Thorne Healthtech, Inc.

Hello everyone and welcome to Thorne Health Tech 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 star followed by number 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.

Good morning, everyone. Thank you for joining Thorne Health Tech'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. 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 statements. 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 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. 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 close 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 Calend's sixth annual Future 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.

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. 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. Scott has been instrumental in the company's growth and helping to establish the culture we have today. He will remain in a consultant role for the rest of the year, and we wish Scott all the best. At the same time, we're excited to have Brian Conley join as our new CFO. Brian 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. I'll hand the call over to Brian so you can meet him after my prepared remarks. 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. The B2B and professional channel grew 15% over Q1 of last year. Our gross margin expanded 285 basis points to 55.1%. GAAP net income increased to $5 million, while adjusted EBITDA grew to $8.7 million. And lastly, GAAP EPS was $0.09 and adjusted EPS was $0.12. With respect to Q1 net sales, our 33% D2C 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. 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. 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. Turning to B2B and professional sales, our 15% growth in this channel was primarily driven by our network of health professionals, which continues to increase and is now more than 46,000 strong. 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%, and we recently announced a new partnership with USA Boxing, marking the 12th US national team turning to Thorne 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 in the international business due to the impact of geopolitical conditions, resulting in weaker-than-expected sales by our international distributors. 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%, 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. 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 cost per bottle, and greater fulfillment capacity. 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 million. This resulted in GAAP 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. With respect to adjusted EBITDA margin, planned marketing spend ahead of our healthy aging 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. 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 Thorne 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 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.