Earnings Call Transcript - BTMD Q2 2025

Szymon Serowiecki, Investor Relations

Thank you for joining us today. This afternoon, Biote published financial results for the second quarter ended June 30, 2025. This news release is available in the Investor Relations section of the company's website. Hosting today's call are Bret Christensen, Chief Executive Officer; Bob Peterson, Chief Financial Officer; and Marc Beer, Executive Chairman. Before we get started, I'd like to remind everyone that management will make statements during this call that include forward-looking statements regarding, among other things, the company's financial results, future performance, growth opportunities, business outlook, strategies, goals, research and development, manufacturing commercialization activities, competitive position, regulatory process operations, benefits of its solutions, anticipated impact of macroeconomic conditions on its business, results of operations, financial conditions and other matters that do not relate to historical facts. 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 representing the company's views as of any subsequent date. For discussion of risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's 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 and adjusted EBITDA margin, which are non-GAAP financial measures to provide additional information for investors. A reconciliation of the non-GAAP to GAAP measures is provided in our earnings release with the primary differences being stock-based compensation, fair value adjustments to certain liabilities, transaction-related expenses and other non-operating expenses. Please refer to our second quarter 2025 earnings release for a reconciliation of these non-GAAP measures to the most comparable GAAP measure. I'll now turn the call over to Bret.

Bret Christensen, CEO

Thank you, Szymon, and thank you all for joining us. I'll provide an update on our business and our reorganization initiatives, then I'll turn the call over to Bob for a review of our second quarter financials and our 2025 financial outlook. In the second quarter, our procedure revenue was softer than we anticipated. Bob will discuss the reasons for the shortfall and our financials in more detail while I detail our strategic initiatives. The second quarter was pivotal for Biote as we implemented a strategic organizational restructuring designed to drive increased and sustainable growth. Launched in May, this comprehensive reorganization encompassed difficult but necessary changes to our people, our processes and our culture. In making these adjustments, we moved forward swiftly with the strategic clarity to build a more fundamentally sound business that can scale efficiently to capture significantly more of our addressable market opportunity. As a reminder, we aim to realize three key strategic objectives: one, accelerate new provider wins; two, strengthen relationships with our existing practitioners; and three, generate improved financial performance through greater accountability, consistency and discipline. Over the last few months, we have achieved solid initial progress against our goals. While progress will not be linear and will take time, I have been pleased to see renewed energy and enthusiasm across our organization, and our team is unified and committed in pursuit of our strategic objectives. As we implement both organizational and cultural changes, our initial efforts have centered on two key categories: one, commercial priorities that drive revenue growth; and two, foundation priorities that enhance our core capabilities and enable corporate process improvements. To start, I will review some of our key initiatives on the commercial side. First, we have brought in new leadership. These strategic additions include Joey Lopes, our Senior VP of Strategy and Commercial Operations. I previously worked with Joey at Insulet, and I'm excited about the expertise and capabilities he brings to Biote. Joey is spearheading our efforts to reaccelerate procedure growth, improve commercial productivity and instill a high-performance culture in our commercial team. In addition to new leadership, we continue to recruit external sales talent who collectively bring fresh energy and a proven track record of success to Biote. We are focused on capturing a large and underpenetrated addressable market opportunity in hormone replacement therapy and therapeutic wellness. We have also updated our sales compensation structure, rewarding initiative and achievement by aligning incentives with our sales growth strategy. Our revamped sales compensation program is highly focused on new clinic additions as well as new clinic revenue generated from our successful quick start program. Because progress in these key metrics strongly correlates with long-term procedure revenue growth, these remain among our top strategic priorities. In conjunction with our new sales compensation framework, we have made fundamental improvements to continue how we recruit and train our commercial team. For example, we expanded the depth of our sales training program and implemented targeted commercial sales strategies that align with our shift to a performance-based culture. We believe these enhancements will ensure that our commercial team is equipped with the essential knowledge, skills and support to optimize their success. Moving now to our foundational priorities. We have undertaken a top-to-bottom review of our core functions and internal processes. In thoroughly reviewing our operations and making necessary adjustments, we seek to enhance our internal efficiency, deepen our connection to both our patients and practitioners and establish greater consistency and discipline throughout the company. We have several initiatives currently underway, and I'm confident that these actions will ultimately strengthen our operations, enabling Biote to achieve a higher level of performance. Before I turn the call over to Bob, I will close my remarks by saying that while I am pleased with the initial progress we have achieved in such a short time frame, we still have work to do. Across the organization, we are rapidly implementing many necessary changes and improvements that I believe are critical to our long-term success. While these changes have been disruptive to our business, specifically with respect to procedure-related sales, I strongly believe we are on the right path to drive long-term growth and build sustained value for our shareholders. I'll now turn the call over to Bob.

