biote (BTMD) - 2023 Q4 - Annual Report

PART I Item 1. Business Biote Corp. operates a high-growth practice-building business focused on hormone optimization, providing a comprehensive platform and selling complementary dietary supplements - The company operates a practice-building business for hormone optimization, providing practitioners with education, training, software, and marketing support through its "Biote Method" platform[36] Fiscal Year 2023 vs 2022 Financial Highlights | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | Revenue | $185.4 | $165.0 | | Net Income (Loss) | ($2.8) | $1.3 | - Revenue is generated from procedure-based service fees from partnered clinics (approximately 76% of 2023 revenue) and sales of Biote-branded dietary supplements (approximately 21% of 2023 revenue)[48][66] - As of December 31, 2023, the company supports over 7,100 practitioners in more than 4,100 clinics, maintaining a practitioner retention rate of approximately 95%[37][45] - The company's growth strategy includes expanding its U.S. geographic footprint, scaling internationally, supporting clinical research, and developing new products[101][102][103][105] - The business is subject to extensive U.S. government regulation by entities like the FDA and FTC, covering dietary supplements, compounded drugs, medical devices, advertising, and data privacy[114][87][89][145] Item 1A. Risk Factors The company faces significant risks including market acceptance, reliance on third-party manufacturers, extensive healthcare regulations, intellectual property protection, liabilities from its "Up-C" structure, and internal control weaknesses - The company's success is highly dependent on achieving and maintaining significant market acceptance for the Biote Method and its dietary supplements among clinics, practitioners, and patients[158] - The business relies on third-party FDA-registered 503B outsourcing facilities for manufacturing bioidentical hormone pellets, and any disruption could harm the business[159][130] - The company is subject to extensive and complex healthcare regulations, including federal and state anti-kickback, fraud and abuse, and data privacy laws like HIPAA, carrying significant penalties for non-compliance[19][134][9] - A material weakness in internal control over financial reporting was identified due to a lack of accounting competence for complex issues, leading to restatement of prior financial statements[187][252][221] - The company's "Up-C" structure and Tax Receivable Agreement (TRA) create risks, including obligations for substantial payments to original members based on tax savings that may exceed actual benefits[225][257] - There is a risk that the FDA could implement NASEM report recommendations, potentially restricting compounded bioidentical hormones and negatively impacting revenue and operations[215] Item 1B. Unresolved Staff Comments The company reports no unresolved written comments from the Securities and Exchange Commission staff - None[14][230] Item 1C. Cybersecurity The company manages cybersecurity risks through established processes, with Board and Audit Committee oversight, and an IT security department responsible for threat management and incident response - The Board of Directors and its Audit Committee provide oversight for cybersecurity risk, receiving quarterly reports from the Chief Information Officer (CIO)[232] - The company's IT security department manages cybersecurity threats, implementing an incident response plan, a vendor risk management program, and utilizing various security tools and third-party assessments[232][264] Item 2. Properties The company leases its corporate headquarters and other facilities in Irving, Texas, with the primary lease for 27,034 square feet extending until November 2028 - The company leases its 27,034 square foot corporate headquarters in Irving, Texas, under a lease agreement running until November 30, 2028[233] Item 3. Legal Proceedings The company settled significant litigation with its founder, Dr. Gary S. Donovitz, agreeing to repurchase his shares for approximately $76.9 million over three years - The company has been engaged in multiple lawsuits with its founder, Dr. Gary S. Donovitz, across courts in Delaware and Texas, referred to as the "Donovitz Litigation"[268][508] - On February 13, 2024, a binding settlement term sheet was executed to resolve all litigation, with the company agreeing to repurchase all of Dr. Donovitz's shares for approximately $76.9 million over three years[269][496] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[236][270] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on Nasdaq under "BTMD", with specific outstanding share counts as of March 2024, and no history or foreseeable plans for cash dividends - The company's Class A common stock trades on Nasdaq under the symbol "BTMD"[239] - As of March 11, 2024, there were 35,712,492 shares of Class A common stock and 38,819,066 shares of Class V common stock outstanding[239] - The company has never declared or paid cash dividends and has no foreseeable plans to do so[241] Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased to $185.4 million in 2023, driven by procedure and supplement sales growth, while the company reported a net loss primarily due to non-cash charges, with Adjusted EBITDA increasing and sufficient liquidity for the