Q1 2022 Thorne Healthtech Inc Earnings Call

May 12, 2022

Hello, everyone and welcome to phone.

Hello everyone and welcome to Thon HealthTech Incorporated First Quarter 2022 earnings call. My name is Juan and I will be coordinating your call today. All participants have been placed on mute to prevent any background noise. There will be a Q&A session at the end of the presentation. If you would like to ask a question at that time, simply press staff followed by number one on your telephone keypad.

<unk> incorporated first quarter 2022 earnings call. My name is one and I will be coordinating your call today, all participants have been placed on mute to prevent any background noise. There will be a Q&A session at the end of the presentation. If you relate to ask that question at that time simply pass Istar followed by number one.

One on your telephone keypad.

I would now like to turn the call over to your host, Thomas Wilson. Please, Thomas, go ahead when you're ready.

Now I'd like to turn the call over to your host so much weights on please go ahead when you're ready.

Good morning, everyone. Thank you for joining Thorne HealthTech's first quarter 2022 earnings call. With me today to share our results are Paul Jacobson, our CEO , and Brian Conley, our CFO . Tom McKenna, our COO, and Michelle Crow, our Chief Marketing Officer, are also available for questions.

Good morning, everyone. Thank you for joining Thorne help teck's first quarter 2022 earnings call with me today to share our results are Paul Jacobson, our CEO and Brian Kelley, our CFO , Tom Mackinnon, our COO and Michelle Crowe, our Chief Marketing Officer are also available for questions before we.

Before we begin, please note that today's discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those indicated by our forward-looking statement.

To begin. Please note that today's discussion contains forward 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 2021 annual report on Form 10-K, and our upcoming Form 10-Q, which we anticipate filing.

More information about potential risk factors can be found in our 2021 Annual Report on Form 10-K , in our upcoming Form 10-Q , which we anticipate filing aftermarket today, and another SEC file.

Aftermarket today and in other SEC filings.

Also, in addition to US 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 performance.

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.

non-GAAP financial 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 after market closed yesterday and in the supplemental investor presentation posted to our IR web site.

non-GAAP financial 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 after market closed yesterday and in the supplemental investor presentation posted to our IR website.

Finally, in the next two weeks, we will be participating in the RBC Global Healthcare Conference and Callens' sixth annual feature of the Consumer Conference. Please refer to our IR site for event and webcast information. With that, I'll turn the call over to Paul.

Finally in the next two weeks, we will be participating in the RBC Global healthcare conference and talents sixth annual feature of the consumer conference. Please refer to our IR site for events and webcast information with that I'll turn the call over to Paul.

Thank you, Thomas. Good morning, everyone, and thank you for joining our first quarter earnings call.

Thank you Thomas Good morning, everyone and thank you for joining our first quarter earnings call.

As our first quarter financial performance reflects, we are off to a solid start this year.

As our first quarter financial performance reflects we are off to a solid start this year.

We've had several positive recent developments, and I'll share some of those highlights with you today.

We've had several positive recent developments and I'll share some of those highlights with you today.

I'll also cover a few upcoming activities and provide color on our current financial outlook for the year.

First, I'd like to take a moment to express my heartfelt thanks to Scott Wheeler, our recently retired CFO , who steadily guided the company's finances for over a decade.

First I'd like to take a moment to express my heartfelt. Thanks to Scott Wheeler, Our recently retired CFO , who steadily guided the company's finances for over a decade, Scott has been instrumental in the company's growth and helping to establish the culture we have today.

Scott has been instrumental in the company's growth and helping to establish the culture we have today. He will remain a consultant in a consultant role for the rest of the year, and we wish Scott all the best.

He will remain a consultant and a consultant role for the rest of the year, we wish Scott all the best.

At the same time, we're excited to have Brian Connelly join as our new CFO . Brian brings a wealth of experience from past leadership roles at various public companies.

At the same time, we're excited to have Brian timely joined as our new CFO Bryan brings a wealth of experience from past leadership roles at various public companies.

In short order, he is already driving further improvements to our finance function and information systems while planning for the next phases of growth.

In short order he is already driving further improvements to our finance function and information systems, while planning for the next phase of growth.

I'll hand the call over to Brian so you can meet him after my preparatory

Now I'll hand, the call over to Brian . So you can meet them after my prepared remarks.

Now let me share some of our financial highlights for the first quarter of 2020.

Now, let me share some of our financial highlights for the first quarter of 2022.

Net sales grew approximately 23% over the first quarter of 2021, which was a strong quarter for us last year.

Our D2C channel continued to be the leading growth driver for the top line, increasing 33% as it steadily becomes a larger percentage of our sales.

Our D to C channel continued to be the leading growth driver for the top line, increasing 33%. That's a steadily becomes a larger percentage of our sales.

The B2B and professional channel grew 15% over Q1 of last year.

The beta B and professional channel grew 15% over Q1 of last year.

Our gross margin expanded 285 basis points to 55.1%.

Our gross margin expanded 285 basis points to 55, 1%.

Gap net income increased to $5 million while adjusted EBITDA grew to $8.7 million.

GAAP net income increased to $5 million, while adjusted EBITDA grew to $8 7 million.

And lastly, GAAP EPS was <unk> <unk> and adjusted EPS was <unk> 12 cents.

With respect to Q1 net sales of 33% D to C growth for the quarter was largely due to continued traction we gained raising brand awareness in the second half of 2021 after ramping up our marketing spend and from incremental subscription growth.

With respect to Q1 net sales, our 33 percent DTC growth for the quarter was largely due to continued traction. We gained raising brand awareness in the second half of 2021 after ramping up our marketing

Our base of active subscriptions was up 57% over Q1 of last year.

Our sales and marketing teams have been able to continue attracting new high-value consumers in a cost-efficient way, achieving a ratio of customer lifetime value to customer acquisition costs of approximately 6.2 times for the quarter.

Our sales and marketing teams have been able to continue attracting new high value consumers in a cost efficient way achieving a ratio of customer lifetime value to customer acquisition cost of approximately six two times for the quarter.

We are extending our reach into the home, across media channels through our Healthy Aging campaign, and in connection with multiple product launches, which I'll touch on shortly.

We are extending our reach into the home across media channels through our healthy agent campaign and in connection with multiple product launches, which I'll touch on shortly.

Turning to B2B and professional sales, our 15% growth in this channel was primarily driven by our network of health professionals.

Turning to BW and professional sales are 15% growth in this channel was primarily driven by our network of health professionals, which continues to increase and is now more than 46000 strong.

which continues to increase and is now more than 46,000 strong.

online dispensary sales into this network grew by more than 60 percent.

Online dispensary sales.

Into this network grew by more than 60%.

For sports, our sales force grew the book of business by more than 80% year over year, with NSF product sales up almost 45%.

For sports our Salesforce grew the book of business by more than 80% year over year with NSF product sales up almost 45%.

And we recently announced a new partnership with USA Boxing, marking the 12th U.S. National Team turning to Thorn to support the peak performance of their app.

And we recently announced a new partnership with USA boxing, marking the 12 U S national team turning to the arm to support the peak performance of their athletes.

Rounding out the business to business and professional sales channel our growth would have been higher had we not started to experience a headwind against plan and the international business due to the impact of geopolitical conditions, resulting in weaker than expected sales by our international distributors.

Rounding out the business-to-business and professional sales channel, our growth would have been higher had we not started to experience a headwind against plan in the international business due to the impact the geopolitical conditions.

resulting in weaker than expected sales by our international distribution.

We are working closely with these partners and currently expect sales from new products to offset the international softness, which could remain below plan for the full year.

We are working closely with these partners and currently expect sales from new products to offset the international softness which could remain below plan for the full year.

With respect to gross margin, I'm pleased with our year-over-year expansion of 285 basis points to 55 percent.

With respect to gross margin I am pleased with our year over year expansion of 285 basis points to 55%.

which continues to track well to the longer-term margin profile we highlighted during the IPO process.

Which continues to track well to the longer term margin profile, we highlighted during the IPO process.

our increasing mix of D2C sales and related underlying subscription growth drove part of this expansion.

Our increasing mix of DTC sales and related underlying subscription growth drove part of this expansion.

Another part was our increase scale over last year as we continue realizing efficiency gains from our vertically integrated operations with higher batch sizes lower cost per bottle and greater fulfillment capacity.

Another part was our increased scale over last year as we continue realizing efficiency gains from our vertically integrated operations with higher batch sizes, lower costs for bottle, and greater fulfillment capacity.

On the bottom line, gap net income grew to $5 million.

On the bottom line.

