Unless the context otherwise requires, all references in this section to the "Company," "Biote ," "we," "us, or "our" refer to the business of biote Corp. and all references in this section to the "BioTE Companies" refer to biote Corp. and its subsidiaries 58
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following the Business Combination. Throughout this section, unless otherwise
noted, "Holdings" refers to
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the accompanying consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Certain amounts may not foot due to rounding. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K. We assume no obligation to update any of these forward-looking statements except as required by law. Actual results may differ materially from those contained in any forward-looking statements.
Overview
We operate a high growth practice-building business within the hormone optimization space. Similar to a franchise model, we provide the necessary components to enableBiote -certified practitioners to establish, build, and successfully implement a program designed to optimize hormone levels using personalized solutions for their aging patient populations. The Biote Method is a comprehensive, end-to-end practice building platform that providesBiote -certified practitioners with the components specifically developed for practitioners in the hormone optimization space: Biote Method education, training and certification, practice management software, inventory management software, and information regarding available hormone replacement therapy ("HRT") products, as well as digital and point-of-care marketing support. We also sell a complementaryBiote -branded line of dietary supplements. We generate revenue by charging theBiote -partnered clinics fees associated with the supportBiote provides for HRT and from the sale ofBiote -branded dietary supplements. By virtue of our historical performance over the past 11 years, we believe that our business model has been successful, remains differentiated, and is well positioned for future growth.
Our go-to-market strategy focuses on:
•
Increase the number ofBiote -certified practitioners. Our primary objective in marketing to healthcare providers is to inform them of the value in joining theBiote network. We accomplish this through provider referrals, a dedicated sales force, and through digital and traditional marketing channels. We target specific physicians based on their specialty, prescribing data, demographic information and location match with our existing geographic footprint.
•
Grow the practice of our
•
providing mentorship, practice management and marketing capability necessary to operate an efficient hormone optimization practice;
•
providing high-quality
•
providing
•
directing consumers that are actively seeking care to
•
utilizing our growing digital outreach capabilities to connect with consumers seeking general information.
•
Increasing sales ofBiote -branded dietary supplements. OurBiote -branded dietary supplement line currently includes 19 dietary supplements that we offer to ourBiote -certified practitioners through our eCommerce site, efficiently leveraging our coreBiote provider platform. Practitioners then re-sellBiote -branded dietary supplements to their patients, enabling patients to receive physician-guided therapies to manage the related effects of aging. InAugust 2021 , we launched a direct-to-patient eCommerce platform whereby practitioners can invite their patients to buyBiote -branded dietary supplements online via our online store. The hormone pellet products used byBiote -certified practitioners are manufactured by third-party compounding pharmacies and shipped directly toBiote -certified practitioners. Custody of the pellets is withBiote -certified practitioners. However, the pellets are recorded as inventory on our financial statements from the date of shipment until such time as they are administered in a patient treatment as monitored and recorded in our BioTracker system as an additional service for administrative convenience ofBiote -certified practitioners andBiote -partnered clinics. These products have a finite life ranging from six to twelve months. We assume the risk of loss due to expiration, damage or otherwise. Additionally, the products offered in ourBiote -branded dietary supplement portfolio are produced by third-party manufacturers located inthe United States . Prior to 2021, ourBiote -branded dietary supplements were dropped-shipped directly to our customers from our vendors. Beginning in 2021,Biote contracted with a third-party to provide warehousing, co-packing and logistics 59 -------------------------------------------------------------------------------- services for ourBiote -branded dietary supplements. As such our consolidated balance sheets as ofDecember 31, 2022 andDecember 31, 2021 reflect inventories relating to these items. Revenue generated from individualBiote -partnered clinics varies significantly. This variability is due to many factors. These include: tenure of its practitioners asBiote -certified practitioners; the number of certified practitioners in an individual clinic; the number of patients served by a clinic; the clinic's patient demographics; and the clinic's geographic location and population density. The master services agreements ("MSAs") we enter into withBiote -partnered clinics contain tiered pricing provisions for the management fees. These provisions provide for decreasing management fees owed to us based on the number of new patients treated. This can result in declines in revenue we realize from management fees from existingBiote -partnered clinics unless these are offset by revenue generated from newly acquiredBiote -partnered clinics which begin at higher fee levels under the MSA.
