biote Corp. (PNK:BTMD) Q1 2024 Earnings Call Transcript

biote Corp. (PNK:BTMD) Q1 2024 Earnings Call Transcript May 9, 2024

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Operator: Good day, and welcome to the Biote First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Simon Serowiecki, IR representative from Advisory Partners. Please go ahead.

Simon Serowiecki: Thank you for joining us today. This afternoon, Biote published financial results for the quarter ended March 31, 2024. This news release is available on the Investor Relations section of the company's website. Terry Weber, Chief Executive Officer; and Bob Peterson, Chief Financial Officer, will host today's call. Before we get started, I'd like to remind everyone that management will make statements during this call that include forward-looking statements regarding, among other things, the company's financial results, future performance and growth opportunities, business outlook, strategies, goals, research and development, manufacturing and commercialization activities, regulatory process operations, the impact of macroeconomic conditions to business, results of operations, financial conditions, and other matters.

These statements are not guarantees of future performance. They're subject to a variety of risks and uncertainties, some of which are beyond the company's control. Actual results could differ materially from expectations reflected in any forward-looking statement. These statements are subject to risks, uncertainties, and assumptions that are based on management's current expectations as of today. Biote undertakes no obligation to update them in the future. Therefore, these statements should not be relied upon as representative of the company's views as of any subsequent date. For discussion of risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and in the Investor Relations section of our website, as well as risks and other important factors discussed in the earnings release.

Management will also refer to adjusted EBITDA, which is a non-GAAP financial measure, to provide additional information to investors. Reconciliation of the non-GAAP to GAAP measure is provided in earnings release, with the primary differences being stock-based compensation, fair value adjustment of certain liabilities, transaction-related expenses, and other non-operating expenses. Please refer to our first quarter 2024 earnings release for reconciliation of adjusted EBITDA to net income, the closest comparable GAAP measure. I'll now turn the call over to Terry Weber.

Terry Weber: Thank you, Simon, and thank you all for joining us. On the call with me today is Bob Pearson, our Chief Financial Officer, who will review our financial results and discuss our outlook for 2024. Marc Beer, our Executive Chairman, is also on today's call to help you answer questions during the Q&A session following our prepared remarks. Biote generated solid financial performance in the first quarter, delivering results consistent with our expectations. We successfully launched BioteRx, our new suite of complementary hormone and evidence-based wellness products greatly expanding our long-term growth opportunities. We also closed our acquisition of Asteria Health, a strategic transaction that enhances our efficiency and strengthens our manufacturing capabilities.

Shortly after the first quarter closed, we were pleased to reach a definitive settlement agreement with Biote's founder. This settlement ends costly litigation and we believe will prove accretive to shareholder value through the planned repurchase of more than 18 million shares held by Dr. Donovitz at an average repurchase price of $4.17 per share. Bob will provide more information on the expected financial impact of this agreement in his remarks. Now let's turn to our first quarter results. Revenue increased 4.4%, reflecting procedure revenue growth of 6.6%, partially offset by a decrease in dietary supplement revenue of 11.3% due to an expected decline in nutraceutical sales as we transition our eCommerce business. Consistent with our expectations, procedure revenue growth remained stable compared to that of the fourth quarter of 2023.

Procedure revenue was driven primarily from our top tier clinics and included a contribution from new clinics we have added in the past 12 months. Adjusted EBITDA increased 8%, outpacing revenue growth, and we generated an adjusted EBITDA margin in excess of 30%. Following the exit of one of our larger nutraceutical distributors from the market in the fourth quarter of 2023, we continue to transition a portion of our nutraceutical sales to our own online storefront. As part of this transition, we are eliminating unauthorized third-party resellers, which we anticipate will enhance the overall margin profile of our nutraceuticals business in the long run. We expect our nutraceuticals business will resume year-over-year revenue growth starting in the second half of 2024 as existing inventory is cleared from the distribution channel.

In February, we successfully launched BioteRx, our new suite of hormone and wellness therapies. BioteRx represents a milestone in our evolution as we build on our leadership to become the foremost provider of evidence based healthy aging and therapeutic wellness solutions. BioteRx addresses patient and practitioner needs in key areas, including preventative wellness, sexual health and weight loss. It also further separates Biote from our competitors by providing practitioners with a complete solution to promote positive health outcomes for patients. As we continue the phased rollout of BioteRx, we are focused on ensuring practitioners have consistent access to our expanded range of hormone and wellness therapeutics. To date, we've introduced 10 new products, including hormone formulations that provide efficacious alternatives to pellet therapy.

We plan to further expand our formulary with additional hormone and therapeutic wellness products later in the year. Patient and practitioner response to our new offerings has been positive, highlighting what we believe is an attractive market opportunity for Biote in the years ahead. For practitioners, BioteRx will be offering valuable tools and resources, including a proprietary clinical decision support system that provides treatment recommendations formulated to individual patients' unique needs. For patients, our expanded BioteRx formulary enables them to conveniently receive hormone and wellness treatments from a single medical provider. In addition to our successful launch of BioteRx, we also closed our acquisition of Asteria Health, a manufacturer of compounded bio-identical hormones, in the first quarter.

