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spk04: 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.
spk06: 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.
spk10: 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.
spk06: These include
spk10: 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 collagen 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. Of note, the Kids Plus multivitamin will be the first of our products to use the patented dissolvable disc 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 shipping costs compared to traditional beverages. Specifically, Kids Plus provides superior efficacy with no sugar or gelatin to the largest category of children's vitamins, which are gummies. With these technological advances, we believe that potential applications are broad and channel-enhancing through B2B opportunities in a private label setting as well. Next, Synequel, a product for nutritional support for neurological function in 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 CoQ10 phytosome to optimize bioavailability. We're launching Ovarian Care, a product for the nutritional support for women with endometriosis or PCOS. And rounding out the year, we'll be introducing a product to provide nutritional support for brain fog in long-haul COVID patients. The product is a mix of pro-resolving mediators, or PRMs, and official omega fatty acids. PRMs 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. Those results, which are summarized in our supplemental investor presentation, have been published in the Journal of Telemedicine and Telecare. We believe the read-through is that we are one step closer to making broader application of the OneDraw device a reality. To summarize, the OneDraw device was deployed in conjunction with a major COVID-19-related study involving 4,000 participants in a telehealth setting. 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. 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. Summing it up, we believe the results demonstrate the reliability of OneDraw 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 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. We are also making progress towards initial production of OneDraw's cutting edge serum separation cartridge and expect to be able to provide an update in the coming months. Looking ahead in the next couple of weeks, we are relaunching the gut health test now with a first to market microbiome wipe. The patent pending wipe revolutionizes 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 test, 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. The recent clinical trial results are expected to be released in Frontiers in Immunology soon, focused on the collection and preservation of genetic material in a dissolvable wipe. 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. By reinventing the testing and 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. 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. 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. As we've 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 investor deck issued yesterday. I will reiterate, considering the current macroeconomic climate that 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 Healthcare Conference next week and then the Colin Future of the Consumer Conference the following week. 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 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. I'll now turn the call over to Brian for additional details of our financial results.
spk02: Thank you, Paul. I'm 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 growth of our business in the face of these challenges demonstrates the strength of Thorne 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 Thorne brand and our integrated offerings. 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%. 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 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. 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 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 efficiency through our production environment as we scale to meet the continued growth in 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. 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 thorne.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 business, 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 Nutrativa. 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. During the first quarter, we continued to invest in promoting the Thorne 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. As a percentage of revenue, marketing expense during the first quarter 2022 was 10.5% compared to 9.5% 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, College & Line, Cinequel, 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. 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, including raw materials by 7.1 million to support our continued growth and protect our supply chain. 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. 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 sheet. 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 valued contributions. I'm inspired every day by the dedication of our team members. Your commitment continues to make Thorne Health Tech a leader in the health and wellness space. We could not be more excited about the opportunities ahead. 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?
spk04: Thank you. As a reminder, if you would like to ask any question, please press star followed by number one on your telephone keypad. If you would like to withdraw your question, please press star 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 Ebeco. Please, Elizabeth, your line is now open.
spk00: Thank you so much for the question. It's 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 2Q and 3Q campaigns. I was wondering if you could sort of talk to, you know, 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, you know, 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, You know, 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 I 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 on that would be great. Thanks.
spk10: All right. I'm going to let Michelle take the first question.
spk01: 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 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 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 begin around end of May for the first campaign. But we'll know more, you know, within the coming months on that front. And then kind of to your question about CPAs and ad costs. So 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 increased spend with the launch of the brand campaign on March 28th. 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 Olympic 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 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 LTV to CAC ratio was 6.2 in Q1, and we anticipate for the year of having an attractive ratio of above 3 for the whole year.
spk00: Got it. 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 price escalators 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 input side and then as you get to the customer side, just make sure I understand how that's faring in the current environment.
spk10: 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. 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% 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. 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 is the highest inventory level we've ever run in order to offset anticipated problems. However, As a percentage of sales, our inventory is not that high. 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 be a strike, a doc strike, 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 before the war in the Ukraine, in Ukraine. And in terms of palm oil, we've almost, almost cut it off a hundred percent 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 does food. So Tom, you want to talk about some of the input stuff that you've managed?
spk08: 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. And fortunately, we're at the longer end of that cycle for the majority of those. Those supply agreements... generally keep costs either constant or have a cap on them with respect to increases. In cases where we don't have a supply agreements, what we do is we closely monitor our suppliers and if 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. I'll also point 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 growth. On the raw material side, really our increases right now in any inventory are on raw materials and primarily they're forward buys either against potential price increases 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 doc strike, as Paul mentioned, and essentially have secured enough raw materials to take us through with no issues 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 further flesh out for you.
spk00: Yeah, no, that's super helpful. And maybe one last one for me. Just in terms of the OneDraw product, obviously that's great in terms of, you know, sort 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?
spk10: 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 on business 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 until the end of this year. But we want to pair this device with a very unique blood test 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 then after that the big market is that 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 D2C clearance, but that takes some time.
spk00: Makes sense. Thank you so much.
spk04: Thank you. Our next question comes from the line of Sean Dodge from ABC Capital Markets. Please, Sean, your line is now open.
spk07: Yep, thanks. Good morning. On the Healthy Aging campaign, if we think about the specific products or channels you're targeting, is there any difference in margins of those? And what I'm getting at is the revenue benefits from that campaign to ramps. Is there any margin impact from the change or product channel mix that that drives?
