Q4 2021 Thorne Healthtech Inc Earnings Call
Looking statements that are subject to risks and uncertainties.
Actual results may differ materially from those indicated by our forward looking statements.
More information about potential risk factors can be found in our annual report on Form 10-K , which we anticipate filing after market today and in other SEC filings.
Also in addition to U S. GAAP reporting we will be discussing financial measures that do not conform to GAAP. We believe these non-GAAP measures enhance the understanding of our performance because they are more representative of how we internally measure our business.
Note. These non-GAAP measures should not be considered in isolation from or as a substitute for GAAP measures. A reconciliation of GAAP to non-GAAP results is available in the earnings press release, we issued last night.
And in the supplemental investor presentation posted to our IR website with that I will turn the call over to Paul.
Thank you Thomas good morning, everyone.
Thank you for joining our fourth quarter earnings call.
2021 was a record year with significant accomplishments across the board for Thorne Health Tech.
The company's strong financial performance was driven by our simple focus on delivering the highest quality solutions to customers, while continuing to execute on the key growth strategies, we outlined during our recent IPO process.
I'll share some of the main highlights and then turn the call over to Scott for additional details.
For the 2021 full year.
We delivered $185 million in sales.
34% increase over the full year 2020.
We grew our base of active subscriptions by 66% to approximately 257.
We expanded gross margin by 580 basis points.
52, 6%.
We grew adjusted EBITDA by 34% to $26 million.
And lastly, we earned GAAP EPS on a diluted basis of <unk>.
And adjusted diluted EPS of 2007.
These solid results add to our long track record of growth.
I'm also pleased with the continued operating efficiency improvements, we are making as we expand the scale of our vertically integrated operations.
We are achieving new levels of sustainable profitability and innovation.
Our talented workforce is resilient I remain impressed by how well our people have continued to deliver through the uncertainties presented by the pandemic.
As you know Q4 was our first full quarter as a public company.
Our IPO in September not only brought us sufficient capital to accelerate funding for our long term growth initiatives, but it quickly puts us on a bigger stage to drive awareness, Switzerland, as a leading personalized scientific wellness company.
With the IPO behind us it has been exciting to fully focus on the vision, we laid out to accelerate our growth journey and our long term value creation for shareholders.
Our financial successes for Q4 were similar to that of the full year, achieving high sales growth with increasing net profit.
Fourth quarter net sales accelerated to $50 million, a 38% increase over Q4 2020.
Our gross margin expanded 348 basis points to 51, 5%.
Adjusted EBITDA grew significantly to $5 4 million.
And we achieved GAAP EPS of <unk> <unk> per share.
And adjusted diluted EPS of <unk> <unk> per share.
Let me expand on some of the drivers behind the favorable results for both Q4 and the full year.
Our marketing initiatives remain efficient and impactful, enabling us to continue building the <unk> brand, which is already admired by customers and is trusted by our growing network of health professionals athletes and brand partners or.
Our better health Olympic brand campaign reached millions of people with over 850 million unique impressions and it drove significant new customer acquisition in the second half of the year.
The campaign resulted in a 36% lift in new weekly DTC customers. During the two weeks following the campaign compared to the 20 weeks just before it launched.
More broadly in terms of brand awareness and traffic the number of page views represents customers, who click to view our content page on any of our e-commerce platforms.
For 2021, our digital properties led to over 37 million page views up more than 47% year over year.
Our full year DTC revenue growth of 38% and related Kpis demonstrate how effective the campaigns and our engagement efforts have been producing high value customer conversion and retention.
For 2021, our net promoter score was <unk> 69 in.
In addition, we achieved customer acquisition costs of $39 with a lifetime value of a $177.
This resulted in an LTV to CAC ratio of four five times.
All while spending under 14% of sales on marketing.
As a percentage of sales, we believe our 14% spend as far below that of some of our consumer health growth oriented peers.
Our professional <unk> revenue also experienced strong growth of more than 31% for the year. This growth was primarily driven by broad based demand across our professional and performance partners.
Of note online dispensary revenue grew 37%.
These dispensaries enabled health professionals to digitally expand their practice and by extension our base of loyal customers.
It's also exciting to see continued increases in retention metrics of our network of over 45000 health professionals.
We will provide trusted advice to their customers and patients.
Higher retention rates are fueled by the holistic approach, we provide not only to our DTC customers, but also to these health professionals with infrastructure for sales and support.
As of December 31, the retention rate of our health professionals increased to 88%.
Up from 85% as of December 31, 2020.
Our network has also increased by more than 3000 health professionals since our Q3 call.
Providing further building blocks of trust third party validation and scale.
As we scale. We are also continuing to investing in innovation and new product development to meet unmet wellness needs.
On the product front, we launched two new offerings in Q4.
First we launched collagen plus a formula combining collagen nicotinamide riboside and skin enhancing polyphenol to provide customers with a more effective solution to combat the physical signs of aging and.
