Business context and reporting period
Biote Corp. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. It trains healthcare practitioners in its hormone-optimization method, supports partner clinics, and sells Biote-branded dietary supplements. The May 26, 2022 business combination with Haymaker was accounted for as a common-control transaction/reverse recapitalization; historical results are those of the BioTE Companies. After closing, Biote operated in an Up-C structure and owned approximately 13.5% of Holdings at quarter-end.
Financial performance and position
Amounts below are in millions of dollars except percentages and per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $41.4 | $34.8 | $78.5 | $66.3 |
| Gross profit / gross margin | $27.8 / 67.3% | $23.1 / 66.5% | $52.7 / 67.1% | $43.3 / 65.3% |
| Operating income (loss) | $(85.6) | $10.3 | $(75.8) | $19.7 |
| Consolidated net income | $40.3 | $9.8 | $49.7 | $18.6 |
| Adjusted EBITDA (non-GAAP) | $13.1 | $10.8 | $24.8 | $20.6 |
Q2 revenue increased 19.0%; procedure revenue rose with procedures performed up 18.3% and active clinics billed up 14%. Supplement sales increased 19.6%. For the first half, revenue increased 18.4%, procedures performed rose 19.7%, and active clinics billed increased 14%. Adjusted EBITDA increased 21.2% in Q2 and 20.7% in the first half.
Reported net income includes substantial non-cash and transaction-related effects and is not a clean indicator of underlying operating performance. Q2 included a $123.4 million gain from remeasuring the earnout liability and a $3.4 million warrant-liability gain, partly offset by an $85.6 million operating loss. Selling, general and administrative expense included $79.3 million of share-based compensation and $18.8 million of business-combination-related expenses. Biote reported $115.5 million of net income attributable to Biote Corp. for the post-combination share calculation, despite $40.3 million of consolidated net income; the difference reflects the $75.1 million net loss allocated to noncontrolling interests. The filing does not present comparable 2021 parent-attributable earnings or per-share figures because the ownership structure changed at closing. Reported Q2 basic and diluted EPS were $15.24 and $2.01, respectively, for the post-closing calculation period only.
For the six months, operating cash flow was $(21.6) million versus positive $17.3 million a year earlier; investing cash flow was $(1.1) million versus $(1.4) million, and financing cash flow was positive $78.7 million versus $(10.5) million. Cash rose to $82.7 million from $26.8 million at year-end, largely reflecting the combination and new borrowing. Cash use from operations included payment of accrued transaction costs and working-capital movements.
At June 30, cash was $82.7 million, current assets $106.3 million, and current liabilities $32.9 million. Term-loan principal was $125.0 million (net carrying value $121.1 million, including current portion); the $50.0 million revolving facility was undrawn. Approximate gross debt less cash was $42.3 million. The secured term loan bears a variable rate; the stated rate was approximately 3.6% at quarter-end. The company was in covenant compliance. Total liabilities were $218.8 million and stockholders’ deficit was $103.5 million, including $78.6 million of noncontrolling-interest deficit.
Outlook, risks, contingencies and unusual items
No numerical revenue or earnings guidance was provided. Management said cash, combination proceeds and debt financing should be adequate for operations, working capital, capital expenditures, debt service and potential dividends for at least the next 12 months, while expecting operating and capital expenditures to rise with hiring, expansion and clinic growth. Management said COVID-19 had not materially affected the reported periods or caused material supply-chain disruption, but continues to monitor inflation and costs and cautioned that it may not fully offset significant cost increases through pricing.
Key business risks include dependence on third-party 503B outsourcing facilities and supplement manufacturers, regulatory scrutiny of compounded bioidentical hormones and dietary supplements, clinic/practitioner adoption and retention, and geographic concentration. The filing notes that over 63% of first-half revenue came from ten southeastern and south-central states. The earnout and warrant liabilities are remeasured at fair value and can create significant non-cash earnings volatility. A tax receivable agreement requires payment to members of 85% of certain realized tax savings; no liability was recorded at quarter-end because no unit exchanges had occurred.
Nasdaq suspended trading in the Class A shares and public warrants effective July 20, 2022 for failure to meet initial listing requirements; at the filing date, securities traded on OTC Pink and a hearing decision was pending. The company waived lockups for 3.28 million shares to help meet public-float requirements. A July 2022 standby equity purchase agreement with Yorkville allows, subject to conditions and registration, sales of up to 5 million shares including 25,000 commitment shares, at 97% of the lowest VWAP over a specified three-day period—creating potential dilution.
The company disclosed a material weakness in internal control over financial reporting, identified in prior-year audits and not remediated by June 30, 2022; management concluded disclosure controls were ineffective. The company plans to add experienced personnel, training and external assistance but gave no assurance of timely remediation. Litigation includes the Donovitz dispute arising from the business combination; the company said the outcome is uncertain and not expected to materially affect results or financial position. It also reported litigation involving former employees or contractors. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Track underlying operating performance separately from the $123.4 million earnout remeasurement gain, $79.3 million share-based compensation charge and business-combination costs; review the non-GAAP Adjusted EBITDA reconciliation.
- Confirm Nasdaq relisting status, trading liquidity and any further changes to lockups or public float.
- Assess debt service, variable-rate exposure, leverage and compliance with quarterly financial covenants; the filing estimates a 100-basis-point rate increase would add $1.2 million to annualized interest expense.
- Monitor progress in remediating the material weakness and the effectiveness of financial reporting controls.
- Evaluate the Yorkville facility’s draw conditions, pricing and potential share dilution, as well as the status and possible future cost of the tax receivable agreement.
- Follow FDA and state regulatory developments affecting compounded hormone pellets, supplier continuity, and the Donovitz and other litigation matters.