GAAP net income grew to $5 million.

adjusted EBITDA grew 3.6% to 8.7 million while adjusted net income grew 2.8% to 6.6

Adjusted EBITDA grew three 6% to $8 7 million, while adjusted net income grew two 8% to $6 6 million.

This resulted in GAP EPS of $0.09 and adjusted EPS of $0.12. As I mentioned previously, we had a strong first quarter in 2021, making the first quarter of 2022 a tougher comparison.

This resulted in GAAP EPS of <unk> and adjusted EPS at <unk> 12, as I mentioned previously we had a strong first quarter in 2021, making the first quarter of 2022, a tougher comparison.

With respect to adjusted EBITDA margin planned marketing spend ahead of our healthy agent campaign was a driver for the reduction in our adjusted EBITDA margin year over year. In addition to incremental public company expenses and other costs associated with acquisitions and investments made since Q1 of last year.

With respect to adjusted EBITDAW margin, plan marketing spend ahead of our healthy aging campaign was a driver for the reduction in our adjusted EBITDAW margin year over year. In addition to incremental public company expenses and other costs associated with acquisitions and investments made since Q1 of last year.

Now let me spend some time discussing a few important operational miles.

Now, let me spend some time discussing a few important operational milestones.

Our Healthy Aging campaign launched at the end of March and will run through the end of Q2. The campaign will drive awareness and new customer acquisition as we position Thorn as the brand people invest in to increase their health span through personalized solutions.

Our healthy aging campaign launched at the end of March and will run through the end of Q2.

Campaign will drive awareness and new customer acquisition as we position <unk> as the brand people invest in to increase their health span through personalized solutions.

We believe that an individual's aging process can be more controllable at a personal level with better education, testing, and supplements back by science.

We believe that an individual's aging process can be more controllable at a personal level with better education testing and supplements backed by science.

Importantly, we think that many of the products in our portfolio contain ingredients that can resist the hallmarks of aging in some way.

Starting in late May through the middle of the third quarter we are embarking on the most important series of product launches in our history.

Starting in late May through the middle of the third quarter. We are embarking on the most important series of product launches in our history.

These include extensions of our nicotinamide riboside portfolio, which has grown 40% year over year, with the launch of a very unique daily greens product focused on healthy aging support.

These include extensions of our nicotinamide riboside portfolio.

Which has grown 40% year over year with the launch of a very unique daily Greens product focused on healthy aging support.

extensions to our college in line that will focus on cellular rejuvenation and performance.

Extensions to our college in line that will focus on cellular rejuvenation and performance.

Our unique patented suite of printed supplement beverages led by Kids Plus Multivitamin will then be followed by prebiotic and sleep as a result of the Nutrativa acquisition.

Our unique patented fleet of printed supplement beverages led by kids plus multi vitamin will then be followed by prebiotic and sleep as a result of the <unk> acquisition.

Of note, the KIDS Plus multivitamin will be the first of our products to use the patented dissolvable disc technology.

Of note the kids plus multi vitamin will be the first of our products to use the patented dissolvable disk technology.

This cutting-edge technology, which allows us to physically print supplements onto a dissolvable wafer, requires less water, eliminates the need for plastic packaging, and reduces the shipping cost compared to...

This cutting edge technology, which allows us to physically print supplements onto a dissolvable wafer requires less water eliminates the need for plastic packaging and reduces shipping costs compared to traditional beverages specifically.

Specifically, KIDS Plus provides superior efficacy with no sugar or gelatin to the largest category of children's vitamins, which are gummy.

Specifically kids plus provides superior efficacy with no sugar or gelatin to the largest category of children's vitamins, which our gummies.

With these technological advances, we believe the potential applications are broad and channel enhancing through B2B opportunities in a private label setting as well.

With these technological advances we believe the potential applications are broad and channel enhancing through <unk> opportunities and our private label setting as well.

Next, Cinequil, a product for nutritional support for neurological function in contact sport.

Next <unk> a product for nutritional support for neurological function and contact sports.

Soon we expect to release the results from a randomized double-blind placebo-controlled male clinic sponsored trial focused on the effects on brain function from contact sports.

Soon we expect to release the results from a randomized double blind placebo controlled Mayo clinic sponsored trial focused on the effects on brain function from contact sports.

This product will be launched with a formulation that includes NR and a unique CoQ-10 Phytosome to optimize bioavailability.

This product will be launched with a formulation that includes NR and a unique co COO <unk> phi to sell them to optimize bioavailability.

We're launching Ovarian Care, a product for the nutritional support for women with endometriosis or PCOS.

We're launching ovarian care product for the nutritional support for women with endometriosis or Pos.

And rounding out the year, we will be introducing a product to provide nutritional support for brain fog and long haul COVID-19 patients the.

And rounding out the year, we'll be introducing a product to provide nutritional support for brain fog and long haul COVID patient.

The product is a mix of pro-resolving mediators or PRMs and official N omega fatty acids.

The product is a mix of pro resolving mediators or Prs and official Omega fatty acids.

PRMs serve to balance the pro and anti-inflammatory pathways and further support the immune responses around excess inflammation.

Prs serve to balance the pro and anti inflammatory pathways and further support the immune responses around excess inflammation.

On the testing front, we recently received promising results from a large scale surveillance study on our OneDraw device for blood sample collection.

On the testing front, we recently received promising results from our large scale surveillance study on our one draw device for blood sample collection.

Those results, which are summarized in our supplemental investor presentation, have been published in the Journal of Telemetry.

Those results, which are summarized in our supplemental investor presentation.

Have been published in the journal of Telemedicine and Telecom.

We believe the read-through is that we are one step closer to making broader application of the OneDraw device a reality.

We believe the read through there.

Is that we are one step closer to making broader application of the one drug device a reality.

To summarize, the Wanderer device was deployed in conjunction with a major COVID-19 related study involving 4,000 participants in the telehealth setting.

To summarize the <unk> device was deployed in conjunction with a major COVID-19 related study involving 4000 participants in the telehealth setting.

The study was conducted by the Medical Research Council Epidemiology Unit of the University of Cambridge.

The study was conducted by the Medical Research Council Epidemiology unit of the University of Cambridge.

The results indicated 76% of participants preferred the OneDraw device over traditional remote blood collection sample methods.

The results indicated 76% of participants preferred the one drug device over traditional remote blood collection sample methods.

Critically, 99.9% of all samples sent to the study labs were successfully processed, outpacing existing at home collection methods.

Critically 99, 9% of all samples sent to the study labs were successfully processed outpacing existing at home collection methods.

The device also proved effective at maintaining sample stability at room temperature with its proprietary cold chain free storage technology.

Thumbing it up, we believe the results demonstrate the reliability of one draw for remote collection of blood samples without the supervision of the other.

Summing it up we believe the results demonstrate the reliability of one draw for remote collection of blood samples without the supervision of a health provider.

As for next steps, we intend to deploy the device in connection with our personalized wellness solutions and accelerate our opportunities in the other categories of our addressable market.

We are moving forward with increased confidence towards our goal of working with the FDA to expand the use of the device status, including for medical use in unsupervised settings.

We are moving forward with increased confidence towards our goal of working with the FDA to expand the use of the device status, including for medical use in unsupervised setting.

With healthcare becoming increasingly decentralized, the range of opportunities for an effective patient-preferred blood sample collection device could span from telehealth to drug development with appropriate FDA clearance.

With healthcare, becoming increasingly decentralized the range of opportunities for an effective patient preferred blood sample collection device could span from telehealth to drug development with appropriate FDA clearance.

We are also making progress towards initial production of one draws cutting edge serum separation cartridge and expect to be able to provide an update in the coming months.

We are also making progress towards initial production of one draws cutting edge serum separation cartridge and expect to be able to provide an update in the coming month.

Looking ahead, in the next couple of weeks, we are relaunching the gut health test now with a first to market microbiome white.

Looking ahead in the next couple of weeks, we are re launching the gut health test now with a first to market microbiome white.

The patent pending wipe revolutionizes the user experience of microbiome testing where current protocols for sample collection can be complicated and not user friendly.

The patent pending wipe revolutionizing the user experience of microbiome testing, where current protocols for sample collection can be complicated and not user friendly.

With this advancement, we expect to achieve more widespread adoption of what is already our best-selling health

With this advancement, we expect to achieve more widespread adoption of what is already our best selling health test with the added benefits of lower per unit production and shipping costs.

with the added benefits of lower per unit production and shipping costs.

We are exploring a range of B2B opportunities with this new white modality, spanning from use in primary care as a replacement for current microbiome tests to clinical research.

We are exploring a range of <unk> opportunities with this new white modality spanning from use in primary care as a replacement for current microbiome tests to clinical research.

The recent clinical trial results are expected to be released in frontiers in immunology soon.