And second utilizing multiple layers of insight from our AI product development system. We also launched metabolic health, which targets healthy metabolism cholesterol and blood sugar levels.
These new products are a direct result of our close relationship with customers.
We listen to their health goals in order to then meet them on their personal journey by.
By launching these products. We are also further demonstrating our commitment to bringing innovative clinically proven ingredients and solutions to the field of healthy aging.
We are a leader in the field now, which we view as a massive long term opportunity and one that spans the full spectrum of an individual's life.
Now turning to our operations and manufacturing.
Our operations team marked its most successful year ever in 2021.
Because we manufacture our own products and we do that here in the U S. We have been able to effectively manage costs.
We have also been able to avoid material shortages by successfully navigating through the global supply chain uncertainties, thus far.
The business continuity initiatives, we enacted early in the pandemic pay dividends by helping us mitigate against potential workforce disruptions.
In summary for 2021.
Our production of bottled finished products grew 39% from 2020.
Our average batch size increased 28%.
And overall production efficiencies resulted in a 20% annual reduction in average bottle costs, which helped fuel our gross margin growth.
As many of you know we hit a major milestone in June when we transitioned to fulfillment and shipping to a new 115000 square foot facility.
In addition, we continue to see benefits from our new West Coast distribution Center.
Which is increased fulfillment capacity in that region by about three times.
Lastly on facilities in December we broke ground on construction of a 360000 square foot warehouses adjacent to our facility in Summerville, South Carolina, which we currently expect to begin occupying in the first quarter of 2023.
Like prior years, we were again awarded an a rating by the NSF, which certifies good manufacturing practices for competitive sports.
An a rating is the NSS highest this prestigious award enables professional athletes who are subject to testing.
If we take and trust our products.
While I'm pleased with the rating we view best of breed ingredients and processes is table Stakes for our brand given the high quality products individuals' expect from us.
I will now turn to our guidance.
For the 2022 full year, we are currently projecting net sales of between $240 million to $250 million.
Gross margin of between <unk>, 53% to 55%.
Adjusted EBITDA of between 30 million to $35 million.
And adjusted diluted EPS of between 28 to 30.
Additional details and assumptions related to our guidance, we provided in our earnings release and Investor deck issued yesterday.
Should provide high level color on how we are thinking about the phasing of sales and costs over the course of 2022.
Our guidance details also provides certain assumptions, we're currently making for adjusted EPS.
Since we are introducing EPS guidance for the first time this year.
Let me provide some color on a few key drivers for continued success in 2022.
I'll start by pointing out that our healthy baseline of sales continues to grow and a steady trajectory.
Following a great year of expanding our brand awareness.
Now we will be layering on top of that our campaign in each of Q2 and Q3.
And that will have some trending impacts over the course of the year and weight sales towards the second half of 2022, which I'll get into.
I am incredibly excited about the potential of these campaigns.
First in Q2, we will be launching a campaign with a focus on redefining healthy aging by empowering people to live longer healthier lives.
We have a series of offerings being introduced including.
Our kids plus multi vitamin that leverages the patented printable dissolvable disk technology, we acquired at the end of February .
Our gut health wipe the first to market microbiome wiped that significantly improves the sample collection experience.
Our Thorn advisor one on one chat service, where customers are able to chat with advisers for personalized product recommendations.
And the Thorn kiosks in connection with our Crossfit partnership. These interactive self serve kiosks provide a solid reach into an established network that we think can be a great opportunity. Once it has had time to scale across that operation.
Our second campaign in Q3, we will focus on innovation and healthy aging highlighting all key product launches during the year.
For example, we will be launching an innovative new product called Daily Greens, plus act with functional Greens with nicotinamide riboside for healthy aging endurance and focus.
We believe there is only one major competitor on the market and we feel great about the opportunity daily Greens, plus we'll open up for us with our differentiated approach to its development.
Daily grants ingredients have been clinically tested to support energy and recovery in.
In addition, once launched customers will notice the full transparency over what those ingredients are.
<unk> scientific rigor and transparency are important to us and our customers.
Lastly, the launch of Daily Greens, plus is a testament to one of our core growth strategies to launch differentiated products and expand our current high value offerings.
While Q1 has been relatively quiet for us as we planned we expect the campaigns to generate sales that will start to pick up in Q2, and then again in Q3.
We expect that we will continue to grow the underlying healthy base of revenue from these efforts.
I will point out that we have not projected any significant sales from these product launches in our guidance.
These new products will allow us to expand further into adjacent markets such that we are expecting that it will take time for these new offerings to become a meaningful contributor to our base.
The most closely associated cost to these campaigns are for marketing.
As you know the timing of that spend is generally tied to the timing of the campaigns. So these costs will be heavier in the middle to latter half of the year.
I look forward to updating you on the campaigns and launches during the year.
With respect to advancing of our drawbridge device.
