Q2 2023 biote Corp Earnings Call

Good morning, and welcome to the biotech second quarter 2023 earnings Conference call.

Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.

I'd like to turn the conference over to Simon Zero V. S. Ski. Please go ahead.

Good morning, Thank you for joining us today.

Last evening, Betsy public adventurers, both for the quarter ended June 32023.

This release is available on the Investor Relations section of the company's website, Teddy Webber Chief Executive Officer, and some are coming back to your financial officer will host this morning's call.

Before we get started I'd like to remind everyone that management will be making samsung's call that include forward looking statements regarding the company's stature as well mark.

Future performance growth opportunities business outlook strategies goals.

Research and development manufacturing commercialization activities regulatory approach separations.

The macroeconomic conditions on its business results of operations financial conditions, and consumers and I'm the health care industry generally.

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 uncertainties and assumptions that are based on management's current expectations as of today.

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.

A discussion of risks and other important factors that could affect our actual results. Please refer to our SEC filings available on SEC's website, and our Investor Relations website as well as the risks and other important factors discussed in the earnings release.

We also refer to adjusted EBITDA, which are non-GAAP financial measure to provide additional information to investors reckon.

A reconciliation of the non-GAAP to GAAP measure is provided with the earnings release with the primary differences being stock based compensation.

Fair value adjustment of certain liabilities transaction related expenses and other non operating expenses.

You are directed to our second quarter 'twenty strength their earnings release, which is available on the Investor Relations section of our website.

About your dot com for reconciliation of adjusted EBITDA to its closest comparable GAAP, but.

I'd like to turn the call over to Terry.

Thank you Simon and thank you all for joining us on the call with me today is summer candor, our Chief Financial Officer, who will review, our financial results and discuss our outlook for 2023.

Mark beer, our executive Chairman and Dr. Ross Mcquitty, our Chief Medical Officer are also on todays call to help answer your questions. During the Q&A session. Following these prepared remarks.

I am pleased with the significant financial and strategic progress biotech achieved in the second quarter we.

We generated double digit growth in both revenue and adjusted EBITDA.

Adjusted EBITDA margin came in near the upper end of our target range highlighting the profitability of our business model, even as we invested to strengthen our capabilities.

During the quarter, we continued to broaden awareness of the benefits of hormone therapy and further build our practitioner network from a strategic standpoint, we also formalized our commitment to men's health by launching a new division focused on capturing a larger share of this important addressable market.

To enhance shareholder value, we simplified our capital structure and further improve the liquidity of our publicly traded shares.

Starting with our financial performance revenue grew approximately 19% year over year driven by growth in both procedure and dietary supplement rather it is.

Over the past several years, we significantly expanded our dietary supplement offerings, providing a wider range of products to promote healthy aging your wellbeing.

We view dietary supplements is a complementary business that strengthens biotech brand identity and helps diversify our revenue streams.

In the second quarter dietary supplements benefited from a successful seasonal promotion for our biotech providers.

Additionally, our recently launched direct to patient distribution channel helped drive supplement sales growth.

Second quarter procedure revenue growth of approximately 10% with broad based geographically, but moderated from our historic growth rate.

Earlier this year, we realigned our sales territories to accommodate our significantly expanded sales team.

We undertook this strategic realignment to scale our business more efficiently further strengthen our market position and accelerate adoption of the biotech method into new markets.

As our sales team grows into our newly scaled structure and gains productivity, we anticipate improving procedure revenue.

Turning to our new initiative in men's health, we're excited about the long term growth opportunity for biotech in this large and growing addressable market.

With recent scientific research, providing support for the safety and efficacy of testosterone therapy in men. We believe now is the right time to deepen our commitment to advancing men's health.

Industry data suggests that approximately 20 million men in the U S. Over the age of 45 are affected by the adverse symptoms of testosterone deficiency.

Yet only 10% to 12% receive any testosterone treatment.

Through the biotech method, we believe we can help achieve positive health outcomes for the tens of thousands of men, who would otherwise likely go untreated.

As we build the foundational elements of our men's health Division, we're focused on three pillars supporting our strategy awareness education research to drive awareness, we're closely working with our existing practitioners on the health benefits of the bio team method for men.

We're also ramping up our sales and marketing efforts to better connect with the growing number of men, who wanted to feel their best regardless of their age.

At the same time, we're leveraging our position as the foremost provider of hormone therapy education and research. For example, we are integrating new research supporting the safety and efficacy of testosterone therapy into our education programs.

In addition, we are forming new relationships with key opinion leaders specializing in male urology.

We believe urology practices offer a key pathway to accelerating adoption of the biotech method in men's health.

Just obgyn practices have in women's health.

In addition, we are expanding our strategic approach to more fully address the extensive opportunities within the dynamic and evolving market for healthy living solutions.

For example, many of our patients have expressed interest in certain wellness products that are complementary to our existing hormone therapies.

Working closely with our top providers. We're currently testing an expanded suite of requested wellness therapeutics that will help patients manage a variety of common health concerns.

Currently we're transitioning our sales and marketing efforts to encompass this broader category of therapeutic wellness, which includes hormone therapy.

Sexual health.

Weight loss.

And preventative wellness.

We believe we can leverage the strength of our brand and our practitioner network to ultimately become a leading provider of evidence based therapeutic wellness solutions.

Now I will turn the call over to summer.

Yeah.

Thanks, Terry and good morning, everyone revenue for the second quarter increased 19, 1% from the prior year period to $49 3 million, reflecting nine 8% growth in procedure revenue and 52, 8% growth in dietary supplement revenue.

As Terry noted second quarter supplement sales benefited from a successful seasonal promotion as well as continued favorable response to our new distribution channel.

Gross profit margin was 67, 9% up 60 basis points from the second quarter of 2022.

The increase in gross profit margin was primarily due to effective product cost management.

Selling general and administrative expenses were $25 8 million a decrease of $87 7 million or 77, 3% from the second quarter of 2022.

Excluding the impact of share based compensation transaction related expenses and litigation and other <unk>.

Selling general and administrative expenses would have been $19 4 million in the second quarter of 2023 compared to $15 2 million in the second quarter of 2022, representing an increase of $4 2 million or 27, 5% over the prior year period.

I'll now provide additional detail on this quarterly expense increase on a year over year basis.

One $3 million of this increase was related to the expansion of our sales team. We continue to expect the investment in our sales effort to drive improved procedure revenue.

$1 billion of this increase was related to investments in our clinical and corporate infrastructure as well as technology to support our growth.

$1 million. This increase was related to public company expense for the period.

And $400000 of this increase was related to the expansion of our marketing efforts.

Operating income for the second quarter of 2023 was $7 7 million compared to a loss of $85 6 million for the second quarter of 2022.

Operating income in the second quarter of 2023 reflected growth in revenue and improved gross profit, partially offset by increased personnel and other expenses to build our infrastructure.

Operating loss in the second quarter of 2022 was mainly due to transaction related expenses of $18 8 million in share based compensation of $79 3 million at time of going public.

Net loss was $13 1 million compared to net loss of $21 3 million in the second quarter of 2022.

Net loss in the second quarter of 2023 was due to a net change in the fair value adjustments to warrants and earn out liabilities of $18 2 million.

Adjusted EBITDA was $14 5 million in the second quarter of 2023 with an adjusted EBITDA margin of 29, 5%.

This compares to adjusted EBITDA of $13 1 million with an adjusted EBITDA margin of 31, 8% in the second quarter of 2022.

Adjusted EBITDA in the second quarter of 2023 increase due to higher sales and improved gross profit while adjusted EBITDA margin decreased to higher operating expenses, which included investments in our infrastructure.

Second quarter operating cash flow was $6 8 million and totaled $19 8 million year to date.

As we expected operating cash flow for the second quarter of 2023 was lower as compared to the first quarter of 2023, primarily reflecting timing of certain annual expenses.

I would like to highlight the improvements we have made with respect to our capital structure as Terry noted in June we completed a warrant exchange offer and consent solicitation.

Given the positive shareholder response, we exercised the right to exchange all remaining outstanding warrants and shares of common stock.

As a result, we have greatly simplified our capital structure.

Additionally, another successful secondary offering of our class a common stock was completed adding toward trading liquidity without diluting shareholders.

Together these corporate actions underscore our ongoing commitment to optimizing our capital structure and increasing our trading liquidity to enhance long term shareholder value.

Turning to our financial guidance, we maintain our outlook for continued revenue and adjusted EBITDA growth in 2023.

Due to temporary inefficiencies, resulting from the realignment the expansion of our sales geographies and evolving market dynamics, we forecast a more moderate pace of growth in the second half of 2023 as compared to our prior forecast. We therefore forecast the 2023 revenue and adjusted EBITDA likely will be tore.

The lower end of our guidance range.

Now I'll turn the call back to Terry for closing comments.

Thank you summer.

Bio team remains on track for continued profitable growth in 2023, we have achieved significant strategic progress across a number of focus areas, while continuing to deliver solid financial performance as.

As we look forward the preventative and health market is evolving and biotech pivoting to meet our patients' growing needs.

We envision a more expansive mission in which we build on our success and by Iot becomes a leading platform provider of evidence based their wellness solutions.

We are taking key steps towards fulfilling this vision and we look forward to updating you on our progress.

Now I'd like to open the call for questions. Operator, please begin the question and answer session.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

This time, we'll pause momentarily to assemble our roster.

Our first question comes from Lee Salute ski from Truest. Please go ahead.

Good morning, Thank you for taking my questions.

Just in regards to your guidance updates can you provide a little bit more color on what you mean by inefficiencies from realignment of sales geographies.

Essentially has there been a change in which geographic areas, you're targeting and also secondarily on that is what color can you provide an evolving market dynamics not quite sure I follow here.

Are you seeing any unfavorable adoption rates or are the additional sales teams just being held back by internal reasons and perhaps not performing as you expected and I have some follow ups. Thanks.

Great no. Thank you for those questions that was a mouthful and let's walk through that and so yes. We're pleased with the total revenue growth of 19%, but I'm looking at those procedures.

We did this realignment and the new part of the year, we added substantial number of salespeople and honestly, it's taken a little longer than expected in some of the new geographies. So these are geographic we have maintained the guile at guidance, but due to this delay we just direct you to the lower end of the range.

We're very confident on the market, we hired a top notch chief commercial officer, Mary Punch, a car and she's really come in and taken a hard look at optimize those geographies and how we penetrate new markets.

So what we wanted to do is you know kind of giving you that confidence that we are absolutely training 100 providers. This week and and you know we're very pleased with that.

<unk> interest of the providers and the patients. So that's where we're so strong on on confidence in this marketplace when.

When I was describing the second question what we're talking about is these complementary evidence based therapies that we've been training on since 2020.

So you know we are becoming more of a platform provider you know with including hormone optimization, but we're looking at these other therapies that are age group is asking for such as that fascination with the G. L. P ones the semi glu tied market, both our patients and our providers are asking.

With this complementary therapy it works, so well with hormone optimization.

And we have potential to offer that in a compounded form.

So we've been training on it for years and now we're looking at that I'm coming in and providing that access.

Just great. Thanks for that just to build on that you did mention broadening health categories, specifically weight loss as you just discuss what opportunities are available here and what internal investments would it be acquired to get into these verticals.

Well great question. So what we've been doing is teaching some of our providers. The number one trainers in those therapies in the U S and probably in the world. So we train on this but we've just never monetized it so in providing the access and extending these therapies out in addition.

To the hormone optimization, we really I'm just extend what we've been doing for years and the training you know we've got 6400, very well trained providers, who trust our brand and Theyre looking for access to this product that we can we can provide without you know substantial investment.

Been training on it we've got the expertise now it's opening the platform up that way.

Great. Thank you and just lastly for me.

As far as your confidence in the guidance.

As we walk through I guess three Q now.

There are possibilities and kind of goal essentially below the low morale in the lower end of the guidance I'm, just giving you what content what gives you confidence there and then.

Any possibility DS fish inefficiency leak into 2024, thank you.

Oh, no I'm very comfortable with the guidance I think maybe I am you know this first year publicly traded we wanted to be very candid and you know that's why we wanted to talk to you about guiding to the lower end because of the slight delays, but the market is very strong.

I'm one of the things we're seeing is strong patient interest really strong provider interest they're not enough doctors you know we're growing profitably. We continue these trends, but what we've got to do is get more doctors out there, we're creating capacity to train more doctors because the patients can't get in.

And get their appointment so one of the things that Mary has brought is that relentless discipline of analytics to show these patients aren't getting into these getting appointments because there aren't enough docs. So we really know where we're focused in the second half of the year and we are above.

Our faster in terms of training new docs than we had forecasted so that's good news and even better news is they're coming on board faster. So I'm. The models working and we wanted to say all the time, we're excited about as well as is the testing on this.

Of the new complementary therapies in the second half of the year and we really believe that that's just going to increase the Tam.

Absolutely increased the Tam in this patient.

Patient base.

Thank you for that color Terry I appreciate it.

The next question comes from John Kim from TD Cowen. Please go ahead.

Thank you for taking my question it sounds like a provider and trusted strong, but just wanted to get any color on the number of procedures provided.

Ivy its providers given mcelhatton rosenbaum.

Any updates that you have on the old concentrate as well.

So your retention rate is as strong as ever and you know we don't give you the exact number but it's it's actually improving them as we add the stickiness to our platform. You know these are very loyal providers, who believe that you know they identify themselves as biotech T certified providers, what we're see.

Being is capacity in the doctor's offices to take these appointments so where our work is is to get more providers trained and get these providers to open up a hours to see our patients right. That's our big Big focus and we're helping them. That's what I. That's new sales force is so key.

Iran is not only training them to find new docs, but they've really got to get into the docs and find how to add more patients.

Throughput.

So you know the market is good the doctors are providing as many procedures. They don't see a downturn. We survey them. We just had a we train every two weeks about two to 300 docs in the advanced training and we survey them every time about do they see their biotech business.

Slowing what are their concerns they do not see the biotech slowing what they their concerns are is support staff in the offices and the ability to get the patients through so we really know I'm the markets. There. The Tam is there in the second half of the year, we'll be focusing.

I'm, making them stronger and really training more providers.

Got it and just one more for me just would love to hear more about how your international expansion plans.

Perfect.

Thank you.

Okay, we have the gun dual language training in Tampa. So please join US I don't think you've been to a training yet so I would love to have you join the international and that's currently what we're doing is we're bringing in.

All of the interested the international doctors into our Tam.

Tampa training, which is every month and being able to provide that so we've got you.

I think so much opportunity in the U S. I continue to stay very focused especially adding these new therapies that offer such a bigger Tam.

To keep focusing on the U S train the international at our current ones and look towards later in 2024 to expand out we still believe in it. It's just let's go to training the immediate needs here in the U S. First.

Well thank you so much.

The next question comes from George Kelly from Roth. Please go ahead.

Hey, everyone. Thanks for taking my questions.

So first just a couple more on your guidance.

Just wanted to make sure that I heard you properly have you seen any kind of evidence of changing consumer behavior or just weakening kind of.

But you know as.

The frequency of procedures in the second part of that question is and Terry I think you just answered this but you're not seeing any kind of unexpected churn among your providers are you.

No, we're not seeing that and we're not seeing any decrease in patient interest we're definitely seeing access problems for the patients to get in to see the providers and some of that may actually be this G. L. P. One you know this semi glu tight market you know when those providers take those weight loss patients.

You know, that's where we've got to make sure that our hormone people get seen and treated that's why we're looking at the platform to do it together I don't know George I think you know us well enough to know that we've got very close relationship with the compounds who provide these additional therapeutic wellness great long term relationships.

We just never turned it on we never provided access before we're still so committed to hormone optimization, but is that patients coming in.

For that is looking for both those treatments, we provide access and we provide those algorithms from for our providers.

Consider how much that increases the potential of our Tam.

So there's no reason to go use the same platform you know we've invested George in technology.

How do we make the easy button for the providers, how does it easy to treat both therapies as well as some of the other products we train on.

In terms of sexual wellness preventative medicine hit it all through the same platform provide the access and really strengthened that biotech relationship with them.

Be the one stop shop.

Okay understood and then.

Maybe more on that.

If you were to look a year, maybe two years out.

How many additional therapies do you think could you could offer through your platform and and what is the model going to look similar to your existing model, where it's you know your.

Collecting a high margin stream and you're just sort of connecting the compounding pharmacies with the providers or just any more detail on the number of treatments you could offer in the model youre going to.

Target.

Yeah, and George I wish it would have been to some of our earlier training. We train on these therapies are ready our doctors who are experts in it in the U S. They are the ones to train all the specialty training so easy to add what we train on anyway care loss sexual wellness, you'll think about everyone interested in taking.

Care of their bodies Theyre getting hormone treatment and then what comes with adjunct therapies right. If you have one platform like we have its easy for that provider and that patient to order think about what we've done in terms of being the premier leader in the market, we provide that type of valve.

Are you I think this only makes us stickier nobody wants to look for semi glued tied what we would provide is that access we're testing. It now George will be talking about it you know our next call, but we're very confident we've got the access to the right.

Manufacturers, we have long term relationships with them and I think our tech platform. We've invested in it this year I'm excited about the skill levels to make it easy you know what can we do to make it easier to get in and out of that practice and get everything you need for healthy aging.

Okay, and then maybe a last question.

Your normal growth rate before this call you know the procedure revenue as you mentioned decelerated in the quarter.

I'm curious these changes, you're making with new therapies and the realignment of the sales force.

It sounds like you know the two half impact will be minimal we should expect a continuation of the current rep.

Revenue growth that you just generated correct me, if I'm wrong, but how long do you suspect it will take to get to that more accelerated.

Call it mid teens or somewhere in that ballpark revenue growth rate do you think that's achievable sometime in 2024.

Oh, yes, absolutely feel very confident on it we just took a little then I'm more than expected time. This year right. It's hard to anticipate velocity, but that's all it is Georgia, just we're really comfortable on where we're at with these accretive programs right. The Tan.

There the patients are there are real problems getting providers to open up our appointment and you know what George I've got to go find a way to train doctors more.

Doctors and I'm doing it right now you know this is a change that the world has been looking for and it's really accelerated so that's where we need to really focus here.

Okay. 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.

Alright, well. Thank you so much for joining us this morning, and we understand it's an early hour. These are exciting times that I can't.

Stress that enough that we're excited about the great interest from the patients.

And the providers it is only increasing and it's now our job to continue to lead the market and really dominate in terms of how to go to market best with evidence based therapies that really know what we didn't talk about research today need to make sure we stress the research we're doing.

And I'm looking forward to talking to you. The next time. Thank you.

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

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