Bioventus Inc.BVS
Bioventus Inc. Income Taxes Disclosure
Income taxes
Bioventus Inc. is the sole managing member of BV LLC, which is treated as a partnership for income tax purposes. As a partnership, BV LLC is not subject to United States 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, on a pro rata basis. The components of loss before income taxes for the years ended December 31 are as follows:
| 2024 | 2023 | 2022 | |||||||||||||||
| United States | $ | (59,448) | $ | (125,676) | $ | (187,571) | |||||||||||
| International | 10,322 | 4,565 | (1,454) | ||||||||||||||
| Loss before income taxes - continuing operations | $ | (49,126) | $ | (121,111) | $ | (189,025) | |||||||||||
The provision for income taxes on operations consists of the following for the years ended December 31:
| 2024 | 2023 | 2022 | |||||||||||||||
| Current: | |||||||||||||||||
| United States federal | $ | (1,295) | $ | (734) | $ | 2,092 | |||||||||||
| United States state and local | (152) | 2,085 | (96) | ||||||||||||||
| International | 1,548 | 1,111 | 296 | ||||||||||||||
| Total current | 101 | 2,462 | 2,292 | ||||||||||||||
| Deferred: | |||||||||||||||||
| United States federal | (4,377) | (2,881) | (38,678) | ||||||||||||||
| United States state and local | (1,017) | (1,951) | (7,897) | ||||||||||||||
| International | — | 2,455 | (91) | ||||||||||||||
| Total deferred | (5,394) | (2,377) | (46,666) | ||||||||||||||
| Total income tax (benefit) expense - continuing operations | $ | (5,293) | $ | 85 | $ | (44,374) | |||||||||||
Cash paid for income taxes totaled $1,341, $2,955 and $1,518 for the years ended December 31, 2024, 2023 and 2022, respectively. The Company’s investment in foreign subsidiaries continues to be indefinite in nature; however, the Company may periodically repatriate a portion of these earnings to the extent that it does not incur significant additional tax liability.
The differences between the effective income tax rate and the federal statutory income tax rates for the years ended December 31 are as follows:
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S. statutory federal corporate income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Noncontrolling interest | (7.3) | (6.6) | (6.4) | ||||||||||||||
| LLC flow-through structure | 11.9 | 15.7 | 5.4 | ||||||||||||||
| Non-deductible expenses | (2.2) | (1.1) | — | ||||||||||||||
| State and local income taxes, net of federal benefit | 2.2 | 0.2 | 4.2 | ||||||||||||||
| Change in valuation allowance | (17.6) | (29.1) | (0.4) | ||||||||||||||
| Research and other tax credits | 0.8 | 0.5 | 0.3 | ||||||||||||||
| Organizational Transactions | — | — | (0.6) | ||||||||||||||
| Uncertain tax positions | 3.1 | 1.1 | (0.9) | ||||||||||||||
| Foreign rate differential | (0.6) | (0.2) | — | ||||||||||||||
| GAAP impairment | — | — | (3.5) | ||||||||||||||
| Stock compensation | 0.7 | (4.0) | — | ||||||||||||||
| Other | (1.2) | 2.4 | 4.4 | ||||||||||||||
| Effective income tax rate | 10.8 | % | (0.1 | %) | 23.5 | % | |||||||||||
Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes were as follows:
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Capital loss carryforward | $ | 18,440 | $ | 17,407 | |||||||
| Interest | 18,692 | 13,374 | |||||||||
| Net operating losses and tax credit carryforwards | 9,224 | 10,792 | |||||||||
| Tax credits | 1,381 | 1,567 | |||||||||
| Investment in Bioventus LLC | 7,362 | 1,221 | |||||||||
| Transaction costs | 711 | 975 | |||||||||
| Stock-based compensation | 283 | 947 | |||||||||
| Research & Development | 50 | 69 | |||||||||
| Fixed assets | — | 18 | |||||||||
| Accrued liabilities | 10 | 7 | |||||||||
| Other | 467 | 470 | |||||||||
| Gross deferred tax asset | 56,620 | 46,847 | |||||||||
| Valuation allowance | (51,875) | (46,007) | |||||||||
| Total deferred tax assets | 4,745 | 840 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Intangibles | 564 | 2,053 | |||||||||
| Gross deferred income tax liabilities | 564 | 2,053 | |||||||||
| Net deferred tax (asset) liability | $ | (4,181) | $ | 1,213 | |||||||
The Company considered many factors when assessing the likelihood of future realization of these deferred tax assets, including expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors. The net change in the valuation allowance was $5,868. The valuation allowance at December 31, 2024 is primarily against NOLs, interest carryover and capital loss carryforward. The valuation allowance at December 31, 2023 principally relates to recognizing a full valuation allowance against foreign NOLs.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires companies to amortize such expenditures over five or fifteen years for tax purposes, depending on whether the activities were incurred in the United States or outside of the United States. This change resulted in an increase to gross deferred tax assets and cash tax liabilities in 2023 and 2024.
As of December 31, 2024, the Company had approximately $33,720 in U.S. federal NOL carryforwards and $1,153 in federal tax credits. Certain US federal NOL carryforwards begin to expire in 2031, while others were generated after the enactment of the Tax Cuts and Jobs Act (the “Act”) and as such do not expire, but can only be utilized to offset up to 80% of taxable income in any given year. The federal tax credits start to expire at various dates beginning in 2026. As of December 31, 2024, the Company had approximately $51,313 in state NOL carryforwards and $354 in state tax credits. If not utilized, some state NOL carryforwards will expire at various dates beginning in 2025.
The Company evaluated its tax positions and had unrecognized tax benefits of $3,735 and $4,725 as of December 31, 2024 and 2023, respectively. The Company had $1,508 and $2,047 accrued for payment of interest and penalties as of December 31, 2024 and 2023, respectively. If the $3,735 of unrecognized tax benefit is recognized, it would not impact the effective tax rate due to the valuation allowance on the Company's net U.S. deferred tax assets. The Company does expect a material decrease of approximately $2,334 in the twelve months following December 31, 2024 in its uncertain tax positions due to various statute expirations during 2025.
The Company files U.S. federal income tax returns as well as income tax returns in many United States and foreign jurisdictions. In general, the tax years 2021 - 2024 remain open to examination by the major jurisdictions in which the Company is subject to tax.
A reconciliation of the gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31:
| 2024 | 2023 | ||||||||||
| Beginning of the period | $ | 4,725 | $ | 5,883 | |||||||
Additions for current year tax positions | 456 | 142 | |||||||||
| Expiration of statutes | (1,446) | (1,300) | |||||||||
| End of the period | $ | 3,735 | $ | 4,725 | |||||||
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 the Company 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 December 31, 2024, the 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.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.