Our development efforts are proceeding well.
We can now report that the device is state of the art plasma separation cartridge has been transferred to manufacturing and it is on target for initial production in late Q2 or early Q3.
As we've previously said, we believe the devices impressive separation and collection capabilities will set a new industry standard.
For example, we will be offering the ability to collect more challenging biomarkers using either a dry blood spot or serum separation cartridges without the extra need for cold storage during shipping.
However, as.
This development is underway, it's important to note that we have not assumed any revenue on our guidance for the drawbridge device.
And lastly on guidance, while we feel good about our expected growth trajectory for the year as reflected in our guidance I will caution that given the uncertainties in the global markets, including the events in Europe . There are incremental uncertainties. We are monitoring closely that could have an impact on our plans and on our currently projected results.
Now, let me turn it over to Scott to step through additional financial detail, but first to wrap up.
We remain laser focused on our mission to bring deep scientific rigor to the preventive space to help people reach peak performance and live healthier for longer.
We empower our customers with education testing and supplements to support their health journey at any age and life stage.
Our balance sheet is in a stronger shape than ever.
We've continued to scale.
And we're poised to continue delivering high growth on the top and bottom line.
I am proud of our team's dedication to our mission and the results. We shared with you today I will now turn the call over to Scott for more color on the financial results.
Thank you Paul.
We delivered solid financial and operating results this quarter and I am pleased to report on these outstanding results for our first quarter as a publicly traded company.
The continued growth of our business. This demonstrates the strength of Thorn health Tech and continued execution against our operational and strategic initiatives.
The structural economics of our business continued to strengthen driven by robust demand across all channels gross margin accretion disciplined cost management.
Improving adjusted EBITDA and continued strategic investments in the Thorn brand and our integrated offerings.
Net sales for the fourth quarter were a record $49 9 million.
$13 7 million or 37, 8% from the same period last year on double digit increases across our sales channels. The.
Our record fourth quarter completes.
Record year of sales of $185 2 million.
33, 8% over the full year 2020.
Fourth quarter subscription sales in our D to C channel grew 45, 8% compared to the fourth quarter of 2020, now representing nine 8% of our total sales and 25, 6% of our D to C sales, which continue to reinforce consumer trust in our brand.
Additionally, our direct to consumer sales continued to grow during the quarter, increasing $6 9 million or more than 56% year over year to $19 1 million.
And our professional <unk> sales grew $6 8 million or 28, 5%.
Fourth quarter gross margins were 51, 5% of net sales and expansion of 338 basis points or 7% over the same period last year.
Our record sales and our increased gross margins led to a record quarterly gross profit of $25 7 million.
Of 47, 5% over the fourth quarter of 2020. These.
These numbers reflect that we have thus far minimize the impact of inflation and supply chain challenges that are impacting many businesses today.
Moving to SG&A, we're managing expenses efficiently, while continuing to strategically invest in both our brand as well as our long term growth opportunities as expected during the fourth quarter SG&A expenses were $23 million up $6 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 brand.
Adjusting for our investment in marketing SG&A during the fourth quarter was 35, 9% of net sales compared to 31, 9% for the fourth quarter 2020.
Research and development expenses were $1 7 million during the fourth quarter as we continue to invest in a number of strategic initiatives.
Fourth quarter earnings were <unk> <unk> per share on a fully diluted basis, which is <unk> 12 per share higher than a year ago.
Fourth quarter adjusted EBITDA, excluding special items was $5 4 million.
Which is higher than last year's $1 4 million, primarily driven by an $8 3 million, increasing gross profit driven by sales of which $1 $7 million was directly attributable to continued gross margin expansion.
This was offset by increased shipping costs of $1 $6 million related to increased sales volume incremental head count costs related to the ones is evident drawbridge mergers of $1 3 million in incremental cost.
Coming a public company of about $1 million.
For the full year 2021, net sales increased $46 8 million or 33, 8% to $185 2 million.
Led by a $26 6 million or 31, 3% increase in our professional <unk> sales.
Full year, DTC sales increased $20 2 million or 37, 7%.
$6 8 million of which was attributable to continued growth in our D to C subscription sales.
We remain focused on optimizing our production processes and material costs, the benefit of which have seen materialize through a continued gross margin expansion during 2021.
Gross margin for the full year 2021 was 52, 6% of sales an increase of 580 basis points or 12, 3% compared to 2020.
These operational efficiencies and disciplined cost management approaches have guided our gross profit higher by $32 6 million or 53% over the prior year.
For the full year 2021, SG&A expenses grew 26 million or 34, 5% consistent with the revenue growth for the period, driven by increased marketing and advertising spending of $14 million.
As we continue to invest in our marketing strategy and promote the Thorn brand.
Excluding the incremental spending on marketing SG&A as a percent of sales declined from 35% to 29, 6%, which is a 531 basis point reduction or 15, 2% lower than in 2020, as we leveraged our fixed costs.
