Third Quarter 2026 Earnings Conference Call - BIOTE CORP

Financial Performance:

• Total revenue decreased 9.6% year-over-year to $43.3 million; procedure revenue fell 15.1% to $28.9 million due to the January 2026 voluntary recall impacts on attrition and new clinic onboarding.
• Dietary supplements revenue grew 7.3% to $12.0 million, driven primarily by e-commerce channel expansion.
• Gross margin contracted to 67.7% from 71.8% in Q3 2025, impacted by lower-margin third-party pellets; however, improved 231 basis points sequentially from Q2 2026 as internal manufacturing by Asteria Health returned to pre-recall levels.
• Selling, General, and Administrative (SG&A) expenses increased 2.6% year-over-year to $26.8 million but decreased 20.8% sequentially from Q2 2026, largely due to reduced legal settlements.
• Net income was $0.6 million (EPS: $0.01) compared to $9.2 million (EPS: $0.22) in the prior year; adjusted EBITDA was $5.1 million with an 11.7% margin.
• Cash flow from operations was $3.7 million; cash and cash equivalents stood at $8.9 million as of September 30, 2026.
• Net income included a $1.0 million non-cash gain from the fair value adjustment of earn-out liabilities.

Guidance and Future Outlook:

• Management maintained full-year 2026 guidance of revenue above $175 million and adjusted EBITDA above $25 million.
• While recent procedure volume trends show stabilization, management anticipates a slower-than-hoped return to growth, emphasizing that restoring long-term procedure revenue is a multi-quarter process.
• Gross margins are projected to continue improving sequentially as the product mix shifts further toward internally manufactured pellets from Asteria Health, which now supplies over 50% of shipped pellets.
• Long-term goals focus on normalizing growth through data-driven sales productivity, stronger practitioner engagement, and a cultural shift within the sales organization.

Business Segments and Product Lines:

• Hormone Optimization Procedures: Facing headwinds from the voluntary recall; recovery strategies include upgrading 50+ sales representatives and leveraging data analytics to target high-potential clinics and reduce attrition.
• Dietary Supplements: Demonstrated resilience with growth in the e-commerce channel, partially offsetting procedure revenue declines.
• Asteria Health Partnership: Resumed pre-recall supply levels, enabling a shift from third-party to in-house pellet manufacturing to improve margin profiles.
• Clinical Education: Launched expanded educational resources and held an advanced training event in Nashville for 100+ clinicians to reinforce clinical excellence and practitioner trust.

Market and Competitive Landscape:

• The company is actively pursuing competitive wins by re-engaging lost clients and recruiting new practitioners through enhanced face-to-face sales interactions.
• Management reported no significant shifts in consumer health behavior or spending patterns during the quarter.
• Focus is shifting from foundational corporate work to deep, data-driven operational improvements to identify and support underperforming clinics.

Risks and Challenges:

• Operational Execution: The pace of returning to growth has been slower than anticipated due to the time required to onboard new sales staff, build sales pipelines, and alter company culture.
• Recall Aftermath: The January 2026 voluntary recall continues to negatively impact procedure revenue through delayed new clinic starts and elevated attrition rates.
• Margin Volatility: Gross margins remain under pressure from a temporary reliance on lower-margin third-party suppliers during the recall recovery period.

Management Commentary and Tone:

• Interim CEO/CFO Bob Peterson adopted a cautious but focused tone, acknowledging the delayed return to growth while expressing confidence in the data-driven strategy to restore it.
• Chief Medical Officer Dr. Kamal Bajaj emphasized the critical role of science-based education and clinical support in building long-term practitioner loyalty and differentiating BioT in the market.
• Management highlighted a strategic pivot toward "accountability" and "activity" in sales, noting that increased face-to-face clinic visits are the primary driver for stabilizing procedure volumes.

Analyst Questions and Answers:

• Procedure Trends: Analysts questioned if declines were stabilizing or improving; management noted modest daily volume increases but emphasized the need for sustained network-wide improvement through new customer acquisition and attrition management.
• Growth Drivers: In response to inquiries about the balance between retention and growth, management affirmed that "new customer growth" remains the lifeblood of the annuity model, requiring simultaneous focus on same-store sales expansion and minimizing churn.
• Normalization: When asked about normalized revenue growth, management indicated that a "normalized" level is currently being re-established due to the time required for sales organization upgrades and cultural changes.
• Margin & Cost Structure: Management expects gross margins to recover to previous levels as internal manufacturing ramps up; regarding SG&A, they declined to provide specific 2027 cost-saving targets, stating efficiency reviews are ongoing but premature to finalize.

Other Key Points:

• Management highlighted a specific regional success story where replacing legacy sales reps with more aggressive, data-informed personnel led to immediate increases in same-store sales and competitive account retention, a model they aim to replicate nationally.
• The company is leveraging proprietary data and analytics to identify clinics needing support, allowing for targeted resource allocation and personalized sales coaching.
• The voluntary recall's impact on gross margin is expected to be transient as the supply chain returns to a fully integrated, higher-margin internal model.