Third Quarter 2026 Earnings Conference Call - BIOTE CORP

Financial Performance:

• Total revenue decreased 9.6% year-over-year to $43.3 million.
• Procedure revenue declined 15.1% to $28.9 million, attributed to a voluntary recall in January 2026 that delayed improvements in attrition and new clinic onboarding.
• Dietary supplement revenue grew 7.3% to $12.0 million, driven by e-commerce expansion.
• Gross margin contracted to 67.7% (vs. 71.8% prior year) due to reliance on lower-margin third-party pellets following the recall.
• Gross margin improved sequentially by 231 basis points from Q2 2026 as production shifted back to internally manufactured pellets via Asteria Health.
• SG&A expenses increased 2.6% year-over-year to $26.8 million but decreased 20.8% sequentially due to reduced legal settlement costs.
• Net income was $0.6 million ($0.01 EPS), compared to $9.2 million ($0.22 EPS) in the prior year; results included a $1.0 million gain on earn-out liabilities.
• Adjusted EBITDA was $5.1 million with an 11.7% margin; operating cash flow was $3.7 million.
• Cash and cash equivalents stood at $8.9 million as of September 30, 2026.

Guidance and Future Outlook:

• Management reaffirmed full-year 2026 guidance: revenue above $175 million and adjusted EBITDA above $25 million.
• Outlook remains supported by encouraging recent procedure trends, though growth is projected to return more slowly than originally anticipated.
• Expectation of continued sequential gross margin improvement in Q4 as a greater volume of pellets are manufactured and shipped by Asteria Health (targeting >50% supply).
• Long-term focus is on restoring procedure revenue growth through enhanced sales productivity and practitioner engagement.

Business Segments and Product Lines:

• Procedures: Core segment facing headwinds from the recall; prioritizing clinic retention, faster onboarding for new clinics, and boosting productivity of existing partners.
• Supplements: Strong growth driver via e-commerce channel; serving as a stable revenue component amidst procedure volatility.
• Sales Force: Upgraded territory managers with 50 additional sales reps; shifting culture to emphasize face-to-face interactions and data-driven accountability.
• Clinical Education: CMO leading enhanced evidence-based education and training initiatives to deepen practitioner trust and clinical support.
• Manufacturing: Asteria Health has returned to pre-recall production levels, facilitating a mix shift from third-party to internal pellets.

Market and Competitive Landscape:

• Competition is active in certain regions; strategy includes targeted "competitive wins" to recapture lost accounts.
• No significant shifts in consumer spending behavior or health trends observed in the quarter.
• Market position relies on differentiating through high-quality clinical education and robust practitioner support networks.
• Early signs of stabilization in underlying demand are visible as procedure volumes show modest daily increases.

Risks and Challenges:

• Recall Impact: Ongoing residual effects from the January 2026 voluntary recall continue to suppress procedure volume and margins due to the temporary shift to third-party suppliers.
• Growth Velocity: Return to organic growth is progressing slower than anticipated due to the time required to onboard new clinics and rebuild pipelines.
• Execution Risk: Success depends on rapidly improving sales productivity and retaining clinic relationships during a period of organizational restructuring.
• Margin Volatility: Gross margins remain sensitive to the mix of internally produced vs. third-party sourced pellets until full vertical integration is restored.

Management Commentary and Tone:

• Tone is cautious yet confident; management acknowledges the slower-than-expected recovery but emphasizes a data-driven approach to stabilization.
• Interim CEO Bob Peterson highlighted that while "recent improvement in procedure volume" is evident, the path to sustained growth requires deep operational fixes.
• CMO Dr. Kamal Bajaj emphasized a commitment to science-based content and clinical excellence to maintain practitioner trust.
• Leadership stressed the critical nature of "face-to-face" sales interactions and the deployment of new data analytics to hold teams accountable.

Analyst Questions and Answers:

• Procedure Trends: Analysts asked about the nature of recent stabilization (new vs. existing clinics); management clarified focus is on new customer growth, same-store sales, and minimizing attrition through increased field activity.
• Strategic Focus: Questions regarding the balance between retention and new growth were answered with a "both/and" approach: new growth is essential for longevity, but retention is critical to avoid losing invested capital.
• Margin Trajectory: Analysts inquired about future gross margins and SG&A efficiency; management expects margin recovery as the mix shifts to internal production, noting it is too early to detail specific 2027 SG&A cuts.
• Sales Culture: Management confirmed that upgrading sales reps and implementing stricter data accountability in specific regions has already yielded "same-store sales" growth and competitive wins.
• Normalized Growth: No specific normalized revenue growth algorithm was provided; guidance remains focused on managing attritation and adding new customers to reach normalized levels.

Other Key Points:

• The company is investing heavily in data and analytics to identify clinics requiring immediate support and to guide sales coaching.
• A shift from "foundational corporate work" to "data-driven operational improvements" is the current strategic pillar.
• Management views the current sales force overhaul as a necessary cultural change that, while slowing short-term metrics, is essential for long-term performance.
• The company maintains a vertical integration strategy with Asteria Health to control quality and margin structure moving forward.