Biote Corp.

Good afternoon and welcome to the BioT fourth quarter and full year 2023 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 two. Please note, this event is being recorded. I would now like to turn the conference over to Simon Surowiecki, IR representative from Advisory Partners. Please go ahead.

Thank you for joining us today. This evening, ROTI published financial results for the quarter and full year end of December 31, 2023. This news release is available in the Investor Relations section of the company's website. Terry Weber, Chief Executive Officer, and Bob Peterson, Chief Financial Officer, will host today's call. Before we get started, I would like to remind everyone that management will make statements during this call that include forward-looking statements regarding, among other things, the company's financial results, future performance and growth opportunities, business outlook, strategies, goals, business and development, manufacturing and commercialization activities, regulatory process operations, the impact of macroeconomic conditions on its business, results of operations, 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 the company's control. Actual results differ materially from expectations or select any forward-looking statements. These statements are subject to risks, uncertainties, and assumptions that are based on management's current expectations as of today. Biotech undertakes no obligation to update them in the future. Therefore, these statements should not be relied upon, 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's website and the investor relations section of our website, as well as risks and other important factors discussed in the earnings release. Management will also refer to adjusted EBITDA, which is a non-GAAP financial measure to provide additional information to investors. The reconciliation of the non-GAAP to GAAP measure is provided in an earnings release, with the primary differences being stock-based compensation, fair value adjustments to certain liabilities, transaction-related expenses, and other non-operating expenses. Please refer to our fourth quarter and full year 2023 earnings release for reconciliation of adjusted EBITDA to net income, the closest comparable gap measure. I will now turn the call over to Terri Weber.

Thank you, Simon, and thank you all for joining us. On the call with me today is Bob Peterson, our Chief Financial Officer, who will review our financial results and discuss our outlook for 2024. Mark Beer, our executive chairman, is also on today's call to help you answer your questions during the Q&A session following our prepared remarks. 2023 was a pivotal year for BioT, in which we achieved significant strategic progress and built a solid foundation for continued growth in the years ahead. Among our accomplishments this year, we added new talent to our leadership team and made key investments to strengthen our capabilities at the corporate level. We also optimize our sales territories to more efficiently manage our growing nationwide practitioner network. We remain focused on our core hormone optimization business, leveraging our strengths in training and education to further expand our practitioner network. As we continue to evolve to meet patient and customer needs, we substantially broadened our addressable market opportunity with the launch of two strategic initiatives. First, to address the large and underserved opportunity in men's health, we began working in close partnership with certain BioT providers to expand their treatment programs for men. We also partnered with key opinion leaders to promote awareness of the benefits of hormone optimization in men. Additionally, we've expanded and enhanced our hormone optimization practice to encompass evidence-based wellness therapeutics. Over the past six months, we successfully trialed a range of complementary wellness therapies delivered via our proprietary technology platforms. By providing complementary wellness therapies, BioT is further enhancing patient health while expanding and monetizing our existing hormone practice. We're also enhancing the value that we provide to our growing network of practitioners. fourth quarter 2023 adjusted EBITDA increased by approximately 3% compared to the fourth quarter of 2022. Similar to our performance in the third quarter of 2023, fourth quarter procedure revenue increased by 6.6%, reflecting a consistent demand for our core hormone therapies. I'm pleased with the initial success of our sales optimization strategy and which is helping to drive more consistent rates of procedure revenue growth among our top tier providers. We are also working to more rapidly onboard new Biot-certified practitioners by offering a variety of training modalities, including both in-person and online options. Consistent with our expectations, fourth quarter nutraceuticals revenue decreased, primarily driven by one of our larger distributors exiting the business during the quarter. As we transition the products previously sold by this distributor to our own online storefront, we anticipate our nutraceuticals business will resume year-over-year revenue growth starting in the second half of 2024. In 2023, BioT reported consolidated revenue growth of 12.4%, which included procedure revenue growth of 9.3%. Throughout the year, we maintained strong profit margins, enabling us to achieve double-digit growth and adjusted EBITDA for the year. Further underscoring our focus on driving profitable growth, we generated approximately $27 million in operating cash flow for 2023. Following our successful commercial trial of complementary wellness therapies, I'm pleased to report that in February, we launched BioTRx, our new hormone and therapeutic wellness offerings. We believe BioTRx is a game changer for BioT, significantly strengthening our competitive position. With the launch of BioTRx, we're transforming into a single source provider of evidence-based hormone and therapeutic wellness products. We are now addressing both our patients' and our practitioners' needs across a range of wellness categories, including weight loss, body composition, sexual health, and preventive wellness. We are taking a phased approach to the rollout of BioTRx, ensuring that we provide our practitioners with consistent access to an expanded range of wellness therapeutics. To start, we've introduced approximately 10 new wellness therapeutic products. Our sales force is excited and energized to offer these products, which are among the most requested therapies by both our patients and our practitioners. In January, we announced the purchase of Asteria Health, a manufacturer of compounded bioidentical hormones, We expect to close this acquisition by the end of March. We also recently announced a settlement agreement with Dr. Gary Donovitz, BioT's founder, to repurchase all 18.4 million of his outstanding shares and paired interests at an average price of $4.17 per share. We believe these repurchases will be accretive to shareholder value. The settlement with Dr. Donovitz also resolves legal claims between Dr. Donovitz and BioT, eliminating the costs and distraction of protracted litigation. Before I turn the call to Bob, I'd like to express my gratitude to the entire BioT team for their dedication over the past year. BioT has achieved significant progress against our strategic objectives, and we enter 2024 with a solid foundation to grow upon. I'm proud of what we've accomplished and look forward to updating you on our continued progress throughout the year. I will now turn the call over to Bob to discuss our financial results and provide our outlook for 2024. Thank you, Terri.

