Thorne Healthtech, Inc.

Good afternoon. Thank you for attending today's Thorne HealthTech, Inc. First Quarter 2023 Earnings Call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1. I would now like to pass the conference over to our host, Thomas Wilson, VP of Investor Relations. You may go ahead.

Good afternoon, everyone. Thank you for joining Thorne Health Tech's first quarter 2023 earnings call. With me today are Paul Jacobson, our CEO, Jelani Farma, our CFO, Tom McKenna, our COO, and Michelle Crow, our CMO, 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 material from those indicated by our forward-looking statements. More information about potential risk factors can be found in our 2022 annual report on Form 10-K and our upcoming Form 10-Q, which we anticipate filing in the next couple of days, and in other SEC filings. Today, 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 the 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 website. Finally, next week, we will be participating in the RBC Capital Markets Global Healthcare Conference in New York and holding investor meetings. Webcasts from the conference will be available on our IR website, and we look forward to meeting with you. With that, I'll turn the call over to Paul.

Good afternoon. Thanks, everyone, for joining the call. Today, I'll provide a brief strategic overview of Thorne's unique positioning and first mover advantage in the growing field of personalized scientific wellness and how our strategy puts us on a pathway of sustainable value creation for our shareholders. I'll then discuss key accomplishments during the quarter and then review our progress in our core growth strategies, including key pipeline programs and key milestones we expect to achieve in 2023. I'll then touch on our first quarter financial results and outlook for the rest of the year. And finally, Saloni will provide a detailed review of our first quarter 2023 financials. As Thomas mentioned, additional details can be found in the earnings release and investor supplement issued after the market closed. With that, let's dive in. The overarching takeaway from the quarter is this. Our operating performance in the first quarter was strong, and we executed well against our internal plan and the targets we laid out during our last earnings call. As a result, we are reaffirming our full year guidance for 2023, the details of which we'll discuss a bit later on. Before delving into specifics on our first quarter performance, I'd like to first begin by describing Thorne's unique first mover advantage in advancing solutions for personalized scientific wellness. There is no other company that is creating and delivering the level of science and technology-driven personalized wellness solutions across such a broad range of health channels and individual historic health tech. We are truly at the forefront of personalized wellness, bringing the scientific rigor of biopharma and applying the latest technology, including AI-based analytics, to generate a highly differentiated product portfolio. And the quality of our product portfolio continues to improve increasingly supported by rigorous clinical trial data that gives us a significant advantage relative to pure supplement suppliers. Our diverse and expanding client base reflects the success we are experiencing in the marketplace, from D2C customers to healthcare professionals to professional athletes. Our deep portfolio of personalized offerings provides individualized data, educational resources, and products that support specific health goals and needs at every age and life stage. These customized solutions are clearly resonating with our customer base, enabling us to grow and build our brand awareness across multiple channels. Importantly, we're maintaining this competitive advantage by making targeted R&D investments in technology that will increase the next generation of personalized wellness solutions. Our investment in generating clinical data and applying AI-based learnings to extract significant insights across large data sets confers a major and sustainable competitive advantage to Thorne relative to other companies who are limited to operating a pure distribution model. To put the Thorne advantage in perspective, our comprehensive R&D strategy has produced a multi-phase pipeline that now comprises more than 30 active clinical trials, three NDI filings over the last three years. With this level of investment, we anticipate continuing to launch three to four new products each year which should enable us to maintain a competitive advantage for the foreseeable future. Many of these products are developed using our bioinformatics platform as a cornerstone of R&D. It often includes the data from the tests taken by our customers. I want to assure investors that we understand our story is a bit complex. But to accomplish our goals and bring deep personalization to the scientific wellness space, we need to continue to assemble the pieces that not only bring excellence to the customer journey, but are backed by science and data, and this unfortunately takes time. We need to prove that our products and devices work as advertised. This is the primary criticism of the supplement space and even some companies in the consumer testing space. We are dealing in regulated markets where short-term decision-making could lead to trouble and believe that by doing things the right way over time is the only way to create real moats around our business platforms. We also believe that this is the best way to maximize shareholder value, but we understand that we need to communicate our story across a broader spectrum of investors so we can hopefully inform them in the same way that both new and existing customers have become devoted to our products. Turning to recent developments, Q1 was a busy and productive quarter for Thorne. In early April, we announced significant positive findings as a result of a collaborative trial with Mayo Clinic and Health Tech Connects. This randomized, double-blind trial studied the effects of the dietary supplement Synequel on brain function and structure in junior A ice hockey players. As a reminder, in January, we acquired the rights to Synequel through our