BTMD

Business Context and Reporting Period

Company: biote Corp. (BTMD)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2024
Business Overview: biote Corp. operates a practice-building business in the hormone optimization space, training physicians and nurse practitioners in bio-identical hormone replacement pellet therapy. The company also sells Biote-branded dietary supplements. It operates as an emerging growth company and a smaller reporting company.

Key Financial Metrics (Six Months Ended June 30, 2024)

Material Changes vs. Prior Period

• Revenue: Increased 2.0% to $96.0 million from $94.1 million in the prior year period. This was driven by a $5.1 million increase in pellet procedure revenue, partially offset by a 23.7% decrease in dietary supplement revenue.
• Net Loss: Improved significantly to $16.3 million from $34.5 million in the prior year. The improvement was largely due to the absence of a $13.4 million loss from the change in fair value of warrant liability (warrants were fully exchanged in 2023) and a reduced loss from the change in fair value of earnout liability.
• Operating Expenses: Selling, general, and administrative (SG&A) expenses increased 3.7% to $50.7 million, primarily due to higher payroll, marketing event costs, and amortization of new intangible assets, partially offset by reduced legal expenses following litigation settlements.
• Liquidity: Cash and cash equivalents decreased by $62.6 million to $26.4 million, primarily due to a $62.2 million payment on share repurchase liabilities related to litigation settlements and $5.6 million in open market share repurchases.

Guidance, Outlook, Risks, and Unusual Items

• Acquisitions: The company completed three acquisitions in the first half of 2024: Asteria Health (a 503B manufacturer), Simpatra (IP assets), and BioSana (assets). These added goodwill and intangible assets to the balance sheet.
• Litigation Settlements: Significant settlements were reached with Dr. Gary S. Donovitz and Marci M. Donovitz. The company recorded a combined share repurchase liability of $128.4 million to repurchase shares over three years. Initial payments of approximately $62.2 million were made in the quarter.
• Debt Covenants: The company experienced an event of default regarding the Donovitz settlement notification but obtained a waiver from its lender (Truist Bank) in April 2024. A second amendment was secured in June 2024 regarding the Marci Donovitz settlement.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness in internal control over financial reporting related to accounting competence for complex issues and IT general controls. This weakness remains unremediated.
• Outlook: Management expects operating and capital expenditures to increase as the company expands its clinic base and headcount. No specific forward-looking financial guidance was provided in the text.

Investor Verification Checklist

• Liquidity Position: Verify the sufficiency of the remaining $26.4 million cash balance and $40 million revolver availability to fund operations and the remaining $66.7 million share repurchase liability payments over the next three years.
• Internal Control Remediation: Monitor the progress of remediation efforts for the material weakness in internal controls, which previously led to financial statement restatements.
• Debt Covenant Compliance: Confirm ongoing compliance with the Truist Credit Agreement covenants, specifically the net leverage ratio and fixed charge coverage ratio, given the recent amendments.
• Revenue Mix: Assess the sustainability of the shift in revenue mix, specifically the decline in dietary supplement sales versus the growth in pellet procedures.
• Acquisition Integration: Evaluate the integration and performance of the newly acquired Asteria Health, Simpatra, and BioSana assets.