biote Corp. (BTMD) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the accompanying consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Certain amounts may not foot due to rounding. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements except as required by law. Actual results may differ materially from those contained in any forward-looking statements.
Overview
Biote trains physicians and nurse practitioners in hormone optimization using bioidentical hormone replacement pellet therapy in men and women experiencing hormonal imbalance. The Biote Method is a comprehensive, end-to-end practice building platform that provides Biote-certified practitioners with the following components specifically developed for practitioners in the hormone optimization space: Biote Method education, training and certification, practice management software, inventory management software, and information regarding available HRT products, as well as digital and point-of-care marketing support. We also sell a complementary Biote-branded line of dietary supplements. By virtue of our historical performance over the past 13 years, we believe that our business model has been successful, remains differentiated, and is well positioned for future growth.
Our go-to-market strategy focuses on:
•
Increase the number of Biote-certified practitioners. Our primary objective in marketing to healthcare providers is to inform them of the value in joining the Biote network. We accomplish this through provider referrals, a dedicated sales force, and through digital and traditional marketing channels. We target specific physicians based on their specialty, prescribing data, demographic information and location match with our existing geographic footprint.
•
Grow the practice of our Biote-certified practitioners and Biote-partnered clinics. When the practices of our Biote-certified practitioners and Biote-partnered clinics grow, we grow. We help our Biote-certified practitioners and Biote-partnered clinics grow by, among other things:
•
providing mentorship, practice management and marketing capability necessary to operate an efficient hormone optimization practice;
•
providing high-quality Biote-branded dietary supplement products;
•
providing Biote-certified practitioners and Biote-partnered clinics a full array of wellness education and marketing materials;
•
directing consumers that are actively seeking care to Biote-certified practitioners via the “Find A Provider” feature on our company website; and
•
utilizing our growing digital outreach capabilities to connect with consumers seeking general information.
•
Increasing sales of Biote-branded dietary supplements. Our Biote-branded dietary supplement line currently includes 24 dietary supplements that we offer to our Biote-certified practitioners through our eCommerce site, efficiently leveraging our core Biote provider platform. Practitioners then re-sell Biote-branded dietary supplements to their patients, enabling patients to receive physician-guided therapies to manage the related effects of aging. In August 2021, we launched a direct-to-patient eCommerce platform whereby practitioners can invite their patients to buy Biote-branded dietary supplements online via our online store.
A majority of the bioidentical hormone pellets used by Biote-certified practitioners are manufactured by our 503B compounding pharmacy: however, in order to meet demand we have agreements with AnazaoHealth (AnazaoHealth Pharmacy Services Agreement) and Carie Boyd (Outsourcing Facility Services Agreement) each of which are FDA registered 503B outsourcing facilities. Bioidentical hormone pellets are shipped directly to Biote-certified practitioners. Custody of the bioidentical hormone pellets is with Biote-certified practitioners. However, the bioidentical hormone pellets are recorded as inventory on our consolidated balance sheets from the date of shipment until such time as they are administered in a patient treatment as monitored and recorded in our BioTracker system as an additional service for administrative convenience of Biote-certified practitioners and Biote-partnered clinics.
These products have a finite life ranging from six to twelve months. We assume the risk of loss due to expiration, damage or otherwise. Additionally, the products offered in our Biote-branded dietary supplement portfolio are produced by third-party manufacturers located in the United States. Biote contracts with a third-party to provide warehousing, co-packing and logistics services for our Biote-branded dietary supplements.
61
To strengthen control over our supply chain, enhance operational efficiency and reduce production costs, we are focused on vertical integration through strategic transactions. For example, in March 2024, we acquired Asteria Health, a 503B manufacturer of compounded bioidentical hormones. As part of the integration process associated with this strategic transaction, we are narrowing our current vendor network to better manage our supply chain. On November 1, 2024, AnazaoHealth provided notice that it was exercising its right to terminate the Pharmacy Services Agreement (the “AnazaoHealth Pharmacy Services Agreement”), which we previously entered into on October 30, 2020, with such termination to be effective as of May 1, 2025. While there is no guarantee that we will be able to negotiate a new agreement with AnazaoHealth and continue our partnership following such notice of termination on terms that are acceptable to us, if at all, we believe we can continue to meet the product demands of our Biote-practitioners through our existing direct manufacturing capabilities and vendor network while continuing to expand our vertical integration.