acquisition of Precon Health, which strengthened our brain health portfolio and has provided us access to world-class scientific advisory board members. We're very pleased with the results of this study, which provides clear clinical evidence that a multi-ingredient nutritional supplement such as Cinequel, can support healthy brain structure and cognitive function. This area remains a core focus within Thorne's product portfolio, and in a few minutes, I'll provide more details on the significance of these findings. We also strengthened the ranks of our senior management with the appointment of Saloni Varma as the chief financial officer. With over 20 years of experience across multiple finance and accounting functions, Saloni brings a wealth of talent and expertise to Thorne, and we're very happy to have her on board. I'm also pleased to note that we were named to Fast Company's annual list of the world's most innovative companies for 2023. As I said at the beginning of my remarks, Thorne is positioned at the forefront of personalized scientific wellness based upon our ability to apply advanced technology that results in high-value wellness solutions that can be delivered across a diverse and growing customer base. Recognition by Fast Company for our achievements and innovation, specifically within the wellness category, is an honor and reflects the success we continue to have in transforming our consumers' approach to health and wellness. Finally, we announced that the U.S. Appeals Court issued a final ruling upholding Thorne's prior challenge of a nicotinamide riboside intellectual property claim. As a reminder, this ruling relates to a previously issued patent referred to as the 086 patent that attempted to broadly cover pharmaceutical compositions of nicotinamide riboside isolated from either a natural or synthetic source. With the favorable court ruling behind us, Thorne continues its highly successful expansion into the nutritional supplement marketplace with its nicotinamide riboside malate suite of products. RNR has a great safety profile and is the subject of several ongoing clinical trials related to healthy aging, cognition, and human performance. I'd now like to briefly discuss some of our key programs and upcoming catalysts as milestones for the remainder of 2023. We remain very excited about our unique blood collection device called OneDraw, a device that we believe is poised to redefine the blood draw experience. OneDraw is an FDA-cleared, small, lightweight, single-use device that attaches to the upper arm with a hydrogel adhesive and vacuums. By pressing two buttons on the device, a virtually painless capillary blood sample is collected on the cartridge within the OneDraw blood collection device, which uses advanced technology to preserve the sample without requiring cold chains processing and storage. A stable, dry blood sample within the cartridge is then mailed to a third-party lab for analysis, and the results, insights, and recommendations can be viewed on our health intelligence platform by the patient and their healthcare professional. In short, OneDraw enables better health for patients by removing the obstacles that prevent individuals from taking better control of their health, ultimately offering an improved experience. Patients in a large clinical trial with thousands of participants reported OneDraw significantly had less pain and greater ease of use in capturing a high-quality blood sample. In addition, OneDraw allowed us to conduct studies remotely, enabling us to increase the reach of future health research studies and making participation more accessible to those previously would have been difficult to recruit as some struggle to attend an in-person clinic. OneDraw has also been used in President Biden's Cancer Moonshot Project and in the space program led by SpaceX. As I mentioned in my opening remarks, technology lies at the heart of our portfolio of health and wellness solutions. To underscore that point, on May 3rd, we were proud to announce that the OneDraw device won the prestigious 2023 MedTech Breakthrough Award for Best Overall Medical Device. The mission of the MedTech Breakthrough Awards is to honor excellence and recognize the creativity, innovation, hard work, and success of digital health and medical technology companies, services, and products around the world. To put this award in context, this past year MedTech received almost 4,000 nominations globally for its awards program. So for OneDraw to be recognized among so many potential devices is an amazing achievement, which speaks to the level of innovation and potential for improving healthcare that this device embodies. As noted on our prior earnings call, we are currently studying additional applications of OneDraw, including the application of a new plasma separation cartridge, which will expand Thorne HealthTech's portfolio of lab tests while preserving convenient cold chain free sample transport. With respect to upcoming catalysts, we expect to hear back from the FDA on the potential approval on draw for unsupervised medical use during the third quarter. We believe this can unlock a massive near-term opportunity for direct-to-consumer utilization of the device. Looking further out, we anticipate the device will not only contribute to our core focus of healthy aging, longevity, and personalized wellness, but also into increasingly patient-centric healthcare settings from telehealth to decentralized clinical trials. Needless to say, we are looking forward to the next phase of the One Draw program, as it's critical to bringing a differentiated, personalized approach to scientific wellness. I'd now like to provide a brief overview and update on our Synequel program. Synequel is a nutrient blend that has been co-developed with neurologists at Mayo Institute for supporting brain health structure and function, especially for athletes and other individuals engaged in high contact activities. More specifically, it has been designed to support brain cell metabolism, enhance cognitive function, and support post-concussion recovery, as well as to help prevent concussions arising from sub-concussive impacts. As I noted earlier in April, we were pleased to announce positive results that