Q3 2021 Thorne Healthtech Inc Earnings Call
Third quarter 2020, you on our next conference call. Please note. This event is being recorded.
Participants will be in a listen only mode. After prepared remarks, there'll be an opportunity to ask questions I'll now turn the call over to Investor Relations. Please go ahead.
Yeah.
Thank you for joining us on the call today to discuss the results for Thorne Health tax third quarter ended September 30th 2021.
Joining me today are Paul Jacobson, the company's Chief Executive Officer, and Scott Wheeler, the company's Chief Financial Officer.
After our prepared remarks, we will open up the call to your questions. Tom Mckenna Burns Chief operating officer will also be available during the Q&A portion of our call.
During today's call, we will make statements that represent our expectations and beliefs concerning the future events and business development opportunities that may be considered forward looking under the federal securities laws.
These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date.
The company disclaims any obligation to update any forward looking statements or outlook.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a further discussion of the material risks and other important factors that could affect the companys financial results. Please refer to its filings with the SEC, including its quarterly report on Form 10-Q for the quarter ended September 30th 2021 that will be filed with the SEC later today.
Additionally, during the call we will discuss certain non-GAAP financial measures.
Reconciliations to the most directly comparable GAAP financial measures are provided in today's earnings release on the company's IR website.
These non-GAAP measures are not intended to be a substitute for the company's GAAP results.
Finally, this call in its entirety is being webcast on the company's IR website and a replay of this call will be available on the company's website. Shortly after the conclusion of the call and now I'd like to turn the call over to Thor and health Tech CEO Paul Jacobson.
Thank you for joining our Q3 earnings call today, our first as a public company.
Before reviewing this quarter's results I'd like to provide a brief overview of Thorn health Tech.
Commitment to own the category of scientific wellness.
Sure all the products and services, we offer differentiate us from others in the industry.
Born health Tech sits at the intersection of science and luxury products.
Our brand is built on our promise to exceed and redefine the expectations of good health.
Whether that's by enabling customers to conveniently take helped us from the comfort of home.
Offering deep analytics on health conditions based on the results or.
Or by offering the highest quality personalized supplements that help customers live their best lives.
Through our team's dedication to our mission, we've created a new category that allows people to optimize their health and performance.
Whether you are a professional athlete a.
A member of the armed forces.
Our working professional or just someone looking to live a healthier life.
Doron Health Tech offers a comprehensive system for wellness and I'm excited to share with you. How we are continuing to create new ways for individuals to view understand and improve health.
Turning to the quarter's results, we are proud to announce record sales of 48 million for the third quarter.
Driven by broad based diversified revenue across the entirety of the business, all while growing gross margins and maintaining profitability.
With the team's continued focus on growth and efficiency, we've expanded gross margins in the quarter to 53, 2% while.
While delivering $1 1 million adjusted EBITDA.
This quarter's strong performance is yet another validation of our conviction that health care is moving to the home.
We are leading a trend that transforms healthcare from a disease centric approach to our wellness centric model focused on providing customers with tools to better manage and maintain their health long before they would traditionally enter the health care system.
Our mission is simple.
We are working every day to bring the scientific rigor of biotech and pharma to the preventive space.
To help people live healthier for longer.
We strongly believe the future of wellness personal <unk>.
The leaders in this space will be those who offer a personalized scientifically validated approach to maintaining health.
Therefore, we are dedicated to creating and promoting a digital health solution centered on our test teach and transform model to empower consumers athletes and health care practitioners with sophisticated health analytics.
World Class wellness and prevention and education.
And our deep portfolio of high quality and nutritional supplements to help all people at all stages of life live and age more gracefully.
For the first time in history, with a cutting edge advancements and sequencing technology artificial intelligence and microbiome research.
We can efficiently offer a personalized scientific approach to wellness, which was once reserved for late stage disease care or academic research, but an accessible to the masses.
Bind with the growing education on the value of prevention and wellness in the medical community and the tailwind of the pandemic highlighting the risk of disease and help deficiencies.
We believe the concept of wellness is permanently changed.
For these reasons were the differentiated leader in the wellness industry by deploying our scientifically rigorous approach to personalized health and wellness.