Revenue generated from individual Biote-partnered clinics varies significantly. This variability is due to many factors, including: tenure of its practitioners as Biote-certified practitioners; the number of certified practitioners in an individual clinic; the number of patients served by a clinic; the clinic’s patient demographics; and the clinic’s geographic location and population density. The master services agreements (“MSAs”) we enter into with Biote-partnered clinics contain tiered pricing provisions for the management fees. These provisions provide for decreasing management fees owed to us based on the number of new patients treated. This can result in declines in revenue we realize from management fees from existing Biote-partnered clinics unless these are offset by revenue generated from newly acquired Biote-partnered clinics which begin at higher fee levels under the MSA.
Our revenue was $197.2 million and $185.4 million, our net income was $0.05 million and our net loss was $2.8 million, and our Adjusted EBITDA was $58.2 million and $55.3 million, for the years ended December 31, 2024 and 2023, respectively.
Recent Developments
Impact of Global Economic Trends
Global economic conditions have been challenging, with disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the effects of public health crises, uncertainties associated with the changes to and by the U.S. federal government and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or other efforts. A recession or additional market corrections resulting from the impact of the effects of global health crises, such as the COVID-19 pandemic, could materially affect our business and the value of our securities. The impact of global health crises and the related disruptions caused to the global economy did not have a material impact on our business during the years ended December 31, 2024 and 2023.
Additionally, inflationary factors, such as increases in the cost of our materials and supplies, interest rates and overhead costs may adversely affect our business and operating results. Inflation and relatively high interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, international tariffs, consequences associated with global health crises and ongoing international conflicts such as the conflict between Russia and Ukraine and conflicts in the Middle East, and employee availability and wage increases, which may result in additional stress on our working capital resources.
Chief Executive Officer Transition
On February 1, 2025, we appointed Bret Christensen as Chief Executive Officer. In connection with his appointment, we entered into an employment agreement with Mr. Christensen, dated as of January 29, 2025 which provides for Mr. Christensen’s at-will employment as the Chief Executive Officer for a term commencing on February 1, 2025 and continuing until terminated by either us or Mr. Christensen. Teresa S. Weber, our prior Chief Executive Officer, transitioned out of her role, effective February 1, 2025. On January 30, 2025, Ms. Weber entered into a consulting agreement with us, which provides that Ms. Weber will serve as a strategic advisor to us and our Board of Directors for up to one year, to assist with the transition and to work on special projects.
Acquisitions
On March 18, 2024, we acquired Asteria Health, a privately held 503B manufacturer of compounded bioidentical hormones. The total consideration of $9.0 million consisted of $8.5 million in cash payments and an additional $0.5 million cash earnout payment that was contingent on meeting certain operating metrics.
On January 29, 2024, we executed an asset purchase agreement with BioSana ID LLC (“BioSana”) to purchase certain assets for cash consideration of $0.7 million.
On January 2, 2024, we executed an asset purchase agreement with Simpatra, LLC (“Simpatra”) to purchase certain intellectual property and intellectual property rights. As consideration we paid $1.5 million in cash payments and 389,105 shares of our Class A common stock, of which 97,276 shares are being held for a period of approximately 15 months, pursuant to the asset purchase
62
agreement, to cover certain representations and warranties. Additionally, the agreement provides for a future earnout payment of 194,553 shares of our Class A common stock upon achieving certain financial targets over a four-year period.
Components of Results of Operations
Revenue
We generate revenue by charging the Biote-partnered clinics fees associated with the Biote Method and from the sale of Biote-branded dietary supplements. Revenue generated from individual Biote-partnered clinics varies significantly due to many factors. including but not limited to, the tenure of practitioners as Biote-certified practitioners; the number of certified practitioners in an individual clinic; the number of patients served by a clinic; the clinic’s patient demographics; and the clinic’s geographic location and population density. The MSAs we enter into with Biote-partnered clinics contain tiered pricing provisions for the management fees. These provisions provide for decreasing management fees owed to us based on the number of new patients treated. This can result in declines in revenue we realize from management fees from existing Biote-partnered clinics unless these are offset by revenue generated from newly acquired Biote-partnered clinics which begin at higher fee levels under the MSA.
