Biote Corp.

Excuse me, this is a conference operator. We're allowing a few others to be answered and join in. The call will begin shortly. Thank you. Thank you. Thank you. welcome to the biot third quarter earnings conference call all participants will be in listen-only mode should you need assistance please signal a conference specialist by pressing the star key followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one on your telephone keypad To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Victoria Nakhla, Investor Relations. Please go ahead.

Good morning and thank you for joining us today. Yesterday, BioT published financial results for the quarter ended September 30, 2022. This release is available in the Investor Relations section of the company's website. Terry Weber, Chief Executive Officer, and Samar Kamdar, Chief Financial Officer, will host this morning's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements. regarding the company's financial results, business outlook, strategies, goals, research and development, manufacturing and commercialization activities, regulatory process operations, the impact of macroeconomic conditions on its business, results of operations, and financial conditions, and other matters. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward-looking statements. These statements are subject to risks and uncertainties and assumptions that are based on management's current expectations as of today, and BIOTY undertakes no obligation to update them in the future. Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date. For discussion of risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and our investor relations website, as well as risks and other important factors discussed in the earnings release. We will also refer to adjusted EBITDA which is a non-GAAP financial measure to provide additional information to investors. A reconciliation of the non-GAAP to GAAP measure is provided with our press release with the primary differences being stock-based compensation, fair value adjustments to certain liabilities, transaction-related expenses, and other non-operating expenses. I would now like to turn the call over to Terry Weber.

Thank you, Victoria. And thank you all for joining us. On the call today, I will discuss our recent achievements and share our outlook for the remainder of 2022. Summer Kamdar, our Chief Financial Officer, will review our financial results. Dr. Ross McQuivey, our Chief Medical Officer, and Mark Beer, our Chairman, are also on today's calls to answer your questions during the Q&A session that will immediately follow these remarks. Since we last spoke in August, BioT has achieved important progress, both operationally and financially, as we continue to execute on our long-term growth strategy. To start, we have strengthened our talent and leadership capabilities with two key additions to our executive management team. Summer Kamdar, our new chief financial officer, joined BioT in August and has hit the ground running, building out our finance team, and providing leadership that we believe will help drive our financial success. Dr. McQuivie, our chief medical officer, joined us in June and has been impactful over the last several months, leading the expansion of our clinical research program and increasing awareness of the BioT method within the medical community. I'm thrilled to be working alongside these two talented members of the BioT team. Now turning to our third quarter results. BioT generated 18% revenue growth as compared to the third quarter of 2021. This was primarily driven by balanced growth in both procedures and dietary supplement revenue. We were able to achieve strong top-line performance in spite of weeks of hurricane-related clinic closures in both Florida and Puerto Rico, two of our key markets. Adjusted EBITDA grew 19% year over year, even as we continued to invest in expanding our sales force and incurred new public company-related expenses. We are committed to managing our business with a disciplined focus on generating positive cash flow through profitable growth. While our operating performance has remained strong, third quarter cash flow was impacted by certain non-recurring items that Summer will detail shortly. Our third quarter revenue and adjusted EBITDA growth reflected our continued progress in expanding our clinic and practitioner network. We have broadened our reach by expanding our sales team, which continues to open up new geographic markets and lay the groundwork for future growth. Patient interest in pursuing hormone optimization treatments contributed to the increased demand for our therapies. Despite the challenging economic environment, consumers place a high value on their personal health and they continue to seek effective and affordable treatments that really help them feel their best. Our data-driven digital marketing strategies enable us to effectively identify and connect with these consumers in a cost-effective and efficient manner. offering new patient leads to practitioners to grow their clinical practices. We believe our strong franchise-like model remains a unique competitive advantage that's foundational to our long-term success. The BioT certified provider network is currently 11 times larger than our nearest competitor. We believe this underscores the strength of the BioT brand and our ability to scale our proprietary business model into new markets. Today, we have well over 5,000 BioT certified providers across a variety of medical specialties, which includes OBGYN, internal medicine, family practice, and urology. And even with this extensive network, we have only reached approximately 2% of the total addressable provider market. As a result, we believe we have considerable untapped growth potential as we further expand the BioT method to thousands of providers operating in our targeted specialties. To capitalize on this growth opportunity, we are actively building our sales team as planned, placing particular emphasis on the West Coast, Midwest, and Mid-Atlantic regions. where we've identified significant unmet patient demand for our therapies. We continue to draw on the proven strength of our internal sales referral program to efficiently recruit experienced sales personnel. The sales team is supported by our robust internal infrastructure, which enables us to scale our business in a consistent and predictable manner. We remain focused on broadening our practitioner network to all 50 states. Our consistent geographic expansion is well supported by the capital-efficient nature of our BioT business model. Now I'll turn the call over to Summer Kandar, Chief Financial Officer, to review our financial results.

