2021
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months Ended
April 2, 2022April 3, 2021
Net sales$117,290 $81,778 
Cost of sales (including depreciation and amortization of $9,218 and $5,236 respectively)
41,588 22,222 
Gross profit75,702 59,556 
Selling, general and administrative expense86,124 34,686 
Research and development expense6,928 947 
Restructuring costs577  
Change in fair value of contingent consideration269  
Depreciation and amortization3,254 1,925 
Operating (loss) income(21,450)21,998 
Interest income, net(1,550)(2,876)
Other expense38 419 
Other income(1,512)(2,457)
(Loss) income before income taxes(19,938)24,455 
Income tax benefit(5,132)(73)
Net (loss) income(14,806)24,528 
Loss attributable to noncontrolling interest3,529 408 
Net (loss) income attributable to Bioventus Inc.$(11,277)$24,936 
Net (loss) income$(14,806)$24,528 
Other comprehensive (loss) income, net of tax
Change in foreign currency translation adjustments(682)(1,156)
Comprehensive (loss) income(15,488)23,372 
Comprehensive loss attributable to noncontrolling interest3,669 408 
Comprehensive (loss) income attributable to Bioventus Inc.$(11,819)$23,780 
Loss per share of Class A common stock, basic and diluted(1):
$(0.19)$(0.02)
Weighted-average shares of Class A common stock outstanding, basic and diluted(1):
60,484,96941,797,882
(1) Per share information for the three months ended April 2, 2021 represents loss per share of Class A common stock and weighted-average shares of Class A common stock outstanding from February 16, 2021 through October 2, 2021, the period following Bioventus Inc.'s initial public offering and related transactions described in Note 1. Organization and Note 8. Earnings per share within the Notes to the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
1

Bioventus Inc.
Consolidated condensed balance sheets as of April 2, 2022 (Unaudited) and December 31, 2021
(Amounts in thousands, except share amounts)
April 2, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$27,374 $43,933 
Restricted cash5,280 5,280 
Accounts receivable, net119,288 124,963 
Inventory64,691 61,688 
Prepaid and other current assets28,762 27,239 
Total current assets245,395 263,103 
Restricted cash, less current portion50,000 50,000 
Property and equipment, net24,856 22,985 
Goodwill147,968 147,623 
Intangible assets, net681,369 695,193 
Operating lease assets18,738 17,186 
Deferred tax assets 481 
Investment and other assets28,811 29,291 
Total assets$1,197,137 $1,225,862 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$22,500 $16,915 
Accrued liabilities124,804 131,473 
Accrued equity-based compensation 10,875 
Current portion of long-term debt20,292 18,038 
Other current liabilities3,926 3,558 
Total current liabilities171,522 180,859 
Long-term debt, less current portion348,039 339,644 
Deferred income taxes116,020 133,518 
Contingent consideration16,598 16,329 
Other long-term liabilities23,040 21,723 
Total liabilities675,219 692,073 
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued
Class A common stock, $0.001 par value 250,000,000 shares authorized as of April 2, 2022 and
   December 31, 2021, 61,357,270 and 59,548,504 shares issued and outstanding as of April 2, 2022 and
   December 31, 2021, respectively
62 59 
Class B common stock, $0.001 par value, 50,000,000 shares authorized,
    15,786,737 shares issued and outstanding as of April 2, 2022 and December 31, 2021
16 16 
Additional paid-in capital467,940 465,272 
Accumulated deficit(17,879)(6,602)
Accumulated other comprehensive (loss) income(363)179 
Total stockholders’ equity attributable to Bioventus Inc.449,776 458,924 
Noncontrolling interest72,142 74,865 
Total stockholders’ equity521,918 533,789 
Total liabilities and stockholders’ equity$1,197,137 $1,225,862 
The accompanying notes are an integral part of these consolidated financial statements.
2

Bioventus Inc.
