10-Q: Biote Corp. Reports Second Quarter 2024 Results Amidst Legal Settlements and Strategic Acquisitions

Biote Corp. released its second quarter 2024 results, highlighting revenue growth in pellet procedures, offset by a decline in dietary supplement sales, and significant expenses related to legal settlements and acquisitions.

Summary

• Biote Corp.'s second quarter 2024 revenue was $49.2 million, consistent with the same period last year, with product revenue at $48.1 million and service revenue at $1.1 million.
• Product revenue saw a $2.8 million increase in pellet procedures, offset by a $3.9 million decrease in dietary supplements.
• Service revenue increased by 74.9% due to technology fees from the new BioteRx platform and increased training revenue.
• The company reported a net loss of $10.5 million for the quarter, compared to a net loss of $13.1 million in the same quarter of 2023.
• Selling, general, and administrative expenses increased by 7.3% to $27.6 million, driven by higher payroll and marketing event costs.
• Interest expense increased to $2.6 million due to accreted interest on share repurchase liability and higher interest rates on the term loan.
• The company incurred a loss of $13.9 million from changes in the fair value of earnout liabilities.
• For the six months ended June 30, 2024, total revenue was $96.0 million, a 2.0% increase year-over-year, with a net loss of $16.3 million.
• Adjusted EBITDA for the six months ended June 30, 2024 was $26.9 million, compared to $27.6 million for the same period in 2023.
• The company completed acquisitions of F.H. Investments Inc., Simpatra, LLC, and BioSana ID LLC during the first half of 2024.
• The company repurchased 5,075,090 shares of Class A common stock and 3,117,299 Paired Interests for approximately $32.2 million as part of the Donovitz settlement.
• The company repurchased 4,146,610 Paired Interests for $30.0 million as part of the Marci M. Donovitz settlement.

Sentiment

Score: 4

Explanation: The document presents mixed results. While there is some revenue growth and strategic acquisitions, the significant net loss, legal expenses, and a material weakness in internal controls raise concerns. The sentiment is cautiously negative.

Positives

• The company's service revenue increased significantly, indicating growth in its core practice-building platform.
• The net loss improved compared to the same quarter last year, suggesting better cost management.
• The company completed strategic acquisitions that could enhance its product offerings and market position.
• The company has a share repurchase program in place, which may provide support for the stock price.

Negatives

• Dietary supplement revenue decreased significantly, impacting overall product revenue.
• The company incurred substantial losses from changes in the fair value of earnout liabilities.
• Selling, general, and administrative expenses increased, driven by higher payroll and marketing costs.
• The company's cash and cash equivalents decreased significantly from $89 million to $26.4 million.
• The company has a material weakness in internal control over financial reporting that has not been remediated.

Risks

• The company faces significant competition in the hormone optimization and dietary supplement markets.
• The company is reliant on third-party outsourcing facilities for the manufacturing of bioidentical hormones.
• The company is subject to extensive and complex healthcare regulations, and non-compliance could result in penalties.
• The company's financial performance is sensitive to economic conditions and market fluctuations.
• The company's growth strategy involves international expansion, which presents operational and regulatory challenges.
• The company is subject to ongoing litigation, which could result in unexpected expenses and reputational harm.
• The company's debt obligations could limit its financial flexibility.

Future Outlook

The company expects its operating and capital expenditures to increase as it expands its operations and grows its clinic base. The company believes that 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.

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 high-growth hormone optimization space, providing a practice-building platform for practitioners. The market is competitive, with several players offering similar services and products. The company's success depends on its ability to differentiate itself and gain market acceptance among clinics, practitioners, and patients.

Comparison to Industry Standards

• The company's revenue growth is consistent with the overall growth in the hormone replacement therapy market, which is estimated to grow 7% annually through 2026.
• The company's reliance on third-party outsourcing facilities is a common practice in the pharmaceutical and dietary supplement industries, but it also presents risks related to quality control and regulatory compliance.
• The company's legal settlements and share repurchases are unusual events that have significantly impacted its financial results, and are not typical of industry standards.
• The company's adjusted EBITDA is a non-GAAP measure used by many companies in the industry to evaluate operational performance, but it is important to consider the limitations of this metric.
• The company's material weakness in internal control over financial reporting is a concern that needs to be addressed to ensure the reliability of its financial statements.

Management Changes

Legal Proceedings

• The company settled all outstanding litigation with Dr. Gary S. Donovitz on April 23, 2024, agreeing to repurchase his shares for approximately $76.9 million.
• The company settled litigation with Marci M. Donovitz on June 28, 2024, agreeing to repurchase her shares for $60.0 million.
• The company recorded a combined repurchase liability of $128.4 million as a result of settling the Donovitz Litigation and the June 5, 2024 Litigation.

Related Party Transactions

• The company purchases dietary supplements 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 due to the issuance of shares for acquisitions and settlements.
• Employees may be affected by changes in management and potential restructuring.
• Customers (practitioners and clinics) may benefit from the company's expanded product offerings and services.
• Suppliers may be impacted by changes in the company's supply chain and manufacturing processes.
• Creditors may be affected by the company's increased debt obligations and potential liquidity issues.

Next Steps

• The company will continue to focus on increasing the number of Biote-certified practitioners.
• The company will work to grow the practices of its Biote-certified practitioners and Biote-partnered clinics.
• The company will focus on increasing sales of Biote-branded dietary supplements.
• The company will continue to evaluate its deferred tax assets each period to determine if a valuation allowance is required.
• The company will continue to implement its remediation plan to address the material weakness in internal control over financial reporting.

Key Dates

Keywords

hormone optimization, bioidentical hormones, dietary supplements, practice-building, pellet therapy, revenue, net loss, acquisitions, legal settlements, share repurchase, internal control, financial results