As we look to the future we have three critical areas of focus over the coming years.
First we're working to grow our market share in the highly fragmented supplement industry to enhance brand awareness.
Although a recent survey conducted by neutral ingredients found that 80% of Americans take supplements.
Question. We are most often asked is what do I take and why.
To that end, we've built our brand around personalized scientific wellness to empower our customers with solutions to address their health concerns.
Our recent brand campaign centered on athletes from all different walks of life post retirement mid career and up and comer highlighting our ability to help our customers at each stage of their performance.
The campaign centered around the Olympics launching in the second quarter.
And running through the middle of the third quarter.
Clearly our message of personalization has continued to differentiate us in the category as we grew our new DTC customers by more than 60%.
In Q3, 2021% versus Q3 2020, demonstrating.
Demonstrating our success in reaching and converting new customers with the message of better and more personalized health.
Secondly, we're focused on deepening our relationship with our customers through scientific personalization and multi touch data driven marketing strategies.
We can only support our customers to the extent that we understand them, which is why our convenient at home testing serves as a comment on ramp to the brand.
To deepen our relationship with our customers, we focus on getting high quality deep data to offer more personalized solutions tailored to their needs.
Testing and engagement marked the on ramps and subscriptions and retention rates are the outcomes.
Our active product subscriptions grew more than 65% in the third quarter as our customers continue to trust us to guide them on their journey to healthy living.
Simultaneously, we achieved record retention rates in the quarter.
As a result, the lifetime value of our customers continues to expand significantly.
Continuing to build trust with our customers creates meaningful opportunity to expand our relationship with our more than 4 million customers and grow the lifetime value as they look to Thorne for more and more personalized health solutions.
For example, we continue to improve customer experience through scientific discovery.
With the invention and validation of our patented microbiome wipe technology made from a polymer that dissolves away and solution is the DNA is preserved for sequencing and is stable at room temperature for shipping.
This best in class experience allows customers to sample their microbiome without needing to change.
Typical behavior and eliminates an existing pinpoint.
Thirdly, we're focused on growing our professional and B to B channel as the demand for premium high quality products and health analytics increases amongst doctors elite athletes trainers and potential corporate partners.
To that end, we have grown our professional and VW channel by $19 8 million year to date through effective tactics employed by our sales and business development teams as.
As well as new partnerships with health care and performance organizations, representing 32, 5% year over year growth for the channel.
Next year, we expect to begin to capitalize on opportunities to deploy software for our <unk> clients.
That links our testing and products and begin selling our health programs to physicians.
We recently announced our partnership with cross it.
Which included sponsorship of the Crossfit games the last week of July.
And in the last few weeks you may have seen that crossroads has continued to affirm their commitment to health and wellness with the announcement of cross fit precision care.
We see the addition of precision care is highly additive to our partnership creating ample opportunity to access the more than 5000 affiliate gyms throughout the country to provide personalized tailored supplement and testing solutions for athletes throughout the country looking to feel and perform better.
We're happy to support the community as they evolve beyond fitness training.
Today, So on health Tech is the strongest we've ever been.
We have significantly improved our processes as we moved across the country expanding capacity more than five times and improved production efficiencies, resulting in more than 1000 basis points of margin improvement.
We strengthened our balance sheet with a revenue run rate that is nearly doubled compared to two years ago with improved margins and a successful IPO that has solidified our cash position.
We placed tremendous emphasis on manufacturing in the United States to control our own supply chain and provide high paying jobs in our communities.
To that end, we've created hundreds of jobs across the country for our manufacturing facility in Summerville, South Carolina to New York City, Madison, Wisconsin, Benicia, California.
Through the discoveries of our health intelligence platform and our robust customer databases.
We've reshaped our product portfolio by launching new scientifically validated hero products, we offer some of the most sophisticated convenient testing and analytics platforms to enable consumers to take charge of their health.
Along the way we've created one of the most respected brands in the health and wellness space with best in class NPS brand loyalty and brand Trust matrix.
We have a major focus on healthy aging, where we have a growing set of products targeting the hallmarks of aging as identified by the scientific community.