Consolidated condensed statements of changes in stockholders’ and members’ equity
Three months ended April 2, 2022 and April 3, 2021
(Amounts in thousands, except share amounts)
(Unaudited)
Three Months Ended April 2, 2022
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
other
comprehensive
income (loss)
Accumulated DeficitNon-
controlling
interest
Total Stockholders'
equity
Balance at December 31, 202159,548,504 $59 15,786,737 $16 $465,272 $179 $(6,602)$74,865 $533,789 
Issuance of Class A common stock1,808,766 3 — — 2,077 — — — 2,080 
Net loss— — — — — — (11,277)(3,529)(14,806)
Equity based compensation— — — — 3,943 — — 946 4,889 
Tax withholdings on equity compensation awards— — — — (3,352)— — — (3,352)
Translation adjustment— — — — — (542)— (140)(682)
Balance at April 2, 202261,357,270 $62 15,786,737 $16 $467,940 $(363)$(17,879)$72,142 $521,918 

Three Months Ended April 3, 2021
Class A Common StockClass B Common Stock
Members’
Equity
SharesAmountSharesAmountAdditional Paid-In -CapitalAccumulated
Other
Comprehensive
Income
Accumulated DeficitNon-
controlling
Interest
Total Stockholders' and
Members’
Equity
Balance at December 31, 2020$144,160 — $— — $— $— $— $— $— $144,160 
Prior to Organizational Transactions:
Refund from members123 — — — — — — — — 123 
Equity-based compensation(39)— — — — — — — — (39)
Net income25,977 — — — — — — — — 25,977 
Other comprehensive loss(1,507)— — — — — — — — (1,507)
Effect of Organizational Transactions(168,714)31,838,589 32 15,786,737 16 33,618 — — 79,119 (55,929)
Subsequent to Organizational Transactions:
Initial public offering, net of offering costs— 9,200,000 9 — — 106,441 — — — 106,450 
Issuance of Class A common stock for equity plans— — — — — — — — —  
Distribution to Continuing LLC Owner— — — — — 1,398 — — (1,510)(112)
Net loss— — — — — — — (1,041)(408)(1,449)
Equity based compensation— — — — — 1,466 — — 517 1,983 
Other comprehensive income— — — — — — 451 — 174 625 
Balance at April 3, 2021$ 41,038,589$41 15,786,737$16 $142,923 $451 $(1,041)$77,892 $220,282 
The accompanying notes are an integral part of these consolidated financial statements.
3

Bioventus Inc.
Consolidated condensed statements of cash flows
Three months ended April 2, 2022 and April 3, 2021
(Amounts in thousands)
(Unaudited)
Three Months Ended
April 2, 2022April 3, 2021
Operating activities:
Net (loss) income$(14,806)$24,528 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization12,479 7,184 
Provision for expected credit losses1,152 191 
Equity-based compensation from 2021 Stock Incentive Plan4,889 1,944 
Profits interest plan, liability-classified and other equity awards compensation (24,356)
Change in fair value of contingent consideration269  
Change in fair value of interest rate swap(3,924)(1,565)
Deferred income taxes(17,018)83 
Change in fair value of Equity Participation Rights (2,774)
Other, net247 392 
Changes in operating assets and liabilities:
Accounts receivable4,416 2,612 
Inventories326 (3,051)
Accounts payable and accrued expenses(7,915)(14,073)
Other current assets and liabilities(1,134)(9,157)
Net cash from operating activities(21,019)(18,042)
Investing activities:
Acquisitions, net of cash acquired(236)(45,791)
Purchase of property and equipment(2,960)(1,370)
Investments and acquisition of distribution rights(1,478)513 
Net cash from investing activities(4,674)(46,648)
Financing activities:
Proceeds from issuance of Class A common stock sold in initial public offering,
    net of underwriting discounts and offering costs
 110,410 
Proceeds from issuance of Class A and B common stock 2,080 16 
Tax withholdings on equity-based compensation(3,352) 
Borrowing on revolver15,000  
Payments on long-term debt(4,509)(3,750)
Refunds from members 854 
Other, net(14)(4)
Net cash from financing activities9,205 107,526 
Effect of exchange rate changes on cash(71)(221)
Net change in cash, cash equivalents and restricted cash(16,559)42,615 
Cash, cash equivalents and restricted cash at the beginning of the period99,213 86,839 
Cash, cash equivalents and restricted cash at the end of the period$82,654 $129,454 
Supplemental disclosure of noncash investing and financing activities
Accrued member distributions$ $572 
Accounts payable for purchase of property, plant and equipment$76 $157 
The accompanying notes are an integral part of these consolidated financial statements.
4

Bioventus Inc.
Notes to the unaudited consolidated condensed financial statements
(Amounts in thousands, except unit and share amounts)
1. Organization
The Company
Bioventus Inc. (together with its subsidiaries, the Company) was formed as a Delaware corporation for the purpose of facilitating an initial public offering (IPO) and other related transactions in order to carry on the business of Bioventus LLC and its subsidiaries (BV LLC). Bioventus Inc. functions as a holding company with no direct operations, material assets or liabilities other than the equity interest in BV LLC. BV LLC, is a limited liability company formed under the laws of the state of Delaware on November 23, 2011 and operates as a partnership. BV LLC commenced operations in May 2012. The Company is focused on developing and commercializing clinically differentiated, cost efficient and minimally invasive treatments that engage and enhance the body’s natural healing processes. The Company is headquartered in Durham, North Carolina and has approximately 1,150 employees.
Initial Public Offering
On February 16, 2021, the Company closed an IPO of 9,200,000 shares of Class A common stock at a public offering price of $13.00 per share, which includes 1,200,000 shares issued pursuant to the underwriters' over-allotment option. The Company received $111,228 in proceeds, net of underwriting discounts and commissions of $8,372, which was used to purchase newly-issued membership interests from BV LLC at a price per interest equal to the IPO price of $13.00. The Company also incurred offering expenses totaling $4,778 in addition to the underwriting discounts and commissions. Offering expenses of $1,327 were paid in 2020 and $3,451 were paid in 2021. The Company is the sole managing member of, has a majority economic interest in, has the sole voting interest in, and controls the management of BV LLC. As a result, the Company consolidates the financial results of BV LLC and reports a non-controlling interest for the interest not held by the Company.