Ponant in our SG&A.
Research and development expenses were $5 $9 million during the full year 2021 fully diluted earnings for 2021 were <unk> 10 per share an improvement of 44 per share compared to the full year 2020 adjusted.
Adjusted EBITDA for the full year, 2021 increased $5 2 million or 34% to $26 million.
Turning next to our cash flow.
Our cash flow continues to highlight major corporate actions.
As well as the benefits of a very strong adjusted EBITDA.
On September 27, 2021, we achieved a major milestone for the company by completing our first 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.
As of December 31, 2021, we had a cash balance of $51 1 million operationally during the full year 2021, we generated $9 $1 million of cash from operating activities, while spending more than $14 million on marketing and advertising.
And in growing our inventory, including raw material by $8 9 million to support continued growth of our business and protect our supply chain.
As we move forward, we expect to continue to invest in the various strategic sales and marketing initiatives research and development activities and operational enhancements of our production facility.
As previously mentioned with our IPO, we planned on repaying a $20 million revolving line of credit with proceeds from the transaction.
I am pleased to announce 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 of delivering record results. This quarter and remain excited about the future ahead for foreign 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. Thank you I would like to ask a question. Please press star one on your telephone keypad. If you change your mind. Please press star followed by <unk>.
Pairing to ask your question. Please ensure your line is on mute.
Our first question comes from the line of Elizabeth Anderson from Evercore Elizabeth. Please go ahead.
Hi, guys. Thanks, so much for the question this morning, and congrats on finishing your first of all yes, I'll take that.
First first part.
We are as a company.
<unk>.
One I was wondering about was could you talk a little bit more about the <unk>.
Acquisition I know you called out that it was maybe 1% 2% of revenue contribution for the year I was just wondering if you could go into more detail in terms of.
Why you are interested in that asset and anything you can say sort of the.
Margin profile there thanks.
Okay <unk> the business Paul.
So first of all.
There is a number of reasons why we were interested in.
Bringing neutral TVA inside of Thorn.
First of all it reduces the use of plastic so there will be no plastic in the packaging at all.
It uses less water and manufacturing.
Lower shipping costs overall, so the more we can scale production into this type of technology.
The more cost efficient we become.
Our hope is that this becomes a big growth area for us, but we're going to launch in sort of pilot form.
We're going to launch in two separate ways first is under direct to consumer where we're going to go first with the children's vitamin We think it's a big opportunity.
Our competition is basically gummies, and we spent a significant amount of time.
Serving mothers.
To figure out what sort of things they would like to see in the product and we formulated accordingly, we also have a fairly significant business in.
In the prenatal space. So we think it's a great pairing of products for.
For the children's vitamin business, and we think we will have the best product on the marketplace anywhere. We're also going to be launching a prebiotic that was formulated working on microbiome tests in humans and asleep Formula and then we're going to be building out a b to b business with this as well.
So our goal will be to reach out to big companies.
Take reverse inquiry and see what sort of products. They are interested in making and we're going to do two pilots there.
First a healthy aging formula, which will be using our nicotinamide riboside.
In a partnership with a company in California that will be selling at sephora.
It will be private labeled.
And we will also be selling a product.
In partnership with a UK based online.
Company.
And this one is actually a dental hygiene disk formulated to be dropped inside dogs waterfall, because animals don't swallow pills or easily.
So we have a lot of hope for this not only from an environmental standpoint.
But also.
The ability to to develop really unique products and compete against other different forms.
That's super helpful and anything you can say on the margin profile there.
I think that Thats going to excuse me, it's going to take time to develop obviously our goal is to have very high margins in this business, but just like.
Which is true all manufacturing business. It takes scale to do it so are we.
We'll launch.
Not in scaled version, we will be profitable on the products from the day, we launch, but it won't be anywhere near the kind of scale that we're going to be looking for later on.
Hopefully the answer is a higher higher margin business than we've had.
Okay Scott.
That doesn't make sense and then a couple of questions on the marketing spending.
Obviously that sort of tick down in the quarter and I was just wondering if you could comment on sort of how you thought about the cadence specifically in terms of the fourth Q4 th quarter and what was going on there and then why you sort of I know you haven't actually there are accompanying that around the new product launches.
That makes sense. There I was just wondering if you could talk about sort of mix of marketing spend and sort of the efficiency. Obviously, you called out that the four 5%.
LTV to CAC, but I just wanted to sort of understand the channel focus that youre thinking about there.
Regarding 2022.
Sure I'm going to turn this one over to Michelle crop definitely its a great question.
I'll first address the Q4 part of that so in Q4 are kind of two main factors that we.
Under our historical quarters.
2021, so number one typically around the holiday season digital AD cost go up with retailers trying to get attention around cyber Monday, and the holidays and it's not typically when you see a lot of people really focused on their health and wellness.
