10-Q: Biote Corp. Reports Q1 2024 Results, Revenue Up Slightly Amidst Legal Settlement

Biote Corp. announced its first quarter 2024 results, showing a modest revenue increase and a net loss, while also detailing a significant legal settlement with its founder.

Summary

• Biote Corp.'s first quarter 2024 revenue increased by 4.4% to $46.8 million compared to $44.8 million in the same period last year.
• Product revenue rose to $46.0 million, driven by a $2.3 million increase in pellet procedures, while dietary supplement revenue decreased by $0.9 million.
• Service revenue increased by 11.8% due to technology fees from the new BioteRx platform, partially offset by a reduction in training revenue.
• The company reported a net loss of $5.8 million for the quarter, compared to a net loss of $21.4 million in the first quarter of 2023.
• Adjusted EBITDA for the quarter was $14.2 million, compared to $13.1 million in the same period last year.
• The company repurchased 740,921 shares of its Class A common stock for $4.1 million during the quarter.
• Biote completed several acquisitions in the first quarter, including F.H. Investments Inc. (Asteria Health), Simpatra, LLC, and BioSana ID LLC.
• The company settled all outstanding litigation with its founder, Dr. Gary S. Donovitz, agreeing to repurchase his shares for approximately $76.9 million over three years.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While there are positive signs like revenue growth and improved net loss, the legal settlement and ongoing material weakness in internal controls introduce uncertainty. The sentiment is cautiously optimistic.

Positives

• Revenue increased year-over-year, indicating continued demand for Biote's products and services.
• The net loss significantly decreased compared to the same quarter last year, suggesting improved financial performance.
• Adjusted EBITDA increased, reflecting better operational efficiency.
• The company completed strategic acquisitions, expanding its capabilities and market presence.
• The settlement with the founder resolves outstanding litigation, removing a significant uncertainty.

Negatives

• The company still reported a net loss for the quarter, despite improvements.
• Dietary supplement revenue declined, indicating a potential weakness in that segment.
• The legal settlement with the founder involves a substantial cash outlay of $76.9 million over three years.
• The company failed to notify the administrative agent of its commitment to repurchase certain shares, resulting in an event of default as of March 31, 2024, which was subsequently waived.

Risks

• The company's success depends on the market acceptance of the Biote Method and its dietary supplements.
• Reliance on third-party outsourcing facilities for hormone pellets poses a risk to supply chain.
• The company is sensitive to regulatory, economic, and competitive conditions in specific geographic regions.
• The company faces significant competition in the medical practice-building and dietary supplement markets.
• The company has a limited operating history, making it difficult to evaluate its future viability.
• The company is subject to extensive and complex healthcare laws and regulations.
• The company's internal controls over financial reporting have material weaknesses.
• The company may require additional capital to support business growth, which could dilute existing stockholders.
• The company is subject to ongoing litigation, including the Donovitz Litigation, which could result in unexpected expenses.
• The company is subject to stringent and evolving U.S. and foreign laws, regulations, and rules, contractual obligations, industry standards, policies and other obligations related to data privacy and security.

Future Outlook

The company believes its current cash position, coupled with anticipated cash generated from operations and the capacity under its revolving loans, is sufficient to fund its operations and debt service obligations for at least the next 12 months. The company expects operating and capital expenditures to increase as it expands operations and grows its clinic base.

Management Comments

• Management believes that the company's business model has been successful, remains differentiated, and is well positioned for future growth.
• Management uses Adjusted EBITDA as an alternative measure to evaluate operational performance.

Industry Context

The company operates in the hormone optimization space, which is a growing market. The company's business model is similar to a franchise model, providing training and support to practitioners. The company faces competition from other brands of dietary supplements and pharmaceutical companies that may enter the market.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or competitors in terms of financial metrics.
• The document mentions several competitors in the dietary supplement space, including Evexipel, Pellecome, Pro-Pell, Sottopelle, HTCA and Natures Way.
• The document notes that the total U.S. market opportunity for HRT products exceeds $7 billion and is expected to grow 7% annually through 2026.

Management Changes

Legal Proceedings

• The company settled all outstanding litigation with its founder, Dr. Gary S. Donovitz, agreeing to repurchase his shares for approximately $76.9 million over three years.
• The company failed to notify the administrative agent of its commitment to repurchase certain shares, resulting in an event of default as of March 31, 2024, which was subsequently waived.

Related Party Transactions

• The company purchases dietary supplements inventories from a vendor in which the company's founder holds a minority interest.
• The company engages the services of its Chief Executive Officer's brother-in-law through a consulting firm.

Stakeholder Impact

• Shareholders may experience dilution from future equity issuances.
• Employees may be affected by changes in management and organizational structure.
• Customers (practitioners and clinics) may be impacted by changes in the company's operations and product offerings.
• Suppliers may be affected by changes in the company's supply chain and manufacturing processes.
• Creditors may be impacted by the company's debt obligations and financial performance.

Next Steps

• The company will continue to evaluate the impact of the settlement agreement on its consolidated results of operations and financial position.
• The company will continue to assess the likelihood of the realization of its deferred tax assets and the valuation allowance will be adjusted accordingly.
• The company will continue to implement procedures and controls in the financial statement close process to remediate the material weakness in internal control over financial reporting.

Key Dates

Keywords

Biote, hormone optimization, pellet therapy, dietary supplements, revenue, net loss, EBITDA, acquisitions, legal settlement, internal controls, financial results, share repurchase, healthcare, medical practice, compounding pharmacy