IPO Transactions
In connection with the IPO, the Company completed the following transactions (Transactions).
Amended and restated the limited liability company agreement of BV LLC (BV LLC Agreement), to, among other things, (i) provide for a new single class of common membership interests in BV LLC (LLC Interests), (ii) exchange all of the existing membership interests in BV LLC (Original BV LLC Owners) for new LLC Interests and (iii) appoint Bioventus Inc. as the sole managing member of BV LLC. Refer to Note 7. Stockholders’ equity for further information.
Amended and restated the Bioventus Inc. certificate of incorporation to, among other things, (i) provide for an increase in the authorized shares of Class A common stock; (ii) provide for Class B common stock with voting rights but no economic interest, which shares were issued to the Original BV LLC Owners on a one-for-one basis with the number of LLC Interests they owned; and (iii) provide for undesignated preferred stock. Refer to Note 7. Stockholders’ equity for further information.
Acquired, by merger, ten entities that were Original BV LLC Owners (Former LLC Owners), for which the Company issued 31,838,589 shares of Class A common stock as merger consideration (IPO Mergers). The only assets held by the Former LLC Owners were 31,838,589 LLC Interests and a corresponding number of shares of Class B common stock. Upon consummation of the IPO Mergers, the 31,838,589 shares of Class B common stock were canceled, and the Company recognized the 31,838,589 LLC Interests at carrying value, as the IPO Mergers are considered to be a recapitalization transaction.
The financial statements for periods prior to the IPO and Transactions have been adjusted to combine the previously separate entities for presentation purposes. Prior to the Transactions, Bioventus Inc. had no operations.
Interim periods
The Company reports quarterly interim periods on a 13-week basis within a standard calendar year. Each annual reporting period begins on January 1 and ends on December 31. Each quarter ends on the Saturday closest to calendar quarter-end, with the exception of the fourth quarter, which ends on December 31. The 13-week quarterly periods for fiscal year 2022 end on April 2, July 2 and October 1. Comparable periods for 2021 ended on April 3, July 3 and October 2. The fourth and first quarters may vary in length depending on the calendar year.
5

Unaudited interim financial information
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations they do not include all information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. As such, the information included in this report should be read in conjunction with the Company’s 2021 Annual Report on Form 10-K. The balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements of the Company but does not include all the disclosures required by U.S. GAAP.
Recent accounting pronouncements
The Company has elected to comply with non-accelerated public company filer effective dates of adoption. Therefore, the required effective dates for adopting new or revised accounting standards are generally earlier than when emerging growth companies are required to adopt.
2. Balance sheet information
Cash, cash equivalents and restricted cash
A summary of cash and cash equivalents and restricted cash is as follows:
April 2, 2022December 31, 2021
Cash and cash equivalents$27,374 $43,933 
Restricted cash
Current5,280 5,280 
Noncurrent50,000 50,000 
$82,654 $99,213 
Current restricted cash consists of an escrow deposit with a financial institution for the purpose of paying a Paycheck Protection Program loan acquired as part of a business combination and noncurrent restricted cash consists of an escrow deposit with a financial institution for a potential future acquisition. Refer to Note 3. Acquisitions and investments for further information.
Accounts receivable, net
Accounts receivable, net are amounts billed and currently due from customers. The Company records the amounts due net of allowance for credit losses. Collection of the consideration that the Company expects to receive typically occurs within 30 to 90 days of billing. The Company applies 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, the Company enters 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.
Accounts receivable, net of allowances, consisted of the following as of:
April 2, 2022December 31, 2021
Accounts receivable$123,542 $128,365 
Less: Allowance for credit losses(4,254)(3,402)
$119,288 $124,963 
Due to the short-term nature of its receivables, the estimate of expected credit losses is based on aging of the account receivable balances. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. The Company has a diverse customer base with no single customer representing ten percent of sales or accounts receivable. Historically, the Company’s reserves have been adequate to cover credit losses.