For example, beginning in April of this year, we launched our own manufactured suite of products containing nicotinamide riboside or NR, which are substantial clinical data, indicating its ability to boost NAD.
Which is central to many key biological processes related to aging.
We expect <unk> to become a cornerstone product in our suite for healthy aging.
Combined with our comprehensive testing portfolio, including biological age we are uniquely positioned to lead in this fast growing segment of the wellness market.
We have confidence in the strength of our company and our ability to generate cash to sustain increase wellness innovation and investment.
Today, our balance sheet is in a strong position with no substantial debt maturities.
The increased focus on health and wellness and the healthy aging evolution is happening fast.
As evidenced by our innovative pipeline and strategy with a focus on being a leader in health intelligence, we are positioning ourselves for the future.
We're deeply committed to investing in our business, which we believe will create significant long term value for our investors.
And we're ready and excited to help usher in a healthier future for our business and for our customers.
Now I'd like to turn it over to Scott Wheeler, our CFO to review our financials Scott. Please go ahead.
Thank you Paul.
We delivered solid financial and operating results this quarter and I am pleased to report outstanding results for our first quarter as a publicly traded company.
The continued growth of our business demonstrates the strength of store health Tech and continued execution against our operational and strategic initiatives.
The structural economics of our business continue to strengthen driven by robust demand across all sales channels gross margin accretion disciplined cost management and continued strategic investment in the third brand.
Net sales for the third quarter were a record $48 million of $9 2 million or 23, 8% from the same period last year on double digit increases across all sales channels.
The record quarter leads us to our nine month total of $135 4 million in sales up 32, 4% year to date.
Third quarter subscription sales in our D to C channel grew by 41, 4% compared to the third quarter of 2020.
Now representing 13% of our total sales and 34% of our D to C sales, which continues to reinforce consumer trust in our brand.
Additionally, our direct to consumer sales continued to grow during the quarter, increasing $3 6 million or more than 24% year over year to $18 3 million and our professional <unk> sales grew by $5 6 million or 23, 3%.
Third quarter gross margins were 53, 2% of net sales.
An expansion of 335 basis points or nearly 7% over the same period last year.
Combined with record sales increased gross margins led to a record quarterly gross profit of $25 5 million.
32, 1% over the third quarter of 2020.
These numbers reflect that we have minimized the impact of inflation and supply chain channels that seem to be impacting many businesses today.
Moving to SG&A.
We're managing expenses efficiently, while also continuing to strategically invest in both our brand as well as our long term growth opportunities.
As expected during the third quarter SG&A expenses were $24 million.
Or $10 5 million higher than the same period last year, driven primarily by our planned investment in marketing as we continue to strengthen and grow the Thorn brand.
Adjusting for our investment in marketing SG&A during the third quarter was 27, 6% of net sales compared to 28, 5% for the third quarter of 2020.
Research and development expenses were $2 2 million during the third quarter and we continue invest in a number of strategic initiatives.
Third quarter earnings were <unk> <unk> per share.
And <unk> <unk> per share higher than a year ago quarter.
Third quarter adjusted EBITDA, excluding special items was $1 1 million.
Lower than last year's $7 7 million, primarily driven by an $8 4 million increase in marketing spending and a $1 7 million increase in R&D spending for a total of $10 1 million in additional strategic spending during the quarter.
For the first nine months of 2021, net sales increased $33 1 million or more than 32% to $135 4 million.
Led by a $19 8 million or 32, 5% increase in our professional <unk> sales.
<unk> sales during the first nine months increased $13 3 million or 32, 2%.
$5 2 million of which was attributable to continued growth in the DTC subscription sales are.
Our product sales from Amazon website continue to remain strong however, as we mentioned in our S. One <unk> sales were impacted by Amazon choosing to lower the inventory on hand in their distribution centers, which we believe negatively impacted our sales to our third party.
Distributor for the period.
We remain a relentless focus on optimization of our production process and material costs. The benefits. We have seen materialized through continued gross margin expansion during the first nine months of 2021.
Gross margin for the first nine months of 2021 was 52, 9% of sales.
An increase of 662 basis points or 14, 3% compared to the first nine months of 2020.
