Good day, and welcome to the Biote First Quarter 2024 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Szymon Serowiecki, IR representative from AdvisIRy Partners. Please go ahead.

Thank you for joining us today. This afternoon, Biote published financial results for the quarter ended March 31, 2024. This news release is available on the Investor Relations section of the company's website. Terry Weber, Executive Officer; and Bob Peterson, Chief Financial Officer, will host today's call. Before we get started, I'd like to remind everyone that management will make statements on this call that include forward-looking statements regarding, among other things, the company's financial results, future performance and growth opportunities, business outlook, strategies, goals, business and development, manufacturing and commercialization activities, regulatory process operations, the impact of macroeconomic conditions on business, results of operations, financial conditions and other matters. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, some of which are beyond the company's control. Actual results 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. Biote undertakes no obligation to update them in the future. Therefore, these statements should not be relied upon as representative of 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 will also refer 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 our earnings release with the primary differences being stock-based compensation, fair value adjustments of certain liabilities, transaction-related expenses and other non-operating expenses. Please refer to our first quarter 2024 earnings release for a reconciliation of adjusted EBITDA to net income, the closest comparable GAAP measure. I'll now turn the call over to Terry Weber.

Thank you, Szymon, 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. Marc Beer, our Executive Chairman, is also on today's call to help you answer questions during the Q&A session following our prepared remarks. Biote generated solid financial performance in the first quarter, delivering results consistent with our expectations. We successfully launched BioteRx, our new suite of complementary hormone and evidence-based wellness products, greatly expanding our long-term growth opportunities. We also closed our acquisition of Asteria Health, a strategic transaction that enhances our efficiency and strengthens our manufacturing capabilities. Shortly after the first quarter closed, we were pleased to reach a definitive settlement agreement with Biote's founder. This settlement ends costly litigation, and we believe will prove accretive to shareholder value through the planned repurchase of more than 18 million shares held by Dr. 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. Now let's turn to our first quarter results. Revenue increased 4.4%, reflecting procedure revenue growth of 6.6%, 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 fourth quarter 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%. Following the exit of one of our larger nutraceutical distributors from the market in the fourth quarter of 2023, we continue to transition a portion of our nutraceutical sales to our own online storefront. As part of this transition, we are 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 2024 as existing inventory is cleared from the distribution channel. In February, we successfully launched BioteRx, our new suite of hormone and wellness therapies. BioteRx 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. BioteRx addresses patient and practitioner needs in key areas, including preventative wellness, sexual health and weight loss. It also further separates Biote from our competitors by providing practitioners with a complete solution to promote positive health outcomes for patients. As we continue the phased rollout of BioteRx, 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. Patient and practitioner response to our new offerings has been positive, highlighting what we believe is an attractive market opportunity for Biote in the years ahead. For practitioners, BioteRx 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 BioteRx formulary enables them to conveniently receive hormone and wellness treatments from a single medical provider. In addition to our successful launch of BioteRx, we also closed our acquisition of Asteria Health, a manufacturer of compounded bio-identical hormones, in the first quarter. The integration of Asteria is already underway, and we remain focused on expanding Asteria Health's licenses to additional states. 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. Second, we are gaining expertise in the manufacturing of 503(B) products, enabling us to provide a wide range of high-quality compounded medications. Later this year, we plan to open the Biote lab and innovation processing center, where we will develop innovative hormone and therapeutic wellness formulations, backed by our own pharmacokinetic research studies. This is an exciting initiative for Biote, 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 Biote 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 start-up 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 the 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. I'll now turn the call over to Bob to discuss our financial results and provide our outlook for 2024.

Thank you, Terry, and good afternoon, everyone. First quarter revenue increased 4.4% year-over-year to $46.8 million 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 fourth quarter of 2023. Nutraceuticals revenue decreased by 11.3% as we expected, primarily as a result of one of the company's larger distributors exiting the nutraceuticals business during the fourth quarter 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 second quarter of 2024. First quarter gross profit margin expanded by approximately 240 basis points to 71.4% 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 resumed 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 $23.0 million compared to $23.1 million in the first quarter of 2023. Excluding the impact of share-based compensation, litigation expenses and settlements unrelated to ongoing business, transaction and M&A-related expenses and other SG&A expenses would have been $20.0 million in the first quarter of 2024. Operating income was $10.4 million compared to $7.9 million in the prior year quarter, driven by revenue growth, improved gross profit margin and effective management of operating expenses. The net loss in the quarter was $5.8 million, inclusive of a $12.1 million loss due to a change in the fair value of the earnout liability. This compares to a net loss of $21.4 million in the first quarter of 2023, which included a $25.4 million loss due to the net change in the fair value of the earnout liability. Adjusted EBITDA was $14.2 million with an adjusted EBITDA margin of 30.2%. This compares to adjusted EBITDA of $13.1 million 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 first quarter of 2023. First quarter operating cash flow was approximately $7.4 million. The positive cash flow in Q1 of 2024 was primarily related to better margins. As Terry noted, on April 23, 2024, Biote reached a definitive settlement in the company's litigation with Dr. Gary S. Donovitz, Biote's founder. Under the terms of the settlement, Biote has agreed to repurchase all of the 18.4 million shares beneficially owned by Dr. 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 $32.2 million 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 3.9 million unvested earnout shares that were beneficially owned by Dr. Donovitz at the time of the settlement. Turning to our financial outlook for fiscal 2024. We reaffirm previously reported guidance with 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 for the first half of 2024 is expected to be impacted by the transition in the nutraceuticals distribution channel and timing of seasonal promotions.

