biote Corp. (PNK:BTMD) Q4 2023 Earnings Call Transcript March 12, 2024

biote Corp. beats earnings expectations. Reported EPS is $0.18, expectations were $0.08. biote Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the biote Fourth Quarter and Full Year 2023 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 evening, biote published financial results for the quarter and full year ended December 31, 2023. 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 would 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, manufacturing and commercialization activities, business operations, the impact of macroeconomic conditions on its business, results of operations, financial conditions and other matters.

These statements are not guarantees of future performance. They are 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 statements. These statements are subject to risks and 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 representing the company's views as of any subsequent date. For a 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 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. A reconciliation of the non-GAAP to GAAP measures is provided in our earnings release, with the primary differences being stock-based compensation, fair value adjustments of certain liabilities, transaction-related expenses and other non-operating expenses. Please refer to our fourth quarter and full year 2023 earnings release for a reconciliation of adjusted EBITDA to net income, the closest comparable GAAP measure. I will 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 Peterson, our Chief Financial Officer, who will review our financial results and discuss our outlook for 2024. Mark Beer, our Executive Chairman, is also on today's call to help you answer your questions during the Q&A session following our prepared remarks. 2023 was a pivotal year for biote, in which we achieved significant strategic progress and built a solid foundation for continued growth in the years ahead. Among our accomplishments this year, we added new talent to our leadership team and made key investments to strengthen our capabilities at the corporate level. We also optimized our sales territories to more efficiently manage our growing nationwide practitioner network.

We remain focused on our core hormone optimization business, leveraging our strengths in training and education to further expand our practitioner network. As we continue to evolve to meet patient and customer needs, we substantially broadened our addressable market opportunity with the launch of two strategic initiatives. First, to address the large and underserved opportunity in men's health, we began working in close partnership with certain biote providers to expand their treatment programs for men. We also partnered with key opinion leaders to promote awareness of the benefits of hormone optimization in men. Additionally, we've expanded and enhanced our hormone optimization practice to encompass evidence-based wellness therapeutics. Over the past 6 months, we successfully trialed a range of complementary wellness therapies delivered via our proprietary technology platforms.

By providing complementary wellness therapies, biote is further enhancing patient health, while expanding and monetizing our existing hormone practice. We're also enhancing the value that we provide to our growing network of practitioners. Fourth quarter 2023 adjusted EBITDA increased by approximately 3% compared to the fourth quarter of 2022. Similar to our performance in the third quarter of 2023, fourth quarter procedure revenue increased by 6.6%, reflecting a consistent demand for our core hormone therapies. I'm pleased with the initial success of our sales optimization strategy, which is helping to drive more consistent rates of procedure revenue growth among our top tier providers. We are also working to more rapidly onboard new biote certified practitioners by offering a variety of training modalities, including both in-person and online options.

Consistent with our expectations, fourth quarter nutraceuticals revenue decreased, primarily driven by one of our larger distributors exiting the business during the quarter. As we transition the products previously sold by this distributor to our own online storefront, we anticipate our nutraceuticals business will resume year-over-year revenue growth starting in the second half of 2024. In 2023, biote reported consolidated revenue growth of 12.4%, which included procedure revenue growth of 9.3%. Throughout the year, we maintained strong profit margins, enabling us to achieve double-digit growth in adjusted EBITDA for the year. Further underscoring our focus on driving profitable growth, we generated approximately $27 million in operating cash flow for 2023.

Following our successful commercial trial of complementary wellness therapies, I'm pleased to report that in February, we launched BioteRx, our new hormone and therapeutic wellness offerings. We believe BioteRx is a game changer for biote, significantly strengthening our competitive position. With the launch of BioteRx, we're transforming into a single source provider of evidence-based hormone and therapeutic wellness products. We are now addressing both our patients and our practitioners' needs across a range of wellness categories, including weight loss, body composition, sexual health and preventive wellness. We are taking a phased approach to the rollout of BioteRx, ensuring that we provide our practitioners with consistent access to an expanded range of wellness therapeutics.