These operational efficiencies and disciplined cost management approaches have guided our gross profit higher by $24 3 million or 51, 3% over the prior year.
During the first nine months of 2021, SG&A expenses have grown $13 9 million or 32, 3% consistent with the revenue growth for the period, driven by increased marketing and advertising spending of $13 9 million.
As we continue to invest in our marketing strategy and promote the flooring brand.
Excluding the incremental spending on marketing SG&A as a percent of sales declined from 36% to 27, 3%, which is an 870 basis point reduction or 24, 1% lower than the same period in 2020.
Research and development expenses were $4 3 million during the first nine months of 2021.
Earnings for the first nine months of 2021 were <unk> <unk> per share an improvement of 22 cents per share versus the first nine months of 2020.
Adjusted EBITDA for the nine months of 2021 increased $1 3 million or nine 4% to $15 2 million.
Turning next to our cash flow.
Our cash flow continues to highlight major corporate actions as well as the benefits from a very strong adjusted EBITDA.
On September 27, 2021, we achieved a major milestone for the company by completing our initial public offering selling 7 million shares at $10. Each after paying for underwriting fees and other costs net proceeds from the offering were $60 million.
During the first nine months of 2021, we increased our cash balance by $61 4 million.
As of September 32021.
We had a cash balance of $76 7 million.
Operationally during the first nine months of 2021, we generated $6 1 million of cash from operating activities.
While spending more than $20 million on marketing and advertising and growing our inventory, including raw materials by $9 7 million to support continued growth of the business and protect our supply chain.
We expect to continue to invest in various strategic sales and marketing initiatives research and development activities.
And operational enhancements of our production environments and facilities.
As previously disclosed with our initial public offering we anticipated repaying the $20 million revolving line of credit with proceeds from the IPO and I am pleased to announce.
That on October four 2021, we repaid and terminated the $20 million revolving line of credit.
We will continue to remain diligent in our sourcing and allocation of capital in the most efficient manner possible, while maintaining a strong balance sheet.
In closing we are very proud of our continued success in delivering record results. This quarter and we remain excited about the future ahead for Thorne Health Tech.
I want to thank our entire team for all of their tremendous efforts and valued contributions.
Your dedication makes all the difference in elevating Thorne health Tech as a leader in health and wellness space.
We could not be more excited about the opportunities ahead.
And with that operator, please open the lines for questions.
Thank you we will now open up the Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by one.
Ask your question Peter.
And as Amit said likely.
Our first question comes from Oliver Chen from Cowen. Please go ahead. Your line is open.
No.
Hi, congrats on the encouraging results.
We were curious about your direct to consumer channel platform versus Amazon and what you see as opportunities to drive customers to your own website.
Second question was about the <unk> suite, which.
Seems like a big opportunity and you're very well positioned here, but could you speak to what we should know about what's ahead with the brain suite and how the launch may take place and also how you'll think about marketing and product introductions. There. Thank you.
So Oliver thanks, its Paul.
So I'll make a couple of comments on the D to C channel to start.
First of all.
We've seen increase in demand on both.
Amazon and Thorn.
The unit economics on both.
The increase we saw an increase in order size and increase in frequency.
And in retention.
<unk>.
As you know we had the issue with Amazon on the on the inventory side, but the demand on our consumer business overall was very strong.
On the.
On the.
Sure.
<unk> dot com side at over 70%.
And.
On the Amazon demand side at over 40 was about 43% overall.
It wasn't reflected in the third party.
Third party with pattern on sales.
On the brain health side.
Let me kind of explain how were starting.
We hired a woman who is a.
In Mds that is one of the leaders in brand health education.
She started with us about four months ago.
She is building a set of.
Algorithms and policies that she is going to be using to educate doctors, which is where we're going to start.
And so we will build an educational platform and launched a pilot with a handful of doctors.
Probably at the beginning of next year, we anticipate that.
We will be tying.
Our ability to educate into a platform that I mentioned, where we partnered with embody bio before so our goal ultimately is going to be too.
Start with people as young as possible AIDS screen for potential dementia and Alzheimer's.
Currencies.
<unk> enhanced our ability to predict and then began to put people on a combination of products and tests early on so we can attempt to stem dementia at least.
