Q2 2023 Thorne HealthTech Inc Earnings Call
Thank you for standing by my name is Dana and I will be your conscience operator for today at this time I would like to welcome everyone to the Thorn Healthtech, Inc. Second quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks.
There will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you now I would like to turn the call over to Thomas Wilson.
V P of Investor Relations.
Good afternoon.
Thank you for joining.
Okay.
With me today.
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Before we begin please note that today's discussions contains forward looking statements subject to risks and uncertainties.
Actual results may differ.
And those indicated by her for looking Sir.
More information about potential risk factors.
2022 annual report on form.
Mmk and first quarter of 2023.
As well as our upcoming form thank you for your answers.
In the next couple of days as well as other S. A C.
Today in addition to the U S.
Discussing financial measures that do not conform it yeah.
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Understanding of our performance.
Representative.
Early measures.
non-GAAP financial measures should not be considered an escalation from or as a substitute for GAAP measures.
Conciliation of gas nausea results is available in the earnings press release issued.
Aftermarket close.
Investor presentation posted to our I R website.
With that I'll turn the call over the phone.
Good afternoon, thanks, everyone for joining the call.
Today I'll briefly touch on our second quarter financial results in operating performance.
Our key accomplishments during the quarter.
I'll provide updates for a few select products and then I will turn to our updated 2000 twenty-three guidance.
Finally, so learning will provide a detailed review of our second quarter of 2023 financials.
It will open up the call for questions after that.
After posting a very strong first quarter I'm pleased to report that our business momentum continued into the second quarter.
We reported record sales of $72.7 billion in queue to.
Solid growth across all our sales channels, which represents year over year growth of 33.1%.
Our direct to consumer business generated sales of $36 $8 million, an increase of 39.3% for the second quarter of 2022.
Are professional and business to business revenues came in at $35.9 million.
Grew 27, 3% year over year.
On balance or total portfolio continues to grow across our diversified customer base, which underscores the strength of our science back product offerings at trust in our high quality Brandt.
A strong topline performance was driven mainly by our direct to consumer or do you just see business, which continues to perform well can exceed our internal expectations.
Over the last several quarters the strength of thorns DDC portfolio has enabled us to increasingly shift into a more predictable sales model.
We continue to acquire new customers efficiently with an L. T V. The CAC ratio of four point out that our net promoter score 68 remains well above industry norms.
Through the success, we've experienced strong growth in subscription volumes throw dotcom subscriptions are up approximately 60% on a year over year basis from strength in both daily Foundation products as well as more unique and targeted products for sports performance and metabolic health.
We also continue to see healthy retention rates, which is not surprising is the more often a customer uses our wellness products the more likely they are to remain with us.
I'm also pleased to note that we're starting to see growth in our Asia Pac business.
Asia Pac remains a nascent part of our overall sales mix. There is no question that this region is poised to become an increasingly important component of our growth.
And we'll be making appropriate and investments were necessary to capitalize on this long term opportunity.
These dynamics underlie our strong top line performance as we generate a sustainable and more predictable income stream.
Loyal customer base around the globe.
In addition to strong sales growth. We also saw a nice improvement in our margins sex.
Second quarter gross margin of 55.9% represents more than 100 basis point improvement over Q2 of last year.
That expansion was driven by one time benefits of lower overhead and some better channel mix favoring or direct to consumer business, leaving the favorable impacts from pricing.
We have made it a strategic priority thorn to invest in technology and manufacturing that should enable us to realise improved gross margins overtime.
And we've explained to.
2023 is a big investment here.
As mentioned on prior calls, we expect our new manufacturing facility to be partially operational in the fourth quarter of this year at fully operational sometime during the first quarter of next year.
Following completion of the build we think this new facility will enable us to approve gross margins by another five to 600 basis points over the next several years.
Which would have a significantly positive impact to our overall profitability, resulting in a longer term gross margin target of approximately 60% for the overall business.
Turning to operating profit for the second quarter, we reported adjusted EBITDA of $12.5 million, a significant increase over the prior year period loss of $1.3 million.