Our revenue fluctuates in response to a combination of factors, including the following:
•
sales volumes;
•
the mix of male and female patients treated by Biote-certified practitioners, as treatment for males generates more revenue per patient than treatment for females;
•
our overall product mix of dietary supplements sold;
•
the effects of competition on market share;
•
new Biote-partnered clinics acquired as customers, less any existing clinics lost as customers (“net new clinics”);
•
number of procedures performed by practitioners;
•
medical industry acceptance of hormone optimization generally as a solution to unmet medical needs;
•
the number of business days in a particular reporting period, including as a result of holidays;
•
weather disruptions impacting medical offices’ ability to maintain regular operating schedules;
•
the effects of competition and competitive pricing strategies;
•
governmental regulations influencing our markets; and
•
global and regional economic cycles.
Generally, our MSAs require us to provide (1) initial training to practitioners on the Biote Method, (2) inventory management services and (3) other contract-term marketing and practice development services (including recurring training and licenses of Biote IP). Historically, we have provided the optional free lease of reusable trocars by Biote-certified practitioners.
Substantially all of our revenue originates from sales to clinic locations in the United States.
Product Revenue
Product revenue includes both pellets, in connection with the service described above, and the related inventory management services provided to clinics. Product revenue is recognized at the point in time when the clinic obtains ownership of the pellet, which we determined to be when the Biote-certified practitioner performs the procedure to implant the pellet into their patient. The consideration allocated to this performance obligation is a procedure-based service fee which we refer to as procedure revenue. Our product revenue also includes revenue earned from sales of pellet insertion kits and Biote-branded dietary supplements. Revenue from the sale of pellet insertion kits and Biote-branded dietary supplements is recognized when the clinic or clinic’s patient (supplements only) obtains control of the product and is generally at the time of shipment from our distribution facility. Any shipping or handling fees paid by clinics are also recorded within product revenue.
Service Revenue
Service revenue is revenue earned from fees paid by Biote-partnered clinics for training services and other contract term services pursuant to our MSAs. While the option to receive and right to use the reusable trocars through the term of the contract represents an embedded lease, we have adopted the practical expedient within ASC 842 to combine the lease and non-lease components and account for the combined component under ASC 606.
63
For Biote Method arrangements, we recognize revenue for training and for management services over time. For initial training, progress is measured by the number of training sessions completed, and for contract-term services, progress is measured on a time-elapsed basis.
The training completion and time-elapsed bases represent the most reliable measure of transfer of control to the clinic for trainings and contract-term services, respectively. Revenue is deferred for amounts billed or received prior to delivery of the services.
Cost of Revenue
Cost of service revenue consists primarily of costs incurred to deliver training to Biote-partnered clinics. Cost of product revenues include the pass-through cost of pellets purchased from outsourcing facilities, the cost of pellet insertion kits and Biote-branded dietary supplements purchased from manufacturing facilities, and the shipping and handling costs incurred to deliver these products to Biote-partnered clinics.
Selling, General and Administrative Expense
Selling, general and administrative expense consists primarily of software licensing and maintenance and the cost of employees who engage in corporate functions, such as finance and accounting, information technology, human resources, legal, and executive management. Also included are rent occupancy costs, office expenses, recruiting expenses, marketing and advertising expenses, entertainment allocations, depreciation and amortization, share-based compensation, transaction related expenses, other general overhead costs, insurance premiums, professional service fees, research and development and costs related to regulatory and legal matters.
Interest Expense, Net
Interest expense, net consists primarily of cash and non-cash interest under our Term Loan, commitment fees for our unused Revolving Loans, accreted interest related to our share repurchase liabilities, net of interest income earned on our money market account and our now matured short-term investment.
Loss from Change in Fair Value of Warrant Liability
Loss from change in fair value of warrant liability consists of the change in fair value of the warrant liability during the period.
Loss from Change in Fair Value of Earnout Liabilities
Loss from change in fair value of earnout liabilities consists of the change in fair value of the earnout liability related to the Business Combination Agreement and the earnout liability related to the acquisition of Simpatra. during the period.
Other Income / Expense
Other income and other expense consist of the foreign currency exchange gains and losses for sales denominated in foreign currencies and other income or payments not appropriately classified as operating expenses.