Going forward basis.
We are currently working with a number of doctors and the brand health area in general.
Essentially screen, what we're doing.
As we mentioned to you in the past our goal on complicated testing and information is to begin to launch in the Doctor market, where we can get credibility first though.
There is no issues with consumers when we eventually roll it out.
Okay. Thank you.
We believe you're well positioned as a premium brand could you speak to your broader marketing strategy and the channels in which you plan to increase spend and how are you thinking about top of the funnel versus more targeted advertising as well.
Okay. So for next year, we're looking at about a 60 40 split for top of funnel versus bottom that answers the question.
Yeah, and more broadly Paul well.
Think about marketing what messages will be important in terms of communicating.
It's about your brand and also a new customer acquisitions.
Right so.
As you know we look at the low hanging fruit as an increase in brand awareness, which we're going to be doing.
And that's kind of what we did during the Olympic campaign.
We anticipate doing the same thing next year.
However.
We will be designing.
More specificity around our campaigns. So I'll give you. An example at least have some of the things we're thinking about the healthy aging is extremely important to what we're doing that will include biological age brand health gut health all of these things tied into one.
We will also be launching.
A number of new things next year on the product side designed to.
Not only on the on the supplement side, but on the on the user experience side. So we anticipate.
As we stated in the Roadshow the launch of the microbiome wipe.
Sometime at the end of the first quarter and then shortly thereafter, the drawbridge health device will go onto the market probably starting in.
CRO and research.
Area first.
But.
Essentially.
Everything that we're going to be doing on the branding side, it's going to come back to defying expectations of good health in the whole area of healthy aging.
Thank you and finally your net promoter score is distinguished.
Curious about further opportunities to increase that where do you see opportunities in terms of what you could even do better in terms of the customer journey. Thank you.
Right so.
Right now.
I would say that.
From increase improving the customer journey.
Again, we have tended to focus on the brand awareness side, but we're going to really start pushing forward on.
On the whole test teach and transform model. So this is something we've never advertised.
And we haven't spent a lot of time on social media in it.
Especially because we've been waiting.
To improve the user experience with the microbiome wipe in particular, so youll see that from us on the other side on the NPS side. So on the positive side, we're going to be focusing on the whole area of personalization owning of the category of scientific wellness and healthy aging.
On the negative side.
We are shipping times have increased a little bit here due to what we see going on.
Overall in the country, so while we're not being impacted too much on the inflationary side, our shipping times have gone out a little bit and it's got it's clipped our MTS just a little bit this this past quarter.
Thank you very much best regards.
Thank you.
Alright. Thank you Oliver for your question, we will now move on to Elizabeth Anderson from Evercore ISI and less about please go ahead.
Hi, Thanks, so much for the questions and congrats on a first quarter out of the gate.
I had a question about the the professional channel in the quarter answered as the pacing of Doctor visits are you seeing any impact from Covid.
Covid related.
Slowdown in sort of outpatient visits or anything like that or is that.
Due to this sort of subscription nature of a lot of that that's not affecting you as much.
Yeah, we're not seeing any negative effect Elizabeth.
At all in fact.
If there's a COVID-19 effect at all in the professional MPW channel, it's that we're seeing more and more doctors.
Taking an interest in the in the area of scientific wellness I think that.
Sure.
In my 10, or 11 years I've never seen the more hardcore medical community show as much interest in this area as we are seeing now and it's one of the areas that.
That we're very focused on in terms of adding new customers. The other thing that we're doing from a technology standpoint is we're working very hard at adding software platform for.
For our physician clients and for enterprise.
And which is going to enhance the online the online experience for doctors the online dispensing experience and our ability to deliver testing information to the physician market and the analytics that a company here.
That's right.
And as we think about the opportunity with cross fed Gov.
Precision care program that they are doing how do you see that rolling out across their 5000, Jim does that sort of like.
Our plan is that over time can you just sort of give us a sense of how that rolls out as you currently see yet.
Sure so.
We're actually deploying a multi pronged strategy, including digital activation and also onsite activation.
We are we've made the decision that we cannot activate simply by relying on social media. So we have a very sophisticated sports and.