next 12 months Results of Operations | Account | Year Ended 2023 (Thousands USD) | Year Ended 2022 (Thousands USD) | | :--- | :--- | :--- | | Total revenue | $185,360 | $164,957 | | Cost of revenue | $57,877 | $54,575 | | Selling, general and administrative | $98,826 | $171,104 | | Income (loss) from operations | $28,657 | ($60,722) | | Net income (loss) | ($2,805) | $1,324 | - Revenue for 2023 increased by $20.4 million (12.4%) year-over-year, driven by a $12.0 million increase in procedure revenue (9.3% procedure growth) and a $5.7 million increase in dietary supplement sales (17.5% growth)[284] - Selling, general and administrative (SG&A) expense decreased by $72.3 million (42.2%) in 2023, primarily due to a $73.1 million decline in stock compensation expense from 2022's accelerated vesting charges[286] Non-GAAP Adjusted EBITDA Reconciliation | Metric | Year Ended 2023 (Thousands USD) | Year Ended 2022 (Thousands USD) | | :--- | :--- | :--- | | Net income (loss) | ($2,805) | $1,324 | | Adjustments | $58,061 | $48,803 | | Adjusted EBITDA | $55,256 | $50,127 | - Net cash provided by operating activities was $26.9 million in 2023, a significant improvement from $9.2 million used in operating activities in 2022[322][324] - As of December 31, 2023, the company had cash and cash equivalents of $89.0 million and believes its current liquidity is sufficient to fund operations for at least the next 12 months[321] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate long-term debt, with a 100 basis point increase estimated to raise annualized interest expense by $1.2 million, and inflation not yet having a material effect - The company is exposed to interest rate risk from its variable-rate long-term debt; a 100 basis point increase would raise annualized interest expense by approximately $1.2 million[356] - The company does not believe that inflation has had a material effect on its business, financial condition, or results of operations to date[357] Item 8. Financial Statements and Supplementary Data This section presents the company's consolidated financial statements and the independent registered public accounting firm's report, beginning on page F-1 of the Annual Report - The financial statements and the report of the independent registered public accounting firm are set forth beginning on page F-1 of the Annual Report[358] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[359] Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2023, due to a material weakness in internal control over financial reporting related to accounting competence and IT general controls, with remediation efforts underway - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[335] - A material weakness was identified related to a lack of appropriate accounting competence for complex issues and deficiencies in IT general controls regarding change management and user access[337] - Remediation efforts are underway, including hiring additional experienced accounting personnel and implementing enhanced procedures and controls, but the material weakness was not fully remediated as of December 31, 2023[338][339] Item 9B. Other Information The company reports no other information for this item - None[366] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[341] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement, and the company has adopted a Code of Ethics - Required information is incorporated by reference from the company's 2024 Proxy Statement[1] - The company has adopted a Code of Ethics, available on its investor relations website[373] Item 11. Executive Compensation Information concerning executive and director compensation is incorporated by reference from the company's 2024 Proxy Statement - Required information regarding executive and director compensation is incorporated by reference from the 2024 Proxy Statement[2] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information detailing security ownership by certain beneficial owners and management, and equity compensation plans, is incorporated by reference from the company's 2024 Proxy Statement - Required information regarding security ownership and equity compensation plans is incorporated by reference from the 2024 Proxy Statement[374] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2024 Proxy Statement - Required information regarding related transactions and director independence is incorporated by reference from the 2024 Proxy Statement[3] Item 14. Principal Accounting Fees and Services Information concerning fees paid to and services provided by the principal independent registered public accounting firm is incorporated by reference from the company's 2024 Proxy Statement - Required information regarding principal accounting fees and services is incorporated by reference from the 2024 Proxy Statement[371] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists exhibits filed with the Form 10-K, including key corporate documents, material contracts, and required certifications - This item lists all documents filed as exhibits to the Form 10-K, including major corporate and financial agreements[372] - Key exhibits include the Business Combination Agreement, Tax Receivable Agreement, Investor Rights Agreement, various employment agreements, and required SEC certifications[5][515] Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None[517]