Income Taxes
We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions in which we operate. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
64
Results of Operations
Comparison of the years ended December 31, 2024 and 2023
The table and discussion below present our results for the years ended December 31, 2024 and 2023:
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2024 | 2023 | ||||||
| Revenue: | ||||||||
| Product revenue | $ | 192,240 | $ | 182,573 | ||||
| Service revenue | 4,951 | 2,787 | ||||||
| Total revenue | 197,191 | 185,360 | ||||||
| Cost of revenue | ||||||||
| Cost of products | 55,087 | 54,246 | ||||||
| Cost of services | 3,043 | 3,631 | ||||||
| Cost of revenue | 58,130 | 57,877 | ||||||
| Selling, general and administrative | 107,450 | 98,826 | ||||||
| Income from operations | 31,611 | 28,657 | ||||||
| Other income (expense), net: | ||||||||
| Interest expense, net | (11,001 | ) | (6,363 | ) | ||||
| Loss from change in fair value of warrant liability | — | (13,411 | ) | |||||
| Loss from change in fair value of earnout liabilities | (19,605 | ) | (8,990 | ) | ||||
| Other income (expense) | 11 | (16 | ) | |||||
| Total other income (expense), net | (30,595 | ) | (28,780 | ) | ||||
| Income (loss) before provision for income taxes | 1,016 | (123 | ) | |||||
| Income tax expense | 970 | 2,682 | ||||||
| Net income (loss) | $ | 46 | $ | (2,805 | ) |
Revenue
Revenue for the year ended December 31, 2024 increased $11.8 million to $197.2 million, or 6.4% compared to the year ended December 31, 2023. The increase was primarily driven by a $9.3 million increase in procedure revenue, a $2.3 million increase from the sale of disposable trocars and bioidentical hormone pellets manufactured by our 503B compounding facility and sold to third parties and a $2.2 million increase service revenue. The increase in procedure revenue compared to the year ended December 31, 2023, was primarily attributed to a 20.3% increase in pellets dispensed by Biote-certified practitioners in 2024 compared to 2023. Revenue related to the sale of disposable trocars and bioidentical hormone pellets sold to third-parties increased over 2023 partially due to increased marketing around our newly introduced blunt-tip trocar and the acquisition of Asteria Health, respectively. The increase in our service revenue during 2024 compared with 2023, was primarily driven by technology fees earned from physician orders placed through our new platform, BioteRx. These increases were partially offset by a $2.1 million decline in revenue from Biote-branded dietary supplements, which resulted from the transition of a portion of this business from a third-party distributor to our e-commerce platform with Amazon in 2024 compared with 2023.
Cost of revenue
Cost of revenue for the year ended December 31, 2024 increased $0.3 million, to $58.1 million, or 0.4% compared to the year ended December 31, 2023. The increase was primarily due to the net impact of higher volumes at sustained unit costs. Cost of procedures increased 3.3% relative to the 6.6% increase in procedure revenue for 2024, reflecting an increase in cost savings in 2024 from the vertical integration of Asteria Health. Costs related to the sale of disposable trocars and bioidentical hormone pellets sold to third-parties increased over 2023 partially due to an increase in cost related to our newly introduced blunt-tip trocar and expanded offering of trocar kits in 2024 coupled with the newly added cost associated with manufacturing bioidentical hormone pellets for resale to third parties. These increases in cost of revenue were partially offset by a $2.3 million decrease in cost of Biote-branded dietary supplements which was primarily driven by the decline in sales of Biote-branded dietary supplements in 2024 compared with 2023. Additionally, in 2024 cost associated with training practitioners on the Biote Method decreased $0.5 million due to implementing strategic cost reduction strategies, such as periodically offering virtual training options, increasing attendance and renegotiating compensation structures with a few of the medical advisors that provide educational programs, seminars, training and refresher courses to Biote-certified practitioners, compared with 2023.