Which was driven mainly by improved gross margin efficient marketing spend an operating leverage.
Adjusted diluted EPS for Q2 was 15 cents versus a loss of five cents per share in the second quarter of last year.
Now I would like to highlight some of our second quarter accomplishments.
In June we announced that are nano drop device received the C E. Mark certification after successfully fulfilling the European Union is relevant performance safety and product requirements.
Nano drop which is already integrated into the thorns one draw blood collection system is virtually painless blood collection device that we believe has the potential to significantly decentralized clinical trials at at home diagnostic testing.
Nano drop as a clinical grade device that uses thorns novel dual nano lamps of technology to obtain capillary whole blood samples.
We believe nano drops CE Mark certification will open up new testing applications for Thorne.
By allowing individuals to use the device in their home.
Also in June or five 10-K application for nano drop was successfully accepted by the FDA.
Soon thereafter with no comments, we received notice from the agency that it was recommended for substantive review.
Our interaction so far have been encouraging and we expect to have a completed review by August 11th.
Although even if Clarence is granted we will not be allowed to publicly announce anything until it goes live on the FDA website.
This news together with the Claris of one drawn Japan earlier this year.
Brings us one step closer to being able to achieve broad application across and markets around the globe.
As a reminder, one draw as in FDA cleared small lightweight single use device that attaches to the upper arm with Hydrogels adhesive and vacuum.
By pressing two buttons on the device virtually painless capillary blood sample was collected on a cartridge within one draws blood collection device, which uses advanced technology to preserve the sample without requiring pull chain processing and storage.
The stable dry blood sample within the cartridge is then mailed to an independent third party clear Uncap certified lab for analysis and the results insights and recommendations can be viewed on our health intelligence platform by the individual and their health care practitioner.
One draw enables better health for individual consumers and patients by removing the obstacles to prevent people from taking better control of your health ultimately offering an improved experience.
We are obviously very excited about one drive technology and believe this highly innovative product test the opportunity to bring significant upside to our future sales growth.
And we are not alone in this assessment of one draws technology.
And May we announced that one draw won the prestigious 2000 twenty-three Medtech breakthrough award for best overall medical device.
With competition from nearly 4000 other product nominations globally, we couldn't be more pleased to be recognized amongst such a large number of cutting edge technologies and new innovations.
Also in May we announced the research and development partnership agreement with a Roomie science a leader in metabolomics to develop a next generation metabolomics along this task.
We have seen nice sales growth in metabolism related offerings and believes that metabolomics is fast becoming one of the most valuable measurements to assess the overall health status of an individual on a real time basis.
Initially we plan on conducting a series of validation studies and will collect additional data using our one draw device.
If successful this research will be used to support the development of metabolomics commercial test that can be offered across our entire customer base.
In early April we announced significant positive findings from a randomized double blind trial that studied the effects of the dietary supplements cynic, well Ah brain function and structure and junior Ray ice hockey players.
<unk> is a nutrient plan that has been co developed a neurologist at the Mayo clinic for supporting brain health structure and function, especially for athletes and other individuals engaged in high contact activities.
The study results provided clear clinical evidence that are patented multi ingredient nutritional supplement cynical can support healthy brain structure and cognitive function.
Developing products that support brain helps remains a core focus withdrawn and we continue to work collaboratively with the Mayo clinic and health check connects to further advanced as cynical as development.
We expect to devote significant marketing efforts to this product beginning of 2024.
On July 25th we kicked off our bill to last marketing campaign, which is our first ever Global campaign features three time N B a champion philanthropist, an entrepreneur Dwayne Wade along with his son and professional basketball player <unk> way.
For three months campaign showcases an inspirational no shortcuts approach to lifelong wellness supported by thorns highly tested premium products that are capable of enriching lives at every age and life stage.
With our efficient marketing engine, we expect the campaign and our partnership with the way family to scale of our brand and product awareness in major markets across the globe.
