biote Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the Biot First Quarter 2024 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Sean and Sarah Viedzke, IR representatives from AdvisIRy Partners. Please go ahead.

Speaker 1

Thank you for joining us today. This afternoon, Adi published financial results for the quarter ended March 31, 2024. 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 development, manufacturing and commercialization activities, regulatory process operations, the impact of macroeconomic conditions in its business, total operations, financial conditions and other matters.

Speaker 1

These statements are not guarantees of future performance. They are subject to providing 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. IoT undertakes no obligation to update them in the future.

Speaker 1

Therefore, these statements should not be relied upon as represented in the company's views as of any subsequent date. For a 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 also refers to adjusted EBITDA, which is a non GAAP financial measure to provide additional information to investors. Reconciliation of the non GAAP to GAAP measure is provided in the earnings release with the primary differences being stock based compensation, fair value adjustment to certain liabilities, transaction related expenses and other non operating expenses. Please refer to our Q1 2024 earnings release for reconciliation of adjusted EBITDA to net income, the closest comparable GAAP measure.

Speaker 1

I'll now turn the call over to Terri Weber.

Speaker 2

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 Bier, our Executive Chairman is also on today's call to help you answer questions during the Q and A session following our prepared remarks. Biot generated solid financial performance in the Q1, delivering results consistent with our expectations. We successfully launched BioTRx, our new suite of complementary hormone and evidence based wellness products, greatly expanding our long term growth opportunities.

Speaker 2

We also closed our acquisition of Asteria Health, a strategic transaction that enhances our efficiency and strengthens our manufacturing capabilities. Shortly after the Q1 closed, we were pleased to reach a definitive settlement agreement with Biotis founder. This settlement ends costly litigation and we believe will prove accretive to shareholder value through the planned repurchase of more than 18,000,000 shares held by Doctor. Donovitz at an average repurchase price of $4.17 per share. Bob will provide more information on the expected financial impact of this agreement in his remarks.

Speaker 2

Now let's turn to our Q1 results. Revenue increased 4.4%, reflecting procedure revenue growth of 6 0.6%, partially offset by a decrease in dietary supplement revenue of 11.3% due to an expected decline in nutraceutical sales as we transition our e commerce business. Consistent with our expectations, procedure revenue growth remained stable compared to that of the Q4 of 2023. Procedure revenue was driven primarily from our top tier clinics and included a contribution from new clinics we have added in the past 12 months. Adjusted EBITDA increased 8%, outpacing revenue growth, and we generated an adjusted EBITDA margin in excess of 30%.

Speaker 2

Following the exit of 1 of our larger nutraceutical distributors from the market in the Q4 of 2023, we continue to transition a portion of our nutraceutical sales to our own online storefront. As part of this transition, we're eliminating unauthorized third party resellers, which we anticipate will enhance the overall margin profile of our nutraceuticals business in the long run. We expect our nutraceuticals business will resume year over year revenue growth starting in the second half of twenty twenty four as existing inventory is cleared from the distribution channel. In February, we successfully launched BioTRx, our new suite of hormone and wellness therapies. BioTRx represents a milestone in our evolution as we build on our leadership to become the foremost provider of evidence based healthy aging and therapeutic wellness solutions.

Speaker 2

BioTRx addresses patient and practitioner needs in key areas, including preventative wellness, sexual health and weight loss. It also further separates Biotie from our competitors by providing practitioners with the complete solution to promote positive health outcomes for patients. As we continue the phased rollout of BioTRx, we're focused on ensuring practitioners have consistent access to our expanded range of hormone and wellness therapeutics. To date, we've introduced 10 new products, including hormone formulations that provide efficacious alternatives to pellet therapy. We plan to further expand our formulary with additional hormone and therapeutic wellness products later in the year.

Speaker 2

Patient and practitioner response to our new offerings has been positive, highlighting what we believe is an attractive market opportunity for Biotie in the years ahead. For practitioners, BiotrX will be offering valuable tools and resources, including a proprietary clinical decision support system that provides treatment recommendations formulated to individual patients' unique needs. For patients, our expanded BioTRx formulary enables them to conveniently receive hormone and wellness treatments from a single medical provider. In addition to our successful launch of BioTRx, we also closed our acquisition of Asteria Health, a manufacturer of compounded bio identical hormones in the Q1. The integration of Asteria is already underway and we remain focused on expanding Asteria Health licenses to additional states.