To start, we've introduced approximately 10 new wellness therapeutic products. Our sales force is excited and energized to offer these products, which are among the most requested therapies by both our patients and our practitioners. In January, we announced the purchase of Asteria Health, a manufacturer of compounded bio-identical hormones. We expect to close this acquisition by the end of March. We also recently announced a settlement agreement with Dr. Gary Donovitz, biote's founder, to repurchase all 18.4 million of his outstanding shares and paired interest at an average price of $4.17 per share. We believe these repurchases will be accretive to shareholder value. The settlement with Dr. Donovitz also resolved legal claims between Dr. Donovitz and biote, eliminating the cost and distraction of protracted litigation.

Before I turn the call to Bob, I'd like to express my gratitude to the entire biote team for their dedication over the past year. biote has achieved significant progress against our strategic objectives, and we enter 2024 with a solid foundation to grow upon. I'm proud of what we've accomplished and look forward to updating you on our continued progress throughout the year. I will now turn the call over to Bob to discuss our financial results and provide our outlook for 2024.

Bob Peterson: Thank you, Terry. It is great to be here, and I look forward to meeting all of you in the months ahead. biote generated full year 2023 revenue of $185.4 million and adjusted EBITDA of $55.3 million, representing growth of 12.4% and 10.2%, respectively, from 2022. The increases were driven by growth in both procedure revenue and nutraceutical revenue. Fourth quarter revenue increased 2.7% year-over-year to $45.7 million. Procedure revenue grew 6.6%, but was partially offset by a 14.6% decline in nutraceutical revenue. The decline in nutraceutical revenue was primarily driven by one of biote's larger distributors opting to exit the nutraceutical business during the fourth quarter. We expect to begin direct-to-patient distribution of the products previously delivered by this distributor by the end of the second quarter 2024.

Fourth quarter gross profit margin expanded 403 basis points to 69.4% due to product mix and effective cost management. Selling, general and administrative costs were $26.2 million compared to $21.8 million in the fourth quarter of 2022. Excluding the impact of share-based compensation, litigation expenses and settlements unrelated to ongoing business, transactions and M&A-related expenses and other, SG&A expenses would have been $19.6 million in the fourth quarter of 2023. Operating income was $5.5 million compared to $7.3 million in the prior year quarter as higher revenue and gross profit were more than offset by higher expenses, primarily for professional services. Net income in the quarter was $12.1 million, inclusive of a $5.4 million gain due to a change in the fair value of the earn out liability.

This compares to net income of $12.8 million in the fourth quarter of 2022, which includes a $6.9 million net change in the fair value of the earn out liability. Adjusted EBITDA was $13.6 million, with an adjusted EBITDA margin of 29.7%. This compares to adjusted EBITDA of $13.1 million, with an adjusted EBITDA margin of 29.5% in the prior year period. Adjusted EBITDA and adjusted EBITDA margins increased primarily due to higher sales, product mix and improved profitability compared to fourth quarter of 2022. Fourth quarter operating cash flow was approximately $7.0 million and totaled $26.9 million for the full year. As Terry noted, this past month, we reached a settlement agreement with biote's founder to resolve outstanding litigation and repurchase all of his shares and paired interest.

Supported by our solid balance sheet and cash flow, we are well-positioned to execute on this share repurchase, which will occur over a period of 3 years on fixed terms. We believe this is an effective use of our cash and will be accretive to shareholder value. Separately, we recently announced a $20 million share repurchase program, further reflecting our commitment to enhancing long-term shareholder value. We began to execute against this program early in February. Turning to our financial outlook for fiscal 2024. We expect to achieve 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 in the first half of 2024 is expected to be impacted by the transition in the nutraceutical distribution channel and timing of seasonal promotions. Now I'll turn the call back to Terry for her closing comments.

Terry Weber: Thank you, Bob. biote remains committed to enhancing patient health while delivering profitable growth for our stakeholders. As we look ahead to 2024 and beyond, we are confident biote remains well-positioned to become the leading single-source provider of evidence-based therapeutic wellness solutions. Our addressable market is substantial, and we have only just begun to tap into the growth opportunity in front of us. With that, I'd like to open the call for questions. Operator, please begin the question-and-answer session.

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