The recent clinical trial results are expected to be released and frontier and immunology soon.

focused on the collection and preservation of genetic material in a dissolvable wipe.

Focused on the collection and preservation of genetic material and a dissolvable wide.

In totality, our important slate of product launches this year is building a competitive moat around areas of the wellness space that has not existed before.

In totality are important slate of product launches. This year is building a competitive moat around areas of the wellness space that has not existed before.

by reinvesting the testing and sample collection experience across key health areas.

By reinvesting the testing in sample collection experience across key health areas.

setting ourselves up to deliver meaningful cutting-edge supplements and data about wellness to better inform individual decisions than ever before.

Setting ourselves up to deliver meaningful cutting edge supplements and data about wellness to better inform individual decisions than ever before.

expanding our wellness business by further integrating these core verticals, and ultimately expanding into new channels with these

Expanding our wellness business by further integrating these core verticals.

And ultimately expanding into new channels with these offerings.

Now turning to guidance, we are reaffirming our full year 2022 guidance that was originally provided in March and calls for net sales of between $240 million and $250 million grew.

We are reaffirming our full year 2022 guidance that was originally provided in March and calls for net sales of between $240 million and $250 million.

gross margin of between 53 and 55 percent, adjusted EBITDA of between 30 and 50 percent.

Gross margin of between 53% and 55%.

Adjusted EBITDA of between 30 million to $35 million.

and adjusted diluted EPS of between $0.28 and $0.30 per share.

And adjusted diluted EPS of between 28, and <unk> 30 per share.

As we've said before we intend to drive this high growth without compromising profitability.

As we said before, we intend to drive this high growth without compromising profitability.

Additional assumptions related to our guidance were disclosed in our earnings release and an investor deck issued yesterday.

Additional assumptions related to our guidance were disclosed in our earnings release and Investor deck issued yesterday.

I will reiterate considering the current macroeconomic climate debt.

I will reiterate, considering the current macroeconomic climate that, while we expect our advance purchases of raw materials completed to date, are sufficient to meet anticipated demand for the full year 2022.

While we expect our advanced purchases of raw materials completed to date are sufficient to meet anticipated demand for the full year 2022.

The company's guidance assumes existing global supply chain and inflation conditions do not further deteriorate.

Before wrapping up, as Thomas mentioned, we will be participating in both the upcoming RBC Global Health Care Conference next week and then the common future of the Consumer Conference the following.

Before wrapping up as Thomas mentioned, we will be participating in both the upcoming RBC Global Health Care Conference next week and then the Cowen future of the consumer conference. The following week we.

We look forward to digging deeper into some of the topics discussed today and speaking with many of you at those events.

And lastly, I'd personally like to thank all of my colleagues who helped make Thorne HealthTech such a great company.

And lastly, I'd personally like to thank all of my colleagues, who will help make darn health tech such a great company.

None of this would be possible without their commitment to our mission and valuable contributions each and every day.

None of this would be possible without their commitment to our mission and valuable contributions each and everyday.

I'll now turn the call over to Brian for additional details of our financial results.

Thank you Paul. I'm happy to report that during the first quarter we continue to see increased demand for our products and growth across all areas of the business.

Thank you Paul.

Im happy to report that during the first quarter, we continued to see increased demand for our products and growth across all areas of the business.

While the economic landscape and supply chain dynamics grow more challenging, we delivered solid financial and operating results this quarter.

The economic landscape and supply chain dynamics grow more challenging we delivered solid financial and operating results for this quarter.

The growth of our business in the face of these challenges demonstrates the strength of Thorn HealthTech. The structural economics of our business continue to strengthen, driven by robust demand across all sales channels, gross margin accretion, disciplined cost management, improved adjusted EBITDA, and continued strategic investment in the Thorn brand and our integrated

Both of our business in the face of these challenges demonstrates the strength of Thorn health Tech the structural economics of our business continue to strengthen driven by robust demand across all sales channels gross margin accretion disciplined cost management improved adjusted EBITDA and continued strategic investment in the <unk> brand and our.

Integrated offerings.

During the quarter, we continue to see top line growth as net sales grew 22.9% to 54.7 million up 10.2 million from the same period last.

During the quarter, we continued to see top line growth as net sales grew 22, 9% to $54 7 million up $10 2 million from the same period last year.

This increase was attributed to double-digit growth across all sales channels, led by our DTC channel, which grew by 6.4 million to 33 percent.

This increase was attributed to double digit growth across all sales channels led by our DTC channel, which grew by $6 4, million% to 33%.

First quarter subscription sales in our DTC channel grew by 52.3% compared to the first quarter of 2021 and now represents 15.3% of our total net sales and 32.3% of our DTC net sales.

First quarter subscription sales in our DTC channel grew by 52, 3% compared to the first quarter of 2021 and now represents 15, 3% of our total net sales and 32, 3% of our DTC net sales.

Our non-subscription DTC sales also continue to grow during the quarter, increasing 3.5 million or 25.4 percent year over year to 17.5 million.

Our non subscription DTC sales also continued to grow during the quarter, increasing $3 5 million or 25, 4% year over year to $17 5 million.

In terms of our B2B business, sales during the first quarter were $28.9 million, an increase of 15.1% or $3.8 million over the same period last year.

In terms of our <unk> business sales during the first quarter were $28 9 million, an increase of 15, 1% or $3 8 million over the same period last year.

First quarter gross margins were 55, 1% of net sales on expansion of 290 basis points or five 5% over the same period last year our.

First quarter gross margins were 55.1% of net sales, an expansion of 290 basis points, or 5.5%, over the same period last year.

Our continued focus on operational efficiency and discipline cost management approaches have guided our gross profit higher by 6.9 million or 29.6% over the prior year. We continue to remain concentrated on enhancing our manufacturing processes, managing materials costs, and driving efficiency through our production environment as we scale to meet the continued growth in the demand for our product.

Our continued focus on operational efficiency and disciplined cost management approaches have guided our gross profit higher by $6 9 million or 29, 6% over the prior year. We continue to remain concentrated on enhancing our manufacturing processes, managing materials costs and driving efficiencies through our production.

<unk> as we scale to meet the continued growth and the demand for our products.

Looking at operating expenses, SG&A expenses during the first quarter of 2022 grew 6.4 million or 57% to 17.6 million, representing 32.3% of net sales.

Looking at operating expenses SG&A expenses during the first quarter of 2022 grew $6 4 million or 57% to $17 6 million, representing 32, 3% of net sales the.

The increase in SG&A expenses during the first quarter of 2022 are primarily a result of the increased sales activity experience.

The increase in SG&A expenses during the first quarter of 2022 are primarily a result of the increased sales activity experienced.

As a result of the continued growth in our DTC business, we incurred higher sales and fulfillment costs of approximately $2.1 million due to increased transactions and shipment volume from higher sales activity through our marketplace on thorn.com.

As a result of the continued growth in our DTC business, we incurred higher sales and fulfillment costs of approximately $2 $1 million due to increased transactions in shipment volume from higher sales activity through our marketplace on <unk> Dot com.

We also incurred nearly $1.4 million of incremental costs during the first quarter of 2022 which we consider public company in nature, including higher insurance premiums related to D&O coverage, professional and legal fees, board costs, and audit-related costs, as well as $1.1 million of incremental SG&A expenses attributable to our acquired drawbridge

We also incurred nearly $1 4 million of incremental costs. During the first quarter of 2022, which we consider public company in nature, including higher insurance premiums related to D&O coverage professional and legal fees board costs and audit related costs as well as $1 1 million of incremental SG&A expenses attributable.

To our acquired drawbridge business neutral Chiba and our consolidated Asia joint venture.

Nutrativa, and our Consolidated Asia Joint Venture.

Finally, during the quarter, we incurred 460,000 of non-recurring transaction costs associated with our acquisition of Nutritube.

Finally during the quarter, we incurred 460000 of nonrecurring transaction costs associated with our acquisition of neutral Tivo.

While we have seen our SG&A expenses increase year over year, on a sequential basis SG&A expenses have declined as a percentage of revenue from 35.9% during the fourth quarter to 32.3% during the most recent quarter. We remain focused on managing our SG&A expenses and leveraging the fixed cost components of our corporate cost structure.

While we have seen our SG&A expenses increased year over year on a sequential basis SG&A expenses have declined as a percentage of revenue from 35, 9% during the fourth quarter to 32, 3% during the most recent quarter, we remain focused on managing our SG&A expenses and leveraging the fixed cost components of our corporate cost structure.

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During the first quarter, we continued to invest in promoting the Thorn brand, which drove marketing and expense higher by 1.5 million or 35.2 percent to 5.7 million.