The integration of Asteria is already underway, and we remain focused on expanding Asteria Health's licenses to additional states. We believe Asteria Health advances our strategic objectives in the following key aspects. First, we are strengthening control over our supply chain, enabling us to generate product enhancements through the vertical integration of our manufacturing. As we work towards achieving full vertical integration, we are also focused on driving productivity gains in our pellet manufacturing. Second, we are gaining expertise in the manufacturing of 503(B) products, enabling us to provide a wide range of high-quality compounded medications. Later this year, we plan to open the Biote lab and innovation processing center, where we will develop innovative hormone and therapeutic wellness formulations, backed by our own pharmacokinetic research studies.

This is an exciting initiative for Biote, which we believe will strengthen our competitive position and keep us on the forefront of innovation. Our commitment to training and continuing education remains integral to the Biote method and serves as a key competitive differentiator, especially as we evolve into a single source provider of hormone and therapeutic wellness solutions. To optimize our growth and enhance the start up experience for our new practitioners, we recently introduced a Quick Start program designed to streamline the onboarding process. At the same time, we are laying groundwork for more immersive and interactive didactic and advanced training for both new and existing practitioners. Through these enhancements, we aim to accelerate the revenue ramp from new clinics, improve our cost efficiency and extend our leadership position in both training and education.

I'll now turn the call over to Bob to discuss our financial results and provide our outlook for 2024.

Bob Peterson: Thank you, Terry, and good afternoon, everyone. First quarter revenue increased 4.4% year-over-year to $46.8 million when compared to the same quarter in 2023. Procedure revenue grew 6.6% from the prior year period, a growth rate consistent with our performance in the fourth quarter of 2023. Nutraceuticals revenue decreased by 11.3% as we expected, primarily as a result of one of the company's larger distributors exiting nutraceuticals business during the fourth quarter of 2023. As I noted in last quarter's call, we expect to begin managing distribution of the products previously delivered by this distributor by the end of the second quarter of 2024. First quarter gross profit margin expanded by approximately 240 basis points to 71.4% due to product mix and effective cost management.

I would note that this quarter's increase in gross profit margin was favorably impacted by lower nutraceutical sales as mentioned earlier. As nutraceutical sales resumed growth in the second half as we expect, we anticipate consolidated gross profit margin should revert to historical levels. Selling, general and administrative costs were $23.0 million compared to $23.1 million in the first quarter of 2023. Excluding the impact of share-based compensation, litigation expenses and settlements unrelated to ongoing business, transaction and M&A related expenses and other SG&A expenses would have been $20.0 million in the first quarter of 2024. Operating income was $10.4 million compared to $7.9 million in the prior year quarter, driven by revenue growth, improved gross profit margin and effective management of operating expenses.

Net loss in the quarter was $5.8 million, inclusive of a $12.1 million loss due to a change in the fair value of the earnout liability. This compares to a net loss of $21.4 million in the first quarter of 2023, which included a $25.4 million loss due to the net change in the fair value of the earnout liability. Adjusted EBITDA was $14.2 million with an adjusted EBITDA margin of 30.2%. This compares to adjusted EBITDA of $13.1 million with an adjusted EBITDA margin of 29.2% in the prior year period. Adjusted EBITDA and margins increased primarily due to higher sales, product mix and improved profitability compared to the first quarter of 2023. First quarter operating cash flow was approximately $7.4 million. The positive cash flow in Q1 of 2024 was primarily related to better margins.

As Terry noted, on April 23, 2024, Biote reached a definitive settlement in the company's litigation with Dr. Gary S. Donovitz, Biote's founder. Under the terms of the settlement, Biote has agreed to repurchase all of the 18.4 million shares beneficially owned by Dr. Donovitz at the time of the settlement at an average price of $4.17 per share, with the first tranche of shares being repurchased for $32.2 million on April 26, 2024. The remaining shares will be repurchased over the next 3 years. Also pursuant to the settlement, the company is canceling all 3.9 million unvested earnout shares that were beneficially owned by Dr. Donovitz at the time of the settlement. Turning to our financial outlook for fiscal 2024. We reaffirm previously reported guidance with revenue of $200 million to $204 million and adjusted EBITDA of $60 million to $63 million.

As we look at the cadence of revenue and adjusted EBITDA for the year, we expect our financial performance to be weighted towards the second half of the year. Total revenue growth for the first half of 2024 is expected to be impacted by the transition in the nutraceuticals distribution channel and timing of seasonal promotions. Now I will turn the call back to Terry for her closing comments.

Terry Weber: Thank you, Bob. Biote generated solid financial performance in the first quarter and achieved substantial progress against our strategic objectives. With the successful launch of BioteRx and the closure of the Asteria Health acquisition, we are strengthening and expanding our capabilities. We remain focused on providing a comprehensive approach to aging by delivering evidence based healthy aging and therapeutic wellness solutions to both practitioners and their patients. Now I'd like to open the call for questions. Operator, please begin the question-and-answer session.

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