Our revenue was
Recent Developments
Impact of the COVID-19 Pandemic and Other Trends
InMarch 2020 , theWorld Health Organization declared the COVID-19 outbreak a pandemic (the "COVID-19 pandemic"), and the virus continues to spread in areas where we partner withBiote -certified practitioners andBiote -partnered clinics and sell our dietary supplements. Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances, which have resulted in a significant deterioration of economic conditions in many of the states in which we operate. The impact of the COVID-19 pandemic and the related disruptions caused to the global economy did not have a material impact on our business during the years endedDecember 31, 2022 and 2021. We experienced a decrease inBiote -partnered clinic demand andBiote -branded dietary supplement shipments in the second quarter of fiscal year 2020. This decrease was primarily the result of closures or reduced capacity atBiote -partnered clinics in various geographies withinthe United States . During the second half of fiscal year 2020, clinic demand returned to pre-COVID-19 pandemic levels. During this and subsequent periods, we have not experienced any material disruptions in our supply chain or in our ability to fulfill orders as a result of the COVID-19 pandemic. Further, global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in theU.S. and worldwide resulting from the effects of COVID-19 and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or other efforts. A recession or additional market corrections resulting from the impact of the evolving effects of the COVID-19 pandemic could materially affect our business and the value of our securities. Additionally, the recent trends towards rising inflation may also materially adversely affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of our clinical trial materials and supplies, interest rates and overhead costs may adversely affect our operating results. Rising interest and inflation rates also present a recent challenge impacting theU.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflict betweenRussia andUkraine , and employee availability and wage increases, which may result in additional stress on our working capital resources. Business Combination OnMay 26, 2022 (the "Closing Date"),BioTE Holdings, LLC ("Holdings," inclusive of its direct and indirect subsidiaries, the "BioTE Companies," and as to its members, the "Members") completed a series of transactions (the "Business Combination") withHaymaker Acquisition Corp. III ("Haymaker"),Haymaker Sponsor III LLC (the "Sponsor"),BioTE Management, LLC , Dr.Gary S. Donovitz , in his individual capacity, andTeresa S. Weber , in her capacity as the Members' representative (in such capacity, the "Members' Representative") pursuant to the business combination agreement (the "Business Combination Agreement") datedDecember 13, 2021 . The Business Combination was accounted for as a common control transaction, in accordance withU.S. generally accepted accounting principles ("U.S. GAAP"). Under this method of accounting, Haymaker's acquisition of the BioTE Companies was accounted for at their historical carrying values, and the BioTE Companies were deemed the predecessor entity. This method of accounting is similar to a reverse recapitalization whereby the Business Combination was treated as the equivalent of the BioTE Companies issuing stock for the net assets of Haymaker, accompanied by a recapitalization. The net assets of Haymaker are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of the BioTE Companies. 60 -------------------------------------------------------------------------------- Following the Closing of the Business Combination, the Company is organized in an "Up-C" structure in which the business of the Company is operated by Holdings and its subsidiaries, andBiote's only material direct asset consists of membership interests in Holdings. In connection with the Business Combination, on the Closing Date, BioTE Medical entered into a credit agreement withTruist Bank andTruist Securities, Inc. providing for (i) the Revolving Loans, a$50.0 million senior secured revolving credit facility in favor of BioTE Medical and (ii) the Term Loan, a$125.0 million senior secured term loan A facility in favor of BioTE Medical, which was borrowed in full at the Closing Date.
Components of Results of Operations
Revenue
We sellBiote -partnered clinics the Biote Method, the components of which are specifically developed for practitioners in the hormone optimization space: Biote Method education, training and certification, practice management resources, inventory management resources, and digital and point-of-care-marketing support. Our revenue represents fees paid for the training, marketing support, practice development, equipment, IP licensing, and product sales ofBiote -branded dietary supplements, physician-prescribed procedures, and pellet procedure convenience kits, or trocars.
Our revenue fluctuates in response to a combination of factors, including the following:
• sales volumes;
•
the mix of male and female patients treated by
•
our overall product mix of dietary supplements sold;
•
the effects of competition on market share;
•
new
•
number of procedures performed by practitioners;
•
medical industry acceptance of hormone optimization generally as a solution to unmet medical needs;
•
the number of business days in a particular reporting period, including as a result of holidays;
•
weather disruptions impacting medical offices' ability to maintain regular operating schedules;
•
the effects of competition and competitive pricing strategies;
•
governmental regulations influencing our markets; and
•
global and regional economic cycles.