It is great to be here and I look forward to meeting all of you in the months ahead. BioT generated full year 2023 revenue of $185.4 million an adjusted EBITDA of $55.3 million, representing growth of 12.4% and 10.2% respectively from 2022. The increases were driven by growth in both procedure revenue and nutraceutical revenue. Fourth quarter revenue increased 2.7% year over year to $45.7 million. Procedure revenue grew 6.6%, but was partially offset by a 14.6% decline in nutraceutical revenue. The decline in nutraceutical revenue was primarily driven by one of BioT's larger distributors opting to exit the nutraceutical business during the fourth quarter. We expect to begin direct to patient distribution of the products previously delivered by this distributor by the end of the second quarter, 2024. Fourth quarter gross profit margin expanded 403 basis points to 69.4% due to product mix and effective cost management. Selling general and administrative costs were $26.2 million compared to $21.8 million in the fourth quarter of 2022, excluding the impact of share-based compensation, litigation expenses, and settlements unrelated to ongoing business Transactions and M&A-related expenses and other SG&A expenses would have been $19.6 million in the fourth quarter of 2023. Operating income was $5.5 million compared to $7.3 million in the prior year quarter, as higher revenue and gross profit were more than offset by higher expenses primarily for professional services. Net income in the quarter was $12.1 million inclusive of a $5.4 million gain due to a change in the fair value of the earn-out liability. This compares to net income of $12.8 million in the fourth quarter of 2022, which includes a $6.9 million net change in the fair value of the earn-out liability. Adjusted EBITDA was $13.6 million with an adjusted EBITDA margin of 29.7%. This compares to adjusted EBITDA of $13.1 million with an adjusted EBITDA margin of 29.5% in the prior year period. Adjusted EBITDA and adjusted EBITDA margins increased primarily due to higher sales, product mix, and improved profitability compared to fourth quarter of 2022. Fourth quarter operating cash flow was approximately $7.0 million and totaled $26.9 million for the full year. As Terry noted, this past month, we reached a settlement agreement with BioT's founder to resolve outstanding litigation and repurchase all of his shares and paired interests. Supported by our solid balance sheet and cash flow, we are well positioned to execute on the share repurchase. which will occur over a period of three years on fixed terms. We believe this is an effective use of our cash and will be accretive to shareholder value. Separately, we recently announced a $20 million share repurchase program, further reflecting our commitment to enhancing long-term shareholder value. We began to execute against this program early in February. Turning to our financial outlook for fiscal 2024, we expect to achieve revenue of $200 million to $204 million and adjusted EBITDA of $60 million to $63 million. As we look at the cadence of revenue and adjusted EBITDA for the year, we expect our financial performance to be weighted towards the second half of the year. Total revenue growth in the first half of 2024 is expected to be impacted by the transition in the nutraceutical distribution channel and timing of seasonal promotions. Now I'll turn the call back to Terri for her closing comments.