6

Changes in credit losses were as follows:
Three Months Ended
April 2, 2022April 3, 2021
Beginning balance$(3,402)$(3,990)
Provision(1,152)(191)
Write-offs369 406 
Recoveries(69)(36)
Ending balance$(4,254)$(3,811)
Inventory
Inventory consisted of the following as of:
April 2, 2022December 31, 2021
Raw materials and supplies$14,324 $12,213 
Finished goods51,669 50,805 
Gross65,993 63,018 
Excess and obsolete reserves(1,302)(1,330)
$64,691 $61,688 
Prepaid and other current assets
Prepaid and other current assets consisted of the following as of:
April 2, 2022December 31, 2021
Prepaid taxes$7,153 $12,236 
Prepaid and other current assets21,609 15,003 
$28,762 $27,239 
Accrued liabilities
Accrued liabilities consisted of the following as of:
April 2, 2022December 31, 2021
Gross-to-net deductions$66,665 $67,945 
Bonus and commission12,016 23,342 
Compensation and benefits10,202 10,665 
Income and other taxes15,736 8,139 
Other liabilities20,185 21,382 
$124,804 $131,473 
7

3. Acquisitions and investments
Misonix, Inc.
On October 29, 2021, in order to broaden its portfolio, the Company acquired 100% of the capital stock of Misonix, Inc. (Misonix) in a cash-and-stock transaction (the Misonix Acquisition). 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 fair value of the consideration for the Misonix Acquisition is comprised of the following:
Common Shares
Price per Share(a)
Amount
Cash$182,988 
Bioventus Class A shares18,340,790 $14.97 274,562 
Value of Misonix options settled in Bioventus options
27,636 
Merger consideration485,186 
Other cash consideration40,130 
Total Misonix consideration$525,316 
(a)Closing price of the Company’s Class A common stock as of October 28, 2021.
The Company accounted for the Misonix Acquisition using the acquisition method of accounting whereby the total purchase price was preliminarily allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
Fair value of consideration$525,316 
Assets acquired and liabilities assumed:
Cash and cash equivalents7,126 
Accounts receivable13,301 
Inventory24,720 
Prepaid and other current assets419 
Property and equipment10,571 
Intangible assets486,500 
Operating lease assets1,049 
Other assets77 
Accounts payable and accrued liabilities(16,888)
Other current liabilities(589)
Deferred income taxes(94,012)
Other liabilities(1,351)
Net assets acquired430,923 
Resulting goodwill$94,393 
As of April 2, 2022, the purchase price allocation for the Misonix Acquisition was preliminary in nature and subject to completion. Adjustments to the current fair value estimates in the above table may occur as the process conducted for various valuations and assessments is finalized, including tax liabilities and other working capital accounts. Nearly 100% of the goodwill represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Misonix Acquisition. The goodwill is not tax deductible and was allocated to the U.S. reporting unit for purposes of the evaluation for any future goodwill impairment.
8

The following table summarizes the preliminary fair values of identifiable intangible assets and their useful lives:
Useful Life (in years)Fair Value
Intellectual property
15 - 20 years
$477,000 
Customer relationships12 years9,500 
$486,500 
The preliminary fair value of the Misonix intellectual property was determined using a variation of the income approach or the multi-period excess earnings method, with projected earnings discounted at a rate of 12.0%. The preliminary fair value of the customer relationship asset was determined using the income approach or the profit-split method, with projected cash flow discounted at a rate of 12.0%. The determination of the useful lives was based upon consideration of market participant assumptions and transaction specific factors.
Bioness, Inc.
On March 30, 2021, the Company acquired 100% of the capital stock of Bioness, Inc. (Bioness Acquisition) for $48,933 in cash and $15,500 in contingent consideration. Bioness, Inc. (Bioness) is a global leader in neuromodulation and advanced rehabilitation medical devices through its innovative peripheral nerve stimulation therapy and premium advanced rehabilitation solutions.
Contingent consideration is comprised of future earn-out payments contingent upon the achievement of certain research and development projects as well as sales milestones related to Bioness products. The Bioness Acquisition Agreement includes maximum earn-out payments of $65,000 as follows:
$15,000 for obtaining FDA approval for U.S. commercial distribution of a certain product for certain indications on or before June 30, 2022;
$20,000 for meeting net sales targets for certain implantable products over a three year period ending on June 30, 2025 at the latest;
Up to $10,000 for meeting net sales milestones for certain implantable products over a three year period ending on June 30, 2025 at the latest; and
$20,000 for maintaining Centers for Medicare & Medicaid Services coverage and reimbursement for certain products at specified levels as of December 31, 2024.
In December 2021, it became clear that the $15,000 FDA approval milestone would not be met, therefore, was assigned no value and was recorded as a measurement period adjustment. As of December 31, 2021, the maximum contingent earn-out payment decreased to $50,000 as a result.
Consolidated Pro Forma Results
The results of operations of Misonix have been included in the accompanying consolidated financial statements since the October 29, 2021 acquisition date. The Company’s consolidated statements of operations reflect net sales and net loss attributable to Misonix of $19,423 and $7,347, respectively, for the three months ended April 2, 2022.