Selling, General and Administrative
Selling, general and administrative expense for the year ended December 31, 2024 increased $8.6 million to $107.5 million, or 8.7%, compared to the year ended December 31, 2023. This increase was primarily driven by a $5.0 million increase in employee-related expenses that resulted from an increase in our executive-level headcount, an increase in sales incentives consistent with sales
65
growth for the year and an increase in severance expense compared with 2023. Legal settlement expenses increased $4.0 million in 2024 principally due to the execution of a settlement agreement with Carie Boyd (see “Right Value Litigation” under Part I, Item 3. Legal Proceedings in this Annual Report on Form 10-K and Note 20 to our consolidated financial statements for additional information). Additionally, in 2024 we incurred expenses related to our first annual marketing event for Biote-certified providers since the onset of the COVID-19 pandemic of $0.8 million and other marketing-related expenses increased $0.8 million in 2024 due to an increase in web-based marketing in an ongoing effort to increase awareness of the products and services offered by Biote-certified practitioners, compared with 2023. Furthermore, amortization expense increased $0.6 million in 2024 compared with 2023, primarily due to the addition of intangible assets acquired during the first quarter of 2024. These increases were partially offset by a $4.6 million decrease in outsourced processional services primarily due to a decrease in legal expenses related to litigation costs incurred to defend us against claims asserted by our former owner (see “Donovitz Litigation” under Part I. Item 3, Legal Proceedings in this Annual Report on Form 10-K and Note 20 to our consolidated financial statements for additional information) and a decrease in consulting service fees associated with management’s strategic initiatives, which were completed in the first quarter of 2024.
Interest Expense, Net
Interest expense, net for the year ended December 31, 2024 increased $4.6 million to $11.0 million, or 72.9%, compared to the year ended December 31, 2023. The increase was primarily the result of $2.6 million in accreted interest related to our share repurchase liability, higher interest rates on our Term Loan during 2024 and interest incurred on borrowings under our Revolving Loans. These increases were partially offset by interest income earned on our money market account in 2024.
Loss from Change in Fair Value of Warrant Liability
The change in fair value of warrant liability was primarily due to our offer to exchange our outstanding warrants for common stock. On May 9, 2023, we announced the commencement of our offer to each holder of our outstanding warrants, the opportunity to receive shares of common stock in exchange for each warrant tendered by the holder. During the year ended December 31, 2023, we issued common stock valued at $17.5 million in exchange for all outstanding warrants. The warrants were remeasured to fair value prior to each exchange, and in doing so, we recognized a net loss from the change in fair value of our warrant liability of $13.4 million for the year ended December 31, 2023.
Loss from Change in Fair Value of Earnout Liabilities
The overall change in fair value of the earnout liabilities was primarily due to a significant decrease in the earnout liability balance related to the Business Combination Agreement that resulted from the settlement of the Donovitz litigation and the June 5, 2024 Litigation, as reflected in the December 31, 2024 consolidated statement of stockholders’ equity (deficit). The change in the fair value of the earnout liabilities was also impacted by the addition of a $0.4 million earnout liability related to the acquisition of Simpatra. The earnout liabilities related to the Business Combination Agreement and the Simpatra acquisition are valued using a Monte Carlo simulation, each of which use inputs that can vary from period to period, including, but not limited to, the closing price of our Class A common stock, the risk-free rate, various volatility rates and the expected term. The volatility of these inputs from period to period drive the increase or decrease in the fair value of the respective liability and the corresponding change in loss or gain, respectively.
Other Income (Expense)
The change in other income (expense) for the year ended December 31, 2024 compared to the year ended December 31, 2023. primarily resulted from currency fluctuations during the period.
Income Tax Expense (Benefit)
Income tax expense for the year ended December 31, 2024 decreased $1.7 million compared to the year ended December 31, 2023. This decrease reflects income attributable to Biote in 2024 compared to certain one-time decreases made to the outside basis difference of Holdings in 2023.
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP performance measure that provides supplemental information that we believe is useful to analysts and investors to evaluate our ongoing results of operations when considered alongside net income (the most directly comparable U.S. GAAP measure).
We use Adjusted EBITDA as alternative measures to evaluate our operational performance. We calculate Adjusted EBITDA by excluding from net income: interest expense; depreciation and amortization expenses; and income taxes. Additionally, we exclude certain expenses we believe are not indicative of our ongoing operations or operational performance. We present Adjusted EBITDA because it is a key measure used by our management to evaluate our operating performance, generate future operating plans and determining payments under compensation programs. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and
66
should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. Some of these limitations are as follows:
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and
•
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us.