Thank you, Bob. YOT remains committed to enhancing patient health while delivering profitable growth for our stakeholders. As we look ahead to 2024 and beyond, We are confident BioT remains well-positioned to become the leading single-source provider of evidence-based therapeutic wellness solutions. Our addressable market is substantial, and we have only just begun to tap into the growth opportunity in front of us. With that, I'd like to open the call for questions. Operator, please begin the question and answer session.

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 are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Les Salewski of Truist. Please go ahead.

Good evening. Thank you for taking my questions. I'll start here on the guidance. Can you just walk us through some of the puts and takes around the guidance that you narrowed down and how comfortable are you on that range? And then separately, what would you say is the right size of the sales force and how has been the geographic expansion and international expansion trending?

So I'll have Bob answer the first half of the question, Les, and then I'll take the second half.

Hey, Les, how are you? Look, as we look at the guidance, I would say we've evaluated the business plan and we've given our position. I think we're in a solid place for both core procedure business and neutras to drive revenue growth in the second half. So I feel comfortable with these plans and they're baked into our guidance. I would say when we look at 2024 procedure revenue growth, we definitely think it will mimic the first half, as we said earlier in the prepared remarks. As we look at Nutra guidance, I think the big thing that we want to do is make sure that we can take over that Amazon distribution channel by the end of the first half, and then we can potentially – we'll return to growth in the second half. and I think selling at retail instead of wholesale will help the business. As we look at the core business, I think our core providers remain strong and stable. We believe that we should see some margin accretion in the back half, given a stereo integration in the second half, and we expect to see continued growth in our practitioner network. I think Terry, do you want to take the second half?

Yeah, I'll take the second half on our Salesforce optimization. So we've been making progress on that Salesforce optimization, going into the new space, which we're calling, we used to call white space, but we're going into green space here. So that's been strong progress. We have found that we are bringing doctors into our training at a faster rate. And this new team, as well as our older team, has been ramping up these clinics faster. So that's where we feel that that focus on that sales optimization is working. We've also hired key talent in that area, and we've modernized the data systems to really allow them to give actionable insights into the individual territory. So on the domestic front, we're very pleased and will highlight and later call some of the progress in the new green space areas that has gone quite well. Mid-Atlantic, Midwest, the West Coast. And then also we'll talk a little bit more on that key talent. So those things are going well in terms of the international. We see so much progress in our current in domestic and so much of that green space that we continue to focus on our domestic and Puerto Rican business. And then we've expanded our offerings. As we talked about with BioTRx, that Salesforce will be delivering that rollout this year. So we think that that domestic focus this year should be the way you really look at it and looking, as Bob has said, to the second half of the year to begin to see that input of the new practitioners and that ramping up of new clinics.

Very helpful. Appreciate that. One more, if I may. So when we look at the economics and the revenue split that you've shared before, how has the new wellness product offerings changed the dynamics of the economics, if at all?

Allows us to be as more competitive. in our core hormone business. So I would not look for financial. I would look for competitive strength as we offer that wellness therapeutics. We rolled out that program in February. We're calling it BioTRX. So we've rolled it out to 100 clinics. We'll be looking to roll it through the remainder of 24 in a very methodological fashion, ensuring access and that the program works very well through our tech platforms. but look to impact in 2025 on that program.

Excellent. Thank you. The next question is from Jonna Kim with TD Cowan. Please go ahead.

Thanks for taking my question. Just expanding a little bit on those bio TRX and also you mentioned expanding treatment in mental health. How large do you think those new initiatives can become over time? and sort of the incremental benefits that can bring to the business. And then just one more question on gross margins. How should we think about gross margins for the year? What are some key puts and takes we should consider? Thank you.