So to maintain efficiency, we historically have pulled back a little bit in Q4, and then the second factor in this quarter. In particular was we had a one time inventory count plant shutdown of about a week and so we pulled back on AD spend just to kind of accommodate accommodate that but that wouldn't be evercore.
There anything moving forward.
But as it relates to 2022, we really see the biggest opportunity to grow brand awareness. When you look at our marketing spend so we're targeting between $16 five an 18, 5% of sales to be spent on marketing really focused on driving profitable acquisition of new customers. When we look at.
How we're planning to do that it's both making sure that we have robust unpaid acquisition strategy is working for us, but that we're also really data driven in our approach to the paid acquisition as well. So if we kind of look at how we're thinking about 2022 and the spend will continue the 60 40 split between brand building activities and more down the funnel Jack.
Response activities and we'll make sure that we have a diversified spanned across both traditional and digital channels and we will continue to invest in online video out of home social search display.
So we're looking at increasing our investment in scaling our influencer marketing.
Advertising sponsored content and experiential marketing and event sponsorship and we really believe that kind of a combination of focusing on unpaid.
What's happened to patients as well as being really data driven in our paid spend that won't be able to continue our assertion acquisition and expand LTV to have an attractive LTV to CAC this year.
Got it that's super helpful and I'll jump back into the queue. Thanks, so much guys.
Our next question comes from Oliver Chen from Cowen and Kyle Oliver. Please go ahead.
Hi, Paul and Scott Good morning, Thanks, everybody on the revenue guidance of 30% to 35% how should we think about it with respect to channel as well as quarterly cadence as we look at the comparisons and then also what.
And that guidance with respect to pricing versus number of transactions.
On your gross margin guidance. This is very helpful. The 53% to 55% would just love some color on.
Why.
How you might achieve the higher end versus the lower end and key drivers that might be there.
Paul you have a lot of really exciting innovation, including the Greens in college, and metabolic health, which ones would you prioritize.
As potential upside drivers or the magnitude of some of the new product initiatives that we should focus on in terms of our model in 2022, and I had a follow up thank you.
Alright, so I am going to start with Scott.
Giving some comments on the answering your question on the gross margin.
Yes, as we look at gross margin and move forward on gross margin.
We believe we can continue to leverage that those same things that we used in 2021 in other words, we've got basically a lot of fixed cost in our plant and as we drive additional volume through that plan and we have a very specific.
Items that we're going to do that to make that happen as we drive additional volume through the plant.
Historically drives additional margin so it drives our what we call our cost per bottle produced down.
As that happens why then our margin.
Bruce.
Okay and now on the cadence on the marketing side, Michelle Yes, I can address your question as it relates to kind of how we're looking at the data feed sales growth. So if we're kind of looking at how Q1 is shaping up we're anticipating 45% to 50%.
Total sales will be generated from our DTC channel and we are confident that it will continue to be our fastest growing channel for the year and kind of if we look at the unit economic trends that we expect in 2022.
We think that net price will be relatively flat.
Flat year over year with the conflicting forces of will be launching higher priced products. However, we're driving a lot of subscription revenue, which comes with a discount.
If we look at order size that will likely be flat year over year. However, we're confident in an increase in order frequency as we continue to drive more subscription we've seen year over year end 2021 versus 2020 that was the biggest change in terms of growth. However, instead.
The biggest element to our growth model for you to see this year will be increasing the rate at which we acquire new customers as well as maintaining or slightly improving DAU retention rate. So really the biggest factor.
How we look at growth from a bottoms up perspective, as the number of total purchasing customers.
And then I'll answer your question on the.
The products.
I'm going to sort of differentiate them more in terms of where I think the biggest opportunities are going to lie and I'll take the smallest one first which is going to be on our metabolic process.
Product I think that's going to end up being.
More aimed at our Doctor community there is a bit of science that needs to go into that needs to be understood.
We expect that this will largely be a doctor related product.
Moving into the middle of them would be the collagen product again as you guys probably recall where.
Placing a lot of emphasis on the use of nicotinamide riboside in our various formulas, we're manufacturing our own product now so we have very good margins on this business.
We launched a flavored collagen product it was it was very successful.
Mostly in the direct to consumer market and.
We are.
Just on customer feedback it's being.
There's going to be a neutral flavor, that's going to be introduced into the marketplace. Because a lot of people want to just combine it with other things essentially in a blender. So it's going to be a neutrally flavored and we think thats going to be our continued growth product for us.
Along the lines of our nicotinamide Riboside suite and then on the Green side.
We have a lot of hope that this is going to turn out to be a big growth product for us.
You all know who the largest Green's product company is right now they have sales probably in the $150 million range. Just on this one product we've been studying this market for four or five years.
Largely looking for <unk>.
Ingredients that we're super clean that had clinically validated data and where we could then add our nicotinamide riboside to it. So we think it's not going to be one of these.