In addition, Adjusted EBITDA is subject to inherent limitations as it reflects the exercise of judgment by Biote’s management about which expenses are excluded or included. Other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our Adjusted EBITDA as a tool for comparison. Investors are encouraged to review the reconciliation, and not to rely on any single financial measure to evaluate our business.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA:
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2024 | 2023 | ||||||
| Net Income (loss) | $ | 46 | $ | (2,805 | ) | |||
| Interest expense, net(1) | 11,001 | 6,363 | ||||||
| Income tax expense | 970 | 2,682 | ||||||
| Depreciation and amortization(2) | 3,574 | 2,994 | ||||||
| Share-based compensation expense(3) | ` | 8,735 | 9,057 | |||||
| Litigation expenses-former owner(4) | 972 | 6,770 | ||||||
| Litigation-other(5) | 2,688 | 633 | ||||||
| Legal settlement loss(6) | 5,018 | 1,048 | ||||||
| Inventory fair value write-up(7) | 1,324 | — | ||||||
| Transaction-related expenses(8) | 82 | 2,118 | ||||||
| Other expenses(9) | 3,191 | 1,174 | ||||||
| Merger and acquisition expenses(10) | 1,019 | 2,821 | ||||||
| Loss from change in fair value of warrant liability | — | 13,411 | ||||||
| Loss from change in fair value of earnout liabilities | 19,605 | 8,990 | ||||||
| Adjusted EBITDA | $ | 58,225 | $ | 55,256 |
(1)
Represents cash and non-cash interest on our debt obligations, commitment fees for our unused Revolving Loans, net of interest income earned on our money market account and short-term investment. For the year ended December 31, 2024, interest expense, net included $2.6 million of accreted interest related to the share repurchase liabilities
(2)
Represents depreciation expense on property and equipment, amortization expense on capitalized software and amortization expense on purchased intangible assets. Depreciation expense of $0.03 million was included in cost of products for the year ended December 31, 2024.
(3)
Represents employee compensation expense associated with equity-based stock awards. This includes expense associated with equity incentive instruments including phantom stock awards, stock options and restricted stock units.
(4)
Represents legal expenses to defend us against claims asserted by our former owner.
(5)
Represents litigation expenses other than those incurred in connection with claims asserted by our former owner that are not related to our ongoing business.
(6)
Represents settlements of legal matters.
(7)
Represents the fair market value write-up of inventory accounted for under ASC 805 related to the acquisition of Asteria Health.
(8)
Represents transaction costs, including legal fees of $0.08 million and $0.9 million, incurred during the years ended December 31, 2024 and 2023, respectively, and for the year ended December 31, 2023, filing fees of $0.2 million and professional services fees of $1.0 million, each of which were incurred in connection with the filing of, and transactions contemplated by, our securities offerings during the years ended December 31, 2024 and 2023.
(9)
Represents executive severance costs of $2.0 million, strategic consulting and advisory services of $0.6 million, professional services fees of $0.4 million related to the accounting treatment of the share repurchase liabilities, estimated excise tax
67
related to the repurchase of Class A common stock of $0.2 million. For the year ended December 31, 2023, this amount represents executive severance costs of $0.8 million, costs related to recruiting executive level management, including the Chief Commercial Officer of $0.2 million, legal fees of $0.1 million and professional services fees of $0.1 million associated with the restatement of our financial statements for the quarters ended June 30, 2022 and September 30, 2022 and a realized foreign currency loss of less than $0.02 million.
(10)
Represents professional fees of $0.3 million and $0.6 million and legal fees of $0.7 million and $1.8 million incurred during the years ended December 31, 2024 and 2023, respectively and consulting fees of $0.4 million incurred during the year ended December 31, 2023, all of which were associated with strategic opportunities to expand the business.
Liquidity and Capital Resources
Our liquidity is derived primarily from available cash and cash equivalents, cash generated from operations, capacity under our revolving loans and, when necessary, debt and equity financing activities. We believe that for at least the next 12 months, our current cash position, coupled with anticipated cash generated from operations and the capacity under our revolving loans, is sufficient to fund our operations and our debt service obligations. As of December 31, 2024 and 2023, we had cash and cash equivalents of $39.3 million and $89.0 million, respectively. Additionally, as of each of December 31, 2024 and 2023, we had $50.0 million of revolving loans available under our Truist credit agreement.