Physician sales related team that will be working together to activate we have.
Again.
Lying on software here, so we're going to be building out in house digital kiosks system to enable oxide purchasing begin to drive new acquisition and brand awareness within within the crossover market.
<unk> also.
<unk> partnered with Wild health, which is a very sophisticated.
Telehealth group.
That will be part of the precision care operation and we hope to be able to hit cross fit both from.
On the medical side, and the and the activation side of the outside chips.
Got it that's very helpful.
And I noticed that you said that inflation was not necessarily impacting your results so far.
We've obviously heard across many different industry is that that has become a greater concern is it something about how you source materials are sort of longer term contracts. That's enabled you to sort of what some of the impact that that.
Others are seeing.
Right so.
I'm going to I'm going to turn this over to our CFO Tom Mckenna.
About this because he is really he and Scott have done a great job on this front. So Tom you want to make a comment and then I'll add a couple of things afterwards, and again Elisabeth we're not saying that inflation is zero impact, we're saying we've done it but we think we've done a great job.
Counteracting a lot of the forces on the supply chain in order to get ahead of it. So Tom you want to make a comment.
Yes sure Elizabeth Thank.
Thank you for the question.
These days, obviously folks are are focused on the supply chain and the potential for installation.
At the moment.
Not seeing any cost increases that we would call out of the ordinary either for our raw materials or other manufacturing related packaging materials.
That doesn't mean that over time that that may not change.
Part of what's helping us is.
Is the fact that strategically.
Largely arising out of the pandemic.
We've added two materials inventories, which has helped us in the supply chain in general.
And to stay ahead of any potential cost increases.
That combined with supplier agreements.
And.
Long term standing purchase orders that lock in price.
At least for the moment are helping us out there.
Elizabeth I would just add one more thing on that.
One of the reasons, we wanted to go public.
As you and others have pointed out as we exist in a fragmented industry and the ability to achieve scale in a fragmented industry is a huge advantage and something we're very very focused on the ability to grab market share also means that we're grabbing scale and everything that we're doing on the purchasing side. So.
The ability to afford buy as long as we're smart about the way we think the market is headed.
It is a big advantage in being a public company. We think is going to be a big advantages you guys have pointed out not only as a fragmented but there haven't been a lot of companies, we're not a supplement company, but there havent been a lot that have gone public in our industry and we think it's a big advantage.
Got it that's helpful and maybe one last one for me.
That's on the progress on the drawbridge box I was just wondering if you are at this point sort of comfortable about the lipid data I know that sort of thing that you had cited before something that was sort of like competing the rollout on that but.
That seems to be different versus your last update so I just wondered if you could update us on that.
Yes, I am extremely comfortable with our engineering team that's been working on this they have relayed to me that they are quite comfortable that we're going to be able to hit the targets.
Perfect. Okay. That's very helpful. Thanks, so much and congrats on a good first quarter.
Thank you.
Great. Thank you Elizabeth as a reminder to ask any sort of a question. Please press star followed by one on your telephone keypad.
How does that one on your telephone keypad.
Okay.
Our current you have a question from Sean Dodge from RBC capital markets. Sean. Please go ahead.
Yes, thanks, good morning, and congratulations on your first quarter the public company.
Going back let me go back to the increase in spending on sales and marketing.
Given that and then Paul you mentioned good trends when it comes to what Youre seeing as far as the order sizes and customer retention rate.
If we take all of that how should we be thinking about the kind of the level of revenue growth that gives you kind of confidence in being able to to support over the next 12 to 18 months.
Okay.
Okay, So I'm going to I'm going to answer the question and I hope it is.
It addresses what you are but I think youre asking me.
So it's going to be our policy not to give quarterly guidance, we will give annual guidance early in 2022 four for the upcoming year.
But what I can say is that.
It looks like <unk>.
<unk> remains strong across the board as.
As I mentioned in my.
Piece earlier on.
80, according to nuclear ingredients about 80% of Americans take a supplement product.
We think that.
The Covid is working in our favor not not coming against us in the near future when Covid testing goes away to a large extent.
And.