The results of operations for Misonix and Bioness have been included in the accompanying consolidated financial statements since their respective acquisition dates of October 29, 2021 and March 30, 2021. Revenue and earnings including the Bioness and Misonix operations as if the companies were acquired at January 1, 2021 are as follows:
Three Months Ended
April 3, 2021
Net sales$109,072 
Net (loss) income$20,831 
9

The historical consolidated financial information of the Company, Misonix and Bioness have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the both the Misonix and Bioness acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. The unaudited pro forma results include adjustments to reflect the inventory step-up amortization, the incremental intangible asset amortization to be incurred based on the valuations of the assets acquired, transaction costs that would have been incurred in the prior period, vesting of equity-based compensation that was accelerated due to the Misonix Acquisition, adjustments to financing costs to reflect the new capital structure as well as the income tax effect and the noncontrolling interest impact of these adjustments. These pro forma amounts are not necessarily indicative of the results that would have been obtained if the acquisition had occurred prior to the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.
Investments
VIE
The Company had a fully diluted 8.8% ownership of Harbor Medtech Inc.’s (Harbor) Series C Preferred Stock. The Company and Harbor entered into an exclusive Collaboration Agreement in 2019 for purposes of developing a product for orthopedic uses to be commercialized by the Company and supplied by Harbor. The Company’s partial ownership and exclusive Collaboration Agreement created a variable interest in Harbor. The Company terminated the Collaboration Agreement on June 8, 2021. As a result, Harbor had been consolidated in the Company’s consolidated financial statements from the third quarter of 2019 through June 8, 2021 when the Company ceased being the primary beneficiary because it no longer had the power to direct Harbor’s significant activities.
Equity Method
On January 30, 2018, the Company purchased 337,397 shares of Series F Convertible Preferred Stock of CartiHeal (2009) Ltd. (CartiHeal), a privately held entity, for $2,500. On January 22, 2020, the Company made an additional $152 investment in CartiHeal, through a Simple Agreement for Future Equity (SAFE). On July 15, 2020, CartiHeal completed the future equity financing and the Company received 12,825 in Series G-1 Preferred Shares resulting in the SAFE being terminated. In addition, on July 15, 2020, the Company entered into an Option and Equity Purchase Agreement with CartiHeal (Option Agreement). Under the terms of the agreement, the Company purchased 1,014,267 shares of CartiHeal Series G Preferred Shares for $15,000. The Company has a 10.03% equity ownership of CartiHeal’s fully diluted shares and its investment carrying value was $16,370 and $16,771 as of April 2, 2022 and December 31, 2021, respectively. The investment does not have a readily determinable fair value and is included within investments and other assets on the consolidated balance sheets. Beginning in July 2020, the Company was able to exercise significant influence over CartiHeal but did not have control and as a result the investment was recognized as an equity method investment. Net losses from equity method investments for the three months ended April 2, 2022 and April 3, 2021 totaled $401 and $469 respectively, which are included in other expense on the consolidated statement of operations and comprehensive income.
In August 2021, CartiHeal achieved pivotal clinical trial success, as defined in the Option Agreement, for a CartiHeal product, which provides the Company with an exclusive option to acquire 100% of CartiHeal’s shares (Call Option), and provides CartiHeal with a put option that would require the Company to purchase 100% of CartiHeal’s shares under certain conditions (Put Option). In order to preserve the Company’s Call Option, in accordance with the Option Agreement and upon approval of the BOD, the Company deposited $50,000 into escrow in August 2021 for the potential acquisition of CartiHeal, which is included in restricted cash on the consolidated balance sheet.
In April 2022, the Company exercised its Call Option to acquire all of the remaining shares of CartiHeal, excluding shares already owned by the Company, for approximately $314,895. An additional $134,955 may become payable upon achievement of $100,000 in trailing twelve month sales. The Company’s decision to exercise the option follows the U.S. Food and Drug Administration’s March 29, 2022 premarket approval of CartiHeal’s Agili-CTM implant.
10


4. Financial instruments
Long-term debt consists of the following:
April 2, 2022December 31, 2021
Term Loan due December 2026 (2.46% at April 2, 2022)
$356,240 $360,750 
Revolver due December 2026 (2.46% at April 2, 2022)
15,000  
Less:
Current portion of long-term debt(20,292)(18,038)
Unamortized debt issuance cost(1,600)(1,687)
Unamortized discount(1,309)(1,381)
$348,039 $339,644 
The 2019 Credit Agreement requires the Company to comply with financial and other covenants. The Company complied with all covenants as of April 2, 2022. The 2019 Credit Agreement contains a $50,000 revolving credit facility, from which there was $15,000 in outstanding borrowings as of April 2, 2022 and none at December 31, 2021.
The estimated fair value of the Term Loan as of April 2, 2022 was $322,768. The fair value of these obligations was determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar obligations and are classified as Level 2 instruments within the fair value hierarchy.
The Company enters into interest rate swap agreements to limit its exposure to changes in the variable interest rate on its long-term debt. The Company has one non-designated interest rate swap agreement and has no other active derivatives. The swap is carried at fair value on the balance sheet (Refer to Note 5. Fair value measurements) with changes in fair value recorded as interest income or expense within the consolidated statements of operations and comprehensive (loss) income. Net interest income of $3,924 and $1,565 were recorded related to the change in fair value of the interest rate swap for the three months ended April 2, 2022 and April 3, 2021, respectively.