Proprietary formula based products, we're going to be extremely transparent and what goes into the product what the doses are how it should act in the body and.
I have a lot of hope that this is going to be a very big growth product for us across all of our channels.
We've been flavor testing it with consumers sort of an AEP blinded taste test this product has come out.
With a significant majority of favorability versus versus our competition in terms of taste. Our hope was that we've at least do 50 50 on surveys because we think their product tastes pretty good and so far it's been very favorable.
Over time.
We're going to launch this the way we usually do so we're going to go into our normal channels without an overspend on marketing and then gradually as the sales build will start pushing more and more and I think Michel has has this targeted.
The second marketing campaign on a more specific basis.
During the course of the year.
Okay. Thanks, very helpful and I'd also mentioned it is it is an extreme I was just going to I was just going to add one more one more thing about this it is extremely high margin product for us since we manufacture all these things.
Okay.
Very helpful.
You do.
<unk>, new customers and grow your awareness.
Typically.
Or will these new customers be funneled to end or what products or categories might be the focus or variety of.
And then secondly, you mentioned in the Powerpoint presentation leverage big data and AI capabilities to expand partnerships.
Paul could you elaborate on the big priorities, there and how artificial intelligence fits into your innovation techniques.
Yes, so Michelle why don't you answer the first if I can take the new customer question. So if we look at our marketing budget for 2020 to over 80% of that budget is spent on paid working dollars and thats largely money that's being spent to drive people to find dot com because that wherever we think we can deliver a better customer experience.
And we have more favorable unit economics. So that's really the focus is delivering the best user experience for customers on our own website and then as it relates to the products I think really the most important message that we're focused on communicating to new customers. This year is trust and the fact that we're the most trusted brand for.
Opponents health testing and wellness education, and really making sure that people understand the credible partners, we have across the league's professional athletes.
Nick Health professionals.
And then really leveraging that message for kind of what we call gateway products, which typically are the more simple easy to understand single ingredient or a multi vitamin products and then from there once we get those customers into our ecosystem really up selling with a more differentiated high margin formula lies.
And on the AI question Oliver.
I would say that.
First of all on the it's been very helpful. On the product formulation side. So we are really looking at this in a way to build better and better products in the three primary testing areas that we've we've talked about which are biological age.
<unk>.
And eventually the brain health platform, we're finding that it's been useful not only.
In.
Building products, but in making more specific and personalized recommendations to clients.
We are but.
But we are extremely focused on using this in particular for our microbiome work and for our brain health platform. So we've entered a pilot on the brain health aside already.
Where we're building out.
Knowledge base with five or six I can't remember the exact number is five or six medical offices, working with doctors, who have traditionally focused on dementia and Alzheimer's in the treatment of patients.
We're learning from this and then we will be deploying it as a direct to consumer product probably next year I think we're going to have to go through the full year on the pilot basis before we can do it but that's where we're really using the <unk> platform.
Thanks, and best regards.
Thank you.
Our next question comes from Sean Dodge with RBC capital markets. Sean. Please go ahead.
Yes. Thanks.
Good morning.
Going back to the gross margin and if we kind of think longer term Scott you.
You mentioned the improvement <unk> been able to drive, thereby increasing.
Efficiencies in your new plant by increasing batch size, we do some change over time.
Again kind of longer term how much runway do you see being left there are now operating just about as efficiently as you would hope to be given.
I get the scale and breadth of your product offerings or do you think theres still some room for improvements leveraging those those plant fixed cost.
We think theres room for improvement, we have a fair number of.
Objectives, we're trying to achieve on a daily basis.
Trying to improve our efficiencies.
Improved throughput in order to meet our 2022.
Sales goals with the equipment that we have and with the people. We've got we have to drive additional improvements and we have processes in place to make that happen.
The other thing I wanted to mention is that we took a price increase of about 3% in January of this year and so I think we have some pricing power.
We can we can drive additional.
Our margin through that and so I think with.
We're looking at Directionally, but I think we're feeling pretty good about where we're going to be in the next three to five years, Sean I would just add a couple of things on the margin side.
First of all the channel mix is critically important and.
We do expect.
Substantial growth over the long term and our direct to consumer business, both on Thorn Dot com and Amazon, where the margins are higher secondly, the product mix is going to be really important and everything we launch that's new has higher and higher margins, especially if the products are more differentiated so.
Some of the new things, we're launching probably youre pushing 70% margins.
Thirdly.
It takes time to introduce new technologies, you know, especially when there's regulatory pathways involved. So it's been it's been a slog getting the microbiome wide.
Through.
Our version of clinical trials. So we know that the sequencing data is accurate, but that will be launched were placed our first order and we expect delivery late this month.
For launching in April .
That that type of product, which should impact our gut health sales over time.
The same is true on some of the other technologies that we're bringing into the into the company. So we think the drawbridge health device will draw will drive further business that could be higher margin business.
