Biote Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial amounts below are in U.S. dollars; figures are rounded to millions unless noted. Biote provides training, practice-building services and related products to hormone-optimization clinics, and sells Biote-branded dietary supplements. Its pellet products are made by third-party compounding pharmacies.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $44.8 million | $37.1 million |
| Gross profit | $31.0 million | $24.9 million |
| Gross margin | 69.1% | 67.0% |
| Operating income | $7.9 million | $9.8 million |
| Operating margin | 17.6% | 26.3% |
| Net income (loss), consolidated | $(21.4) million | $9.4 million |
| Adjusted EBITDA, non-GAAP | $13.1 million | $11.7 million |
| Net cash from operating activities | $13.0 million | $7.0 million |
- Revenue increased 20.7%. Product revenue rose 20.1% to $44.2 million; service revenue increased 78.7% to $0.7 million.
- Management attributed growth mainly to a 14.8% increase in active billed clinics, 13.8% growth in procedure sales, and 46.0% growth in supplement sales.
- Cost of revenue increased 13.0%, slower than revenue, lifting gross margin to 69.1%. SG&A rose 52.9% to $23.1 million, reducing operating income despite revenue growth. The increase included higher payroll and public-company costs, expansion-related marketing, and a $1.2 million legal settlement expense.
- Consolidated net loss included non-cash losses of $25.4 million from remeasurement of the earnout liability and $1.6 million from warrant-liability remeasurement. Net loss attributable to Biote Corp. stockholders was $6.8 million; $14.6 million was attributable to noncontrolling interest. Adjusted EBITDA is a company-defined non-GAAP measure.
- Interest expense rose to $2.4 million from $0.4 million, primarily due to higher debt and interest rates. The reported weighted-average common shares and loss per share were 17.6 million and $0.39, respectively.
Cash, debt and liquidity
- Cash was $87.6 million at March 31, 2023, up from $79.2 million at year-end. Operating cash flow was $13.0 million; investing activities used $0.4 million and financing activities used $4.2 million. Cash increased by $8.4 million in the quarter.
- Term-loan principal was $120.3 million, down from $121.9 million at year-end; the balance-sheet carrying amount, net of issuance costs, was $117.0 million including current debt. The $50 million revolving facility was undrawn. Cash was therefore below outstanding debt principal by approximately $32.7 million.
- Current assets were $107.5 million and current liabilities were $19.9 million. The company reported covenant compliance at quarter-end.
- Management said available funds were expected to support operations, working capital, capital expenditures and debt service for at least the next 12 months. This is an outlook statement, not formal revenue or earnings guidance.
Material changes, outlook and risks
- Compared with Q1 2022, revenue and operating cash flow grew, but operating income declined as SG&A increased. The consolidated earnings reversal chiefly reflects fair-value accounting for earnout and warrant liabilities rather than operating performance alone.
- Biote operates an Up-C structure and owned approximately 31.3% of Holdings at March 31, 2023. Minority holders can exchange Holdings units and Class V voting shares for Class A shares, potentially increasing dilution. A tax receivable agreement generally requires Biote to pay certain holders 85% of specified realized tax savings; the recorded TRA liability was $6.25 million.
- Key risks include regulatory scrutiny of compounded bioidentical hormones and dietary supplements, dependence on third-party manufacturers and a small group of pellet suppliers, and geographic concentration: 61.9% of quarterly revenue came from ten Southern and Southwestern states. Variable-rate debt, inflation, competition and potential financing needs also pose risks.
- The company disclosed ongoing Donovitz-related litigation, with a trial scheduled for September 2023, and stated that it could not predict the ultimate outcome or liability. Management did not expect a material adverse effect on consolidated results or financial position.
- Disclosure controls were not effective as of March 31, 2023 because a previously reported material weakness in accounting for complex transactions remained unremediated. The weakness had contributed to restatements of the 2022 second- and third-quarter filings. Management described remediation efforts but gave no assurance they would succeed or be completed on schedule.
- After quarter-end, Biote announced a warrant exchange offer and consent solicitation: holders could exchange each warrant for 0.23 Class A shares, with a proposed amendment potentially requiring remaining warrants to convert at 0.207 shares each. The offer was scheduled to expire June 7, 2023, subject to extension.
Important facts for investors to verify
- Whether clinic growth, procedure volumes and supplement sales continue to offset rising SG&A and support operating margins.
- The cash impact and sensitivity of debt service, variable interest rates, covenant limits and potential TRA payments.
- Progress in remediating the material weakness and whether further reporting errors or restatements arise.
- Developments in FDA and state oversight of compounding facilities and the company’s key suppliers.
- Outcome and costs of the Donovitz litigation, and the final results and dilution impact of the warrant offer and amendment.