Thank you, Terri. It's great to be here. I'm pleased to have joined BioT during this exciting time in the company's growth, and I look forward to meeting with our investors in the weeks and months ahead. Revenues for the quarter were $42 million, an 18% year-over-year increase, primarily driven by balanced growth in both procedure and dietary supplement revenue. Gross profit margins expanded to 68.2%. The improvement in gross profit margin was primarily due to a more favorable product mix. We anticipate gross margin percentage in the mid-60s going forward. Marketing expenses totaled $1 million, down from 1.4 million in the third quarter of 2021. The decline in marketing expense was driven by a more optimized spend on both our digital marketing channels and advertising. Operating income was 7.8 million compared to 9 million in the third quarter of 2021. The decrease in operating income primarily reflected transaction-related expenses and certain non-recurring legal expenses of 3.1 million. Interest expense was $1.8 million, up from $400,000 in the same quarter last year. The increase is primarily a result of the higher debt balance outstanding from the new debt issued in 2022. Net loss was $6.3 million compared to net income of $8.5 million in the third quarter of 2021. The net loss in the third quarter was primarily due to a net change in the fair value adjustments to warrant and earn out liabilities of $12.5 million and transaction-related expenses and certain non-recurring legal expenses of $3.1 million. Adjusted EBITDA was $12.2 million in the quarter, a 19% increase from the third quarter of 2021. Adjusted EBITDA margin was 29.1%, basis points from the third quarter of 2021. During the third quarter, we generated 6.4 million in operating cash flow, which included transaction related expenses and certain non-recurring legal expenses of 2.3 million and a compensation expense of 2 million related to the transaction. Excluding these items, third quarter cash flow from operations would have been 10.7 million compared to 6.3 million During the third quarter, our cash balance declined compared to the second quarter of 2022 due to the transaction-related expenses and certain non-recurring legal expenses I mentioned, along with $7.3 million of accrued equity payouts. As Terry noted, we remain focused on managing our business to generate positive cash flow through profitable growth. Let me now turn to our financial guidance. Based on the strength of our year-to-date results and our expectations for the fourth quarter, we expect to achieve the upper end of our 2022 guidance ranges of $160 to $166 million in revenue and $47 to $51 million in adjusted EBITDA. Now, I'll turn the call back to Terri.

Thank you, Summer. While we are not yet providing specific financial guidance for 2023, our strong financial performance this year, coupled with the success of our expanded sales team, reinforce our confidence that we can continue to generate double-digit growth consistent with our recent growth trends in both revenue and adjusted EBITDA in 2023. In summary, this has been an exciting and productive period for BioT as we delivered financial growth consistent with our forecast and continued our geographic expansion. BioT remains well-positioned to deliver on our financial targets as we continue to successfully execute our strategy through capital-efficient, profitable growth. We look forward to updating you when we report fourth quarter and full-year results early in the new year. If you'd like to connect with us, please contact advisory partners, our investor relations team. Now, I'd like to open the call for questions. Operator, please begin the Q&A session now.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Brian Holland with Cowan and Company. Please go ahead.