spk10: Yes, that's a good question, Sean. Thanks. So 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 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 greens product we're launching, which we think is going to be extremely unique, we will be able to undercut the competition Um, you know, the biggest two competitors buy at least 10 bucks a month on a 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. Um, same is true of our, our collagen line has, has good margins. Um, and as do the extensions, um, there'll be a product for, uh, we mentioned for, uh, ovarian care for women with endometriosis and PCOS, same thing, good margins. Um, and then I would add that, uh, um, the printed line, um, we believe we'll have very strong margins as it reaches, uh, scale. You know, right now, uh, as you recall, we're, we're anticipating that, um, you know, sales this year won't be that big, um, because it's just launching, uh, and it's a new technology, um, and we're going to have to educate the consumer a little bit, but, um, it will have good margins once we reach scale.
spk07: Okay, great. Thanks. And then, um, 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?
spk10: So, Sean, I think one of the things we should address right up front is, you know, where you have seen some weakness. If you look at our professional side, it has various elements. I'm sorry, professional and B2B side. It has international. It has our doctor 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 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 strengths. On the weakness side first, international. We had a couple of accounts that serviced 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 $4 to $4.5 million 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 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 to business, our doctor business is very strong. Um, and, uh, uh, you know, we think it's, it's growing at least double the rate of, of, of our competitors in that market. Uh, our sports business, um, grew over 80% in the, uh, in the first quarter. Um, and, um, uh, the healthy aging campaign, um, will benefit us not only, uh, in the DTC side, but also on the, uh, on the B2B and professional side.
spk07: Okay. Great. I appreciate all the detail. Thanks.
spk04: Thank you. Our next question comes from the line of Oliver Chen from Cohen. Please, Oliver, your line is now open.
spk05: 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 activity? And are you making any specific changes in your marketing approach to drive greater subscription? Michelle?
spk01: 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 and Thorne D2C 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 D2C space and how we're spending on marketing, we try to get people into the ecosystem to subscribe first. So it's been a bigger point of emphasis when people begin with our brand than historically. 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 onto 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 Thorne.
spk05: Great. That's very helpful. And your gross margin is very impressive, especially in the current environment. Does early progress suggest 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 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 to margins?
spk10: So we anticipate that If you recall from the IPO process, we were 56 to 58% was our targeted growth margin. 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 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 really being as much as US-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 this. So again, with meetings at a minimum of weekly and sometimes a lot more frequently than that, the global issues are discussed and immediately 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 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?
spk08: 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, we'll call it just general supply chain management. which we've discussed a bit. In particular, Paul alluded to that, that our new product introductions, which more typically than not are very direct to consumer focused or more direct to consumer focused, 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 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.
spk05: 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 to gross margins?
spk10: Tom, why don't you take that?
spk08: 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% year on year and 1% from the end of the last quarter 2021. Our largest increases are actually not fortunately in raw materials, which are the biggest dollar items. 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. It's just not a big dollar item. 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 that hopefully bring that in. But right now, what's really driving the cost of any increases to us are less raw materials and more petroleum materials. I would call it derived end products. And in that case, for us, it's bottles, lids, and to a lesser extent, capsules.
spk05: Got it. It's very helpful. Thanks a lot. Best regards.
spk04: Thank you. As a reminder, to ask any further questions, please press start, followed by number one on your telephone keypads now. And the next question comes from the line of Brian Spillane from Bank of America. Please, Brian, your line is now open.
spk09: Thanks, Juan. Good morning, everyone. A couple of 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, you know, how, how needle moving those two items might be in terms of, you know, kind of what your original plans were.
spk10: Okay. So I would actually lump, I take Nutrativa one draw in the microbiome wipe. Um, and essentially, um, I'll try to separate one being the product side. So Nutrativa, uh, which is just Thorne now, offers us the ability to attack 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 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 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, 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 there is, I really want to focus on the wipe first. 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 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. 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 front of you, in Frontiers in Immunology shows that the sequence DNA is very similar in kind to the traditional way of collecting a fecal sample. So our long-term goal is to take the microbiome wipe and pair it with 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, 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 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 we are going to try to do it. Otherwise, the opportunities for us are in the medical space, in clinical trials, in CROs, 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 technology 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 headed.
spk09: 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 it's I guess the revenue opportunities are partnering with other companies while at the same time, you know, having Thorne products as well. Is that the right way to think about it? Yeah, that's totally correct.
spk10: And that even includes the printed supplement line because we are going to be launching fairly soon with a company in the beauty space who will be selling a healthy aging disc, printed disc in Sephora. and with a pet supply company in the UK 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 that we don't want to compete in.
spk09: 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 as 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 And is that changing at all as you're bringing new consumers onto the platform?
spk01: Yes, I can take that question. So we were, you know, really excited to see that year over year in Q1 our unit economics are improving because 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. You know, so order size, there's, you know, some fluctuation between Amazon and Thorne. The unit economics on Thorne are a little better, but you know, tends to be around the 1.5 range. Net price per unit tends to be around the $30 range, and order frequency tends to be around, you know, 1.8 to 2. So, you know, and year over year, all of those three metrics have increased. And 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.
spk09: Okay, great. Thanks, everyone.
spk04: 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.
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