And the same is true of things like the kiosk and some of the software we're introducing for <unk> businesses and I think that our goal has been to drive in our in our road show I think we said 56 to 58 was our long term goal. Our hope is that with the introduction of some of the new things we've been working on for some period of time that.
Next year in fact, we will start seeing significant improvement from some of the newer things we've been working on for the past couple of years.
Yes.
Okay great.
That's helpful. Thank you.
And then Paul you mentioned in the prepared remarks global events being a risk and I think you cited particularly in Europe .
Is that just the possible impact it has on consumer discretionary spending or is there something more specific you are alluding to there like <unk>.
You saw some kind of key ingredients from from some of the regions being affected or anything else.
Kind of more specific but youre thinking about.
On a macro or globally I'm glad yes, Im glad you asked that question because I know it's.
Forecasting.
And the way we forecasted this year.
It gives us a chance to address the question. So we're not seeing specifics in terms of ingredients I think the operations team has done an amazing job in sort of.
Examining the things that we think might happen and trying to take the steps that we could to offset them. However, I think it would and again if you go back to our our long term goals from the Roadshow, We always said our goals are to grow at 30%, but to do it profitably. So we've always been focused on doing things profitably.
Which.
Maybe someday might count so.
I would say that it would be naive to not consider a combination of fed tightening high inflation and a war going on.
We're not going to get somewhere by that we don't know where it's going to happen.
But we're trying to take steps in at least examine it almost every week with group meetings to see where we will get hurt so we're being cautious about about things globally.
It could impact our international sales, if we were to look for one place.
Depending on what happens to shipping or energy prices or anything like that it could impact our international sales, it's not happening yet, but it could and thats why we forecast the way we do.
Okay. That's good that's good detail.
You mentioned the benefits of results you saw following the Summer Olympics campaign did you all do something similar for the Winter Olympics and would you expect the benefits from that.
Got to flow through following a similar timeline.
Michelle Yes, so in terms of the better Health Olympics campaign, we were really happy with the performance significant customer Carlos engagement sales.
It outperformed the pop to brand campaigns that we did in terms of 2022 and this is actually the first year, we're going to be launching Q brand campaign. Our first is launching this month and then the second is launching mid July and the focus of the first campaign is really around healthy aging.
Really see as a brand at the company how does the new wells and believe that we're really well positioned to be the brand that people invest in to help them live longer.
The longer healthier lives through our personal isolation, so thats really kind of the focus of that first campaign and then the second campaign will really focus on the innovation.
Three hero new products that we're launching that Paul mentioned still daily Greens, plus <unk> plus <unk>.
So while we will continue to support our Olympic team partners and that will continue.
It can be some of the messaging that we deliver to the market if not.
Two brand campaign in particular this year since we're really focused on that healthy aging messaging.
Coming out of Covid with everyone thinking about prevention and wellness and a new way.
Okay, great. Thanks again.
We now have a follow up question from Mr. Anderson from Evercore Elizabeth.
Please proceed.
Hi, guys, sorry, I just had two questions.
<unk> of one specifically on the.
Professional channel did you guys see an impact as we think that the cadence for 2022 did you see an impact in the first quarter from <unk> in terms of just like reduced number of visits.
No I would say the only impact we're seeing now is a bit of a switch from immune based products to other products. So we're not losing the customer they're just having to switch.
If.
If this thing.
It picks up again, we will probably see a switchback to immune products, but it does tend to.
Float back and forth and Thats really the only thing that we're seeing the.
The other thing we're seeing is what we have what we call our online dispensing and so a doctor's office, maybe close but the doctor is still selling our current products through our website and using our online dispensing, which we have seen a significant growth this last year as doctors.
Took advantage of that to help their patients stay healthy.
Makes sense.
And then just one follow up on drawbridge.
Where do you see any sort of initial interest in terms of customers from that as we get sort of closer to launches and any interesting changes on that front.
Okay just to summarize.
Level set this we have an FDA clearance to five 10-K clearance for medically supervised draw which means you can have a physician.
For some health care professional presence.
We are still trying to define a telehealth counts, we don't know, but we're working on it. We've also brought in outside consultants now that are working with us to get direct to consumer clearance and we have a trial that's been completed on 15000.
Patients at the University of Cambridge.
We don't we have not seen the data was a user experienced clinical trial and.
That trial is being published in a journal and until its published we don't get to see the data that was the deal.
So the first place we see.
Customers coming will likely be a contract research organizations and pharma companies, who are conducting big clinical trials because of the one of the big changes we made in the device since purchasing it is to be able to offer two different types of cartridges, one will be a dry blood spot and the other will be a serum separation cartridge.
That allows for far.
Far more sophisticated biomarkers to be collected including all the lipid panels because finger sticking yourself for lipids is not really very accurate. So we see those as the first two places during the course of this year.
Once we launch into those two markets, we will begin working with physicians.
To get some of the devices out there and work and work with them.