Yeah, thanks. Good morning and congrats on the quarter. Can you share a breakout of revenue and or a breakout of procedure and supplement revenue in the quarter? And also, are you able to quantify the revenue impact of the clinic closures in Florida and Puerto Rico in the quarter?

Yes, good morning, Brian. So talking about our mix in terms of the business, as we've talked about, we have a real predictable model split between our procedures and our revenue, and our third quarter results stayed right with that. You know, our nutraceuticals are complementary to the hormone treatment, and we performed like we have in our model with that mix. So it's highly predictable and That's the breakout that we had. And then our second question, Summer, do you want to take that one?

Yeah. For the hurricanes that you talked about, the weather in Puerto Rico and Florida, we do believe that we're going to see – we saw about 140 clinics impacted in those areas, and there's going to be some catch-up. We're not going to quantify exactly how much is going to come in Q4 versus Q1 because we don't know the exact behavior, but we do expect those revenues to bounce.

Okay, got it. Gross margin, better than I forecasted, although, Summer, I think you mentioned guiding to about mid-60s, which would be a little bit lower than what we saw in Q3. So could you just flesh out the favorable mix impact in this quarter, sort of what's behind that and whether that's just a one-off benefit or something we should be thinking about as being more sustainable going forward?

I think, Brian, the way you want to look at that is that it is a product mix, and it was favorable type of product that our patients were purchasing. So I wouldn't look at that in terms of going forward. I think our guidance is right where it needs to be, and those are kind of small fluctuations you'll see in product mix.

Great. Terry, I trust you're plugged in on the competitive landscape here. It's something we get asked often about by investors. Any sense how existing competitors are faring, retaining practitioners, and are you aware of any new players emerging in the space?

That's a very interesting question I get asked all the time. Our competitive landscape stays the same, although there's pressure on on the third and fourth competitors, you know, where they're actually losing practices. So that's what we've seen. No new competitors on the market and some issues in some of the smaller operations. You know, we've got a very fragmented market and some are struggling. So good call there.

And then maybe just last one for me. I know you've given... You mentioned a little bit about 2023 and you're not... quite ready to guide, but you talked about double digits. I'm just curious as we think about framing this, as you add to your sales force, as you scale geographically, is there a path to accelerated growth in 2023 versus what you're guiding to in 2022? I'm just wondering if you can help maybe shape that for us a little bit.

I think what you should look at is the predictable model. And in these kind of recessionary-like times, to go ahead and say that we're really comfortable with, you look at our past history of growth, I think you're going to be able to talk about what's going to happen in 23. Where I can help you be comfortable is we see no change. We don't see any slowdown in that addition of practitioners. We see we're on target in the new white spaces. And we see the customers continuing to vote, you know, by coming in for their procedures. We don't see the slowdown. So I think you can be comfortable, take a look at our historic rates more recently, and then feel comfortable with 2023.

Thanks. I'll leave it there. Best of luck.

Thank you.

Next question comes from George Kelly with Roth Capital Partners. Please go ahead.

Hey, everybody. Thanks for taking my questions, and congrats. First, to just expand on something you were just talking about, have you seen any kind of change in consumer behavior patterns as far as your revenue stream, just with all the uncertainty and inflation, et cetera? Anything you've noticed?

Now, we watched that, George, very carefully. I know people may not be aware, but we survey our practitioners at every one of our large gatherings, and we actually did a formal market research to address kind of potential inflationary impact on the providers and their patients. And the overwhelming majority of those providers didn't expect any downturn in their hormone optimization business in 2023. So that was very interesting to us where they thought that there were other cash pay procedures that could be affected. Over 85% of our providers said that they would have growth or steady performance in 2023. So we're comfortable that patients continue to think this is a quality of life issue and they absolutely behave that way.

Okay. Okay. Gotcha. And then Summer, the balance sheet, just curious, can you give us the quarter-end cash and debt?

Yeah, so we did have declining cash balances, as we mentioned. The quarter-end cash was $77.6 million, and the debt balance, $123 million.