Thank you, Bob. Biote generated solid financial performance in the first quarter and achieved substantial progress against our strategic objectives. With the successful launch of BioteRx 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. Operator, please begin the question-and-answer session.

The first question comes from Les Sulewski with Truist Securities.

Terry, could you provide more details on the 6.6% procedure growth in Q1? How much of that growth is attributed to new providers compared to your top existing clinics? Additionally, regarding the 5 months of data from the 10 new products rolled out to your first 100 clinics, can you share some feedback on that? When do you anticipate rolling out to additional clinics? Lastly, could you give an overview of the Asteria acquisition, including your integration process and the capital investments you expect to make in creating new products? Are these plans based on preliminary feedback or are you looking to establish a new market in that area?

Great. I'll begin by addressing the first question regarding the 6.6% year-over-year growth in procedures. As we mentioned, the first half of 2024 is reflective of the latter half of 2023, and we are pleased with the stable growth and our ongoing ability to expand. This percentage largely originates from our existing clinics, primarily focusing on enhancing our top-tier clinics and working to elevate our second-tier clinics into the top tier. We are also encouraged by the onboarding of new clinics at an increasing pace. We have highly qualified and well-indexed practitioners entering our training programs. The Quick Start program I mentioned is performing better than it has since I joined in 2019, allowing these practitioners to quickly begin offering hormone optimization after training. Overall, we're satisfied with this quarter's performance, which aligns with our expectations. Regarding your second question about BioteRx, we launched 10 new products in mid-February with an initial group of 100 providers, and the feedback from both providers and patients has been very positive. They appreciate having access to our hormone products, not just the pelleting but also additional offerings, with quick delivery and reliable results. The initial group of 100 onboarded successfully, with favorable responses to the products. We have secured a large training event with over 600 attendees, focusing on the rollout of the second phase of BioteRx, which will involve an additional 500 new providers exploring the new products that have received positive feedback. We have over 7,100 providers, so this rollout will be systematic throughout 2024, ensuring consistent access to popular products like GLP-1s. I will now pass the Asteria questions to Bob.

Looking at Asteria and considering the investments we've made, I don't anticipate significant capital expenditure to launch this operation in the near term. Our focus will be on enhancing some capabilities in machinery and design, which will be our primary investments at Asteria.

Your next question comes from Jonna Kim with TD Cowen.

Just curious, the pace of 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 to market. That would be helpful.

So I missed the first part, Jonna, of your question. Could you repeat that because it gapped out.

Yes, I was asking about the speed of expansion outside your core markets at this time. How fast should we expect that to be on an annual basis? Additionally, I wanted to know about R&D and innovation.

Our geographic expansion is progressing well. We've observed strong interest from the new providers we are training, who are successfully entering these new markets and establishing their practices. Our sales team, the most experienced in hormone optimization in the U.S., has effectively identified providers who can thrive in hormone practices. We anticipate continued success in our geographical expansion throughout the year, with visible results expected in the second half of 2024 and into 2025 as these new markets grow. I will provide more details on these markets as we move through the year. Regarding innovation products, there is a significant demand in the U.S. for therapeutic wellness products focusing on healthy aging, and we are actively developing these. We have an excellent functional medicine doctor and formulator, Doreen Saltiel, on board, and we are working to ensure access to these products in all 50 states, although some, like California, are more challenging. Overall, we are optimistic and making steady progress, though the process is not instantaneous.

Your next question comes from Kaumil Gajrawala with Jefferies.

Can I follow up on one of the earlier questions regarding procedure growth? I want to clarify whether the primary driver of the growth is the existing clinics, or could you provide some insights into how much of the growth has come from new clinics?