During the first quarter, we continued to invest in promoting the foreign brand, which drove marketing expense higher by $1 5 million or 35, 2% to $5 7 million.

The increase was primarily attributed to the development of our healthy aging campaign that launched at the end of the first quarter.

The increase was primarily attributed to the development of our healthy agent campaign that launched at the end of the first quarter.

As a percentage of revenue, marketing expense during the first quarter of 2022 was 10.5% compared to 9.5% during the same period prior year.

As a percentage of revenue marketing expense during the first quarter 2022 was 10, 5% compared to nine 5% during the same period prior year.

Research and development expenses were $2 million during the first quarter, up from $900,000 during the prior year, as we continue to invest in the development of a pipeline of strategic initiatives and new products, such as our new greens product, collagen line, Cinequel, and our printed supplement beverage collapse.

Research and development expenses were $2 million during the first quarter up from 900000 during the prior year as we continue to invest in the development of our pipeline of strategic initiatives and new products, such as our new Greens product College in line <unk> and our printed supplement beverage platform.

First quarter earnings per share were $0.09, which is $0.09 per share higher than a year ago. Adjusted EBITDA for the first quarter of 2022, excluding special items, was $8.7 million, or 15.8% of net sales, an increase of $400,000, compared to $8.3 million during the prior year, representing 18.8% of net sales.

First quarter earnings per share were <unk>.

Which is <unk> <unk> per share higher than a year ago adjusted EBITDA for the first quarter of 2022, excluding special items was $8 7 million or 15, 8% of net sales an increase of 400000 compared to $8 $3 million during the prior year, representing 18, 8% of net sales.

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As of March 31, 2022, we had a cash balance of $36.3 million, of which $31.4 million was unrestricted. Operationally, during the first quarter of 2022, we used $4.5 million of cash in our operation.

As of March 31, 2022, we had a cash balance of $36 3 million of which $31 4 million was unrestricted operationally during the first quarter of 2022, we used $4 $5 million of cash in our operating activities, primarily driven by $5 7 million of marketing and advertising spend and growing our inventory.

primarily driven by 5.7 million of marketing and advertising spend and growing our inventory.

including raw materials by 7.1 million to support our continued growth and protect our supply chain.

Including raw materials by $7 1 million to support our continued growth and protect our supply chain as.

As we move forward, we expect to continue to invest in various strategic sales and marketing initiatives, research and development activities, and operational enhancements of our production facility to meet the continued demand growth for our product.

As we move forward, we expect to continue to invest in various strategic sales and marketing initiatives research and development activities and operational enhancements of our production facility to meet the continued demand growth for our products.

After demonstrating the strength and resiliency of our business model during the pandemic, we continue to evaluate and optimize our capital structure to address the current dynamics of the global economy. As previously announced, on April 9, 2022, we executed a loan agreement with Bank of America for a $15 million revolving line of credit.

As previously announced on April nine 2022, we executed a loan agreement with bank of America for a $15 million revolving line of credit we have not drawn any amounts against the revolver and the full amount remains available to fund working capital requirements and strategic initiatives. We will continue to remain diligent in our sourcing and allocating a cap.

We have not drawn any amounts against the revolver, and the full amount remains available to fund working capital requirements and strategic initiatives.

We will continue to remain diligent in our sourcing and allocating of capital in the most efficient manner possible while maintaining a strong balance.

<unk> in the most efficient manner possible, while maintaining a strong balance sheet. Overall, we are proud of how we've navigated the pandemic and remain confident in our ability to continue to strengthen the brand develop and introduce new innovative products and grow the business.

Overall, we are proud of how we have navigated the pandemic and remain confident in our ability to continue to strengthen the brand, develop and introduce new innovative products and grow the business.

In closing, I want to thank our entire team for all of their tremendous efforts and valuable contributions.

In closing I want to thank our entire team for all their tremendous efforts and valued contributions I'm inspired every day by the dedication of our team members. Your commitment continues to make so we're in health Tech a leader in the health and wellness space, we could not be more excited about the opportunities ahead.

I am inspired every day by the dedication of our team members. Your commitment continues to make Thorne HealthTech a leader in the health and wellness space. We could not be more excited about the opportunity.

This completes our prepared remarks. We would now like to open the line for any questions you may have. Operator, can we have our first question?

This completes our prepared remarks, we would now like to open the line for any questions. You may have operator can we have our first question. Please.

Thank you. As a reminder, if you would like to ask any question, please press staff followed by number one on your telephone keypad. If you would like to withdraw your question, please press staff followed by number two. When preparing to ask a question, please ensure your phone is unmuted locally. And the first question comes from the line of Elizabeth Anderson from Evercore. Please Elizabeth, your line is now open.

Thank you as a reminder, if you relate to asking a question. Please press the star.

Followed by number one on your telephone keypad.

Relate to withdraw your question. Please press the star followed by number two when propane to ask a question. Please ensure your phone is on mute it locally.

First question comes from the line of Elizabeth Anderson from Evercore. Please <unk>. Your line is now open.

Yes.

So the question is, nice to speak with you both. I guess first of all, one of the things I was wondering about was just on the pacing of marketing spend. I think you guys obviously in the slide highlighted sort of the QQ and 3Q campaigns. I don't know if you could sort of talk to, obviously they coincide a little bit more with the product launch, but how do you sort of think about how that's going to impact on the timing of those campaigns versus how you see that sort of run through the revenue on the P&L? And then just in terms of marketing spend, one of the things we've heard from many companies in the past couple of quarters is just the marketing efficiency seems to be going down as advertising rates are rising. So just wanted to understand a little bit more how you guys are thinking of that. Obviously the LTV2CAC was quite impressive in the quarter, so just any more thoughts on that would be great.

So the question is nice to speak with you.

Both.

I guess first of all.

One of the things I was wondering about was just on the piecing of marketing spend I think you guys. Obviously in the slide highlighted.

The Q3 Q campaign I'm just wondering if.

If you could sort of talk to.

Obviously, they coincide a little bit more with the product launch, but how do you think about how that's going to impact on the timing of those campaigns versus how you see that sort of run through the revenue on the P&L.

And then just in terms of marketing spend one of the things we've heard from many companies in the past couple of quarters is just the marketing efficiency seems to be going down as advertising rates are rising just wanted to understand a little bit more how you guys are thinking of that obviously the LTV to CAC was quite impressive in the quarter. So just any more thoughts.

That would be great. Thanks.

All right, I'm going to let Michelle take the first question.

Do you want to alright, im going to let Michelle take the first question hi, Thanks for the question. So I'll start with the 2022 spending kind of how we're looking at that from an investment standpoint. So we're still planning on for the annual spend to be between 16% to 18% of total sales on marketing.

Hi, thanks for the question. So I'll start with the 2022 spend and kind of how we're looking at that from an investment standpoint. So we're still planning on for the annual spend to be between 16 to 18 percent of total sales on marketing. And as you alluded to, Q2 and Q3 will be the majority of that spend, given the timing of our brand campaigns, our first one launched March.

You alluded to Q2, and Q3 will be the majority of that spend.

Given the timing of our brand campaigns are first one March to March 28, and our second more lives around end of July . So Q3 will be the branch of this bank and kind of how we look at the revenue impact. So we're basing it off of what we've seen historically with the last three years and brand campaign. So what we tend to see is <unk>.

and our second will launch around end of July , so Q2 and Q3 will be the brunt of the spend and kind of how we look at the revenue impact.

So we're basing this off of what we've seen historically with the last three years of brand campaigns. So what we tend to see is around eight weeks after the launch of a campaign, we start to see impact on the acceleration of new customers acquired as well as revenue. But the biggest impact is typically the 20 weeks post the campaign period. So while we're seeing really positive results so far in the in-channel metrics with our creative working really well for us, we're anticipating starting to see the real impact

Round eight weeks after the launch of a campaign, we start to see impact on the acceleration of new customers acquired as well as revenue, but the biggest impact of typically the 20 weeks post the campaign period. So while we're seeing really positive results. So far in the in channel metrics with our creative working really well for us we're anticipating sorry.

You can see the real impact begin around end of May for the first campaign.

begin around the end of May for the first campaign, but we'll know more within the coming months on that front. And then kind of to your question about CPAs and ADCOP.

We will know more within the coming months on on that front.

And then kind of to your question about CPA and add costs.

In Q1, we didn't see any material increases in the cost of acquiring a customer or in our channel CPAs. In April , we have an increase in CAC and CPAs, but we attribute that to the increase spent with the launch of the brand campaign on March 28th.