Speaker 2

We believe Asteria Health advances our strategic objectives in the following key aspects. First, we are strengthening control over our supply chain, enabling us to generate product enhancements through the vertical integration of our manufacturing. As we work towards achieving full vertical integration, we are also focused on driving productivity gains in our pellet manufacturing. 2nd, we are gaining 2nd, we are gaining expertise in the manufacturing of 503B products, enabling us to provide a wide range of high quality compounded medications. Later this year, we plan to open the Biot Lab and Innovation Processing Center, where we will develop innovative hormone and therapeutic wellness formulations, backed by our own pharmacokinetic research studies.

Speaker 2

This is an exciting initiative for Biot, which we believe will strengthen our competitive position and keep us on the forefront of innovation. Our commitment to training and continuing education remains integral to the Biotie method and serves as a key competitive differentiator, especially as we evolve into a single source provider of hormone and therapeutic wellness solutions. To optimize our growth and enhance the startup experience for our new practitioners, we recently introduced a quick start program designed to streamline the onboarding process. At the same time, we are laying groundwork for more immersive and interactive didactic and advanced training for both new and existing practitioners. Through these enhancements, we aim to accelerate the revenue ramp from new clinics, improve our cost efficiency and extend our leadership position in both training and education.

Speaker 2

I'll now turn the call over to Bob to discuss our financial results and provide our outlook for 2024.

Speaker 3

Thank you, Terry, and good afternoon, everyone. 1st quarter revenue increased 4.4% year over year to 46 $800,000 when compared to the same quarter in 2023. Procedure revenue grew 6.6% from the prior year period, a growth rate consistent with our performance in the Q4 of 2023. Nutraceuticals revenue decreased by 11.3% as we expected, primarily as a result of 1 of the company's larger distributors exiting nutraceuticals business during the Q4 of 2023. As I noted in last quarter's call, we expect to begin managing distribution of the products previously delivered by this distributor by the end of the Q2 of 2024.

Speaker 3

1st quarter gross profit margin expanded by approximately 240 basis points to 71.4 percent due to product mix and effective cost management. I would note that this quarter's increase in gross profit margin was favorably impacted by lower nutraceutical sales as mentioned earlier. As nutraceutical sales resume growth in the second half as we expect, we anticipate consolidated gross profit margin should revert to historical levels. Selling, general and administrative costs were $23,000,000 compared to $23,100,000 in the Q1 of 2023. Excluding the impact of share based compensation, litigation expenses and settlements unrelated to ongoing business, transaction

Speaker 1

and M

Speaker 3

and A related expenses and other, SG and A expenses would have been $20,000,000 in the Q1 of 2024. Operating income was $10,400,000 compared to $7,900,000 in the prior year quarter, driven by revenue growth, improved gross profit margin and effective management of operating expenses. Net loss in the quarter was $5,800,000 inclusive of a $12,100,000 loss due to a change in the fair value of the earn out liability. This compares to a net loss of $21,400,000 in the Q1 of 2023, which included a $25,400,000 loss due to the net change in the fair value of the earn out liability. Adjusted EBITDA was $14,200,000 with an adjusted EBITDA margin of 30.2%.

Speaker 3

This compares to adjusted EBITDA of $13,100,000 with an adjusted EBITDA margin of 29.2% in the prior year period. Adjusted EBITDA and margins increased primarily due to higher sales, product mix and improved profitability compared to the Q1 of 2023. 1st quarter operating cash flow was approximately $7,400,000 The positive cash flow in Q1 of 2024 was primarily related to better margins. As Terry noted, on April 23, 2024, Biot reached a definitive settlement in the company's litigation with Doctor. Gary S.

Speaker 3

Donovitz, Bioty's founder. Under the terms of the settlement, Biot has agreed to repurchase all of the 18,400,000 shares beneficially owned by Doctor. Donovitz at the time of the settlement at an average price of $4.17 per share, with the first tranche of shares being repurchased for $32,200,000 on April 26, 2024. The remaining shares will be repurchased over the next 3 years. Also pursuant to the settlement, the company is canceling all 3,900,000 unvested earn out shares that were beneficially owned by Doctor.

Speaker 3

Donovitz at the time of the settlement. Turning to our financial outlook for fiscal 2024, we reaffirm previously reported guidance with revenue of $200,000,000 to $204,000,000 and adjusted EBITDA of $60,000,000 to $63,000,000 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 for the first half of twenty twenty four is expected to be impacted by the transition in the nutraceuticals distribution channel and timing of seasonal promotions. Now I'll turn the call back to Teri for her closing comments.