The notional amount of the swap totaled $100,000, or 28.1% of the Term Loan outstanding principal at April 2, 2022. The swap locked in the variable portion of the interest rate on the $100,000 notional at 0.64%.
5. Fair value measurements
The process for determining fair value has not changed from that described in the Company’s 2021 Annual Report on Form 10-K.
There were no assets measured at fair value on a recurring basis and there were no liabilities valued at fair value using Level 1 inputs. The following table provides information for assets and liabilities measured at fair value on a recurring basis using Level 2 and Level 3 inputs:
April 2, 2022December 31, 2021
TotalLevel 2Level 3TotalLevel 2Level 3
Assets:
Interest rate swap$5,052 $5,052 $ $1,128 $1,128 $ 
Liabilities:
Contingent consideration16,598  16,598 16,329  16,329 
Interest rate swap
The Company values interest rate swaps using discounted cash flows. Forward curves and volatility levels are used to estimate future cash flows that are not certain. These are determined using observable market inputs when available and based on estimates when not available. The fair value of the swap was recorded in the Company’s consolidated balance sheets within prepaid and other current assets. Changes in fair value are recognized as interest income or expense within the consolidated statements of operations and comprehensive (loss) income.
11

Contingent consideration
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 for certain milestones. For other milestones, the Company used a variation of the income approach where revenue was simulated in a risk-neutral framework using Geometric Brownian Motion, a stock price behavior model.
Key assumptions used to estimate the fair value of contingent consideration include projected financial information, market data and the probability and timing of achieving the specific targets as discussed in Note 3. Acquisitions and investments. After the initial valuation, the Company generally uses its best estimate to measure contingent consideration at each subsequent reporting period using the following unobservable Level 3 inputs:
Valuation TechniqueUnobservable inputsRange
Bioness contingent considerationDiscounted cash flowPayment discount rate
6.4% - 6.8%
Payment period
2024 - 2025
Significant changes in these assumptions could result in a significantly higher or lower fair value. The contingent consideration reported in the above table resulted from the March 30, 2021 Bioness acquisition, which is adjusted quarterly based upon the passage of time or the anticipated success or failure of achieving certain milestones. Changes in contingent consideration related to the Bioness acquisition totaled $269 for the three months ended April 2, 2022, and were recorded as the change in fair value of contingent consideration within the consolidated statements of operations and comprehensive (loss) income.
Management incentive plan (MIP) and liability-classified awards
BV LLC had operated two equity-based compensation plans, the management incentive plan (MIP) and the BV LLC Phantom Profits Interest Plan (Phantom Plan and, together with the MIP, the Plans), which were terminated on February 11, 2021 in connection with the Company’s IPO. Awards granted under the MIP Plan and the 2015 Phantom Units were liability-classified and the 2012 Phantom Units were equity-classified. Prior to the IPO and during the three months ended April 3, 2021, the Company settled the remaining 183,078 units with the sole MIP awardee for $10,802. No awards under the Plans were granted post-IPO and the Phantom Plan awards were settled 12 months following the termination. Vested awardees whose BV LLC employment terminated prior to the IPO had their awards settled in March 2022 for $10,413, which was included in accrued equity-based compensation on the consolidated condensed balance sheets at December 31, 2021. Awardees that were active BV LLC employees at the IPO were entitled to receive an aggregate of 798,422 shares of Class A common stock. In February 2022, awardees received 538,203 shares of Class A common stock, of which 260,219 shares were withheld to satisfy employee payroll taxes.
6. Equity-based compensation
Terminated plans
Prior to the IPO, BV LLC operated two equity-based compensation plans, the MIP and the Phantom Plan, which were terminated on February 11, 2021 in conjunction with the IPO. Prior to the Plans termination, during the three months ended April 3, 2021, (i) the Company granted 90,000 Phantom Plan units; (ii) there were no MIP awards granted; (iii) 900 Phantom Plan units were forfeited and (iv) other Phantom Units were redeemed for $479. Compensation expense related to the Phantom Plan totaled $829 for the three months ended April 3, 2021. This amount excludes the $25,185 decrease in fair market value of accrued equity-based compensation due to adjustments to reflect the difference between the expected pricing from the pending IPO and the actual offering price, of which $1,777 was recorded in research and development expense within the consolidated statement of operations and comprehensive (loss) income for the three months ended April 3, 2021.
2021 Plan
The Company operates an equity-based compensation plan (2021 Plan), which 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). As of April 2, 2022, 11,873,784 shares of Class A common stock were authorized to be awarded and 2,876,822 shares were available for awards.