In Q1, we didn't see any material increases in the cost of acquiring a customer where in our channels CPA in April we have an increase in CAC and CPA, but we exited that to the increased spend with the launch of the brand campaign on March 28th in fact on paid social so specifically on Facebook and Instagram, our CPA is related to the first month of our healthy aging.

In fact, on paid social, so specifically on Facebook and Instagram, our CPAs related to the first month of our healthy aging campaign are 16% below what they were in the first month of our Olympics Better Health campaign last year. So our paid media channels are performing in line with what we've expected to date. So we're hearing, you know, that other brands are reporting seeing increases in CPAs and given the privacy changes, it's something we're really closely monitoring and we're being really diligent about optimizing campaigns in real time and ensuring that we have a diversified targeting strategy to overcome any future kind of hurdles that we see. But we're confident in managing those increased costs if they come and we are still focused on profitable customer acquisition only. So as you mentioned, our LTB to CAC ratio was 6.2 and Q1 and we anticipate for the year of having an attractive ratio of above three for the whole year.

Campaign are 16% below what they were in the first month of Ireland better Health campaign last year. So our paid media channels are performing in line with what we've expected today. So we're hearing that other brands, who are reporting seeing increases in CPA and given the privacy changes, it's something we're really closely monitoring and we're being really diligent about optimizing campaigns in real time.

Ensuring that we have a diversified targeting strategy to overcome any feature kind of hurdles that we see but we're confident and managing those those increased costs to stay calm.

And we are still focused on profitable customer acquisition online sell.

As you mentioned, our LTV to CAC ratio was six <unk> in Q1, and we anticipate for the year of having attractive ratio of about three eight for the whole year.

Got it that's super helpful.

That's super helpful and I know, Paul, you talked about how you obviously have long-term supply contracts and that's been obviously working quite well for you on that. Can you talk to us a little bit more about how those contracts sort of cycle and their typical duration and if there are sort of any like prices glitters as they work through? And then, secondarily, related to that, how are you thinking about sort of inventory levels at like different parts of your channel, you know, Amazon, et cetera. I know that's caused sort of shorter term issues before, so I just want to make sure that sort of across the supply chain, both on the sort of...

I know Paul you talked about how.

You, obviously have long term supply contracts and that's been obviously working quite well for you on that can you talk to us a little bit more about how those contracts sort of cycle and their typical duration.

And if there is any like price escalators as they as they work through and then secondarily related to that how are you thinking about sort of inventory levels at different parts of your channel.

If Amazon etcetera, I know that that's caused sort of shorter term issues before so I just wanted to make sure that sort of across the supply chain both on initiatives.

It puts side and then as you get to the customer side doesn't make sure I understand how that's that's fairing

Flip side of that as you get to the customer side just to make sure I understand how that's that's fairing in the current environment.

Okay, so I'm going to let Tom McKenna talk about the input side, I'll make a comment about it, and then also about the inventory side.

Okay. So.

I'm going to let Tom kind of talk about the input side.

I'll make a comment about it and then also about the inventory side.

On the input side, I just want to remind everybody that we are atypical of companies in this industry. We do not buy 80 to 85 percent of our raw materials from China, which is the norm. We tend to focus heavily on the United States and on Europe , where we have had some challenges mostly due to the energy costs that we've seen some of our partners have to incorporate.

On the input side I, just want to remind everybody that we are a typical of companies in this industry, we do not buy 80% to 85% of our raw materials from China, which is the which is the norm we tend to focus heavily on the United States.

Europe , where we have had some challenges mostly due to due to the energy costs that we've seen some of our.

Our partners have to incorporate in terms of inventory.

In terms of inventory, and then I'm going to flip back to Tom McKenna on this input stuff. In terms of inventory, we're running what I would say is on the one hand it's the highest inventory level we've ever run in order to offset anticipated problems. However, as a percentage of sales are in terms of inventory, we're running what I would say is on the one hand it's the highest

And then I'm going to flip back to Tom Mckenna on this input stuff.

Terms of inventory we're running.

What I would say is on the one hand has the highest inventory level we've ever run.

In order to offset anticipated problems.

However.

As a percentage of sales or inventory is not that high. So we're also trying to be mindful of.

So we're also trying to be mindful of financial operations in addition to inventory. So what we do is, you know, there are frequent meetings amongst the company, usually led by Tom who's our COO, and then we kind of talk together trying to look for problems around the world. So, you know, an example coming up, there are pretty strong rumors that could hit a strike, a dock strike.

Financial operations. In addition to inventory so what we do is there are frequent meetings.

Amongst the company usually led by by Tom was our COO.

And then we.

Talk together trying to look for problems around the world. So.

An example, coming up there is there are pretty strong rumors that could hit our strike dock strike.

in California coming up.

In California coming up.

We don't know if it's going to happen or not, but we took steps to offset whatever we thought might impact us in advance, well ahead of where this strike could take place. We also, you probably know that there are big issues around sunflower and palm oil. In the case of sunflower oil, we secured a second source through our European provider before the

We don't know if its going to happen or not but we made we took steps to offset whatever we thought might might impact us in advance.

All ahead of where the strike could take place.

We also you probably know that there are big issues around sunflower and palm oil in the case of sunflower oil.

We secured a second source through through our European provider before.

for the war in Ukraine and in terms of palm oil we've almost cut it off 100% other than I think one or two products simply because it tends to contribute to the deforestation problems in Indonesia so we've never used it in our products even though the rest of the industry heavily uses it so it's food. So Tom you want to talk about some of the input stuff that you've managed.

Before the war in the Ukraine in Ukraine, and in terms of Palm oil.

Almost almost cut it off 100% other than I think one or two products simply because it tends to contribute to the deforestation problems in Indonesia. So we've never used it in our products, even though the rest of the industry heavily used so there's food. So Tom you want to talk about some of the input stuff that you've managed.

Sure. In terms of supply contracts, we have a number of those, not only for raw materials, but for certain packaging components, things like capsules and at times bottles and lids and the like. Their typical duration in terms of cycling is two to three years. Fortunately, we're at the longer end of that cycle for the majority of those. Those supply agreements

Sure.

In terms of the supply contracts, we have a number of those not only for raw materials, but for certain packaging components things like capsules in.

And at times, our bottles in lids and alike. There are typical duration in terms of cycling. It's two to three years and Fortunately we are at the longer end of that that cycled through the majority of those.

Those supply agreements.

generally keep costs either constant or have a cap on them with respect to increases.

Generally keep costs either constant.

Or have a cap on them with respect to increases.

In cases where we don't have a supply agreement, what we do is we closely monitor our suppliers and it looks as though we're likely to take a large hit.

In cases, where we don't have a supply agreements what we do is we closely monitor our suppliers and it looks as though we're likely to take a large hit.

We work with Brian and the finance folks to determine whether it makes sense to essentially buy forward against the price increase.

and bring in some additional raw materials or packaging items.

And bring in some additional raw materials or packaging items.

I also want to reinforce inventory levels for finished goods. Our finished goods levels are consistent as they've been historically as a proportion of demand and demand grows.

I'll point to reinforce inventory levels for finished goods or finished goods levels are consistent as they have been historically as a proportion of demand and demand grows on the raw material side are really our increases right now and any inventory on raw materials and primarily they are forward buys either against.

on the raw material side really are increases right now in any inventory or on raw materials and primarily they're forward buys either against potential price increase

Price increases.

or more likely against what are determined to be supply chain risk.

Or more likely against what are determined to be supply chain risks.

Right now, the most significant area there is obviously China. We're also planning ahead of a potential dock strike, as Paul mentioned, and essentially have secured enough raw materials to take us through with no issues at the end of 2022. And none of those raws are at risk for expiry.

Right now the most significant area there is obviously China.

We're also planning ahead of a potential dock strike as Paul mentioned.

And essentially have secured enough raw materials to take us through with no issues at the end of 2022.

And none of those raws are at risk for expiry.

Hopefully that answered your question. If not, let me know what else I can, for the flesh out for you. Yeah, no, that's super helpful. Maybe one last one for me. Just in terms of the OneDraw product, obviously that's great in terms of, you know, some of the data that you've collected and the studies on that. How do you sort of see the next steps in terms of the pathway to sort of making it, you know, a commercially available product?

Hopefully that answered your question if not let me know what else I can further flesh out for you.

Yeah, No that's super helpful and maybe one last one for me just in terms of the one drop product. Obviously, that's that's great in terms of.

Some of the data that you've collected in the studies on that how do you sort of see the next steps in terms of the pathway to sort of making it.

You know a commercially available product.

Yeah, so the first place we're going to go is, as you recall, the device has been cleared for medically supervised draw by the FDA. So we will begin to launch into our doctor community through our sales force. And then through some of our business, the folks on the B2B side and business development will be working with CROs and pharma companies as well as we've had recent inquiries.