Robert C. Peterson, CFO

Thank you, Bret, and good afternoon, everyone. Unless otherwise noted, all quarterly financial comparisons in my prepared remarks are made against the second quarter of 2024. Second quarter revenue was approximately flat at $48.9 million, reflecting an 8.4% decrease in procedure revenue that was partially offset by more than 30% sales growth in dietary supplements. Similar to the first quarter of 2025, procedure revenue was impacted by a combination of factors, including a slower growth rate of new clinic additions, higher-than-normal attrition of established clinics and lower procedure volume in the second quarter of 2025. As Bret noted, the organizational changes we implemented in the quarter contributed to this performance as did the lingering effects of the clinical decision support software disruption. Dietary supplement revenue increased 30.4% to $10.7 million, primarily driven by the growth of our e-commerce channel. We continue to expect solid growth this year from our dietary supplements business. Gross profit margin was 71.6%, a 280 basis point increase. The improvement primarily reflected cost savings from the continued vertical integration of our 503(B) manufacturing facility. Selling, general and administrative expenses decreased 12.2% to $24.2 million. While we continue to invest in sales and marketing to drive new customer growth, the decrease in SG&A was in part due to the timing of our annual marketing event, which last year was held in the second quarter and will be held this year in the third quarter. This timing effect will move approximately $2 million of SG&A spend into the third quarter. Second quarter 2025 SG&A expense was also temporarily lower due to headcount adjustments. Net income was $3.9 million, inclusive of a $1.8 million loss due to the change in the fair value of the earn-out liabilities. Diluted earnings per share attributed to Biote Corp. shareholders was $0.10 per share. This compares to a net loss in the second quarter of 2024 of $10.4 million, inclusive of a $13.9 million loss due to the change in the fair value of earn-out liabilities and diluted loss per share attributable to Biote Corp. stockholders of $0.21 per share. Adjusted EBITDA increased 19.1% to $15.2 million with an adjusted EBITDA margin of 31.1%. This compares to adjusted EBITDA of $12.7 million and adjusted EBITDA margin of 25.9%. The increases in adjusted EBITDA and adjusted EBITDA margin were due to improved gross profit and lower operating expenses, which included the timing shift of our annual provider event previously noted. Second quarter cash flow from operations was $7.1 million and $13.6 million for the first half of 2025. I would highlight our continued strong cash flow even as we undergo our organizational restructuring and execute against our strategic objectives. As of June 30, 2025, cash and cash equivalents were $19.6 million compared to $41.7 million as of March 31, 2025. The reduction in cash and cash equivalents reflected payments for the previously announced share repurchases related to our founder and affiliated parties. Now turning to our financial outlook for 2025. As Bret discussed, Biote has achieved meaningful initial progress in realigning our commercial organization and aligning on our strategic priorities to drive long-term growth. As we have implemented improvements to our core sales and marketing functions, procedure volume has been negatively impacted to a greater degree than we anticipated. At the same time, we have continued to experience stronger-than-expected revenue growth in our dietary supplements business. This growth has served to partially offset the shortfall in procedure revenue. As a result, we are adjusting our fiscal 2025 revenue guidance to be above $190 million and our fiscal 2025 adjusted EBITDA guidance to be above $50 million. For the full year, we forecast procedure revenue declines of high single digits and dietary supplement growth at approximately a mid-teens percentage rate. We are forecasting second half trends in our procedure revenue growth to be similar to that of the second quarter with strong but moderating sales growth in dietary supplements. This revised guidance reflects the impacts we are seeing as we continue to reorganize our commercial organization and drive towards our strategic priorities.

Bret Christensen, CEO

Thanks, Bob. As we continue to execute our corporate growth plan with urgency, I would emphasize that our actions represent more than simply a collection of discrete operational fixes. We are recommitting to excellence in everything we do in pursuit of a higher and more consistent level of operational and financial performance. While 2025 is a transition year from a financial perspective, I believe the decisive actions we are taking now will enable us to elevate our growth, achieve our strategic objectives and further advance patient health and wellness. Operator, let's now open the call for questions.