Yes, I'll go ahead and talk about the male market and that expansion. So as we've discussed before, it's a large market. Over 45 million men have that experience over the age of 40. So it's got a very large TAM associated with it. This is also the undertreated market. It's only treated, only 10 to 12% of men go for any kind of treatment. So our focus on that is going to be very accretive to bioteas adding our value in terms of growing the consumer base. The other piece is that male procedures will tend to grow over time with that focus on the urologist as well as we look at different practitioners. The bio TRX and the wellness therapeutics has a very large TAM. So that is only going to expand if you look at the wellness statistics, Joan, and I think you know them well, is that's just in the billions market. And that will be something that we do at BioT and get more specific on that impact in our business. What we see is what we've said earlier is the impact on that will be discussed more later in the year as we roll that program out. But it adds to our competitive position in both the hormone treatment and these are the treatments that the providers and patients are asking for. So the fact that we'll be the single source provider of both those therapeutic wellness products and the hormone treatment makes that one-stop shop a key competitive advantage.

And Jonah, on the second piece that you were asking about regarding margin, I don't see any major shifts in the ratio that we have on sales that drive margin. I will say as we look at Asteria, obviously this is a strategic and accretive acquisition. And as we vertically integrate this pellet manufacturer, we will provide margin improvement over time as we shift volume to Assyria in the second half of the year. I believe that the vast majority of the margin benefit and thus some EBITDA benefit will be realized by the end in the second half of 2024. And as we integrate fully into by the end of 2024. So I think that's probably the best guidance we can give you at this point.

Thank you so much.

The next question is from George Kelly with Roth MKM. Please go ahead.

Hey, everybody. Thanks for taking my questions. So maybe to start, Terry, you said in your prepared remarks that Um, you're planning to offer training, um, both in person and online. And I'm just curious, do you offer any online training or have you historically offered any online training? And if it's new, um, how much of an acceleration do you think, like, is it a big deal and could it really create an acceleration to, to onboardings?

Good question, George. So yes, we've offered it. We actually got quite proficient during 2020. when we actually trained on these therapeutic products and other hormone products that we're rolling out. So yes, we know it works well. We've done it before. We had looked all through 2023 about what's the optimization on a hybrid method of online training and in-person proctoring because this is a complex area. So we've had some real success with what I call a hybrid method of training and we've done complete digital. So we've been looking at the results and how do those clinics and those providers perform? What's their depth of knowledge? How do they do the procedures? And then how does their clinics grow? And we found some very positive results in adding the online, especially the hybrid method. And we will be expanding that. And you're right, we haven't quantified what that's going to mean, but it will allow acceleration in the second half of the year, really in terms of how many practitioners we can train and what we found to be a very efficient blended method.

Okay, that's helpful. And then second question for me, I guess maybe two questions on guidance. The first one is, in the press release and your prepared remarks, you talked about a two-half acceleration in procedure revenue growth. And I'm curious, is there any benefit or any kind of material benefit from your new products, or is it really just driven by the hormone side of the business, that acceleration? And then the second question on guidance, back to Asteria. How much of your production do you expect to shift to Asteria by year end? I mean, and if you think beyond year end, are you going to produce the majority or vast majority of pellets?

So I'll answer the first question on the... and the acceleration of BioTRX. So what we're looking at is BioTRX really enhancing the core hormone business in 2024, especially in the second half of the year as we roll larger numbers of clinics onto it. So then they'll have that single source, but you'll still see it'll be impact on that hormone business, and it'll be a modest impact in terms of our other guidance. So looking at modest in 2024, but actually having a very positive impact on the hormone and the combination of the hormone and the therapeutic business in that second half of the year, expanding more into 2025 when we fully rolled it out. And then in looking at the hysteria, I think I'll ask Bob to do that. He's been working on the detail.