Equity-based compensation expense of $4,731 and $1,944 was recognized for the three months ended April 2, 2022 and April 3, 2021, respectively, for Awards granted under the 2021 Plan. The 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 (loss) income based upon the classification of the employee. There was a $1,225 income tax benefit related to this expense for the three months ended April 2, 2022. There was no income tax benefit related to equity-based compensation expense for three months ended April 3, 2021.
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Restricted Stock Units
During the three months ended April 2, 2022, the Company granted time-based RSUs which vest at various dates through March 14, 2026. RSU compensation expense is recognized over the vesting period, which is typically between 1 and 4 years. Unamortized compensation expense related to the RSUs totaled $13,321 at April 2, 2022, and is expected to be recognized over a weighted average period of approximately 3.39 years. A summary of the RSU award activity for the three months ended April 2, 2022 is as follows (number of units in thousands):
Number of unitsWeighted-average grant-date fair value per unit
Unvested at December 31, 20211,024 $14.41 
Granted903 12.66 
Vested(734)14.74 
Forfeited or canceled(33)13.50 
Unvested at April 2, 20221,160 12.86 
Stock Options
During the three months ended April 2, 2022, the Company granted time-based stock options which vest over 2 to 4 years following the date of grant and expire within 10 years. The fair value of time-based stock options is determined using the Black-Scholes valuation model, with such value recognized as expense over the service period, which is typically 2 to 4 years, net of actual forfeitures. A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the three months ended April 2, 2022 is shown in the following table.
Risk-free interest rate
1.8% - 2.1%
Expected dividend yield %
Expected stock price volatility
33.2% - 33.4%
Expected life of stock options (years)
6.25
The weighted-average grant date fair value of options granted during the three months ended April 2, 2022 was $4.68. The expected term of the options granted is estimated using the simplified method. Expected volatility is based on the historical volatility of the Company’s peers common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option. Unamortized compensation expense related to the options amounted to $18,380 at April 2, 2022, and is expected to be recognized over a weighted average period of approximately 3.77 years.
A summary of stock option activity is as follows for the three months ended April 2, 2022 (number of options in thousands):
Number of optionsWeighted-average exercise priceWeighted average remaining contractual termAggregate intrinsic value
Outstanding at December 31, 20218,364 $11.16 
Granted2,099 12.66 
Exercised(227)8.73 
Forfeited or canceled(295)13.09 
Outstanding at April 2, 20229,941 11.48 8.21$22,184 
Exercisable and vested at April 2, 20224,498 $9.58 6.86$18,262 
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices lower than $13.63, the closing price of the Company’s stock on April 1, 2022.
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Employee Stock Purchase Plan
The Company operates a non-qualified Employee Stock Purchase Plan (ESPP), which provides for the issuance of shares of the Company’s Class A common stock to eligible employees of the Company that elect to participate in the plan and purchase shares of Class A common stock through payroll deductions at a discounted price. As of April 2, 2022, the aggregate number of shares reserved for issuance under the ESPP was 398,532. A total of 48,993 shares were issued and $158 of expense was recognized during the three months ended April 2, 2022. No shares were issued under the ESPP during the three months ended April 3, 2021.
7. Stockholders’ equity
Amendment and restatement of certificate of incorporation
On February 16, 2021 the Company amended and restated its certificate of incorporation to, among other things, provide for (i) the authorization of 250,000,000 shares of Class A common stock with a par value of $0.001 per share; (ii) authorization of 50,000,000 shares of Class B common stock with a par value of $0.001 per share; (iii) the authorization of 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company's Board of Directors (BOD) in one or more series; and (iv) the establishment of a classified BOD, divided into three classes, each of whose members will serve for staggered three-year terms.
Holders of Class A and Class B common stock are entitled to one vote per share and, except as otherwise required, will vote together as a single class on all matters on which stockholders generally are entitled to vote. Holders of Class B common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the liquidation, dissolution or winding up of the Company. Shares of Class B common stock may only be issued to the extent necessary to maintain the one-to-one ratio between the number of LLC Interests and the number of shares of Class B common stock held by the Continuing LLC Owner. Shares of Class B common stock are transferable only together with an equal number of LLC Interests. Shares of Class B common stock will be canceled on a one-for-one basis upon the redemption or exchange of any outstanding LLC Interests.
The Company must, at all times, maintain a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of LLC Interests owned by the Company.
BV LLC recapitalization
As described in Note 1. Organization, on February 16, 2021, the Company amended and restated the BV LLC Agreement to, among other things, (i) provide for the new LLC Interests, (ii) exchange all of the then-existing membership interests of the Original BV LLC Owners for new LLC Interests and (iii) appoint Bioventus Inc. as the sole managing member of BV LLC.
The BV LLC Agreement also provides that holders of LLC Interests may, from time to time, require the Company to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. The Company may elect to settle any such redemption in shares of Class A common stock or in cash.
The amendment also requires that the Company, at all times, maintain (i) a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of LLC Interests owned by Bioventus Inc. and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing LLC Owner and the number of LLC Interests owned by the Continuing LLC Owner.