Yeah. So the first place we're going to go is.

As you recall the.

Device has been cleared for medically supervised dropped by the FDA. So we will begin to launch into our Doctor community through our sales force.

And then through.

Some of our business.

The folks on the <unk> side.

This development will be working with Cros and pharma companies as well as we've had recent inquiries.

to begin to use the device in trial settings. We also are going to be working with a potential partner to develop what we hope will be the ultimate wellness panel, which won't get done till the end of this year. But we want to pair this device with a very unique testing, a test, blood test for wellness.

To begin to use the device and trial settings.

We also are going to be working with a potential partner to develop what we hope will be the ultimate wellness panel, which won't get done until the end of this year, but we want to pair this device with a very unique testing test blood tests for for wellness.

as we really are trying to focus on testing markets that where there's very little competition and they tend to be more comprehensive.

As we really are trying to focus on testing markets.

Where there is very little competition and they tend to be more comprehensive.

Then after that, the big market is the direct-to-consumer side.

Then after that is the big market is the direct to consumer side.

And.

You know, we're going to have to work, we're working with regulatory experts now trying to figure the best path forward for consumers. The result of this clinical trial at the University of Cambridge should be, we hope anyway, indicative of the safety and ease of user experience for consumers because there was no supervision in that trial of 4,000 people. It's one of the largest medical device trials run. So we think we should be in good shape to go to the FDA for a DTC clearance, but that takes some time.

We're going to have to work, we're working with regulatory experts now.

<unk> to figure out the best path forward for consumers.

Result of this clinical trial at the University of Cambridge should be we hope anyway indicative of the safety and ease of user experience for consumers because there was no supervision in that trial of 4000 people. It's one of the largest medical device trials run. So we think we should be in good shape to go to the FDA for PVC clearance, but that takes some time.

Makes sense. Thank you so much.

Thank you, our next question comes from the line of Sean Dodge from FBC Capital Markets. Please Sean, your line is now open.

Thank you. Our next question comes from the line of Sean Dodge from RBC Capital markets. Please show your line is now open.

Thanks. Good morning. On the Healthy Aging campaign, if we think about the specific products or channels you're targeting there, is there any difference in margins of those? And what I'm getting at is the revenue benefits from that campaign, such as a ramp, is there any margin impact from the change or product channel mix that that drives?

Yeah. Thanks, good morning.

On the.

I'll now healthy aging campaign, if we think about the specific products or channels, you're targeting there is.

Is there any difference in margins of those and what I'm getting at is the <unk>.

Revenue benefits from that campaign starts to ramp is there any margin impact from the change.

Product channel mix that that drives.

Yes, good question, Sean Thanks, So.

Yes, that's a good question, Sean. Thanks.

When we bring out new products, we are science focused first, but also margin is a big factor. So we are looking at things that...

If you when we bring out new products.

Our science focused first but also margin is a big factor. So we are looking at things that.

tend to carry margins that would be, you know, in the 60 to 70% range more than what you would see out of our typical sort of generic line. So, you know, for instance, the green's product we're launching, which we think is going to be extremely unique, we will be able to undercut the, you know, the green's product we're launching,

Tend to carry margins that would be in the 60% to 70% range more than what you.

You would see part of our typical sort of generic.

Line so.

For instance.

The Greens product, we're launching which we think is going to be extremely unique we will be able to undercut the.

the competition, the biggest two competitors by at least $10 a month on subscription, maybe a little more than that on a one-off basis and still run very high margins for ourselves because we are the manufacturer.

The competition.

The biggest two competitors by at least 10 Bucks a month off subscription maybe a little more than that on a one off basis and still run at very high margins for ourselves because we are the manufacturer.

Same is true of our collagen line is good margins and as do the extensions. They'll be a product for, we mentioned for ovarian care for women with endometriosis and PCOS, same thing, good margins. And then I would add that.

Same is true of our collagen line has good margins.

And as do the extensions there'll be a product for we mentioned four ovarian care for women with endometriosis Pcos same thing good margins.

And then I would add that.

the printed line, we believe we'll have very strong margins as it reaches scale. Right now, as you recall, we're anticipating that sales this year won't be that big.

The printed line.

We believe we will have very strong margins as it reaches scale right now as you recall, we're anticipating that.

This year won't be that big.

because it's just launching and it's a new technology and we're going to have to educate the consumer a little bit but it will have good margins once we reach scale.

Because we're just launching.

And it's a new technology.

And we're going to have to educate the consumer a little bit but it will have good margins once we reach scale.

Okay, great. Thanks, and then.

Okay, great. Thanks. And then within the professional B2B revenue line, can you update us on how much B2B is contributing to that? And then maybe just talk about the outlook for the professional channel for the year in light of some of the potential disruptions, Paul, you mentioned. Does the Healthy Aging campaign have elements that target providers as well?

Within the professional <unk> revenue line can you update us on how much <unk> is contributing to that and then.

Maybe you can just talk about the outlook for the professional channel for the year in light of some of the potential disruptions. Paul you mentioned it does the healthy aging campaign have elements that target providers as well.

So, Sean, I think one of the things we should address right up front is, you know, where you have seen some weakness.

So Sean I think one of the things we should address right upfront is where you have seen some weakness.

And if you look at our professional side, it has various elements, I'm sorry, professional and B2B side, it has international, it has our doctorate business, it has our sports sales business, and it has some of the business that's run under the business development side. So we don't break each one down.

If you look at our professional side. It has various elements are I'm, sorry professional <unk> site. It has international it has it has our doctor businesses. It has our sports sales business and it has some of the business that's run under the business development side. So we don't break each one down.

In terms of segment, but I do want to give you some ideas here, at least on the areas where there's some weaknesses as well as some really good strength. On the weakness side first.

In terms of segment, but I do want to give you. Some some ideas here at least on the areas where there is some some weaknesses as well some really good strength on the weakness side first.

International.

Had a couple of accounts that service style, Ukraine, Ukraine, and Russia. They were bigger than we believed they were in Ukraine, and Russia, because we were running through distributors.

And that distributed in other countries as well.

That cost us about four to $4 5 million in sales versus the numbers that we thought we might achieve in the first quarter. So we would've had a spectacular first quarter were it not for for that situation.

cost us about four to four and a half million dollars in sales versus the numbers that we thought we might achieve in the first quarter. So we would have had a spectacular first quarter were it not for that situation. We do not.

We do not anticipate that this business is coming back anytime soon so we're basically have taken down our own internal forecast for international but there are other things that are going to make up for it.

anticipate that this business is coming back anytime soon. So, we're basically have taken down our own internal forecasts for international, but there are other things that are going to make up for it, especially on the DDC side. In the other parts of professional and business, our doctor business is very strong and we think it's growing at least double the rate of

Especially on the DTC side in the be it in the other parts of professional and business to business.

Our Doctor business is very strong.

And.

We think its growing at least double the rate of <unk>.

of our competitors in that market. Our sports business grew over 80% in the first quarter, and the Healthy Aging campaign will benefit us not only in the D2C side, but also on the B2B and professional side.

Our competitors in that market our sports business.

Grew over 80% in the in the first quarter.

And.

The healthy aging campaign will benefit us not only in the DTC side, but also on the on the <unk> and professional side.

Okay, Great I appreciate all the detail thanks.

Thank you. Our next question comes from the line of Oliver Chen from Cowen. Please Oliver Your line is now open.

Thank you. Our next question comes from the line of Oliver Chen from Coen, please, Oliver, your line is now open.

Great. Thanks a lot. It's Max on for Oliver. So first, it looks like the pace of your active subscribers accelerated nicely quarter over quarter. Should we look for that to remain the trend as awareness builds off increased marketing? And are you making any specific changes in your marketing approach to drive greater subscription?

Great. Thanks, Slide it's Max on for Oliver So first it looks like the pace of your active subscribers accelerated nicely quarter over quarter should we look for that to remain the trend as awareness builds off increased marketing and are you, making any specific changes in your marketing approach to drive greater subscription.

Yes.

Michelle? Yeah, so I can take that question. So, yeah, we were really pleased with our subscription goes quarter over quarter and year over year on both the Amazon M4 and DTC platforms. And it's been a really big focus for us to drive subscriptions with new customers. So, since new customer acquisition is such a focus for growth in the DTC space and how we're sending on marketing, we try to get people into the ecosystem to subscribe first. So, it's been a bigger point event to see.

Michelle Yes, I can take that question. So yes, we were really pleased with our with our subscription growth quarter over quarter and year over year on both <unk>.

Amazon Ann Thornton PDC platform.