So as we await the closing date, and we expect it to be by the end of the month, as Terry said earlier, we're moving ahead with the planning that will really allow us to hit the ground running upon closing. We know that the vertical integration is a key part to our business, and we expect it to be fully integrated by the end of 2024. I think the big next step is how to onboard all the licenses And we do not believe that we will have any manufacturing challenges. We believe that we should be fully integrated and have all the licenses set up by the end of the year for full integration. And given the way that that phases out, we'll drive that second half, the second half volume. So that's really the way that we're looking at it.

Understood, thank you.

The next question is from Richard Magnusson with B. Riley. Please go ahead.

Hello, this is Richard Magnusson. I'm calling in for Jeff VanCinder, and thank you for taking our call. My first question here is regarding the 10 new products you're introducing, I believe you said they're being rolled out to 100 clinics. Are they all being offered at this point? And if not, what is the cadence there? And also, how is the doctor training being managed to accommodate all these new products?

So for those clinics, it will be that first 100 being offered to the 100. So that just began in February. So these are being onboarded through our sales staff, as well as our chief science officer, who's providing the product training on those 10 products. These are 10 products that we've educated on before actually starting in 2020. So many of our providers are very comfortable. Some of the products are products that we have taught for all 12 years. So that's where we're comfortable with that training on that product. We're providing the guidelines and then we're rolling out in a very measured way. So we've made all 10 products available to all 100. And that just began in February, so you'll need to stay tuned as we roll that piece out and grow the number of providers. But we're very comfortable. We're actually monetizing these products for the first time, and we're pleased about that.

Okay. And then sort of related to that, besides the GLP-1s, what are the most significant new products right now in terms of how they're being applied or application by practitioners and And are there any standouts in terms of demand by patients?

We're not giving individual discussion on those products right now because it's a brand new program, so we'll discuss that in later dates, but we found provider acceptance on all the products, and we're really looking to kind of see how they begin their ordering patterns. Having just begun this in February, this is something we'll be able to talk about a lot more in the future, but many of these products are prescribed almost you know, to all female patients with certain, you know, attributes like progesterone, this type of thing. So we'll kind of give you more. The categories are hormones, sexual wellness, the weight loss, the GLP-1s, which you're aware of, and body comp. So we'll discuss those more in detail as we give more findings on those early providers. Thank you.

The next question is from Kamil Gajrawalo from Jefferies. Please go ahead.

Hey, everybody. Can you maybe talk about, you know, from those that started in February, maybe, you know, kind of a six-month progress report of what you learned from this sort of first cohort of folks that are franchises that came onto the BioT IRX wellness plan? And then along with that, if you can maybe share After that, just add, how will the economics evolve as more and more clinics come on board?

So February is February as in last month. So we've just been very initial. So we won't be discussing too much on that initial, because these are initial orders, initial products going through. So February One month is too early to make comments on, so we'll talk about that later as we get in detail. There's been favorable response and very good interest on the initial rollout. And as we discussed, it's going to be a modest contribution in 2024 with more meaningful in 2025. What it's really allowing is these practitioners to use our tech platform for these products that they've often had to find in many different places. So what this is, is really getting that single source provider for those clinics and allowing them to see the efficiency of our platforms and our delivery. So that's exactly where you should be focused. And it really adds to our competitive strength as we look at our core hormone business. And honestly, really helping that provider who's had this onslaught of interest in weight loss and these things to be able to manage their business better. So that's where that single source provider will come over time. But these are just initial orders going in, you know, in less than four weeks ago.

Got it. Okay. And then, Bob, you made some commentary on Amazon and some shifts in distribution. Could you just maybe explain in a little more detail what that meant?

Well, yeah. And I think, as we talked about earlier, Earlier, we had some challenges with our third party who was managing the Amazon relationship for us in Q4. One of the core areas that we're looking to do now is bring that in-house so that we can begin to see the improvement of selling at retail as opposed to wholesale. And I think that's going to be a – it gives us a little bit more control and could provide – a little bit better management. So, again, the real key here is that we're going to bring it in by the end of the first half and then really try to start scaling that in the second half of the year.

Okay, great. Thank you.

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

Thank you for joining us on this call this afternoon. We're looking forward to updating you on our progress in the months to come. Have a good evening.