THRN - Thorne HealthTech Grows But Faces Macro Headwinds

Summary

• Thorne HealthTech went public in September 2021, raising approximately $70 million in a U.S. IPO.
• The company designs and sells wellness and nutraceutical products worldwide.
• THRN has produced revenue growth but faces inflationary pressures, the loss of a significant distributor in Europe and the stock may be fully valued here.
• I'm on Hold for THRN for the near term.

A Quick Take On Thorne HealthTech

Thorne HealthTech, Inc. ( THRN ) went public in September 2021, raising approximately $70 million in gross proceeds from an IPO that priced at $10.00 per share.

The firm designs and sells wellness and nutraceutical products under its brands Thorne and Onegevity.

Given the risks of continued inflationary pressures and a macroeconomic slowdown combined with a potentially fully valued stock at its current price of around $5.00 per share, I'm on Hold for THRN in the near term.

Thorne HealthTech Overview

New York, NY-based Thorne was founded to develop premium wellness products for consumers utilizing its Onegevity platform to discover and develop new products.

The firm sells products directly and also has a product subscription program

Management is headed by Chief Executive Officer Paul Jacobson, who has been with the firm since 2010 when he acquired Thorne Research and was previously co-founder of Onegevity Health, which was acquired by Thorne.

THRN sells its products through a direct to consumer channel [DTC] as well as through online ecommerce sites such as Amazon, distributors and through connected health professionals.

The company also gathers personalized testing data and has plans to use this information for additional services to practitioners.

Thorne HealthTech's Market & Competition

According to a 2021 market research report by Grand View Research, the global market for dietary supplements was an estimated $140.3 billion in 2020 and is forecast to reach $271 billion by 2028.

This represents a forecast CAGR of 8.6% from 2021 to 2028.

The main drivers for this expected growth are a growing consumer awareness of personal health and wellness products as well as increased R&D from product makers.

Also, below is a chart showing the historical and projected future market size by ingredient for dietary supplements in the U.S.:

Major competitive or other industry participants include:

• Nestle Health Science

• Metagenics

• Hims

• 23and Me

• Livongo

• Schrodinger

• SEMA4

• Numerous other nutritional supplement companies

Thorne HealthTech's Recent Financial Performance

• Total revenue by quarter has grown according to the following chart:

• Gross profit by quarter has followed approximately the same trajectory as that of total revenue:

• Selling, G&A expenses as a percentage of total revenue by quarter rose substantially in the most recent quarter:

• Operating income by quarter has turned negative in Q2 2022:

• Earnings per share (Diluted) have turned into negative territory in Q2 2022:

(All data in above charts is GAAP)

Since its IPO, THRN's stock price has fallen 38.4% vs. the U.S. S&P 500 index' drop of around 9.9%, as the chart below indicates:

Valuation And Other Metrics For Thorne HealthTech

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm's projected growth and earnings:

Assuming generous DCF parameters, the firm's shares would be valued at approximately $5.13 versus the current price of $5.01, indicating they are potentially currently fully valued, with the given earnings, growth and discount rate assumptions of the DCF.

As a reference, a relevant partial public comparable would be larger firm Glanbia plc ( GLAPF , GLAPY ); shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha)

A full comparison of the two companies' performance metrics may be viewed here .

Commentary On Thorne HealthTech

In its last earnings call ( Source - Seeking Alpha), covering Q2 2022's results, management highlighted improvements in its sales mix and the effect of increased prices and scale growth as offsets to inflationary pressures on its cost of sales.

Notably, the firm's Pro and B2B sales channels produced strong growth year-over-year, excluding the loss of a distributor related to the conflict in Ukraine, which it estimates reduced Q2 revenue by "as much as $6.9 million."

For H1 2022, the company's lifetime value to customer acquisition cost multiple was 2.7x, 'putting us on pace to achieve our goals of an annual LTV to CAC ratio of 3.0 times or better.'

THRN also launched a number of new products, including Daily Greens and Collagen as well as its Kids+ multivitamin for children ages 4 and up.

As to its financial results, revenue rose by 30.7% year-over-year but only moderately sequentially, while DTC sales rose 70% and subscription growth within its DTC channel grew by 74%.

Subscription sales now accounts for 17.2% of total sales for the company.

Gross margin improved 2.6% to 55.9% but management expects higher cost of goods to affect that figure going forward.

However, SG&A costs as a percentage of total revenue rose markedly as the firm spent heavily on healthy aging marketing in its largest campaign ever. Management expects these costs to drop in subsequent quarters.

Earnings turned negative for the first quarter since Q4 2020, with the company losing $0.11 per share.

For the balance sheet, the firm finished the quarter with cash and restricted cash of $32.7 million and $1.3 million in debt.

Over the trailing twelve months, THRN used free cash of $4.2 million.

Looking ahead, due to the loss of a European distributor, management reduced full year revenue guidance to $239 million at the midpoint of the range and adjusted EBITDA was lowered to $30 million at the midpoint.

Regarding valuation, the market is valuing THRN at an EV/Revenue multiple of 1.3x which is significantly above a partial comparable in Glanbia.

The primary risks to the company's outlook are a continued rise in inflationary pressures on its cost of goods sold and a macroeconomic slowdown reducing customer demand for its premium products.

Given these risks combined with a potentially fully valued stock at its current price of around $5.00 per share, I'm on Hold for THRN in the near term.

For further details see: