Q4 2023 biote Corp Earnings Call
Good afternoon, and welcome to the biota fourth quarter and full year 2023 earnings conference call.
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I would now like to turn the conference over to Simon sort of its key I. Our representative from Advisory partners. Please go ahead. Thank you for joining US today. This evening bacci public French results for the quarter and full year ended December 31 2023.
This news release is available on the Investor Relations section of the company's website.
Webber Chief Executive Officer, and Bob Peterson, Chief Financial Officer will host todays call.
Before we get started I'd like to remind everyone that management will make statements. During this call that include forward looking statements regarding among other things the company's tangible results.
Performance and growth opportunities business outlook strategies gross research and development manufacturing commercialization activities regulatory projects operations the impact of macroeconomic conditions business results of operations financial conditions and other matters.
These statements are not guarantees of future performance are subject to a variety of risks and uncertainties some of which are beyond the company's control.
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.
Boucher undertakes no obligation to update them in the future. Therefore, do you see them it should not be relied upon as representing the company's decrease as 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, Let's say, Andy Investor Relations section of our website.
The risks and other important factors discussed in the earnings release.
Management will also refer to adjusted EBITDA is a non-GAAP financial measure to provide additional information to investors.
A reconciliation of the non-GAAP to GAAP measure is provided in our release.
With the primary differences being stock based compensation fair value adjustment of certain liabilities transaction related expenses and other non operating expenses.
Please refer to our fourth quarter and full year 'twenty 'twenty earnings release for a reconciliation of adjusted EBITDA to net income the closest comparable GAAP metrics.
I'll now turn the call over to Terry Webber.
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 bio T 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 optimized our sales territories to more efficiently manage our growing nationwide practitioner network.
We remain focused on our core formula 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.
To address the large and underserved opportunity in men's health, we began working in close partnership with certain biotech 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 evidenced based wellness therapeutics.
Over the past six months, we successfully trialed our range of complementary wellness therapies delivered via our proprietary technology platforms.
Providing complementary wellness therapies biotech is further enhancing patient health, while expanding and monetizing our existing form them 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 six 6%, reflecting a consistent demand for our core hormone therapies.
I am pleased with the initial success of our sales optimization strategy, 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 Iot certified practitioners.
Offering a variety of training modalities, including both in person and online options.
Consistent with our expectations fourth quarter Nutraceuticals revenues 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 'twenty 'twenty four.
In 2023 biotech reported consolidated revenue growth of 12, 4%, which included procedure revenue growth of nine 3%.
Without the year, we maintain strong profit margins, enabling us to achieve double digit growth in adjusted EBITDA for the year.
Further underscoring our focus on driving profitable growth, we generated approximately $27 million in operating cash flow for 2020 three.
Following our successful commercial trial, a complimentary wellness therapies I'm pleased to report that in February we launched bio T. R X, our new hormone and therapeutic wellness offerings.
We believe bio T. Rx is a game changer for bio team significantly strengthening our competitive position.
With the launch of bio T. Rx, we're transforming into a single source provider of evidence based hormone and therapeutic wireless 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 preventative wellness.
We are taking a phased approach to the rollout of biotech Rx.
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 Styria help a manufacturer of compounded bio identical hormones, we expect to close this acquisition by the end of March.
We also recently announced a settlement agreement with Doctor, Gary Dan events biotech sounder.
To repurchase all $18 4 million of its outstanding shares in parent interest at an average price of $4.17 per share.
We believe these repurchases will be accretive to shareholder value.
The settlement with Doctor Donald It's also resolves legal claims between Dr. Donald it's in biotech, but eliminating the cost and distraction of protracted litigation.
Before I turn the call to Bob I'd like to express my gratitude to the entire biotech team for their dedication over the past year.
Bio T 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 Terry it is great to be here and I look forward to meeting all of you in the months ahead.
Biotech generated full year 2023 revenue of $185 $4 million and adjusted EBITDA of $55 $3 million representing growth of 12, 4% and 10, 2% respectively from 2022, the increases were driven by growth.
And both procedure revenue and nutraceutical revenue.
Fourth quarter revenue increased two 7% year over year to $45 $7 million.
Procedure revenue grew six 6%, but was partially offset by a 14.6% decline in nutraceutical revenue.
The decline in Nutraceutical revenue was primarily driven by one of biotech is 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 eight.
$8 million in the fourth quarter of 2022.
Excluding the impact of share based compensation.
Litigation expenses and settlement unrelated to ongoing business transactions and M&A related expenses and other S.
SG&A expenses would've 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 biotech 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 position 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 the $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 'twenty 'twenty four 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 'twenty 'twenty four is expected to be impacted by the transition and the nutraceutical distribution channel and timing of seasonal promotions.
Now I'll turn the call back to Terry for her closing comments.
Thank you Bob.
<unk> remains committed to enhancing patient health, while delivering profitable growth for our stakeholders.
As we look ahead to 'twenty 'twenty four and beyond we are confident biotech remains well positioned COVID-19.
From the leading single source provider of evidence based therapeutic wellness solutions.
The 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.
Operators. Please begin the question and answer session.
We will now begin the question and answer session to.
To ask a question you May press Star then one on your telephone keypad. If you were using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Okay.
Yeah.
Our first question today comes from less Salou ski of Truest. Please go ahead.
Good evening and 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.
And our international expansion I'm training.
So I'll have Bob answer the first half of the question Les and then I'll take the second half.
Hey, how are you.
As we look at the guidance I would say we've evaluated the business plan and we've given our position given our position I think we're in a solid place for both core procedure Ah corporate.
Court procedure business and neutrals 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.
Lynn.
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.
As we look at a neutral or a guidance.
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 will 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 remains strong and stable.
We believe that the margin we should see some margin accretion in the back half given the steri integration in the second half.
And we expect to see continued growth in our practitioner network.
Terry do you want to take the second yeah, I'll take the second half on our sales force optimization. So we've been making progress on that sales force optimization going into the new space, which.
We're calling you used to call white space, but going into green space here. So that's been strong progress. We have found that we are bringing our 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.
Optimization is working we've also hired key talent in that area and we've modernized the data systems to really allow them to get actionable insights into the individual territory. So on the domestic front, we're very pleased and we will highlight later calls some of that progress in the new.
Green space areas that has gone quite well mid Atlantic Midwest and.
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.
On business and then we've expanded our offerings as we talked about with bio T. Rx 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 has been.
New practitioners and that ramping up of new clinics.
Very helpful. I appreciate that one more if I may so when we look at the the economics and the revenue split that you've shared before.
Now has the new wellness product offerings.
Change the dynamics of the economics if at all.
This would not be the year 'twenty 'twenty four it'll have a marginal impact, but it really allows us to be its more competitive in our core hormone business. So I would not look for financial I would look for our competitive strength as we offered that wellness therapeutics, we rolled out that pro.
Graham in February we're calling a biotech are X. So we've rolled it out to 100 clinics will be looking to roll it through the remainder of 'twenty, four and a very methodological fashion, ensuring access and that the program works very well through our tech platforms, but look to impact in 'twenty two.
Twenty-five on that program.
Excellent. Thank you.
The next question is from John Kim with TD Cowen. Please go ahead.
Thanks for taking my question, just expanding a little bit on those five T. Our accident also you mentioned extending treatment in men's health. How large do you think those are new initiatives can become over time and so does 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 I still keep puts and takes we should consider thank you.
Yeah. So I'll go ahead and talk about the mail 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 treat go for any kind of treatment. So our focus on that is going to be a very accretive to biotech, adding our value in terms of growing the consumer base.
The other pieces that mail procedures.
Tend to grow over time with that focus on the urologist as well as we look at different practitioners the bio T Rx 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 you know just in the billions.
And that will be something that we do at bio T M.
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 the use of the treatments that the providers and patients are.
Asking for so the fact that will be the single source provider of both of those therapeutic wellness products.
And the hormone treatment makes that one stop shop, a key competitive advantage.
And Joanne on the second piece that you were asking about regarding margin I don't see any major shifts in the in the in the ratio that we have one on sales drive margin.
We'll say as we look at our Syria. Obviously, this is a strategic and accretive acquisition and as we vertically integrate this pellet manufacturer, we will provide margin improvement overtime as we shift volume to.
Two a series in the second half of the year.
I I think 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 is the that's probably the best guidance. We can give you at this point.
Alright, thank you so much.
The next question is from George Kelly with Roth M. K M. Please go ahead.
Hey, everybody. Thanks for taking my questions. So maybe to start Terry you said in your prepared remarks that.
You're planning to offer training both in person and online and I'm. Just curious do you offer any online training or have you historically offered indie online training and if it's new.
How much of an acceleration do you think like is it a big deal and couldn't really create an acceleration to onboarding.
Good question George So, yes, we've offered it we actually got quite proficient during 'twenty 'twenty when we actually trained on these therapeutic products. Another hormone products that we're rolling out. So yes, we know what works well and we've done it before we had looked all through 2023 about what's the.
The optimization on a hybrid method of online training and in person Proctor, Inc. Because it's this is a complex area. So we've had some real success with what I'd call a hybrid method training and we've done complete digital so we've been looking at the results and how did those clinics in 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 will allow acceleration in the.
Second half of the year I'm really in terms of how many practitioners, we can train and what we found to be a very effective efficient blended method.
Okay. That's helpful. And then second question for me I guess, maybe two two questions on guidance.
The first one is.
Ah you're a in the press release and in your prepared remarks, you talked about a two half acceleration and 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 too that that acceleration and then the second question on guidance.
Bachelor of Styria.
How much of your production do you expect to shift to listeria by year end, I mean, and and if you think beyond your end is it 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 biotech Rx So, but we're looking at as biotechs really enhancing the core hormone business in 2020 for 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 on the other in terms of our other guidance. So looking at modest in 'twenty 'twenty, four but actually having.
A 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 these Styria I think I'll ask Bob to do that he started 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 hand, moving ahead with the planning.
It will really allow us to hit the ground running upon closing.
We know 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 a manufacturing any manufacturing challenges. We believe that we should be fully integrated and have all the all the licenses are set up by the end of the year.
Full integration and given the way that that phases out will drive that second half.
The second half volume so.
That's really the way that we're we're looking at it.
Understood. Thank you.
The next question is from Richard Magnuson with B Riley. Please go ahead.
Oh, well this is Richard Magnuson, I'm, calling in for Jeff Van syndrome.
Thank you for taking our call. My first question here is regarding the new products, you're introducing I believe you said, they're being rolled out to all 100 clinics are they all being offered at this point and if not what is what does 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 hundred so that just began in February. So these are being on boarded to 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 selling the products or products that we are have taught it 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 we rolled that piece out and grow the number of providers, but we're very comfortable where we're actually monetizing. These.
These products for the first time and we're pleased about that.
Okay, and then sort of related to that besides the G. L. P ones well what are the most significant new product right now in terms of how.
How they're being applied to the application of our practitioners and are there any standouts in terms of demand by patients.
Well, we're just we're not giving individual.
Discussion on those products right now and because it's a brand new program. So we'll discuss that later dates but we found you know provider acceptance on all the products and we're really looking to kind of see how they began 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 I'm almost you know to all female patients with certain.
Attributes like progesterone. This type of thing so will kind of give you more the categories are hormones sexual wellness the weight loss. The G. L. P. One switch youre aware oven and body comp. So we'll discuss those more in detail I'm on as we give more findings on those those early <unk>.
Riders.
Okay. Thank you.
The next question is from call me, Oh, gosh, well robalo from Jefferies. Please go ahead.
Oh, Hey, everybody can you maybe talk about from those that started in February maybe you know kind of a six month progress report of what what you learned from this for sort of first cohort of folks that are.
Our franchises that came onto the Iot.
Iot well I Rx wellness plan and then along with that if you can maybe.
After that just add how should the how will the economics evolve as more and more clinics come onto that 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 one month is too early to make comments on so we'll talk about that later as we get into.
Detail. These theres been failure favorable response and very good interest on the initial rollout.
As we discussed its 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 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.
As we look at our core hormone business.
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.
And a little more detail what that what that meant.
Well, yeah, and I think as we talked about earlier.
We had some challenges with our third party, who was managing the Amazon relationship for Us in Q4.
One of the 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 gonna be a it gives us a little bit more control and and could provide oh.
A little bit 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 tried 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 and have a good evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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