But so far the demand we're seeing across our entire platform of business consumer professional and <unk> it looks to be very strong going forward.
The other thing is that I would mention on the marketing side of things.
While we.
Our focusing on increasing spending where we're doing it intelligently and so being profitable along the way.
It is important to us in terms of our marketing spend I expect that the campaigns with a campaign that was led by.
Our marketing group.
During the Olympics appears to have been not only successful, but profitable and the same kind of.
Cohorts that we showed during our roadshow and that's going to be our goal, we're not going to turn the company into a money, losing operation simply to grab market share, we would rather be patient and do it the right way.
Okay, that's very helpful. Thanks.
Yes.
The gross margin improvement Scott you mentioned during the third quarter I wanted to make sure I understood. The primary drivers of that was that from productivity improvements in manufacturing or was it the shift in mix to more.
DTC or <unk> dot com sales or was it product mix itself and what I'm getting at here is just how sustainable do you expect the margin improvement.
The temporary ones are these something more structural.
The first thing obviously, if you look at the quarter, our <unk> sales and our professional sales grew about the same rate so margin improvement because of customer mix.
Didn't impact Q3 significantly in that way. So it really is a big driver from improvements in production capacity and if you look at how we're producing our products in our plant and Tom maybe you want to expand a little bit more but ultimately.
We are driving more product through our plant with pretty much the same staffing.
And pretty much the same fixed cost and so what youre seeing is just significant efficiencies with basically the same cost if you will which is driving margin improvement.
And will that continue.
Obviously, our goal is to make sure that that happens.
And as Tom mentioned inflation is really not a big factor at this point in time so.
We know that we don't believe margins will decrease.
But when you start to look at improvements in margin margins.
We're going to continue to drive those forward.
Tom you have anything you want to add.
Yes, I think.
To drive that home with a couple of practical examples.
Our average production batch size.
Since we've moved into this facility and 2018.
<unk> began production in September.
<unk> has increased by a factor of three times.
So.
Our throughput and essentially our ability to manufacture to Scott's point without a material increase in staff.
It certainly helped the productivity and ultimately the gross margin.
Likewise, we have been able to reduce essentially downtime and manufacturing through a number of productivity related measures.
And in that case, we for example increased our throughput and packaging by effect by about 80%.
Mixing by 22%.
A little over 50% in terms of our bulk powder fulfillment.
<unk>.
Realized essentially a 20% reduction and changeover so between productivity and just sheer volume growth as a result of Bob.
Our improved demand is really what's been driving those improvements or production.
Okay, Great and then.
Paul You mentioned I think 65% growth in the number of subscribers did I hear that correctly was that all just during the third quarter and then maybe you could talk a little bit about.
How you were able to be so effective there.
Okay. So that number was the number of active subscriptions.
Just so we're clear.
Okay.
Okay, so 65% growth in the number of active subscriptions.
But the metric.
Yes on the second part of it was how do we how are we looking to continue to be effective in growing this part of our business correct.
That's right right so.
Right so.
We're really.
As we mentioned we do everything in house.
And so we're really relying on a very diversified marketing strategy to continue to approach things so whether it's.
We're noticing in many cases that tip.
Typical.
Social media marketing and everything is getting very expensive and so we're looking for all sorts of different opportunities to approach our customer base.
In the house without going into agencies and all the rest of that.
Okay.
Thanks.
Congratulations again.
Thank you. Thank you.
Great. Thank you. So a quick question and I'll now hand back over to Oliver Chen from Cowen.
Your line is open.
Alright, Thanks, again, Paul I had a longer term question one of the features of the <unk> business model is artificial intelligence and also in jeopardy.
Could you speak to the longer term opportunities there and how you see.
I am Covid now versus as you look out a few years as well. Thank you.
Right so.
We're using it in multiple ways.
First of all.
To come.
Coming up with better products.
We are involved not only in building this platform on longevity using AI to.
Better products, but we're also working with other companies some of them in the startup areas. There is all sorts of incredibly interesting new screening technology is being run.
Across the country in the startup world.
And we're fortunate because many of these companies are coming to us to see if we can't find ways to work together and so we've been very aggressive at taking a look at some of these opportunities.
We think there's an enormous.
