THOE HEAL You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K, filed onMarch 16, 2022 . This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward-Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled "Risk Factors."
Overview
We are a science-driven wellness company pioneering innovative solutions and personalized approaches to health and well-being. We are building a new health category to deliver better health outcomes through a proactive, empowered approach. Our unique, vertically integrated brands, Thorne and Onegevity, provide actionable insights and personalized data, products and services that help individuals take a proactive approach to improve and maintain their health over their lifetime. By combining our proprietary multi-omics database, artificial intelligence (AI) and digital health content with our science-backed nutritional supplements, we deliver a total system for wellness. We believe our integrated solution will redefine the expectations for good health, peak performance and healthy aging. Founded in 1984,Thorne Research was a small company dedicated to being a "thorn" in the side of the traditional supplement industry by making the purest and highest quality nutritional supplements to sell to health professionals. With a vision for an unparalleled health ecosystem fueled by innovation and technology, our current Chief Executive Officer,Paul Jacobson , and his management team, acquiredThorne Research in 2010 and co-founded Onegevity. We completed our acquisition of Onegevity and combined these two complementary companies in early 2021. During the past 11 years, we have evolved to become a transformative consumer brand, trusted by more than 5,000,000 customers, 46,000 healthcare professionals, thousands of professional athletes, more than 100 professional sports teams andU.S. National Teams.
Key milestones in our growth history include:
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2011: Strategic ingredient and botanical agreement with
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2014: Clinical Study Agreement with
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2017: Launch of NSF Certified for Sport product line;
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2018: Onegevity founded; we expanded capacity by moving to a new,
state-of-the-art 272,000 square foot facility in
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2019-2020: Sponsorships of the
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2020-2021:
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2022:
Our revenue is generated primarily from the sale of our supplements and health tests. We have experienced significant sales growth of our supplements and health tests through the acquisition of new customers and strong customer retention.
For the six months ended
•
we generated net sales of
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we generated gross profit of
•
we generated net loss of
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our adjusted EBITDA was
The recent key customer metrics of our business included:
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for the three months endedJune 30, 2022 and 2021, customer acquisition costs (CAC) of$90 and$33 , respectively and life-time value (LTV) of$157 and$150 , respectively, resulting in LTV-to-CAC of 1.8x and 4.6x, respectively;
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for the six months ended
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active subscriptions of 300,031 and 194,778, as of
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average orders per customer of 1.8 for each of the three months ended
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States (GAAP). In this Quarterly Report, we have used certain non-GAAP financial measures including earnings or loss before interest, taxes, depreciation and amortization (EBITDA), EBITDA margin, adjusted EBITDA, adjusted EBITDA margin and free cash flow. These measures are derived on the basis of methodologies other than in accordance with GAAP. Non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. We have provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. These non-GAAP financial measures should be considered along with, but not as alternatives to, the operating performance measures as prescribed by GAAP.
Key Financial and Operating Data
Our financial profile is characterized by high growth, recurring revenue, improving gross margins, efficient customer acquisition and free cash flow.
We measure our business using both financial and operational data and use the following metrics to assess the near-term and long-term performance of our brands and business. These metrics serve as guidance for identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies and monitoring our business.
We define net sales as sales of our goods and services and related shipping fees less discounts and returns following the accounting guidelines in accordance withFinancial Accounting Standards Board (FASB), Topic 606, Revenue from Contracts with Customers (ASC 606). Our net sales consist of sales of our nutritional supplements, health tests and sales associated with our services leveraging our AI and multi-omics databases, such as product development services. We recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. We consider several factors in determining when control transfers to the customer upon shipment, or upon delivery for certain customers. These factors include when legal title transfers to the customer, if we have a present right to payment and whether the customer has assumed the risks and rewards of ownership at the time of shipment. Shipping and handling costs are considered a fulfillment activity and are expensed as incurred. We view net sales as a key indicator of demand for our products and services. Gross Profit We define gross profit as net sales less cost of sales. Cost of sales consists of depreciation and amortization, product and packaging costs, including manufacturing costs, inventory freight, testing costs of all raw materials and finished goods, inventory shrinkage costs and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our vendors. Non-GAAP Financial Measures
We calculate EBITDA, a non-GAAP financial measure, as net income or loss excluding depreciation and amortization, interest expense and income taxes. EBITDA margin represents EBITDA as a percentage of net sales.