Okay. And then last question from me, just back to your sales force. Okay. I appreciate you giving the kind of high level guidance for next year, just as far as the growth you're anticipating. What do you what underneath that? What are your plans for continued expansion of the Salesforce? And are you still tracking to the kind of growth in in the number of people in the Salesforce this year and just high level? Like what? What are you thinking for next year?

Yeah, you know, Salesforce is absolutely key for us in growing that Salesforce, and we're seeing no slowdown in our ability to attract real talent. As a matter of fact, obviously, in these times, we're actually seeing an ability that's really improving, right? So our Salesforce growth is on track. They're continuing to perform very well right to our FP&A model. So we continue to be really inspired by that. you know, our history and that track record and the growth for the sales group. Our white space is working very well, so adding those new people into the white space, I see that, you know, full 50 states and continuing to grow in that U.S. model. So we've got no slowdown looking at 23 in terms of performance of our salespeople, and we'll continue to invest in the U.S. and that Salesforce growth. So it's continuing to be a key part and highly predictable in our model here.

Okay. And then maybe one more, just back to your comments about 2023. Any big, basically trying to get a read on your expectation for EBITDA margin and should it stay kind of consistent with what you've been doing or any kind of big investments you might be planning? Basically just trying to get a read. Should we see margin improvement next year as the sales force becomes more productive or are you finding places for planned investment to kind of offset some of that margin expansion?

Our key investment continues to be the sales force. So we see that continuing in the same type of investment and looking at the same, you know, as we guided you on margins, you know, to take a look really at that mid-60s because we feel like we're going to continue to invest in that growth. It's highly predictable. I don't think there's any surprises that you need to be concerned about. I think what we're so pleased is that our kind of capital light model really allows us to continue investing in people. and people are everything as we go forward into that growth of 23. So I would look to that, our guidance on our confidence in terms of being able to execute in recessionary times. So I think steady as she goes, George, and I think you can be comfortable with looking at those kind of models for 2023. Okay, thank you.

The next question comes from Greg Frazier with Truist Securities. Please go ahead.

Good morning, folks. Thanks for taking the questions. When do you plan to provide formal 2023 guidance? Will that be on the fourth quarter call, or could it come sooner?

You gapped out there. Can you repeat that, Greg?

Yeah. When do you plan to provide formal 2023 guidance? By the fourth quarter call, or might we get it sooner?

Hey, Greg, this is Summer. We plan to release 2023 guidance in early January. Got it. Okay.

Can you talk about the programs that you're considering to benefit patients, like a loyalty program that could become a new tailwind for demand?

We at this point are very provider focused. So most of our marketing and all of our digital strategy is very focused on the provider or providing leads for that provider. So at this point, we've got the white space. We're really, if you address our TAM for the available provider market, we're at just over 2%. So I think our whole focus is going to continue to be that provider focus growing the providers and making sure we have that network for the consumers. So good question to ask me a little bit further in the line next year.

Got it. Okay. And then maybe if you could talk about the work that you're doing with data analytics. I think you're doing a lot there that might eventually lead to tools that you can use to help your own business as well as your partner practices. That would be helpful. Thank you.

Oh, absolutely. So I know that you're aware of the different types of systems we have. So since day one, we've been recording all of our procedures. So we have over 2.5 million procedures recorded in the data with that. And we've got over 5,300 providers and all of the data they have on their patients. And one of the reasons we added Summer Camdar to the team here was his technology background and his data analytics to really expand our internal team, and that is where we're adding infrastructure, is to take a look at the data that we collect and really figure out how to use that much, much more effectively. So it's an exciting time for us with the addition of summer and focusing on how those data analytics can really help in that clinical research, also in our ability to provide new systems for our providers that can make their practices so much more successful.

Thanks for taking the questions.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Well, thank you so much for joining us this morning. We look forward to inviting you to join us for our fourth quarter and the end of year results. So have a good day. We'll speak to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.