Biote Corp. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results; amounts below are in U.S. dollars. Biote trains practitioners and supports clinics providing hormone-optimization services, and sells branded dietary supplements. Revenue is primarily generated from pellet procedures and supplement sales.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $45.6 million | $42.0 million | $139.7 million | $120.5 million |
| Gross profit / gross margin | $31.4 million / 68.9% | $28.6 million / 68.2% | $95.8 million / 68.6% | $81.3 million / 67.5% |
| Operating income (loss) | $7.6 million | $7.8 million | $23.1 million | $(68.0) million |
| Net income (loss), consolidated | $19.6 million | $0.5 million | $(14.9) million | $(11.5) million |
| Net income (loss) attributable to Biote stockholders | $7.5 million | $0.02 million | $(4.4) million | $(2.6) million |
| Adjusted EBITDA (non-GAAP) | $14.0 million | $12.2 million | $41.7 million | $37.0 million |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $19.9 million | $(15.2) million |
Q3 revenue increased 8.5% year over year; nine-month revenue increased 15.9%. Management attributed growth principally to more active clinics and higher pellet-procedure revenue. Active clinics billed increased 13.9% in Q3 and 14.6% for the nine-month period. Nine-month service revenue increased 49.4%.
Q3 operating income was slightly lower than the prior year despite higher revenue: SG&A rose 14.3% to $23.8 million, including higher payroll, share-based compensation, marketing and litigation costs. Nine-month SG&A declined 51.4% to $72.6 million, chiefly because 2022 included substantial Business Combination-related stock compensation and transaction expenses. The 2022 comparison is therefore affected by unusual costs.
Q3 consolidated net income included a $17.5 million non-cash gain from remeasurement of the earnout liability; it should not be viewed as a measure of recurring operating performance. For the nine months, fair-value losses included $13.4 million on warrants and $14.4 million on earnout liabilities. Adjusted EBITDA is a company-defined non-GAAP measure; the filing cautions that it excludes items and does not replace GAAP results or cash-flow analysis.
At September 30, cash and cash equivalents were $65.6 million, and a $20.0 million short-term certificate of deposit was reported separately. Cash and cash equivalents declined $13.7 million from year-end, mainly reflecting the transfer into the certificate of deposit. Current assets were $117.8 million and current liabilities $25.1 million. Nine-month investing cash outflow was $21.7 million, including the $20.0 million deposit purchase; financing cash outflow was $11.9 million, including $7.6 million of distributions.
Term-loan principal was $117.2 million, down $4.7 million from December 31, 2022; the balance-sheet debt carrying value was lower after current-portion and debt-issuance-cost adjustments. The loan bears a variable rate, approximately 8.04% at September 30, 2023. The company had a $50 million revolving facility with no borrowings. Management said available funds were expected to support operations, working capital, capital expenditures and debt service for at least the next 12 months.
Material changes, outlook and significant matters
- Warrant exchange: In June 2023, Biote exchanged all outstanding warrants for 3.09 million Class A shares valued at $17.5 million. No warrants remained outstanding at September 30.
- Earnout and TRA liabilities: The earnout liability was $46.5 million at September 30, up from $32.1 million at year-end. The tax receivable agreement liability was $18.5 million; the agreement generally requires payment to certain former owners of 85% of specified realized tax savings. A deferred tax asset of $23.2 million was reported, including $21.8 million generated by unit exchanges.
- Debt covenant: A failure to timely provide the 2023 budget triggered a default under the credit agreement as of June 30. The lender waived the default on July 27 and waived the budget-delivery requirement. Biote reported compliance with all required covenants at September 30.
- Litigation: The company reported ongoing litigation involving stockholder and former owner Dr. Gary Donovitz, with outcomes and potential liabilities described as uncertain. After quarter-end, on November 2, 2023, a jury awarded Biote $4.7 million in attorneys’ fees, with a potential additional $0.2 million for future fees, in a related Texas action.
- Controls and prior reporting: Management concluded disclosure controls were not effective as of September 30 because a previously reported material weakness in internal control over financial reporting remained unremediated. The weakness involved technical accounting for complex and non-routine matters; prior 2022 quarterly financial statements were restated. Management described remediation efforts but gave no assurance of timely completion.
- Outlook and risks: The filing provides no numerical revenue or earnings guidance. Management expects operating and capital expenditures to increase with headcount, expansion and clinic growth, and says further financing may be needed if funds prove insufficient. Principal risks include FDA and state oversight of compounded hormones and supplements, reliance on third-party compounding facilities and suppliers, competition, geographic concentration, variable-rate debt, potential dilution, litigation, and the unremediated controls weakness. Management noted inflation and interest rates could increase costs, though it had not seen a material inflation impact to date.
Important facts for investors to verify
- Whether clinic and procedure growth continues to drive revenue and whether gross margins hold as product and service costs change.
- How much reported earnings depend on non-cash fair-value movements, share-based compensation and other adjustments; compare GAAP results, cash flow and Adjusted EBITDA reconciliations.
- Debt-service capacity under the variable-rate term loan, covenant compliance, and availability of the undrawn revolver.
- The timing and amount of TRA payments, earnout valuation changes, and any consequences of future unit exchanges.
- Developments in the Donovitz litigation and the collection, if any, of the post-quarter attorneys’ fee award.
- Progress in remediating the material weakness and whether future filings identify additional accounting or reporting issues.
- Regulatory developments affecting outsourced 503B hormone-pellet suppliers and the company’s ability to maintain product supply and clinic adoption.