Generally, our MSAs require us to provide (1) initial training to practitioners on the Biote Method, (2) inventory management services and (3) other contract-term marketing and practice development services (including recurring training and licenses of Biote IP). Historically, we have provided the optional free lease of reusable trocars byBiote -certified practitioners.
Substantially all of our revenue originates from sales to clinic locations in
Product Revenue Product revenue includes both pellets, in connection with the service described above, and the related inventory management services provided to clinics. Product revenue is recognized at the point in time when the clinic obtains ownership of the pellet, which we determined to be when theBiote -certified practitioner performs the procedure to implant the pellet into their patient. The consideration allocated to this performance obligation is a procedure-based service fee which we refer to as procedure revenue. Our product revenue also includes revenue earned from sales of pellet insertion kits andBiote -branded dietary supplements. Revenue from the sale of pellet insertion kits andBiote -branded dietary supplements is recognized when the clinic or clinic's patient (supplements only) obtains control of the product and is generally at the time of shipment from our distribution facility or supplier. Any shipping or handling fees paid by clinics are also recorded within product revenue.
Service Revenue
Service revenue is revenue earned from fees paid byBiote -partnered clinics for training services and other contract term services pursuant to our MSAs. While the option to receive and right to use the reusable trocars through the term of the contract represents an embedded lease, we have adopted the practical expedient within ASC 842 to combine the lease and non-lease components and account for the combined component under ASC 606. 61
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For Biote Method arrangements, we recognize revenue for trainings and for management services over time. For initial trainings, progress is measured by the number of training sessions completed, and for contract-term services, progress is measured on a time-elapsed basis.
The training completion and time-elapsed bases represent the most reliable measure of transfer of control to the clinic for trainings and contract-term services, respectively. Revenue is deferred for amounts billed or received prior to delivery of the services. Cost of Revenue
Cost of service revenue consists primarily of costs incurred to deliver
trainings to
Commissions
Commissions consist primarily of fees paid to a third-party sales force and fees paid toBiote -partnered clinics that participate in our clinic mentor program (our "Mentor Program"), which pairs experiencedBiote -certified practitioners with newly contracted practitioners. Commissions paid to the Company's third-party sales forces relate to market support and development activities undertaken to increase sales through the acquisition of newBiote -partnered clinics and growth from existing clinics. These are not considered incremental costs to obtain a clinic contract. As a result of investing in growing our internal sales capabilities beginning in 2019, we rely less on third-party sales forces and our commissions have decreased over time. We expect external commissions expenses to continue to decrease as we focus our growth initiatives based on an internal sales force model. However, the employee salaries we pay to our internal sales force are considered compensation expense and allocated to Selling, general and administrative expense.
Marketing
Marketing consists primarily of advertising expenses, other non-advertising marketing and training program costs, and management services costs. These costs are all expensed as incurred.
Selling, General and Administrative Expense
Selling, general and administrative expense consists primarily of software licensing and maintenance and the cost of employeeswho engage in corporate functions, such as finance and accounting, information technology, human resources, legal, and executive management. Selling, general and administrative expense also includes rent occupancy costs, office expenses, recruiting expenses, entertainment allocations, depreciation and amortization, share-based compensation, transaction related expenses, other general overhead costs, insurance premiums, professional service fees, research and development and costs related to regulatory and legal matters.
Interest Expense
Interest expense consists primarily of cash and non-cash interest under our term loan facility and commitment fees for our unused line of credit.
Gain from Change in Fair Value of Warrant Liability
Gain from change in fair value of warrant liability consists of the change in fair value of the warrant liability from the Closing Date to the balance sheet date.
Gain from Change in Fair Value of Earnout Liability
Gain from change in fair value of earnout liability consists of the change in fair value of the Member and Sponsor earnouts from the Closing Date to the balance sheet date.
Loss from extinguishment of debt
Loss from extinguishment of debt consists of the remaining unamortized portion of the debt issuance costs related to theBank of America Credit Agreement (as defined below) written off upon repayment in connection with the Business Combination.
Other Income / Expense
Other income and other expense consist of the foreign currency exchange gains and losses for sales denominated in foreign currencies, interest income and other income or payments not appropriately classified as operating expenses.