Jeffrey Wallin Van Sinderen, Analyst

I wonder if we could just start with the verticalization process. Wondering, I guess, at this point, how far along you are in that process? What percentage of your pellets are being made there? And then what is still left to do in moving to, I guess, as far as you're going to go on verticalization?

Robert C. Peterson, CFO

Jeff, it's Bob. I wanted to provide some insight into our progress with Asteria. As we mentioned in the last call, our penetration is currently in the low 40% range, fluctuating between 40% and 50%. We're still at the same level. The main factor influencing this is our decision at the end of the first quarter to avoid disrupting our commercial activities due to the CDSS. With the recent restructuring and shift, we've also paused these efforts. However, we plan to resume in Q3 to improve penetration, which should positively impact our margins.

Jeffrey Wallin Van Sinderen, Analyst

Okay. And then regarding the decline in procedure revenue, can you share how much the absolute number of procedures decreased in the quarter? I understand this may not directly correlate with the procedure revenue, but could you provide that figure?

Bret Christensen, CEO

Jeff, this is Bret. I will provide some qualitative insights on our situation. The challenges we are facing are primarily related to volume, which stems from two main factors: customer attrition and declining volumes in our existing clinics. These issues are occasionally countered by the opening of new clinics, but all three factors have posed challenges for us in 2025. We first noticed this trend with the launch of CDSS in Q3 of last year, which coincided with a slight increase in customer attrition and a decrease in new clinic openings as our sales team focused on ensuring our customers could effectively use and be trained on the new product. This trend continued into the beginning of this year, reinforcing our view of 2023 as a transition year for Biote, which is why we expressed caution in our guidance. Everything we've implemented this year has been aimed at growth, but it has caused some disruption. Additionally, the reorganization we executed in May has compounded these effects. However, all these actions, including the CDSS launch and the reorganization of our team with a focus on growth, were necessary, even though they have slowed our volume growth in procedures this year. We expect this situation to improve as we begin to see normalization and upward trends.

Jeffrey Wallin Van Sinderen, Analyst

What do you think needs to happen for the various metrics to improve? There are several different metrics at play, such as clinic attrition, new physician additions, and procedure volume. Some of these metrics are interconnected, so what do you think needs to occur for these metrics to start turning around at this point?

Bret Christensen, CEO

I believe the actions we've already taken will eventually yield positive results and help improve volume in our current clinics while guiding new clinic additions in the right direction. However, we cannot predict that outcome just yet, as we have not observed a trend or increase in volume indicating that these changes are making an impact. It's important to remember that the reorganization occurred in May, and it was implemented in the last quarter. This led to some vacancies in the sales territory, some of which we initiated, while others were a result of cultural shifts, a new focus on growth, revised compensation plans, and increased accountability. I'm genuinely pleased with the team's current attitude and energy as they embrace this new direction. We've also conducted several engaging training sessions with excellent new hires who will bring fresh energy to our team. So, we are making the right changes, and for me, it's not a question of if we will see growth, but rather when those changes will start to positively impact the business. These developments are primarily short-term, and we also have a comprehensive list of long-term initiatives aimed at enhancing our value proposition to customers, which should improve retention and create a stronger appeal for new customers. There is a lot happening, and we are just as enthusiastic about the long term as we have ever been. However, this year is a transition period for us, and the effects of all the changes have yet to materialize.

Jeffrey Wallin Van Sinderen, Analyst

Okay. If I could just add one more point, what do you think is the time frame? I realize it's early in the process and you haven't really seen it bear fruit yet, but when do you think those KPIs will start to turn upward?

Bret Christensen, CEO

I wouldn't project that yet, which is why the guide was somewhere north of $190 million total revenue. We want to see a trend in the right direction. We do have earlier KPIs as far as training classes, new starts, which we know will have an effect. We just want to wait to make sure that we see that trend headed the right way. It's too early to project still.

Leszek Sulewski, Analyst

I have two. Maybe one from a more fundamental view. What is driving the attrition, the faster expected attrition? Would you say the hormone replacement therapy is being sidelined potentially by strong GLP-1 adoption across the same patient pool? Essentially, are you losing market share to GLP-1s? Or is the pressure across your clinics driven by more of internal factors? And then second, I guess, Bret, what are some of these longer-term initiatives that you have in place?