And potentially into the corporate wellness space, but we really see the big opportunity for us in the direct to consumer space Thats been the goal for making the acquisition all along and Thats where were going to be spending the bulk of our time this year trying to get it through the FDA for direct to consumer clearance.
Got it and then is there do you have any sense and.
I know this is somewhat out of your control.
<unk>.
Telehealth.
Whether that counts and supervision or not.
Do you have any sort of sense in this online.
Yeah.
So.
<unk>.
I think we will have an answer to that pretty quickly because we are currently in discussion with.
To work with several telehealth companies.
And to be the wellness provider and so this has been one of the topics of our discussion.
Hopefully in the next couple of months, we will.
<unk>, Inc, something and then be able to focus on it with them.
Got it okay. Thank you that's helpful.
We also have a follow up question for Oliver Chen from Cowen <unk> Co. Please proceed.
Hi, Thank you supply chain and inflation has been a hot industry topic would love insights there in terms of its potential impact on what youre seeing.
Also the healthy aging conference I notice that for Q4 would love to understand how.
That may impact and why.
And then as we think about <unk> as a platform Paul.
On your mind for future M&A.
Finally on brand health continues to be a big idea just would love you to outline some of the major catalysts and drivers as you think about that and focus on that strategy as well. Thank you.
Okay.
Alright, so Oliver I'll start with inflation and Scott if you think I'm missing something stfan.
So basically we've been able to offset the cost increases that we've seen through a combination largely focusing on manufacturing efficiencies again, we have a really great operations team and they have really stayed ahead of this thing.
Also as Scott mentioned.
In his section we advanced purchase inventories in anticipation of inflation long ago, and so we built a raw materials inventory base, that's bigger than normal.
And we're not that we're not reliant on China, either so we're not having to deal with some of the big shipping issues across the Pacific Ocean.
I would say that the biggest risks to us from an inflation perspective, now, though is probably on the bottle side again due to.
<unk> have to have FDA.
Compliant packaging to meet label claims and at the maturity dates. So we do use plastic bottles. One of the reasons. We made the neutral <unk> acquisition, though is to start to wean ourselves from plastic.
But really it's a small portion of the cost of the bottle. So we maybe have seen.
It's maybe 10% of the total cost of the <unk> would be related to energy and we have significant inventory there. So we should be all right.
We have wage hikes.
That has been covered largely by the overall efficiencies of the plant plus the 3% price increase that we took at the beginning of the year and then I'll mention again.
Many companies that you likely deal with that do sell physical goods.
Source their manufacturing.
Our completely vertically integrated so during times of inflation. It really helps to be set up the way, we are and to be able to control your inventories.
Actively which is something that we've been doing so that's kind of it on the on the inflation side.
On the conference side, our goal is to not sort of make this a.
Lauren promo conference it is really too.
Right.
Leading academics and thought leaders in the field of healthy aging. These could include people from the pharmaceutical area as.
As well as the natural area.
We intend to invite.
Physicians, who treat athletes or.
Alzheimer's or dementia patients and.
We will actually be extending invitations to the press.
To some of our competitors as well so the idea is to really Havent intellectually honest conference versus simple Thorne product conference, we're not going to focus too much on our own products that the goal is to be the.
<unk> put ourselves in a position to be thought of as a as a leader in the field of healthy aging.
And in terms of the brain health side and the platform. So I would kind of im going to try to link all of this together.
We have spent years now.
Deep trying to deal with the user experience.
We all talk about home kit testing in health care is moving to the home et cetera, but the big problem with that is.
As the user experience I don't know if you've if you've a finger stick yourselves in the past, but it's not a pleasant experience, even though companies are coming up with different devices et cetera, it's not horribly accurate and it is not particularly.
Fund or painless.
By building the strawbridge device.
Focusing on the microbiome wipe and then with brain health, where we will probably and I am not 100% sure yet, but we will be offering blood test a genetic test.
<unk>.
Our cognitive tests that will be taken online.
All under the guise of having worked with physicians, who treat Alzheimer's and dementia patients first before we launch.
We think we will have the most sophisticated testing platform that yields real meaningful data.
For healthy aging that's the goal is to lead in healthy aging. So you can start addressing these things early on.
The other thing is that.
We have been building products for brain health.
We placed a lot of emphasis on nicotinamide Riboside. We also have a product and we're making moves to get closer and closer with these guys called <unk>, which is designed for the treatment.
Both the pre and post treatment and prevention of concussion.
This was formulated in combination with our leading neurologists at the Mayo clinic. He is a sort of a who's who of scientific advisory Board members.
As well as people from various professional athletic realms, and the military all working with US. So the goal here is with our platform. It's the lead and healthy aging to have the products that are the solutions for the three tests that I mentioned.
And to build the user experience and improve upon it.
Very helpful. It sounds a lot more like an elegant experience. Thank you.
Thank you, Steve just a Q&A session today and this concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.