Thorne Healthtech, Inc.

Hello and welcome to Thorne Health Tech Inc's fourth quarter 2021 earnings call. My name is Lauren and I will be coordinating your call today. All lines have been placed on mute to prevent any background noise. After the speaker's remark, 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, please press star two. I will now hand you over to your host, Thomas Wilson, to begin. Thomas, please go ahead.

Good morning, everyone. Thank you for joining Thorne Health Tech's fourth quarter 2021 earnings call. With me today to share our results are Paul Jacobson, our CEO, and Scott Wheeler, our CFO. Tom McKenna, our COO, and Michelle Crow, our Chief Marketing Officer, are also available for questions. Before we begin, please note that today's discussion contains forward-looking statements that are subject to risks and uncertainty. Actual results may differ materially from those indicated by our forward-looking statements. More information about potential risk factors can be found in our annual report on Form 10-K, which we anticipate filing after market today, and in other SEC filings. Also, in addition to U.S. GAAP reporting, we will be discussing financial measures that do not conform to GAAP. We believe these non-GAAP measures enhance the understanding of our performance because they are more representative of how we internally measure our business. Please note, these non-GAAP measures should not be considered in isolation from or as a substitute for GAAP measures. A reconciliation of GAAP to non-GAAP results is available in the earnings press release we issued last night and in the supplemental investor presentation posted to our IR website. With that, I'll turn the call over to Paul.