Income Taxes
We are subject to federal and state income taxes inthe United States and taxes in foreign jurisdictions in which we operate. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of 62 -------------------------------------------------------------------------------- assets and liabilities using statutory rates. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Comparison of the years ended
The table and discussion below present our results for the years endedDecember 31, 2022 and 2021: Year Ended December 31, Increase/(Decrease) (U.S. dollars, in thousands) 2022 2021 $ % Revenue: Product revenue$ 163,133 $ 137,598 $ 25,535 18.6 % Service revenue 1,824 1,798 26 1.4 % Total revenue 164,957 139,396 25,561 18.3 % Cost of revenue (excluding depreciation and amortization included in selling, general and administrative, below) Cost of products 51,990 46,298 5,692 12.3 % Cost of services 2,585 2,519 66 2.6 % Cost of revenue 54,575 48,817 5,758 11.8 % Commissions 974 2,056 (1,082 ) (52.6 %) Marketing 4,628 4,908 (280 ) (5.7 %) Selling, general and administrative 165,502 49,054 116,448 237.4 % Income (loss) from operations (60,722 ) 34,561 (95,283 ) (275.7 %) Other income (expense), net: Interest expense (5,091 ) (1,673 ) (3,418 ) 204.3 % Gain from change in fair value of warrant liability 5,127 - 5,127 0.0 % Gain from change in fair value of earnout liability 61,770 - 61,770 0.0 % Loss from extinguishment of debt (445 ) - (445 ) 0.0 % Other income 1,073 17 1,056 * Total other income (expense), net 62,434 (1,656 ) 64,090 *
Income before provision for income taxes 1,712 32,905
(31,193 ) (94.8 %) Income tax expense (benefit) 388 286 102 35.7 % Net income$ 1,324 $ 32,619 $ (31,295 ) (95.9 %) * Not a meaningful change Revenue Revenue for the year endedDecember 31, 2022 increased by$25.6 million to$165.0 million , or 18.3% as compared to the year endedDecember 31, 2021 . The increase was primarily driven by a$24.7 million increase of procedure andBiote -branded dietary supplement revenue. Procedures performed increased by 17.8% versus the prior year resulting in a$19.5 million increase in procedure revenue. During the year endedDecember 31, 2022 , the number of active clinics billed increased by 13% over the year endedDecember 31, 2021 .Biote -branded dietary supplement sales increased by 19.0% or$5.2 million over the same period in the prior year. Service revenue increased by 1.4% over the same period in the prior year resulting from an increase in the number of training sessions during the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 .
Cost of revenue
Cost of revenue for the year endedDecember 31, 2022 increased by$5.8 million , to$54.6 million , or 11.8% as compared to the year endedDecember 31, 2021 . The increase was primarily due to the net impact of higher volumes at sustained unit costs. Cost of procedures increased by$4.6 million for the period, consisting of$4.8 million attributable to volume increases in pellets dispensed which was offset by a reduction of$0.2 million related to broken, damaged, or expired pellets.Biote branded dietary supplement costs increased$0.5 million or 3.5%, due to higher sales volume. Commissions Commissions expense for the year endedDecember 31, 2022 decreased by$1.1 million to$1.0 million , or 52.6%, as compared to the year endedDecember 31, 2021 . The decrease is primarily driven by our shift to an internal sales force to generate product demand. Marketing
Marketing expense for the year ended
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Selling, General and Administrative
Selling, general and administrative expense for the year endedDecember 31, 2022 increased by$116.4 million to$165.5 million , or 237.4%, as compared to the year endedDecember 31, 2021 . This increase was primarily driven by stock compensation expense of$82.2 million . This expense represented the cumulative impact of unrecognized compensation expense for stockholders upon completion of the Business Combination as well as subsequent vesting of certain shares awarded. An additional component of the increase was$21.6 million of transaction-related expenses related to the Business Combination and other associated capital structure transactions recognized during the period. These consisted of the excess closing costs of the Business Combination over the Business Combination proceeds received; costs associated with sponsor share transfers and certain compensation paid resulting from the transaction. The increase also included a$7.2 million increase in payroll and related expenses due to increases in sales incentives consistent with sales growth for the period and additional sales and management hiring;$0.7 million of travel and entertainment expenses due to increases in sales force headcount. Depreciation and amortization expenses increased by$0.8 million attributable to assets placed in service at the beginning of the year. Additionally, professional fees and insurance costs increased during the period by$6.2 million mainly attributable to increases in costs associated with being a public company.