Speaker 2

Thank you, Bob. IoT generated solid financial performance in the Q1 and achieved substantial progress against our strategic objectives. With the successful launch of BioTRx and the closure of the Asteria Health acquisition, we are strengthening and expanding our capabilities. We remain focused on providing a comprehensive approach to aging by delivering evidence based healthy aging and therapeutic wellness solutions to both practitioners and their patients. Now, I'd like to open the call for questions.

Speaker 2

Operator, please begin the question and answer session.

Operator

The first question comes from Lee Siewski with Truist SEC.

Speaker 4

Good evening. Thanks for taking my questions. Terry, if you could perhaps give us a little bit more color on the 6.6% procedure growth in Q1. Can you comment essentially how much of that growth has contributed to new providers versus your top existing clinics? And then second question would be on the 5 months of data that you now have with your 10 new products that you've rolled out to your first one hundred clinics.

Speaker 4

Perhaps give us some feedback on that? And then at what stage would you expect to roll out to the additional clinics? And then I guess the third one would be on the Asteria acquisition and just give us a little bit of a sense of your integration there. And then what sort of investments, capital investments would you expect to have when you're looking to create new products from that? And is this based on preliminary feedback that you're getting from demand?

Speaker 4

Or are you looking to create a new market in that space? Thank you.

Speaker 2

Great. So I'll start with the first question talking about the procedure growth year over year, that's 6.6%. As we had talked about, the first half of twenty twenty four was going to reflect the back half of twenty twenty three. So we were pleased with that stable growth or our ability to continue to grow. And the percentage as it usually is, is from existing clinics.

Speaker 2

The majority is moving those top tier clinics and continuing to grow their practices and then looking at indexing to grow that 2nd tier of clinics into the top tier. And then we did have, as we've talked about before, we're very encouraged by those new clinics. We've continued to onboard them at a higher rate. We have highly qualified, well indexed practitioners that are coming to that training. And that Quick Start program I referred to in my remarks is performing better than it has since I've been here, since 2019, to really give us a quick start to those practitioners as they end up giving hormone optimization as they go back from training.

Speaker 2

So solid performance this quarter and we're pleased to have it on balance and consistent with our expectations. The second question that you had was on BioTRx. So those 10 new products were launched in February mid February with those 100 initial providers and the response has been very positive from both the providers and the patients. They really like the fact that they can have both the hormone products from us, not just the pelleting, but other the additional products and have access with quick delivery and very consistent results. So that first 100 onboarded well with good response on the products.

Speaker 2

We had a large provider meeting, well over 600 plus people in attendance to really look at then the launching of the 2nd phase of BioTRx at this training meeting. So that we then ended up focusing on 500 new providers that will roll out in this second phase, looking at those 10 new products and they're being very positively responded to. So as you know, we've got over 7,100 providers. So this rollout will be systematic through 24, ensuring that we have consistent access, especially for those really popular products like GLP-1s. And then I will give the Asteria questions over to Bob.

Speaker 3

Hi, Lee. Looking at Asteria, thinking about the investments that we put in, I don't see we're a capital light operation and I don't see us spending a significant amount of capital to get this operation up and running

Speaker 5

in the interim.

Speaker 3

When we look at the strategic nature of the operation, I think expanding a little bit of capabilities from a machinery and a design perspective is going to be the primary investments that we take. So I think that's really the focus that we have at Asteria.

Speaker 4

Great. Thank you.

Operator

Your next question comes from Joanna Kim with TD Cowen. Thank you for taking my question. Just curious,

Speaker 6

are you

Speaker 2

still the expansion outside of your core markets at this point? And also any color around new product pipeline and how long it typically takes to get new products in the market? That would be helpful. Thank you so much. So I missed the first part, Joan, of your question.

Speaker 2

Could you repeat that because it gapped out? Yes, sure. I was just asking about how the pace of expansion outside of your core markets at this point, how fast should we expect that on an annual basis? And then yet a second question was on around R and D and innovation? Thank you.

Speaker 2

The first question, our geographic expansion is going very well. So we've seen real pockets of good uptake on the new providers that we're bringing to training and their ability to really go into those new markets and start a practice. So, you know, we've got a highly experienced sales force, the best in hormone optimization certainly in the U. S. And they've really been able to index those providers that would be capable of having very successful hormone practices.