Thank you, Thomas. Good morning, everyone. And thank you for joining our fourth quarter earnings call. 2021 was a record year with significant accomplishments across the board for Thorne Health Tech. The company's strong financial performance was driven by our simple focus on delivering the highest quality solutions to customers. while continuing to execute on the key growth strategies we outlined during our recent IPO process. I'll share some of the main highlights and then turn the call over to Scott for additional details. For the 2021 full year, we delivered 185 million in sales, a 34% increase over the full year 2020. We grew our base of active subscriptions by 66% to approximately 257,000. We expanded gross margin by 580 basis points to 52.6%. We grew adjusted EBITDA by 34% to $20.6 million. And lastly, we earned GAAP EPS on a diluted basis of 10 cents and adjusted diluted EPS of 27 cents. These solid results add to our long track record of growth. I'm also pleased with the continued operating efficiency improvements we are making as we expand the scale of our vertically integrated operations. We are achieving new levels of sustainable profitability and innovation. Our talented workforce is resilient. I've remained impressed by how well our people have continued to deliver through the uncertainties presented by the pandemic. As you know, Q4 was our first full quarter as a public company. Our IPO in September not only brought us sufficient capital to accelerate funding for our long-term growth initiatives, but it quickly puts us on a bigger stage to drive awareness to Thorne as a leading personalized scientific wellness company. With the IPO behind us, it has been exciting to fully focus on the vision we laid out to accelerate our growth journey and our long-term value creation for shareholders. Our financial successes for Q4 are similar to that of the full year, achieving high sales growth with increasing net profit. Fourth quarter net sales accelerated to $50 million, a 38% increase over Q4 2020. Our gross margin expanded 340 basis points to 51.5%. Adjusted EBITDA grew significantly to $5.4 million. And we achieved gap EPS of one cent per share and adjusted diluted EPS of seven cents per share. Let me expand on some of the drivers behind the favorable results for both Q4 and the full year. Our marketing initiatives remained efficient and impactful, enabling us to continue building the Thorne brand, which is already admired by customers and is trusted by a growing network of health professionals, athletes, and brand partners. Our Better Health Olympic brand campaign reached millions of people with over 850 million unique impressions, and it drove significant new customer acquisition in the second half of the year. The campaign resulted in a 36% lift in new weekly DTC customers during the 20 weeks following the campaign, compared to the 20 weeks just before it launched. More broadly, in terms of brand awareness and traffic, The number of page views represents customers who click to view a content page on any of our e-commerce platforms. For 2021, our digital properties led to over 37 million page views, up more than 47% year over year. Our full year D2C revenue growth of 38% and related KPIs demonstrate how effective the campaigns and our engagement efforts have been at producing high value customer conversion and retention. For 2021, our net promoter score was 69. In addition, we achieved customer acquisition costs of $39 with a lifetime value of $177. This resulted in an LTB to CAC ratio of 4.5 times, all while spending under 14% of sales on marketing. As a percentage of sales, we believe our 14% spend is far below that of some of our consumer health growth-oriented peers. Our professional B2B revenue also experienced strong growth of more than 31% for the year. This growth was primarily driven by broad-based demand across our professional and performance partners. Of note, online dispensary revenue grew 37%. These dispensaries enable health professionals to digitally expand their practice and, by extension, our base of loyal customers. It's also exciting to see continued increases in the retention metrics of our network of over 45,000 health professionals who provide trusted advice to their customers and patients. Higher retention rates are fueled by the holistic approach we provide not only to our D2C customers, but also to these health professionals with infrastructure for sales and support. As of December 31st, the retention rate of our health professionals increased to 88%. up from 85% as of December 31, 2020. Our network has also increased by more than 3,000 health professionals since our Q3 call, providing further building blocks of trust, third-party validation, and scale. As we scale, we have also continued investing in innovation and new product development to meet unmet wellness needs. On the product front, we launched two new offerings in Q4. First, we launched Collagen Plus, a formula combining collagen, nicotinamide riboside, and skin-enhancing polyphenols to provide customers with a more effective solution to combat the physical signs of aging. And second, utilizing multiple layers of insight from our AI product development system, we also launched Metabolic Health, which targets healthy metabolism, cholesterol, and blood sugar levels. These new products are a direct result of our close relationship with customers. We listen to their health goals in order to then meet them on their personal journey. By launching these products, we are also further demonstrating our commitment to bringing innovative, clinically proven ingredients and solutions to the field of healthy aging. We are a leader in the field now, which we view as a massive long-term opportunity and one that spans the full spectrum of an individual's life. Now turning to our operations and manufacturing. Our operations team marked its most successful year ever in 2021. Because we manufacture our own products, and we do that here in the US, we have been able to effectively manage costs. We have also been able to avoid material shortages by successfully navigating through the global supply chain uncertainties thus far. The business continuity initiatives we enacted early in the pandemic paid dividends by helping us mitigate against potential workforce disruptions. In summary, for 2021, Our production of bottled finished products grew 39% from 2020. Our average bath size increased 28%. And overall, production efficiencies resulted in a 20% annual reduction in average bottle costs, which helped fuel our gross margin growth. As many of you know, we hit a major milestone in June when we transitioned fulfillment and shipping to a new 115,000 square foot facility. In addition, we continue to see benefits from our new West Coast Distribution Center, which has increased fulfillment capacity in that region by about three times. Lastly, on facilities, in December we broke ground on construction of a 360,000 square foot warehouse adjacent to our facility in Somerville, South Carolina, which we currently expect to begin occupying in the first quarter of 2023. Like prior years, we were again awarded an A rating by the NSF. which certifies good manufacturing practices for competitive sports. An A rating is the NSF's highest. This prestigious award enables professional athletes who are subject to testing to safely take and trust our products. While I'm pleased with the rating, we view best of breed ingredients and processes as table stakes for our brand, given the high quality products individuals expect from us. I will now turn to our guidance. For the 2022 full year, we are currently projecting net sales of between $240 million to $250 million, gross margin of between 53 to 55 percent, adjusted EBITDA of between 30 million to 35 million, and adjusted diluted EPS of between 28 cents to 38 cents. Additional details and assumptions related to our guidance were provided in our earnings release and investor deck issued yesterday. They should provide high-level color on how we are thinking about the phasing of sales and costs over the course of 2022. Our guidance details also provide certain assumptions we are currently making for adjusted EPS, since we are introducing EPS guidance for the first time this year. Let me provide some color on a few key drivers for continued success in 2022. I'll start by pointing out that our healthy baseline of sales continues to grow in a steady trajectory following a great year of expanding our brand awareness. Now we will be layering on top of that a campaign in each of Q2 and Q3, and that will have some trending impacts over the course of the year and weight sales towards the second half of 2022, which I'll get into. I'm incredibly excited about the potential of these campaigns. First, in Q2, we will be launching a campaign with a focus on redefining healthy aging by empowering people to live longer, healthier lives. We have a series of offerings being introduced, including our Kids Plus multivitamin that leverages the patented printable dissolvable disc technology we acquired at the end of February. Our Gut Health Wipe, the first to market microbiome wipe that significantly improves the sample collection experience. Our Thorne Advisor one-on-one chat service where customers are able to chat with advisors for personalized product recommendations. And the Thorne Kiosks in connection with our CrossFit partnership. These interactive self-serve kiosks provide a solid reach into an established network that we think could be a great opportunity once it has had time to scale across that operation. Our second campaign in Q3 will focus on innovations and healthy aging highlighting all key product launches during the year. For example, we'll be launching an innovative new product called Daily Greens Plus, packed with functional greens with nicotinamide riboside for healthy aging, endurance, and focus. We believe there is only one major competitor on the market, and we feel great about the opportunity Daily Greens Plus will open up for us with our differentiated approach to its development. Daily Greens ingredients have been clinically tested to support energy and recovery. In addition, once launched, customers will notice the full transparency over what those ingredients are. This scientific rigor and transparency are important to us and our customers. Lastly, the launch of Daily Greens Plus is a testament to one of our core growth strategies to launch differentiated products and expand our current high-value offerings. While Q1 has been relatively quiet for us, as we planned, we expect the campaigns to generate sales that will start to pick up in Q2 and then again in Q3. We expect we will continue to grow the underlying healthy base of revenue from these efforts. I will point out that we have not projected any significant sales from these product launches in our guidance. These new products will allow us to expand further into adjacent markets such that we are expecting that it will take time for these new offerings to become a meaningful contributor to our base. The most closely associated costs to these campaigns are for marketing. As you know, the timing of that spend is generally tied to the timing of the campaigns, so these costs will be heavier in the middle to latter half of the year. I look forward to updating you on the campaigns and launches during the year. With respect to advancing of our drawbridge device, Our development efforts are proceeding well. We can now report that the device's state-of-the-art plasma separation cartridge has been transferred to manufacturing and it is on target for initial production in late Q2 or early Q3. As we've previously said, we believe the device's impressive separation and collection capabilities will set a new industry standard. For example, we will be offering the ability to collect more challenging biomarkers using either dry blood spot or serum separation cartridges without the extra need for cold storage during shipping. However, as this development is underway, it's important to note that we have not assumed any revenue in our guidance for the drawbridge device. And lastly on guidance, while we feel good about our expected growth trajectory for the year, as reflected in our guidance, I will caution that given the uncertainties in the global markets, including the events in Europe, there are incremental uncertainties we are monitoring closely that could have an impact on our plans and on our currently projected results. Now let me turn it over to Scott to step through additional financial detail, but first to wrap up. We remain laser-focused on our mission to bring deep scientific rigor to the preventive space to help people reach peak performance and live healthier for longer. We empower our customers with education, testing, and supplements to support their health journey at any age and life stage. Our balance sheet is in stronger shape than ever, We have continued to scale and we're poised to continue delivering high growth on the top and bottom line. I'm proud of our team's dedication to our mission and the results we shared with you today. I will now turn the call over to Scott for more color on the financial results.