Interest Expense
Interest expense for the year endedDecember 31, 2022 increased by$3.4 million to$5.1 million , or 204.3%, as compared to the year endedDecember 31, 2021 . The increase is primarily a result of the higher debt balance outstanding from the new debt issued as part of closing the Business Combination as well as higher interest rates incurred during the period. Interest expense relates primarily to interest on an outstanding note payable and amortization of origination fees.
Gain from Change in Fair Value of Warrant Liability
The gain from the change in fair value of our warrant liability of$5.1 million was primarily a result of the decrease in the trading price of our Public Warrants listed on Nasdaq to$0.30 per share onDecember 31, 2022 from$0.68 per share on the closing of the Business Combination,May 26, 2022 .
Gain from Change in Fair Value of Earnout Liability
Upon the closing of the Business Combination on the Closing Date, we recognized an earnout liability of$93.9 million and subsequently remeasured the earnout liability to its fair value of$32.1 million as ofDecember 31, 2022 . The gain from the change in fair value of our earnout liability of$61.8 million was primarily a result of the decrease in the closing price of our Class A common stock listed on Nasdaq to$3.73 per share onDecember 31, 2022 from$9.02 per share on the Closing Date. Other Income Other income for the year endedDecember 31, 2022 increased by$1.1 million to$1.1 million as compared to the year endedDecember 31, 2021 . The increase was primarily due to interest income earned on higher on hand cash balances and currency fluctuations during the period.
Income Tax Expense (Benefit)
Income tax expense for the year endedDecember 31, 2022 decreased by$0.1 million as compared to the year endedDecember 31, 2021 . This increase reflects the taxability of the income attributable toBiote that prior to the Business Combination was taxable to the Company's Members offset by a tax benefit from certain one-time expenses related to the Business Combination that will be attributed toBiote .
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP performance measure that provides supplemental information that we believe is useful to analysts and investors to evaluate the company's ongoing results of operations when considered alongside net income, (the most directly comparableU.S. GAAP measure). We use Adjusted EBITDA as alternative measures to evaluate our operational performance. We calculate Adjusted EBITDA by excluding from net income: interest expense; depreciation and amortization expenses; and income taxes. Additionally, we exclude certain expenses we believe are not indicative of our ongoing operations or operational performance. We present Adjusted EBITDA because it is a key measure used by our management to evaluate our operating performance, generate future operating plans and determining payments under compensation programs. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance withU.S. GAAP. Some of these limitations are as follows:
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; 64
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•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and
•
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us.
In addition, Adjusted EBITDA is subject to inherent limitations as it reflects the exercise of judgment byBiote's management about which expenses are excluded or included. Other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our Adjusted EBITDA as a tool for comparison. Investors are encouraged to review the reconciliation, and not to rely on any single financial measure to evaluate our business.
The following is a reconciliation of net income (loss) to Adjusted EBITDA (in
thousands) for the years ended
Year Ended December 31, 2022 2021 Net income$ 1,324 $ 32,619 Interest expense 5,091 1,673 Income tax expense 388 286 Depreciation and amortization 2,199
1,400
Loss from extinguishment of debt and other (628 ) (17 ) non-operating items Share-based compensation expense 82,180 - Transaction-related expenses 21,627 2,387 Litigation and other 4,843 1,869 Gain from change in fair value of warrant liability (5,127 )
-
Gain from change in fair value of earnout liability (61,770 )
- Adjusted EBITDA$ 50,127 $ 40,218
Liquidity and Capital Resources
We derive liquidity primarily from debt and equity financing activities. As ofDecember 31, 2022 , our balance of cash and cash equivalents was$79.2 million , which is an increase of$52.5 million , or 196.0%, compared toDecember 31, 2021 . Our total outstanding debt principal balance as ofDecember 31, 2022 was$121.9 million , which represents an increase of$84.4 million over the total outstanding debt principal balance as ofDecember 31, 2021 of$37.5 million . Our primary sources of cash are our cash flow from operations, less amounts paid to fund operating expenses, and working capital requirements related to inventory, accounts payable and accounts receivable, and general and administrative expenditures. We primarily use cash to fund our debt service obligations, fund operations, meet working capital requirements, capital expenditures and strategic investments. As ofDecember 31, 2022 , we had cash and cash equivalents of$79.2 million and a$50 million revolving line of credit. Based on past performance and current expectations, we believe that our current available sources of funds (including cash and cash equivalents plus proceeds from the Business Combination and debt financing) will be adequate to finance our operations, working capital requirements, capital expenditures, debt servicing obligations, and potential dividends for at least the next twelve months. Since our inception, we have financed our operations and capital expenditures primarily through capital investment from our founder and other members, debt financing in the form of short-term lines of credit and long-term notes payable, and net cash inflows from operations. We expect our operating and capital expenditures to increase as we increase headcount, expand our operations and grow our clinic base. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through additional debt or equity financings or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our equity holders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and also require us to incur additional interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us. The exercise price of our Warrants is$11.50 per Warrant. We believe the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Class A common stock, which was$5.15 per share onMarch 15, 2023 . If the trading price for our Class A common stock is less than$11.50 per share, we believe holders of our Public Warrants and Private Placement Warrants will be unlikely to exercise their Warrants.
