Thorne Healthtech, Inc.

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, VP of Investor Relations.

Good afternoon, everyone. Thank you for joining Thorne Health Tech's second quarter 2023 earnings call. With me today are Paul Jacobson, our CEO, Saloni Varma, our CFO, and Tom McKenna, our COO. 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 2022 Annual Report on Form 10-K and First Quarter 2023 Form 10-Q, as well as our upcoming Form 10-Q, which we anticipate filing in the next couple of days, as well as 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 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 close and in the supplemental investor presentation posted to our IR website. With that, I'll turn the call over to Paul.

Good afternoon. Thanks everyone for joining the call. Today, I'll briefly touch on our second quarter financial results and operating performance. I'll discuss our key accomplishments during the quarter. I'll provide updates for a few select products, and then I will turn to our updated 2023 guidance. Finally, Saloni will provide a detailed review of our second quarter 2023 financials, and we'll 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 million in Q2 on 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% over the second quarter of 2022. Our professional and business-to-business revenues came in at $35.9 million and grew 27.3% year-over-year. On balance, our total portfolio continues to grow across our diversified customer base, which underscores the strength of our science-backed product offerings and trust in our high-quality brand. The strong top-line performance was driven mainly by our direct-to-consumer or D2C business, which continues to perform well and exceed our internal expectations. Over the last several quarters, the strength of Thorne's D2C portfolio has enabled us to increasingly shift into a more predictable sales model. We continue to acquire new customers efficiently with an LTV to CAC ratio of 4.0, and our net promoter score of 68 remains well above industry norms. Through this success, we've experienced strong growth in subscription volumes. Thorne.com 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, as 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 are starting to see growth in our AsiaPak business. While AsiaPak 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 will be making appropriate investments where 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 from our growing loyal customer base around the globe. In addition to strong sales growth, we also saw a nice improvement in our margins. Second quarter gross margin of 55.9% represents a 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 our direct-to-consumer business, leading to favorable impacts from pricing. We have made it a strategic priority at Thorne to invest in technology and manufacturing that should enable us to realize improved gross margins over time, and we've explained 2023 is a big investment year. As mentioned on prior calls, we expect our new manufacturing facility to be partially operational in the fourth quarter of this year and fully operational sometime during the first quarter of next year. Following completion of the build, we think this new facility will enable us to improve gross margins by another 500 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, and operating leverage. Adjusted diluted EPS for Q2 was $0.15 versus a loss of $0.05 per share in the second quarter of last year. Now I'd like to highlight some of our second quarter accomplishments. In June, we announced that our NanoDrop device received the CE mark certification after successfully fulfilling the European Union's relevant performance, safety, and product requirements. NanoDrop, which is already integrated into Thorne's OneDraw blood collection system, is a virtually painless blood collection device that we believe has the potential to significantly decentralize clinical trials and at-home diagnostic testing. NanoDrop is a clinical grade device that uses Thorne's novel Duo Nano lancet technology to obtain capillary whole blood samples. We believe NanoDrop CE mark certification will open up new testing applications for Thorne by allowing individuals to use the device in their home. Also in June, our 510K application for NanoDrop 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 interactions so far have been encouraging, and we expect to have a completed review by August 11th. Although even if clearance is granted, we will not be allowed to publicly announce anything until it goes live on the FDA website. This news, together with the clearance of OneDraw in Japan earlier this year, brings us one step closer to being able to achieve broad application across end markets around the globe. As a reminder, OneDraw is an FDA-cleared, small, lightweight, single-use device that attaches to the upper arm with hydrogel adhesive and vacuum. By pressing two buttons on the device, a virtually painless capillary blood sample is collected on a cartridge within OneDraw's blood collection device, which uses advanced technology to preserve the sample without requiring cold chain processing and storage. The stable, dried blood sample within the cartridge is then mailed to an independent third-party CLIA and CAHPS-certified lab for analysis, and the results, insights, and recommendations can be viewed on our health intelligence platform by the individual and their healthcare practitioner. OneDraw enables better health for individual consumers and patients by removing the obstacles that prevent people from taking better control of their health, ultimately offering an improved experience. We are obviously very excited about OneDraw technology and believe this highly innovative product has the opportunity to bring significant upside to our future sales growth. And we are not alone in this assessment of OneDraw's technology. In May, we announced that OneDraw won the prestigious 2023 MedTech Breakthrough Award for Best Overall Medical Device. With competition from nearly 4,000 other product nominations globally, we couldn't be more pleased to be recognized among such a large number of cutting-edge technologies and new innovations. Also in May, we announced a research and development partnership agreement with Aromi Science, a leader in metabolomics, to develop a next-generation metabolomics wellness test We have seen nice sales growth in metabolism-related offerings and believe 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 OneDraw device. If successful, this research will be used to support the development of metabolomics commercial tests 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 supplement Synequel on brain function and structure in junior-A ice hockey players. Synequel is a nutrient blend that has been co-developed with neurologists 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 our patented, multi-ingredient nutritional supplement Synequel can support healthy brain structure and cognitive function. Developing products that support brain health remains a core focus at Thorne, and we continue to work collaboratively with the Mayo Clinic and Health Tech Connects to further advance Synequel's development. We expect to devote significant marketing efforts to this product beginning in 2024. On July 25th, we kicked off our Build to Last marketing campaign, which is our first-ever global campaign and features three-time NBA champion, philanthropist, and entrepreneur Dwayne Wade, along with his son and professional basketball player Zaire Wade. The three-month campaign showcases an inspirational, no-shortcuts approach to lifelong wellness, supported by Thorne's 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 Wade family to scale 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, an expansion to our sales force that is producing more business wins, a growing international presence, and increasing brand awareness of the Thorne name. Based on the strength of our first half results, we are raising the low ends of our full year 2023 guidance ranges for both net sales and gross margin. With these increases to the guidance midpoints, our updated full year guidance range for net sales is $285 to $290 million, and our updated full year guidance range for gross margin is between 50 and 52%. 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 is consistent with our prior commentary, which indicated that marketing costs may approach the high end of the range due to increased investment this year, including from anticipated spend for the Build to Last marketing campaign. Rounding out our guidance with increased marketing spend, natural growth in 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, we are raising our full-year adjusted diluted EPS of $0.26 to $0.32 per share from an update to our estimated and annual tax rate in Q2, which Saloni will cover in more detail. We remain confident that based on our continued strength in our business, we can achieve this updated guidance. With that, I'll turn the call over to Solani for her prepared remarks on her financial results and capital deployment priorities for the rest of the year.