And it's been a really big focus for us kill drive subscriptions with new customers. So hence new customer acquisition is such a focus for growth and the D to C space and how we're spending on marketing.

Try to get people into the ecosystem to subscribe first and so it's been a bigger point of emphasis when people begin with our brands that historically.

when people begin with our brand, then historically. So that definitely is a factor in kind of our messaging and why we're seeing such significant growth. But we're also,

So that definitely is a factor in kind of our messaging and why we're seeing such significant growth, but we're also ensuring that we get as many repeat purchases under subscription as we can so we haven't automated E Mail program running right now and it sounds like target people, who purchase the same product more than once that arent subscribed so what.

ensuring that we get as many repeat purchases on to subscription as we can. So we have an automated email program running right now that essentially targets people who've purchased the same product more than once, but aren't subscribed. So we're kind of hitting it from multiple angles, but we expect this trend to continue as we move forward, as we not only emphasize the convenience of subscribing, but also the financial incentives that you can get both on Amazon and Thorn.

Kind of hitting it from multiple angles, but we expect this trend to continue as we move forward as we not only emphasize the convenience of subscribing, but also the financial incentives that you can get both on Amazon and <unk>.

Great. That's very helpful. And your gross margin is very impressive, especially in the current environment. Just early progress suggests you could hit your longer term targets much sooner than you previously expected. And what is your outlook for your own supply chain? And for next year, as you, as prices are increasing, and you might have to go back into the raw material markets, how big of an impact

Great. That's very helpful and your gross margin is very impressive, especially in the current environment.

This early progress suggests you could hit your longer term targets much sooner than you previously expected and what is your outlook for your own supply chain and for next year as you as prices are increasing and you might have to go back into the raw material markets, how big of an impact do you think that that could be a margin.

So we anticipate that.

So we anticipate that if you recall from the IPO process, we were 56% to 58% was our targeted growth margin. And it appears as if we'll at least have some quarters that approach that faster than we originally anticipated, largely due to tremendous numbers of efficiencies in the plant. And, you know, again, I would urge you

If you recall from the IPO process, we were 56% to 58% was our targeted gross margin.

Peers.

If we will at least have some quarters that approach that faster than we originally anticipated.

Largely due to tremendous numbers of efficiencies in the plant.

Ken.

Again.

I would urge you to.

look at us in at least in a couple of differentiated ways, but one of them is the fact that we do control our own manufacturing and have done this with...

Look at us.

At least in a couple of differentiated ways, but one of them is the fact that we do control our own manufacturing and have done this.

Really being as much as U S based as we possibly can.

really being as much as U.S. based as we possibly can long term and so we're benefiting from that. And I think that the team in South Carolina has done an excellent job continuously trying to be many months ahead of news items that we all see but we don't readily understand how they're going to impact us. So again with meetings

Long term and so we're benefiting from that.

And I think that the.

The team in South Carolina.

Has done an excellent job continuously trying to be many months ahead of news items that we all see but we don't readily understand how they're going to impact us so again with meetings at.

at a minimum of weekly and sometimes a lot more frequently than that. The global issues are discussed and immediately

At a minimum of weekly and sometimes a lot more frequently than that.

The global issues are discussed in immediately.

they they get into the realm of where can we get screwed and I think that well ahead of next year we'll start having those meetings and looking at that where it can happen again and try to plan ahead and maintain

They get into the realm of where can we get screwed in.

I think that well.

Well ahead of next year, we will start having those meetings and looking at where it can happen again and try to plan ahead and maintain.

the type of inventories that protects the company. At least that's the goal. Tom, do you have anything you want to add to that?

The type of inventories that protects the company at least that's the Gulf. Tom do you have anything you want to add to that.

No, I think that that's well said. There's a couple other things that are contributing near term and will continue to longer term to help us out in addition to what we'll call just general supply chain management, which we discussed a bit.

No.

I think that's well said theres a couple of other things that are that are contributing near term and we'll continue to longer term to help us out. In addition to we'll call. It just general supply chain management, which we've discussed a bit.

And in particular, Paul alluded to that, that our new product introduction

And in particular pulp Paul alluded to that that our new product introductions.

which more typically than not are very direct to consumer focus or more direct to consumer focus are typically at higher gross margin.

More typically than not are.

<unk> are very <unk>.

Direct to consumer focused or more direct to consumer focus.

Are typically at higher gross margins.

And right now are the fastest-growing segment of our overall products and product growth. That combined with our continued move towards direct to consumer and in particular, that revenue mix being at higher average price.

And right now our R.

Are the fastest growing segment of our overall products and product growth.

That combined with our continued move towards direct to consumer and in particular that revenue mix being at higher average pricing.

We're basically having our products be a real generator in their own right of gross margin and so that's very helpful and obviously then as we continue to drive manufacturing efficiencies and then continue to try to do our best against inflation and the supply chain risks that we've alluded to, that's going to be our continuing strategy moving forward.

We're basically having our products be a real generator in their own right.

Gross margin.

And so that's very helpful. And obviously then as we continue to drive manufacturing efficiencies and then continue to try to do our best against inflation in the supply chain risks that we've alluded to that's going to be our continuing strategy moving forward.

Got it. That's helpful. And then just a quick follow up on that. If we were to look at raw material pricing today, if you had to go back in the market now, how much of a headwind do you think that could be the gross margins?

Got it that's helpful. And then just a quick follow up on that if we were to look at.

Raw material pricing today, if you had to go back in the market now how much of a headwind do you think that could be the gross margins.

Tom why don't you take that.

Yeah, sure. What I can tell you right now is for the first quarter this year versus last year, our overall raw materials have increased in cost 2%.

Yes, sure what I can tell you right now is for the first quarter this year versus last year, our overall raw materials have increased.

In cost 2%.

year on year and 1% from the end of the last quarter, 2021.

Year on year, and 1% from the end of the last quarter 2021.

We, our largest increases are actually not fortunately in raw materials, which are the biggest dollar right.

We our largest increases.

Or actually not Fortunately in raw materials, which are the biggest dollar items, but in other component items debt, particularly our effected by petroleum and petroleum processing and that really includes our bottles and scoops and seals and <unk>.

but in other component items that particularly are affected by petroleum and petroleum processing. And that really includes our bottles and scoops and seals and elsewise.

which have increased about 24% year over year and 5% from the last quarter. That's the bad news. The good news is on a dollar volume basis compared to raw materials. It's a rounding error.

Which had increased about 24% year over year and 5% from the last quarter. That's the bad news. The good news is on a dollar volume basis compared to raw materials, it's a rounding error.

it's just not not a big dollar item and so right now what we what we're really focused on is managing the raws because of the dollar piece on that fortunately we've been able to recently get a couple of agreements in on the supply side on packaging components that hopefully bring that in but right right now what's really driving

Just not not a big dollar items.

And so right now.

What we're really focused on is managing the raws because of the dollar piece on that.

Fortunately, we've been able to recently get a couple of agreements in on the supply side on packaging components.

Hope hopefully bring that end, but right right now, what's really driving the cost of any increases to us or less raw materials and more petroleum.

the cost of any increases to us are less raw materials and more petroleum

I would call it derived end products, and in that case for us it's bottles, lids, and to a lesser extent capsules.

I would call it derived in products and in that case for us it's bottles.

Lids.

And to a lesser extent capsules.

Okay.

That's very helpful. Thanks, a lot and best regards.

Okay.

Thank you, as a reminder, to ask any further questions, please press staff followed by number one on your telephone keypads now.

Thank you as a reminder to ask any further question. Please press star followed by number one when your telephone keypad now.

And the next question comes from the line of Brian Spillane from Bank of America. Please Brian , your line is now open.

And the next question comes from the line of Bryan Spillane from Bank of America. Please Brian Your line is now open.

Thanks, Juan. Good morning, everyone. A couple questions. Paul, maybe the first one is if we look at OneDraw and Nutrativa beyond this year, just kind of looking out over just into the future, how additive could they be to kind of the existing revenue base, just trying to get a sense of...

Thanks, Juan good morning, everyone.

A couple of questions Paul maybe the first one is if we look at one draw.

And.

Neutral <unk>.

Beyond this year, just kind of looking out over into the future.

How additive could they be to kind of the existing revenue base, just trying to get a sense of.

how needle-moving those two items might be in terms of what your original plans were.

How needle moving those two items might be in terms of kind of what your original plans were.

Okay. So I would actually lump I take neutral Eva one dry in the microbiome widen.

Okay, so I would actually lump, I take Neutrativa, one draw in the microbiome wipe, and

Ken.

Essentially, I'll try to separate one being the product side. So, Nutrativa, which is just TharnNow, offers us the ability to attack

Essentially.