Speaker 2

So the expansion geographically is going well and we expect it to go well through the rest of the year and you'll be able to see those results second half of twenty twenty four and into twenty twenty five as those new markets develop. And I'll try to give some more color as we go on in the year on some of those new markets. And then the second question you had was on innovation products. So I think we have a real need in this country for these therapeutic wellness, these wellness products on healthy aging. So, we are developing those products.

Speaker 2

We've got a wonderful Doctor. Doreen Sateel, a very excellent functional medicine doctor and formulator, and we are looking at providing those new products in those categories I discussed. And I think that innovation process is going well. What we have to ensure is that we have access to those products in all 50 states and certainly where or where available. Some of the states like California are more limited, but getting that access overnight.

Operator

All right. Thank you. Your next question comes from Kamil Garbajal with Jefferies.

Speaker 5

Hi. Can I maybe follow-up on one of the earlier questions on procedure growth? Just to make sure that I heard, was the is the primary driver of the growth the existing clinics or have you ever broken out or could you give you a sense of how much of the growth has come from new ones?

Speaker 2

So the primary growth in that procedure, that 6.6 year over year procedure growth is in our existing clinics. And I would say there are 2 categories. 1 is that top tier clinic. We're continuing to expand their business and their increased amount of hormone optimization. The second is targeting that 2nd tier clinics to move them into a top tier.

Speaker 2

And then always, as we've said, those new clinics provide, and I don't give the exact numbers, but they provide that base to build over the next 18 months. So we're bringing more clinics to training quicker and you'll see that acceleration in the second half of the year as that Quick Start program really gets them engaged in increasing their procedures in that 1st 90 days. So you'll see but 3 quarters or the greater one is from our existing clinics and really working with them to grow their business. And then to a lesser degree on those new clinics that they're performing well.

Speaker 5

Okay, got it. How was the new clinic adds this quarter versus in the past? I don't think you gave a number, but do you think better or worse on same pace?

Speaker 3

Yes. We typically as you know, we typically don't give specifics on new customer adds. But one thing I can tell you, as we look at the new customer growth and as Terry said a little bit earlier, no one's better than Biotin bringing in new customers into the home run business. And I can say that as we start to see we're seeing a higher quality new customer coming in the door. And I can tell you that we've never been more focused on who we're targeting and how we're indexing.

Speaker 3

So I can tell you, we're coming off of one of our best years since 2018, from an onboarding perspective of new customers. And as Terry said, a big contributor to that is our quick start program, which is proving to be pretty effective.

Speaker 5

Okay, great. And maybe longer term, the as your business is evolving with BioTRx and such, what should be is there a different margin structure? How should we think about how the business might look? Actually, there's too big between the vertical integration and with the addition of new products. How should we just be thinking about what the P and L

Speaker 6

will look like over time below

Speaker 2

the revenue line? Yes, the new products and then I'll pass it to Bob to talk about the margins in Asteria. I think if you look at 2020 4, I would look at it at a very nominal contribution on those new products. In that, we're getting a transaction fee. We're not actually manufacturing those products yet.

Speaker 2

So we have acquired a 503 that will be in our future. But at this point, it's a transaction fee. So what it does though, it gives us that one stop shop. Our providers are doing GLP-1s and they are doing hormone optimization. As a matter of fact, at a new training last Friday, 100 providers, I asked how many were doing GLP-1s, well over a third were already doing GLP-1s.

Speaker 2

So how testosterone in our core business works with that side effect of the GLP-1s and the loss of lean muscle mass, we really believe testosterone will be core to that conversation over the next few years. So that BioTRx becomes critical in what we educate on how we teach those providers to use both sets of products, right? So I think this therapeutic wellness category is only going to expand and you're not going to see the same type of a provider as you did 2 years ago. Your family practice provider, all of the OBGYNs, everyone's expected to understand how to navigate these products and their side effects. And that's where BIO T really comes in.

Speaker 2

And then I'll let Bob comment on the integration.

Speaker 3

Yes. And I think, Terry, you hit on it. I think right now, when we look at the transaction fee and how it isn't going to be material to our year. When you think longer term, it would be great at some point to have to do what we're doing with Asteria to be fully integrated. But at this point, we don't really have line of sight into executing that plan as of yet.

Speaker 5

Got it. Thank you.