Our ability to raise additional capital through the sale of equity or convertible debt securities could be significantly impacted by the resale of shares of Class A common stock by selling securityholders pursuant to the registration statement on Form S-1 filed with
65 -------------------------------------------------------------------------------- theSEC onJune 17, 2022 , which could result in a significant decline in the trading price of our Class A common stock and potentially hinder our ability to raise capital at terms that are acceptable to us or at all. In addition, debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our operations. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled "Risk Factors" included in this Annual Report.
Cash Flows
The following table summarizes our consolidated cash flows for the years endedDecember 31, 2022 and 2021: Year Ended December 31, Increase/(Decrease) 2022 2021 $ % Consolidated Statements of Cash Flows Data: Net cash (used in) provided by operating activities$ (9,157 ) $ 33,720 $ (42,877 ) (127.2 %) Net cash used in investing activities (1,838 ) (3,807 ) 1,969 51.7 % Net cash provided by (used in) financing activities 63,460 (20,343 ) 83,803 412.0 % Operating Activities
Comparison of the years ended
Cash flows from operating activities for the year endedDecember 31, 2022 decreased$42.9 million as compared to the year endedDecember 31, 2021 . Net income, adjusted for non-cash expenses such as depreciation and amortization, provisions for bad debts, stock compensation, change in fair value of warrants and earnout liabilities, and provisions for obsolete inventories, among others, resulted in a net decrease of$15.9 million as compared to the prior period. Additionally, our working capital investment in ourBiote -branded supplement inventory increased by$4.1 million as compared to the prior period. This resulted from the initial investment in our third-party fulfillment centers during the year endedDecember 31, 2021 . These net changes were offset by a$2.3 million increase in working capital from advances and prepayments made to certain vendors and increases in accounts receivable of$0.8 million . Additionally,$31.1 million of transaction closing costs were assumed as accrued expenses and subsequently paid upon completion of the reverse-merger with Haymaker which reduced cash flow from operating activities.
Investing Activities
Comparison of the years ended
Net cash used in investing activities for the year endedDecember 31, 2022 decreased by$2.0 million as compared to the year endedDecember 31, 2021 . This decrease was primarily driven by a reduction in purchases of property and equipment of$1.1 million , primarily reusable trocars. Additionally capitalized software development costs decreased by$0.9 million .
Financing Activities
Comparison of the years ended
Net cash provided by financing activities for the year endedDecember 31, 2022 increased$83.8 million as compared to the year endedDecember 31, 2021 . The increase is primarily due to the completion of the Business Combination with Haymaker. This included$12.3 million of cash proceeds from the Business Combination and$125.0 million of debt issue proceeds. These were offset by payments to retire existing debt of$37.5 million , principal payment of$3.1 million on the Truist debt, and$12.4 million of transaction and debt issuance costs. Other items included a decrease in distributions to Members of$1.5 million .
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in accordance
with
Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
Our most critical accounting estimates include revenue recognition, the valuation of inventory, the valuation of stock compensation, the valuation of earnout liability and the valuation of warrant liability.
66 -------------------------------------------------------------------------------- Our significant accounting policies are described in Note 2 to our consolidated financial statements. We believe that the accounting policies described reflect our most critical accounting policies and estimates, which represent those that involve a significant degree of judgment and complexity. Accordingly, we believe these policies are critical in fully understanding and evaluating our reported financial condition and results of operations.