Turning to our outlook, we expect continued momentum across our business as we enter the second half of the year.
This momentum is driven by the launch of additional innovative products and expansion to our sales force that is producing more business wins, the growing international presence and increasing brand awareness of the foreign name.
Based on the strength of our first half results, we are raising the low m's of our full year 2000 twenty-three guidance ranges for both net sales and gross margin.
With these increases to the guidance Midpoints are updated full year guidance range for net sales is $285 million to $290 million.
And are updated for your guidance range for gross margin is between $50 52 per cent.
We are also increasing the midpoint of our guidance for marketing costs raising the prior range of between 13 and 15% of net sales to a range of between 14 and 15% of net sales.
The increase was consistent with our prior commentary, which indicated that marketing costs may approach. The high end of the range due to increase investment this year, including from anticipated spend for the build the last marketing campaign.
Rounding out our guidance with increased marketing spend natural growth and selling and distribution costs to meet demand as well as hiring into our plant expansion. We are maintaining our guidance for full year adjusted EBITDA of between 30 and $32 million. However.
However, we are raising our full year adjusted diluted EPS of 26 to 32 cents per share from an update to our estimated an annual tax rate in queue to which silone will cover in more detail.
We remain confident that based on our continued strengthen our business. We can achieve this updated guidance with that I'll turn the call over to Salome for her prepared remarks on our financial results and capital deployment priorities for the rest of the year.
Thank you.
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Quality updating you on our progress.
With that I'll open the ninth body our questions operator.
At this time I would like to remind everyone that in order to ask a question.
Then the number one on your telephone keypad.
We will cost for just a moment to compile the Q&A roster.
Alright. Your first question comes from Susan Anderson Canaccord Genuity Susan. Please go ahead.
Hi, Good evening my tap on the corner.
Just wondering if you could talk about the I think it was 400 or 500 basis points of margin gross margin expansion longer term, which would get you to that high 50.
50 per cent range I guess I don't know if you could bucket, maybe just kind of a driver to get you there.
Hi, Susan did not good afternoon. This is baloney hi.
Alright, so happy too.
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We will go up to 750 million in revenue. So what has happened is this your first.
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Going forward the expect the benefit of that that that will help us significantly and it will be an immediate benefit in the next two years.
That it would be labor and overhead so I need to counting the new standards that are in place make us amortize rank evenly over the course of the next the time period of the neat Hollywood as we ramp up capacity to absorption and basketball differently.
Cost of production will come down significantly.
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That was really helpful. And then if I can just add one more I think the growth and subscriptions. It looks like it did accelerated pay about 60 per cent now maybe you can just talk about what you think the drivers were and that acceleration.
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No I think Susan what what we have done this yard as we have consistently invested in the plan.
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One of the <unk> marketing forecast for this year originally it was around 13% to 15% now we're looking at 14 to 15.
Because we do want to invest in consumer education. So one of the biggest drivers is that consistent consistent investment across all channels. It's not just in an pawn dot com, but even on Amazon.
Getting digital marketing for that HCP professionals has definitely helped communicate the message across.
Donna.
Great that's really great uhm. Thanks, so much you guys. Good luck the rest of the year.
Thank you.
Reminder, to ask a question press Star then the number one on your telephone keypad.
Your next question comes from Elizabeth Anderson Evercore Elizabeth. Please go ahead.
Hi, This is Patrick go on for Elizabeth.
That's on the corner guys are there any changes or new macro development, we should be considering for the remainder of the year. Besides those mentioned, whether it be Russia, Ukraine, those impacts extending or anything else high level.
No I don't think so you know everything for US right now is more of a micro basis.
We're focused on a new product launches both device.
And products.
Will be coming up later on this year, but we're not particularly concerned about the macro stuff right now.
Already taken it yet.
You'll see the Russia, Ukraine situations from Enron plausible.
Got it thank you.
Ladies and gentlemen.
That concludes today's call.
Thank you all for joining and you may now disconnect.
That concludes today's call.
Thank you all for joining and you may now disconnect.