Since our inception, we have financed our operations and capital expenditures primarily through capital investment from our founder and other members, debt financing in the form of short-term lines of credit and long-term notes payable, and net cash inflows from operations.
We expect our operating and capital expenditures to increase as we increase headcount, expand our operations and grow our clinic base. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and also require us to incur additional interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.
Our ability to raise additional capital through the sale of equity or convertible debt securities could be significantly impacted by the resale of shares of Class A common stock by selling securityholders pursuant to the registration statement on Form S-1 filed with the SEC on June 17, 2022, which could result in a significant decline in the trading price of our Class A common stock and potentially hinder our ability to raise capital at terms that are acceptable to us or at all. In addition, debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our operations. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled “Risk Factors” included in this Annual Report.
Cash Flows
The following table summarizes our consolidated cash flows for the years ended December 31, 2024 and 2023:
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2024 | 2023 | ||||||
| Consolidated Statements of Cash Flows Data: | ||||||||
| Net cash provided by operating activities | $ | 45,243 | $ | 26,883 | ||||
| Net cash used in investing activities | (18,798 | ) | (2,713 | ) | ||||
| Net cash used in financing activities | (76,083 | ) | (14,380 | ) |
Operating Activities
Cash flows from operating activities result primarily from fees associated with the Biote Method and from the sale of Biote-branded dietary supplements. Cash flows from operating activities are affected by earnings levels and changes in working capital related to our business. Working capital varies from period to period and can be affected by changes in our inventory levels, due to varying demand for our products, the timing and amount of deposits required by our suppliers for future inventory purchases, the timing of cash collections of accounts receivable and payments of liabilities. Net cash provided by operating activities increased $18.4 million to $45.2 million for the year ended December 31, 2024 compared to cash provided by operating activities of $26.9 million for the year ended December 31, 2023. Our cash flow from working capital activities for the year ended December 31, 2024 generated $9.9 million of cash, compared to the year ended December 31, 2023. This increase was primarily the result of efforts to improve processes around monitoring prepayments made to suppliers, maintaining inventory levels that are more in line with demand and
68
increasing inventory turnover in 2024. In comparison, cash flow from working capital activities used $8.9 million of cash in 2023. Our working capital was unfavorably impacted in 2023 due to an increase in inventory levels in the second half of the year in anticipation of our annual “Black Friday” sale. In addition to a softer than forecasted holiday sale season, one of our larger dietary supplement distributors exited the nutraceutical business in the fourth quarter of 2023.
Investing Activities
Net cash used in investing activities increased $16.1 million to $18.8 million for the year ended December 31, 2024 compared to $2.7 million for the year ended December 31, 2023, primarily due to the use of $11.8 million in cash to acquire Asteria Health, Simpatra and BioSana in 2024. Additionally, we used approximately $4.4 million in 2024 to prepare Asteria Health’s new location for its intended use, of which $4.2 million are expected to be placed in service during the first quarter of 2025. The increases in cash used for acquisitions and property and equipment, were partially offset by a decrease in expenditures for capitalized software development costs.
Financing Activities
Net cash used in financing activities increased $61.7 million to $76.1 million for the year ended December 31, 2024 compared to cash used by financing activities of $14.4 million for the year ended December 31, 2023. The increase in our cash flow used in financing activities was primary driven by a $62.2 million payment on our share repurchase liability that we recorded related to the settlement of the Donovitz Litigation and the June 5, 2024 Litigation. Additionally, we used cash of $5.6 million to repurchase Class A common stock during the year ended December 31, 2024. The increases in cash used for our financing activities was partially offset by a $4.0 million decrease in distributions to our partners and a $2.0 million increase in proceeds from employee exercises of stock options compared with the year ended December 31, 2023.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our accompanying consolidated financial statements and the accompanying notes included elsewhere in this Annual Report.
Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
Our most critical accounting estimates include revenue recognition, the valuation of inventory, the valuation of stock compensation and the valuation of earnout liability.
Our significant accounting policies are described in Note 2 to our consolidated financial statements. We believe that the accounting policies described reflect our most critical accounting policies and estimates, which represent those that involve a significant degree of judgment and complexity. Accordingly, we believe these policies are critical in fully understanding and evaluating our reported financial condition and results of operations.