Revenue Recognition
We adoptedFinancial Accounting Standards Board ("FASB") Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers, and subsequent amendments (collectively, "ASC 606"), onJanuary 1, 2019 . To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contract(s) with a clinic; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) we satisfy performance obligations. We recognize revenue when the control of the promised goods or services is transferred toBiote -partnered clinics in an amount that reflects the consideration we expect to receive in exchange for such goods or services. The majority of our revenue is derived from our long-term service agreements forBiote -partnered clinics of the Biote Method. In determining the transaction price, we evaluate whether the price is subject to discounts or adjustments to determine the net consideration to which we expect to be entitled. Revenue is recognized when control of the product or service is transferred to the clinic (i.e., when our performance obligation is satisfied), which varies between the different performance obligations within the contract. In determining whether control has transferred for a product, we consider if there is a present right to payment and legal title, and whether risks and rewards of ownership have transferred to the clinic. For services, we consider whether we have an enforceable right to payment and when the clinic receives the benefits of our performance. Refer to Note 2 to our consolidated financial statements for additional discussion of our revenue recognition policy.
Inventories
Our inventories consist of physician-prescribed pellets used byBiote -certified practitioners in partnered clinics andBiote -branded dietary supplements which are sold and distributed to theBiote -partnered clinics and their patients. Custody of the pellets remains withBiote -certified practitioners. The pellets are presented as inventory on our financial statements from the date of shipment until such time as they are administered in a treatment by aBiote -certified practitioner on their patient for the convenience ofBiote -certified practitioners andBiote -partnered clinics. Beginning the quarter endedJune 30, 2021 , we maintained ourBiote -branded dietary supplement inventory at a third-party facility that providesBiote with co-packing and logistics services in the distribution of these products. FromApril 1, 2019 throughMarch 31, 2021 , we did not maintain our own stock of inventories on these products. During that time period these were distributed toBiote -partnered clinics via drop shipment arrangements with our respective vendors. Inventories are valued at the lower of cost or net realizable value. We regularly review our inventories and write down our inventories for estimated losses due to obsolescence or expiration. The allowance for pellets is determined based on the age of the specific manufacturing lots of the product and its remaining life until expiration. Dietary supplements are evaluated at the product level based on sales of our products in the recent past and/or expected future demand. Future demand is affected by market conditions, new products and strategic plans, each of which is subject to change with little or no forewarning. In estimating obsolescence, we utilize information that includes projecting future demand.
The need for strategic inventory levels to ensure competitive delivery
performance to our
Share-Based Compensation
Share-based compensation awards previously granted by Holdings were valued using a Monte-Carlo simulation as of the grant date because the value of the awards was dependent on future distributions to be received from a change in control or qualifying liquidity event. The significant assumptions used in the valuation include the constant risk-free rate, constant volatility factor and the Geometric Brownian Motion.
Earnout Liability
Our earnout liability was valued using a Monte-Carlo simulation in order to simulate the future path of our stock price over the earnout period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability's estimate value. The significant assumptions used in the valuation include the Company's stock price, volatility and the drift rate.
Warrant Liability
We value the 5,566,666 private placement warrants sold to the Sponsor (the "Private Placement Warrants") using a Monte-Carlo simulation in order to simulate the future path of our stock price over the term of the Private Placement Warrants. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability's estimated
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value. The significant assumptions used in the valuation include the Company's stock price, exercise price, risk-free rate, volatility and term.
Off-Balance Sheet Commitments and Arrangements
As of
Contractual Obligations
Our principal contractual obligations and commitments consist of obligations to pay loan principal and interest under our long-term debt agreement and obligations under our operating lease agreement.
Refer to Note 8 and Note 10 to our consolidated financial statements for a discussion of the nature and timing of our obligations under these agreements. The future amount and timing of interest payments under our long-term debt agreement are expected to vary with the amount and then-prevailing contractual interest rates of our debt, which are discussed in Note 8 to our consolidated financial statements.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our consolidated financial statements for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
JOBS Act Accounting Election
We are an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended (the "Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, following the Business Combination, our consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our common stock less attractive to investors. We will remain an emerging growth company under the JOBS Act until the earliest of (i)March 4, 2026 , (ii) the last date of our fiscal year in which we have total annual gross revenue of at least$1.235 billion , (iii) the date on which we are deemed to be a "large accelerated filer" under the rules of theSEC with at least$700.0 million of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the previous three years. 68
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