Noncontrolling interest
In connection with any redemption, the Company will receive a corresponding number of LLC Interests, increasing its ownership interest in BV LLC. Future redemptions of LLC Interests will result in a change in ownership and reduce the amount recorded as noncontrolling interest and increase additional paid-in capital. There were no redemptions during the three months ended April 2, 2022 or during the year ended December 31, 2021. The following table summarizes the ownership interest in BV LLC as of April 2, 2022 and December 31, 2021 (number of units in thousands):
April 2, 2022December 31, 2021
LLC Interests
Ownership %
LLC Interests
Ownership %
Number of LLC Interests owned
Bioventus Inc.61,357 79.5 %59,548 79.0 %
Continuing LLC Owner15,787 20.5 %15,787 21.0 %
Total77,144 100.0 %75,335 100.0 %
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8. Earnings per share
The following table sets forth the computation of basic and diluted loss per share of Class A common stock for the period following the Transactions (amounts in thousands, except share and per share data):
Three Months Ended April 2, 2022February 16, 2021 through April 3, 2021
Numerator:
Net loss$(14,806)(1,449)
Net loss attributable to noncontrolling interests3,529 408 
Net loss attributable to Bioventus Inc. Class A common stockholders$(11,277)$(1,041)
Denominator:
Weighted-average shares of Class A common stock outstanding - basic and diluted60,484,969 41,797,882 
Net loss per share of Class A common stock, basic and diluted$(0.19)$(0.02)
Shares of Class B common stock do not share in the losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted losses per share of Class B common stock under the two-class method has not been presented.
The following number of weighted-average potentially dilutive shares as of April 2, 2022 and April 3, 2021 were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion:
Three Months Ended April 2, 2022February 16, 2021 through April 3, 2021
LLC Interests held by Continuing LLC Owner(a)
15,786,737 15,786,737 
Stock options8,757,706 4,564,091 
RSUs462,404 382,711 
Unvested shares of Class A common stock 39,129 
Total25,006,847 20,772,668 
(a)Class A Shares reserved for future issuance upon redemption or exchange of LLC Interests by Continuing LLC Owner.
9. Restructuring costs
Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management. These charges are included in restructuring costs in the consolidated statement of operations and comprehensive (loss) income.
The Company adopted restructuring plans for businesses acquired to reduce headcount, reorganize management structure and consolidate certain facilities during the second half of 2021 (the 2021 Restructuring Plan) and during the first quarter of 2022 (the 2022 Restructuring Plan). The Company planned total pre-tax charges for the 2021 Restructuring Plan to be $2,900, of which $377 and $2,487 was recognized during the first quarter of 2022 and the year ended December 31, 2021, respectively. The 2021 Restructuring Plan has essentially been completed. Expected pre-tax charges related to the 2022 Restructuring Plan is $1,055, of which $200 was recognized during the three months ended April 2, 2022.
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The Company’s restructuring charges and payments for plans related to businesses recently acquired comprised of the following:
Employee
severance and
temporary
labor costs
Other
charges
Total
Balance at December 31, 2021$1,400 $136 $1,536 
Expenses incurred577  577 
Payments made(619) (619)
Balance at April 2, 2022$1,358 $136 $1,494 
10. Income taxes
As a result of the Transactions, 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. The Company is also subject to taxes in foreign jurisdictions.
The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly tax provision, and estimate of the Company's 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 the Company conducts business, and tax law developments.
For the three months ended April 2, 2022 and April 3, 2021 the Company's estimated effective tax rate was 25.7% and 0.3%, respectively. The increase was primarily driven by the change in structure resulting from the IPO and associated Up C structure as well as the impact of non-deductible stock option expense during 2021.
Tax Receivable Agreement
The Company expects 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 the Company 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.
On February 16, 2021, the Company entered into a tax receivable agreement (TRA) with the Continuing LLC Owner that provides for the payment by the Company to the Continuing LLC Owner of 85% of the amount of tax benefits, if any, that the Company actually realizes 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.
The Company 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 April 2, 2022, Continuing LLC Owner had not exchanged LLC Interests for shares of Class A common stock and therefore the Company had not recorded any liabilities under the TRA.
11. Commitments and contingencies
Leases
The Company leases its office facilities as well as other property, vehicles and equipment under operating leases. The Company also leases certain office equipment under nominal finance leases. The remaining lease terms range from 1 month to 6.5 years.
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The components of lease cost were as follows:
Three Months Ended
April 2, 2022April 3, 2021
Operating lease cost$1,126 $702 
Short-term lease cost(a)
183 117 
Total lease cost$1,309 $819 
(a)Includes variable lease cost and sublease income, which are immaterial.
Supplemental cash flow information and non-cash activity related to operating leases were as follows:
Three Months Ended
April 2, 2022April 3, 2021
Operating cash flows from operating leases$1,254 $