evaluated Sinequel in a double-blinded placebo-controlled trial that measured the brain function of 30 junior ice hockey players over the course of their seasons. The purpose of the study, performed in collaboration with the Mayo Clinic, was to determine whether a nutritional supplement designed to address specific mechanisms of action associated with head impact could favorably affect those functions over the course of a hockey season. Participants went through baseline brain function testing at the beginning of the season, then consumed either Thorne's Cynaquel or a placebo daily for the duration of their season. At the end of the study, the same brain function tests were repeated and compared. The study included brainwave latency, specific selective attention and focus, and visual processing speeds. For all participants, those with and without a history of prior concussions, the Sinequel group showed notable improvement over the placebo group in important measures of brain function and brain processing speed. In participants who had a history of concussions, there were significant positive changes when comparing the Sinequel group to the placebo group including neurofilament light levels, which assess neuronal damage from sports-related impacts, and the processing of stimuli, which includes visual and auditory words, pictures, and gestures. This well-designed study provides the first clinical evidence demonstrating Cinequel's positive effect on brain health in athletes engaged in a contact sport. Generating high-quality clinical data through well-controlled studies is key to demonstrating the value of our products, and our CINEQUAL program has clearly achieved this important goal. Based on these results, we believe CINEQUAL has a significant market opportunity to address the risks faced by many people who are engaged in high-impact sports, members of the military, accident victims, and victims of domestic abuse. It's estimated that between 1.5 million and 4 million people suffer from concussions annually, that Cinecoil addresses a significant unmet medical need, and unlike most natural products, is patented. Let me now briefly mention some of the progress we're making with our microbiome gut health program. Thorne's gut health test provides a detailed analysis and a personalized plan that targets your GI discomfort to optimize wellness. Utilizing our first in-market, patent-pending white technology, the sample collection process is simple, and the test results provide a wealth of information that enable patients to understand the health of their gut microbiome and ultimately discover what meaningful changes can be made to improve it. Importantly, the technology behind our gut health test is supported by published clinical data supporting the use of the product in patients with irritable bowel syndrome, or IBS. This data shows that after taking our supplements based on microbiome data collected from the test, patients experienced a statistically significant symptom score reduction from 160 to 100.9 based on guidance from the American Gut Association. The paper was published in the Journal of Precision Clinical Medicine. Our metagenomic shotgun sequence test provides us with billions of data points from each customer and provides unique insights. This allows us to identify subgroups who react differently to foods or drugs, such as antibiotics, and allows us to build new prebiotics that are more personalized. This has relevance across many therapeutic areas that could allow patients to recover more rapidly from pharmaceutical or surgical interventions. I'd now like to provide a high-level review of financial performance for the first quarter. I am pleased to report total net sales of $65.2 million for the quarter, which represents year-over-year growth of 20.7%. Our direct-to-consumer business generated revenues of $33.8 million, an increase of 41% over the first quarter of 2023. Our pro and business-to-business revenues came in at $30 million and grew about 4.6% year-over-year. We also have more than 400,000 active subscribing customers as of the end of Q1, which represents a 51.8 year-over-year growth rate. Our adjusted EBITDA of $6.1 million and adjusted EPS of $0.06 declined from Q1 of last year, primarily from higher marketing spend and higher selling and distribution costs from our sales growth. To be clear, these higher forecasts were factored into the full year guidance we laid out for 2023, and we expect to see improving operating margins as the year progresses. We remain committed to expanding operating margins where possible, while we see continued sales growth well above market rates. We expect significant margin expansion to occur after completing our plant expansion around the end of the year, as we've outlined in prior calls. We have reached capacity with our current production facility following five years of rapid growth after its construction in 2018, which puts a ceiling on some of our margin expansion goals and our ability to introduce certain new capabilities like unit of use of personalized packaging and in-house liquid manufacturing. It's also caused backorder issues from time to time based on high levels of demand. After completing the expansion, our scale will likely propel us into the top five globally among supplement manufacturers with two and a half times our current capacity. The efficiencies we will gain from the new plant will also support many of our sustainability initiatives and accelerate our ESG program. Turning to our outlook, we expect sales to ramp as we move through the year, driven by traction with our recent product launches, further sales force expansion, progress towards broadening our presently small international footprint, and continuing to increase brand awareness, which will be supported by a marketing campaign that will kick off in the third quarter. As a result, we are reaffirming our previously issued guidance, which calls for net sales of 280 to 290 million, gross margins between 49 and 52%, adjusted EBITDA of 30 to 32 million, and adjusted EPS of 25 to 31 cents. With that, I'll turn the call over to Solani for her prepared remarks on our financial results and capital deployment priorities for the rest of the year.