Opportunity for us in the plant life World to come up with new safer natural products and I think in the near future you're going to see some some interesting things coming out of us from that way. The other area is in this whole field of personalization.
And that really gets down to two things. It's how personalized is the test itself in terms of the information that delivers.
And and then secondly, how personalized can we make the products and thats something that that those two things go hand in hand together.
To show that.
That.
Just how important it is to be able to personalize and deliver deliver things that has to come from both the test and the.
And the product side of things and then.
In terms of our ability to make predictions.
We're placing a lot of.
Emphasis.
On a couple of key areas in the area of healthy aging.
And you will be seeing things coming out from us and.
The very near future.
As we mentioned and we already talked about the brain health area.
We think that the microbiome area is going to be one again, tying products to the test and the whole field of personalization is going to be really important and then this this area of biological age.
We've had a tremendous amount of interest in this area from physicians.
To work with us and you'll be seeing in the near future. Some really interesting things coming out of us that are going to focus not only on biological age, but the whole field of.
Digging into the whole area of preventive cardiology, and how that ties to two biological age.
And again, you need the AI to do this.
And sort of wrap up the answer we see this as really as our future in order to to own. This area of scientific wellness you have to own personalization you can't do it without AI.
Thanks, Paul.
Another question on the beta side of the business.
What should we understand particularly as your partner in and think about creative ways to.
To share economics in obese together on the <unk> basis.
Well, let me let me start about the.
The opportunity and then sort of the sharing of the economics.
As I mentioned earlier, we've never seen more physician interest in the work that we're doing.
And I think a lot of that is a combination of COVID-19.
And a lot of it is.
Being driven by doctors being forced to look at some of these things by their patient population.
And so we've identified a handful of areas, where we can engage in collaborations with physicians.
That we think can bring.
The immediate scale to new and new opportunities to us.
And there are up there are three or four of those areas specifically that we're going to that we're working on that kind of tie into.
This whole area of healthy aging and scientific wellness in terms of the economics.
I would say that they'll tend to be rather similar to what youre seeing from us on the <unk> side.
<unk>.
There is a if we're partnering with physician networks for instance to do things it tends to be pretty much along the margin lines of our <unk> side.
Roughly a 60 40 split in our favor or something like that.
Okay.
And <unk>.
Lastly, just curious about your thoughts around the Olympics in key Kpis, there that you were measuring.
And.
Any learnings from that campaign as well.
Okay. So.
We launched this the Olympic campaign in the third quarter and we're really at the at the early stages of looking at the metrics. However, it looks like we saw something like a 25% or 26% lift in new weekly D to C customers.
And an 18% lift in average daily D to C sales.
Although the campaign itself pushed more customers to <unk> dot com.
We also saw Lyft and Amazon a weekly sales during the campaign.
When compared to a weekly averages from the prior year and this is one of the reasons why although it's nice.
And our goal to drive sales to <unk> Dot Com, we view Amazon as a really important channel for us just because one of the goals of the marketing team is to meet the consumer where they want to be met.
Okay. Okay. Thank you.
The other question, we had which we were receiving in terms of the academic relationships you have across the organization as well as the hospitals, which ones are most significant to you.
What we should understand.
And or you prioritize but are very important to you.
Thank you.
Right. So if you look at the academic relationships.
Can either be up the clinical trial nature or they can be deeper so I would say the deepest relationship that we enjoy.
Right now institutionally as with the Mayo clinic.
We are also pretty involved in our hometown.
In Charleston, with the medical University of South Carolina.
That said.
We are noticing the physician physician's.
Themselves.
At very high levels, becoming more and more desirous of entrepreneurial relationships and.
I will say that there is a couple we're working on now that we haven't closed yet, but we hope to in the near distant future that could be really interesting opportunities for us, but I just can't tell you the names yet because we're not done.
Thanks, a lot Paul Best regards.
Thank you.
Great. Thank you Oliver.
Currently have nice all the questions and I will now handover to Paul Jacobson for final remarks.
Okay.
I wanted to just take the opportunity to thank all of you for four coming joining us on the call today and we look forward to.
To delivering great results in the future. Thank you very much.