Operator

Your next question comes from George Kelly with ROTH and K

Speaker 6

M. K. So maybe to start with Asteria, just a follow-up on some of the questions that have already been asked. But I'm curious how quickly you expect to shift your core hormone pellet production to that facility?

Speaker 3

No, it's a really good question. When you see when we executed the closing date, obviously, we've been working quite diligently to get all the strategic parts up and running. And

Speaker 6

I would just tell you, we

Speaker 3

are we may be seeing a little bit slower uptake in the Q2 range as we have talked about in the past. We really want to hit the ground going hit the ground running. I still think we are on a strong pace to deliver in the second half. And I think everything is starting to line up in place. I think just the late start based on the closing has caused a little bit of a slowdown in the beginning of Q2.

Speaker 3

Does that answer your question, George?

Speaker 6

Is it fair to say by year end, the vast majority of your pellet business will be produced internally?

Speaker 2

I think what we're talking about what Bob is trying to say is that when we're looking at state licenses, yes, I'd say the vast majority by the end of the year, George, but the only thing we don't control is the state license from California or some of the other states that mandate their own timing and schedule as you convert licenses.

Speaker 3

And another thing, George, just to keep sorry, go ahead.

Speaker 6

No, go ahead, Bob. I interrupted you.

Speaker 3

No, no, no. The only other thing I would say is, as we start the conversion process, there will be a little bit of a lag also due to the bleed down of existing inventory within the clinic. So as Terry mentioned, very clear on how we obtain state licensure, but there could be that slight delay for people who maybe have or over indexed on inventory as they bleed down when they start to take on new inventory. That will be another factor we'll have to watch closely.

Speaker 6

Okay. That's helpful. And then next topic I wanted to cover is relates to guidance and commentary about your sort of 1 half versus 2 half expectations on procedure revenue growth. I'm curious the 6.6% growth now that you've reported for 2 consecutive quarters, do you think that's the bottom? And then as you look to the acceleration that you've talked to in the back half, is that mostly driven by new products or is it really just the core business kind of starting to find its momentum again and new products are more of a 25 and beyond kind of story?

Speaker 2

I think we can kind of answer that multiple ways, George. So definitely that Q1 performance was consistent with our expectations and we feel as if we understand our providers and we understand the competitive market. And I feel that we're very confident in where those procedure revenue growth is going to come from in Q2 as well as Q3 and Q4. So although we point you to Q3 and Q4 and we've got solid plans in place and really looking at that formulas and very comfortable with them for that Q3 and Q4. And I'll have Bob talk a little bit about some of the individual programs.

Speaker 3

Yes, sure. And George, good question. And we factored the following kind of piece parts into our guidance. I would say that the 2 big pieces, one is on the procedure side. And I'll just hit the high points and then I can dive into any of them in more depth.

Speaker 3

But you heard from Terry, you heard from me earlier, the heightened focus on our top tier growth is absolutely mission critical for us. We are seeing these performing well and we expect to have that play through in the second half. Additionally, as I just mentioned, and I won't go into this too much because I've already commented, but we need to be growing new customers. And we've seen with the quick starts and the other items that we've mentioned, pretty solid uptick there. One that I think is we didn't dive into too much, but it's how do we drive those existing customers that may be newer or in the middle of their journey, of their life cycle with us, how do we start to drive them leveraging our sales force and internal data to drive opportunities to really expand within our portfolio.

Speaker 3

And I think that's a real key for us because the more people we can get into our top tiers, the better we'll perform. And Terry mentioned it earlier, and I would just echo it. We do have a really great sales force that's really battle tested in this area. And I think that's key to mention. And the only other side of the equation that I would bring up is as we look at Nutra's, we need to continue to expand Nutra's into our existing customer base, continue to make good penetrations, especially in those newer customers and even some of the older customers that may not be acclimated to Nutris and that's a real focus of our sales force and we're seeing good uptake there.

Speaker 3

And then finally, as you know and we've talked about on the prior call is that conversion from Amazon and from our prior distributor and seeing that growth because that should if we can get that up and running, which we're on pace to do in the second half, that will be very accretive.

Speaker 6

Okay. That was all helpful info. Thank you.

Speaker 1

Thank you.

Speaker 6

This is

Operator

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

Speaker 2

I'd like to say thank you to all of you for joining us. We look forward to updating you as the year goes on, on our therapeutic wellness and the real positive impact we're seeing on hormone optimization in the interest throughout the U. S. So looking forward to our next call. Thank you.

Speaker 4

Thank you.

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