Revenue Recognition
To determine revenue recognition for arrangements within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and subsequent amendments (collectively, “ASC 606”), we perform the following five steps: (1) identify the contract(s) with a clinic; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) we satisfy performance obligations. We recognize revenue when the control of the promised goods or services is transferred to Biote-partnered clinics in an amount that reflects the consideration we expect to receive in exchange for such goods or services.
The majority of our revenue is derived from our long-term service agreements for Biote-partnered clinics of the Biote Method. In determining the transaction price, we evaluate whether the price is subject to discounts or adjustments to determine the net consideration to which we expect to be entitled.
Revenue is recognized when control of the product or service is transferred to the clinic (i.e., when our performance obligation is satisfied), which varies between the different performance obligations within the contract. In determining whether control has transferred for a product, we consider if there is a present right to payment and legal title, and whether risks and rewards of ownership have transferred to the clinic. For services, we consider whether we have an enforceable right to payment and when the clinic receives the benefits of our performance. Refer to Note 2 to our consolidated financial statements for additional discussion of our revenue recognition policy.
69
Inventories
Our inventories consist of physician-prescribed pellets used by Biote-certified practitioners in partnered clinics and Biote-branded dietary supplements which are sold and distributed to the Biote-partnered clinics and their patients. Custody of the pellets remains with Biote-certified practitioners. The pellets are presented as inventory on our financial statements from the date of shipment until such time as they are administered in a treatment by a Biote-certified practitioner on their patient for the convenience of Biote-certified practitioners and Biote-partnered clinics. Biote-partnered clinics directly purchase Biote-branded dietary supplements from us, and our 3PL suppliers fill and ship directly to the ordering practice. The Biote-partnered clinic then sets their own pricing in compliance with our applicable policies and sells Biote-branded dietary supplements directly to patients.
Inventories are valued at the lower of cost or net realizable value. We regularly review our inventories and write down our inventories for estimated losses due to obsolescence or expiration. The allowance for pellets is determined based on the age of the specific manufacturing lots of the product and its remaining life until expiration. Dietary supplements are evaluated at the product level based on sales of our products in the recent past and/or expected future demand. Future demand is affected by market conditions, new products and strategic plans, each of which is subject to change with little or no forewarning. In estimating obsolescence, we utilize information that includes projecting future demand.
The need for strategic inventory levels to ensure competitive delivery performance to our Biote-partnered clinics are balanced against the risk of inventory obsolescence due to clinic requirements.
Share-Based Compensation
We use the fair value method of accounting for our stock options and restricted stock units (“RSUs”) granted to employees and non-employee directors and for awards granted under our employee stock purchase plan (“ESPP”). We use the Black-Scholes option pricing model to calculate the fair value of stock options and ESPP awards on the date of grant. The Black-Scholes option-pricing model requires us to make a number of assumptions, including the expected volatility, expected term, risk-free interest rate and expected dividends. RSU awards are measured at fair value based on the closing price of our Class A common stock on the date of grant. Share-based compensation expense is recognized on a straight-line basis over the requisite service period, which is generally four years for options, one year for RSUs and six months for ESPP awards. Forfeitures are recognized as they occur.
Earnout Liabilities
Our earnout liabilities were valued using a Monte-Carlo simulation in order to simulate the future path of our stock price over the earnout period. The carrying amount of the liabilities may fluctuate significantly and actual amounts paid may be materially different from the liabilities’ estimated value. The significant assumptions used in the valuations include our stock price, volatility and the risk-free rate.
Off-Balance Sheet Commitments and Arrangements
As of December 31, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
Our principal contractual obligations and commitments consist of obligations to pay loan principal and interest under our long-term debt agreement and obligations under our operating lease agreement.
Refer to Note 10 and Note 16 to our consolidated financial statements for a discussion of the nature and timing of our obligations under these agreements. The future amount and timing of interest payments under our long-term debt agreement are expected to vary with the amount and then-prevailing contractual interest rates of our debt, which are discussed in Note 10 to our consolidated financial statements.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our consolidated financial statements for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
JOBS Act Accounting Election
We are an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, following the Business Combination, our consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our common stock less attractive to investors.
70
We will remain an emerging growth company under the JOBS Act until the earliest of (i) March 4, 2026, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
71