Bret Christensen, CEO

Yes. Thanks, Les. The answer to the first part of your question, I would say, absolutely not. In fact, we've always viewed GLP-1s and hormone replacement therapy as complementary, which is the reason why we added GLP-1s to our portfolio last year. It's an immaterial amount of revenue for us and not a focus of the team but is an offering that we want to provide to our providers. I wouldn't say that's impacting procedure revenue at all. I think the real headwind for procedure revenue for us this year started with the launch of CDSS in Q3 of last year. That just distracted the team. It was a multi-headwind for us as it slowed new starts down. Clearly, we have those data. We know for sure that new clinic starts slowed down starting with the launch of CDSS. It also distracted us from launching some of the new starts that we had launched earlier in the year in the right way and doing what we call a quick start program. Because, again, the field was focused on making sure that software launch went more smoothly and helping our customers adjust. And then as we moved into this year and shortly after I started and recognized we needed to change the culture of the organization and have a sole focus on top line growth, we made the reorganization. We changed territories. We changed alignment. We made some adjustments to people's titles so that everybody had a growth focus. We changed comp plans. All of that was disruptive as well. And so while some of the factors have remained constant, some of the historical headwinds of competition and macroeconomic factors, what we did is we distracted the team twice with CDSS and with the reorganization. And again, both of those initiatives were the right things to do for us, but it did slow us down. And we're still feeling those effects as an annuity business. We feel those effects for 12 months forward. So we're still having the effects of those two major activities. But again, those will start to bear fruit and get us going in the right direction.

Kaitlyn Joan Korich, Analyst

I just wanted to drill into the new clinic additions a little bit more and just understand where the biggest delta is between performance versus your expectations coming out of last quarter that resulted in the guide down? And then secondly, just if anything has changed in the marketplace as it relates to competition or more broadly the consumer?

Bret Christensen, CEO

Yes. Thanks, Kaitlyn, for the question. Our guide down was essentially, we took a look at a number of scenarios. So we've seen a slowdown of new starts. We've seen volume at existing clinics go down slightly. And then, of course, we've seen attrition tick up this year. And all of those things we've spoken about and highlighted, including last quarter. So as those headwinds persist, we've looked into the future and said, what are the different scenarios throughout the year, which got us comfortable with the guide of something north of $190 million for 2025. Again, all of our initiatives are focused on the top line and essentially made to drive growth in that number, but it does take a little bit of time. And we do need to get new clinic additions going in a better direction, higher, and we also need to improve retention with our existing clinics. So the initiatives that we've got in place to do that are both short term and long term. And we've spoken a lot about the short-term initiatives around the reorganization and sales force changes. And then we've got longer-term initiatives we haven't spoken about too much yet that are really designed around improving the value proposition to our customers, which will do two things: help us bring more clinics on board and make our offering more sticky to improve retention. So that will continue to be our focus.

Jungwon Kim, Analyst

My question is just around what would be the biggest change in the sales force and the way that you market just given the restructuring there? I would love any color there. And you did mention the attrition is a little bit higher. Also on that front, what are some of the tangible changes that you are already seeing, if any, based on your restructuring? That would be helpful.

Bret Christensen, CEO

Joanna, thank you for your question. The necessary changes within the sales force are centered on our team's focus and the incentives we've established. Previously, we had a compensation plan aimed at maintaining the business, which is common for a newer company like ours. Initially, growth was rewarded, and compensation was tied to the existing book of business, leading to challenges. Representatives managed large territories but struggled to grow them since their efforts were primarily focused on servicing the existing customer base. To effectively scale our operations, we need smaller territories, clear growth targets, and a compensation plan that incentivizes everyone based on those growth targets. These are the key changes we've implemented. Additionally, we've consolidated leadership to ensure everyone on the sales team receives a unified message, which will foster greater accountability, improved messaging, and enhanced efficiency. We have also revamped our hiring profiles, recruiting processes, and sales training initiatives. Our team is coming together well, and we believe they are positioned to drive growth in the near term. Regarding attrition, it's crucial to have a fully staffed sales team, as vacancies can hinder our ability to maintain and defend our business. As a leading provider with a premium product, we must continually strengthen our value proposition. We have several initiatives designed to make working with Biote easier, which we believe will enhance our advantages over competitors and improve retention. Thank you, everyone, for joining us today. We appreciate your interest in Biote and look forward to speaking with you on our next conference call.

Operator, Operator

Thank you for attending today's presentation. You may now disconnect your lines, and have a pleasant day.