Biote Corp. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited; amounts below are in U.S. dollars. The company provides hormone-optimization training and practice-building support to clinics, and sells related products, including dietary supplements. Comparisons with 2022 are affected by the May 2022 business combination and its associated charges.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $49.3m | $41.4m | $94.1m | $78.5m |
| Gross profit / margin | $33.4m / 67.9% | $27.8m / 67.3% | $64.4m / 68.4% | $52.7m / 67.1% |
| Operating income (loss) | $7.7m | $(85.6)m | $15.6m | $(75.8)m |
| Net loss | $(13.1)m | $(21.3)m | $(34.5)m | $(12.0)m |
| Net loss attributable to Biote stockholders | $(5.1)m | $(2.6)m | $(11.9)m | $(2.6)m |
| Adjusted EBITDA (non-GAAP) | $14.5m | $13.1m | $27.6m | $24.8m |
| Operating cash flow | Not provided separately | Not provided separately | $19.8m | $(21.6)m |
Q2 revenue rose 19.1%, primarily on higher pellet-procedure and supplement sales; active clinics billed increased 14.8%. Six-month revenue rose 19.9%. Product revenue accounted for most sales: pellet procedures contributed $35.6m and supplements $12.2m in Q2. Cost of revenue increased more slowly than sales in both comparisons, modestly improving gross margin.
Cash and cash equivalents were $68.5m at June 30, down from $79.2m at year-end. The company also held a $20.0m short-term certificate of deposit, bringing cash and short-term investment resources to $88.5m. Six-month cash flows were $19.8m provided by operations, $21.2m used in investing and $9.3m used in financing; the investing outflow included the $20.0m certificate of deposit purchase.
Term-loan principal was $118.8m, versus $121.9m at December 31, 2022; the balance-sheet carrying amount, net of issuance costs, was $115.6m including the current portion. The loan bears variable interest; the reported rate was approximately 7.89% at June 30. A $50m revolving facility was undrawn. Total liabilities were $212.3m against total assets of $139.1m, and stockholders’ deficit was $73.2m. The filing records a $14.4m tax receivable agreement (TRA) liability.
Material changes, unusual items and outlook
- SG&A fell to $25.8m in Q2 from $113.4m, and to $48.8m for the first half from $128.5m. The prior-year periods included substantial business-combination-related share compensation and transaction expenses; therefore, the decline is not a like-for-like measure of underlying cost improvement.
- Despite operating income, Biote reported net losses, reflecting, among other items, noncash fair-value losses. Q2 included $11.8m of warrant-liability loss and $6.4m of earnout-liability loss; six-month amounts were $13.4m and $31.8m, respectively. These liabilities are remeasured using fair-value estimates.
- In June, the company exchanged all outstanding warrants for 3.09m Class A shares; no warrants remained outstanding at quarter-end. It issued shares valued at $17.5m in the exchange.
- Management said available resources were expected to fund operations, working capital, capital expenditures and debt service for at least the next 12 months. No quantitative revenue or earnings guidance was provided.
- The company was in compliance with its financial covenants but had an event of default at June 30 for failing to timely deliver its fiscal 2023 budget. The lender waived the default on July 27, 2023, and waived the budget-delivery requirement for that year.
- Disclosure controls were not effective at a reasonable assurance level because a previously reported material weakness in accounting for complex and non-routine matters remained unremediated. The weakness had contributed to restatements of 2022 quarterly filings. Management described remediation efforts but gave no assurance they would be completed in 2023.
- Risks include regulatory scrutiny of compounded bioidentical hormone pellets and dietary supplements, reliance on third-party manufacturers and a concentrated supplier base, clinic adoption and competition, variable-rate debt, dilution and potential share sales, and the outstanding Donovitz litigation. The filing said the litigation’s outcome was uncertain and not expected to materially adversely affect results or financial position; a jury trial was scheduled for September 2023.
Investor verification priorities
- Assess revenue growth against clinic activity, procedure volumes, supplement sales and tiered clinic pricing; verify whether growth translates into sustainable operating cash generation.
- Review the Adjusted EBITDA reconciliation and exclusions, and distinguish recurring operating performance from stock compensation, litigation costs and fair-value changes.
- Monitor variable-rate debt, covenant compliance, the undrawn revolver and upcoming principal payments, including the large maturity in 2027.
- Track the TRA liability and future cash payments as Holdings-unit exchanges generate tax benefits and related obligations.
- Follow remediation and testing of financial reporting controls, given the continuing material weakness and prior restatements.
- Verify developments in FDA and state oversight of compounding facilities, supplier continuity, and the Donovitz litigation.