I'll try to separate one being the product side, so neutral Teva.

Which is just starting now.

August with us the ability to.

Attacks.

multiple channels. So first, from our own perspective, we're launching three products shortly, but one of them really challenges the entire gummy market with a product that has no competition. This product for children will be far more efficacious.

Multiple channels. So first from our own perspective, we're launching three products shortly but one of them really challenges the entire gummy market.

With a product that has no competition. This product for children will be far more efficacious and far healthier than anything that anybody who puts out in the gummy market, which is probably a multibillion dollar market. We also have a robust women's health business, especially amongst women who are contemplating getting pregnant.

and far healthier than anything that anybody puts out in the gummy market, which is probably a multi-billion dollar market. We also have a robust women's health business, especially amongst women who are contemplating getting pregnant. We think that

Think that.

This will tie customers into us for long periods of time by getting the kids involved on one of our products. In terms of OneDraw and the microbiome white,

This will tie customers into us for for long periods of time by getting the kids involved.

One of our products.

In terms of one draw and.

And the microbiome white.

We believe that long-term they can have major impact on our overall revenue. We haven't modeled them yet other than for this year.

We believe that long term they can have major impact on our overall revenue, we haven't modeled them yet other than for this year.

The reason is that I really want to focus on the wipe first.

The reason is that.

And al I really want to focus on the <unk>.

There is all sorts of new research coming out about the importance of microbiome testing for all sorts of potential, and we don't do disease analytics, but they are for many, many diseases, many of which

There is all sorts of new research coming out about the importance of microbiome testing.

For all sorts of potential and we don't do diseases analytics, but they are for many many diseases many of which can be addressed with the product that is natural and then marketed with structure and function claims like we do so we see all sorts of potential new opportunities for microbiome testing and it's already are number one.

can be addressed with a product that is natural and then marketed with structure and function claims like we do. So we see all sorts of potential new opportunities for microbiome testing and it's already our number one selling test.

Selling cost so the user experience is what's holding back a.

So the user experience is what's holding back a dramatic opening of this market. I don't know if you've ever gone through it, but it's not pleasant. This completely changes the game. And the clinical trial, which will appear in

A dramatic opening of this market I don't know if you've ever gone through it but it's not pleasant this completely changes the game and the clinical trial, which will appear in front of me.

in frontiers and immunology shows that the sequence DNA is very similar in kind to the traditional way of collecting a fecal sample.

In frontier is in immunology shows that.

The sequence DNA is is very similar in.

In kind to the traditional way of collecting a fecal sample.

Our long-term goal is to take the microbiome wipe and pair it with

Our long term goal is to take the microbiome wide and parent.

unique outputs. So it is just a microbiome test, but there's different things you can look for, and that's what we're now working on through, really led by Nathan Price and Bodhi Jung.

Unique outputs. So it is just the microbiome test, but there are also there's different things you can look for and Thats. What were now working on through really led by <unk>.

Nathan price.

Bodie Cheung, where theyre looking at.

where they're looking at opportunities to work with different companies. Most of them tend to be real hardcore science that don't have sales outlets and so there's all sorts of opportunities for us to pair up with other companies.

Opportunities to work with different companies most of them tend to be real hardcore science that don't have sales outlets and so there's all sorts of opportunities for us to pair up with other companies.

and do things together. And that's really what we're looking for. I think microbiome is going to be a massive opportunity, long-term, led by a change in the user experience. As far as the blood device, for this to become a big, meaningful contributor to our revenue, we will have to get it cleared through the FDA as a direct-to-consumer product.

And do things together and that's really what we're looking for I think microbiome is going to be a massive opportunity long term led by a change in the in the user experience as far as the blood device for this to become a big meaningful contributor to our revenue we will have to get it cleared through the FDA as a direct to consumer product.

and we are going to try to do it. Otherwise, the opportunities for us are in the medical space, in clinical trials, in CROs,

And we are going to try to do it otherwise the opportunities for us are in the medical space in clinical trials in <unk> and potentially working in partnership with population health groups. Our goal and we're already working on this now though is to develop the ultimate wellness test, which is a blood test, which we compare.

and potentially working in partnership with population health groups.

Our goal, and we're already working on this now though, is to develop the ultimate wellness test, which is a blood test, which we can pair with this device, launch it into the physician market, and then hopefully get it cleared and go out into the consumer market. We think there's opportunities to build the most comprehensive test that's ever been addressed in the wellness market and put it on the market for under $500. That's kind of where we're at.

With this device launched it and launch it into the into the physician market and then hopefully get it cleared and go out into the consumer market, but we think theres opportunities to build.

The most comprehensive test that's ever been addressed in the wireless market.

Put it on the put it out in the market for under $500 and Thats kind of where we're headed.

So, Paul, these products are, I mean, I guess, is it fair to say or fair to think that there could be a B2B revenue stream and also a direct-to-consumer or a consumer revenue stream as well.

So Paul just.

These products are I mean, I guess is it.

Fair to say or fair to think that there could be a b to b revenue stream and also a direct to consumer or a consumer revenue stream as well so.

I guess the revenue opportunities are partnering with other companies while at the same time having thorn products as well. Is that the right way to think about it? Yeah, that's totally correct. And that even includes the printed supplement line because we're going to be launching fairly soon with a company in the beauty space who will be selling a healthy aging product.

I guess the revenue opportunities are partnering with other companies while at the same time.

Having thorne products as well is that the right way.

Yes, that's totally correct and that even includes the printed supplement line because.

We are going to be launching fairly soon.

<unk>.

Company in the beauty space.

Who will be selling our health.

A healthy aging disc.

disc, printed disc in Sephora, and with a pet supply company in the U.K. who is going to launch a dental hygiene disc for dogs. And again, this is not markets we go after traditionally. So we are hopeful that we can start to build a robust B2B platform later on with this technology in areas of region.

Disc printed disk in sephora.

And with a pet.

<unk> company in the U K, who is going to launch a dental hygiene disk for for dogs and again. This is not markets. We go after traditionally so we can we are hopeful that.

We can start to build a robust <unk> platform later on with this technology.

Okay.

Yeah, no, that makes sense. It's funny, like the dental hygiene disc for dogs would be like a huge breakthrough, right? Most people don't brush their dog's teeth, and they should. And then just one additional question, just,

Yes.

It makes sense, it's funny like the dental hygiene.

Disk for dogs would be like a huge breakthrough right. Most people don't brush their dog's teeth and they should.

And then just one additional question just.

As the, you know, you're recruiting new subscribers, new customers, can you remind us just what the average, I guess the average ticket is, like how many products on average does a subscriber use and is that changing at all as you're bringing new consumers onto the platform?

As the.

Youre recruiting new subscribers, new customers can you remind us just what the average I.

I guess the average ticket is like how many how many products on average does as a subscriber.

And is that changing at all as you're bringing new new new new consumers onto the platform.

Yes. I can take that question. So we were really excited to see the year-over-year in Q1. Our unit economics are improving.

Yes, I can take that question. So we were really excited to see that year over year in Q1, our unit economics are improving.

And then I'm sure you've seen with other brands pretty common when you go further from the core for that unit economics to degrade.

As I'm sure you've seen with other brands, it's pretty common when you go further from the core for the unit economics to degrade.

So order size.

order size, there's, you know, some fluctuation between Amazon and so on, the unit economics on Thorn are a little better, but, you know, tend to be around the one point

So some fluctuation between Amazon and so I need at economics on point or a little better, but 10 tend to be around the one.

five range, net price per unit tends to be around the $30 range, and order frequency tends to be around 1.8 to 2.

Five range.

Net price per unit tends to be around the $30 range and order frequency tends to be around.

One eight.

You know and year over year that all of those three metrics have increased and you know when we kind of look at 2022 what we're most focused on is order frequency. We feel that with this focus on subscriptions that can be the biggest area of opportunity for really improving the order frequency of our customers and thereby driving the value per customer on both Amazon and Thorne.

<unk>.

And year over year that all of those three metrics has have increased and when we kind of look at 2020 killed <unk>.

Most focused on is order frequency, we feel that with this focus on subscriptions that can be the biggest area of opportunity for really improving the order frequency of our customers and thereby driving the value per customer both Amazon and Thorn.

Okay, great. Thanks, everyone.

Thank you. We currently have no further questions, so this concludes today's conference call. Thank you so much for joining. You may now disconnect your lines.

Thank you. Thank you.

No further questions. So this concludes today's conference call. Thank you. So much for joining you may now disconnect your lines.

Thank you.

The.

Yeah.

Okay.

Yes.

Okay.

Q1 2022 Thorne Healthtech Inc Earnings Call

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