The main growth in our procedures, which is 6.6% year-over-year, is coming from our existing clinics. There are two categories contributing to this. The first is our top-tier clinics, where we are expanding their business and increasing hormone optimization. The second category involves helping our second-tier clinics move up to top-tier status. Additionally, while I can't provide exact numbers, our new clinics serve as a foundation for growth over the next 18 months. We are accelerating the training of more clinics, and you will start to see this boost in the second half of the year as our Quick Start program helps engage them and increase procedures within the first 90 days. Roughly three-quarters or more of the growth is driven by our existing clinics, with a smaller contribution from the new clinics that are performing well.

Okay. Got it. How is the new clinic adds this quarter versus in the past? I don't think you gave a number. But better, worse, on same pace?

We usually don't provide specifics about new customer additions. However, I can mention that in terms of new customer growth, Biote excels at attracting new clients to the hormone business. We are witnessing an influx of higher quality new customers, and we have never been more focused on our targeting and indexing strategies. We are coming off one of our strongest years in customer onboarding since 2018. A significant factor contributing to this success is our Quick Start program, which has proven to be quite effective.

Okay. Great. Looking ahead, as your business adapts with BioteRx and other developments, how should we consider the potential changes in margin structure? What should we anticipate regarding the overall financial performance, particularly beneath the revenue line, when factoring in vertical integration and new product introductions?

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 2024, I would look at it a very nominal contribution on those new products in that we're getting a transaction fee. We're not actually manufacturing those products yet. So we have acquired a 503(B). That will be in our future, but at this point, it's a transaction fee. So what it does, though, is 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 1/3 were already doing GLP-1s. 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 BioteRx 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 providers, all of the OB/GYNs, everyone's expected to understand how to navigate these products and their side effects. And that's where Biote really comes in. And then I'll let Bob comment on the integration.

Yes, Terry, you made a good point. Currently, the transaction fee isn’t expected to significantly impact our year. Looking ahead, it would be ideal to achieve full integration like we are doing with Asteria. However, at this moment, we don't have a clear plan for executing that.

Your next question comes from George Kelly with ROTH MK.

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.

No, that's a great question. When we executed the closing date, we've been diligently working to get all the strategic parts up and running. I would mention that we may experience a slightly slower uptake in the Q2 range, as we've discussed in the past. We really want to hit the ground running, and I still believe we're on a strong path to deliver in the second half. Everything seems to be falling into place, but the late start due to the closing has caused a bit of a slowdown at the beginning of Q2. Does that answer your question, George?

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

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 a state license from California or some of the other states that mandate their own timing and schedule as you convert licenses.

And another thing, George, just to keep going.

No, go ahead, Bob. I interrupted.

The only other point I want to mention is that as we begin the conversion process, there will be a slight delay due to the depletion of existing inventory within the clinic. As Terry noted, we understand how to acquire state licensure, but there might be a small delay for those who have excess inventory that needs to be reduced before they can start taking on new inventory. This is another aspect we will need to monitor carefully.

Okay. That's helpful. The next topic I wanted to discuss relates to your guidance and commentary on your expectations for procedure revenue growth in the first half versus the second half. I'm curious about the 6.6% growth that you've reported for two consecutive quarters. Do you believe that is the lowest point? As you look towards the acceleration you mentioned for the latter half of the year, is that primarily driven by new products, or is it more about the core business gaining its momentum again, with new products being more of a 2025 and beyond story?

We can approach that question in a few different ways, George. The performance in Q1 was in line with our expectations, and we have a good understanding of our providers and the competitive landscape. We are confident about the sources of procedure revenue growth for Q2, as well as Q3 and Q4. While we have highlighted Q3 and Q4, we have solid plans and are comfortable with our strategies for those quarters. I'll let Bob discuss some of the specific programs.

Yes, of course. George, that’s a good question. We have taken several key factors into account for our guidance. I want to highlight two main components. First, on the procedure side, we are focused on our top-tier growth, which is crucial for us. We have seen strong performance in this area and expect it to continue in the second half of the year. Additionally, we need to focus on acquiring new customers, and our Quick Starts and other initiatives have shown good progress. A point worth mentioning is how to engage existing customers who may be newer or at different stages in their journey with us, using our sales force and internal data to identify opportunities for deeper engagement within our offerings. Expanding our top-tier customer base is vital for optimal performance. Terry highlighted this before, and I want to reiterate that we have an exceptional sales team experienced in this sector, which is an important factor. Another area of focus is expanding nutras within our existing customer base, ensuring we make significant inroads, particularly with newer customers, and even with some of the long-standing customers who may not be familiar with nutras. We’re seeing positive results in this area as well. Lastly, as previously discussed, successfully converting from our former distributor on Amazon and achieving growth there is crucial, and we are on track to do that in the second half, which will be very beneficial for us.

That concludes our question-and-answer session. I will now hand it back for any closing remarks.

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 and the interest throughout the U.S. So looking forward to our next call. Thank you.

Thank you.