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We calculate Adjusted EBITDA, a non-GAAP financial measure, by further excluding
non-cash items for stock-based compensation expenses, change in fair value of
warrant liability, loss on Drawbridge step acquisition, loss on Drawbridge
Transaction, guarantee fees, income or loss from equity interests in
unconsolidated affiliates and transaction costs related to mergers and
acquisitions. Adjusted EBITDA margin represents adjusted EBITDA as a percentage
of net sales.
We use EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin as
measures of operating performance and the operating leverage in our business. We
believe that these non-GAAP financial measures are useful to investors for
period-to-period comparisons of our business and in understanding and evaluating
our operating results for the following reasons:
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EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are widely used by investors and securities analysts to measure a company's operating performance without regard to items such as depreciation and amortization, interest expense and income taxes, stock-based compensation expenses, change in fair value of warrant liability, loss on Drawbridge step acquisition, loss on Drawbridge Transaction, guarantee fees, income or loss from equity interests in unconsolidated affiliates and transaction costs related to mergers and acquisitions; each of which can vary substantially from company to company depending upon their financing, capital structures and the method by which assets are acquired;
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our management use these non-GAAP financial measures in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy and in evaluating our financial performance; and
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EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core operating results and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. Our use of EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. Some of these limitations are, or may in the future be, as follows:
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although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and these non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
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Adjusted EBITDA and adjusted EBITDA margin exclude stock-based compensation expense, which is a recurring expense for our business and an important part of our compensation strategy;
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these non-GAAP financial measures do not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; (3) tax payments that may represent a reduction in cash available to us; or (4) the use of net operating loss (NOL) carryforwards and the full valuation reserve against deferred tax assets and liabilities are non-cash items that can have an impact on GAAP performance, but may not reflect the continuing operating results of our business; and
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the expenses and other items that we exclude in our calculation of these non-GAAP financial measures may differ from the expenses and other items, if any, that other companies may exclude from similarly titled metrics when they report their operating results and we may, in the future, exclude other significant, unusual or non-recurring expenses or other items from these financial measures.
Because of these limitations, EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin should be considered along with other operating and financial performance measures presented in accordance with GAAP.
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The following table presents unaudited reconciliations of EBITDA and adjusted
EBITDA to net income (loss), and EBITDA margin and adjusted EBITDA margin to net
income (loss) margin, the most directly comparable financial measures prepared
in accordance with GAAP, for each of the periods indicated:
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
EBITDA and Adjusted EBITDA
Reconciliation
Net income (loss) $ (5,767,243 ) $ (333,291 ) $ (1,056,002 ) $ 4,373,199
Net income (loss) margin (10.3 )% (0.8 )% (1.0 )% 5.0 %
Depreciation and amortization 1,523,749 1,276,568 2,865,599 2,261,969
Interest expense, net 31,514 81,256 61,671 363,901
Income tax expense 174,553 3,008 207,098 43,538
EBITDA (4,037,427 ) 1,027,541 2,078,366 7,042,607
EBITDA margin (7.2 )% 2.4 % 1.9 % 8.1 %
Adjustments:
Stock-based compensation 3,141,836 24,143 5,151,248 534,665
Change in fair value of warrant
liability (594,899 ) (317,725 ) (528,980 ) 1,310,026
Write-off of acquired Drawbridge
in-process research and development - 1,563,015 - 1,563,015
Loss on Drawbridge Transaction - 165,998 - 165,998
Guarantee fees - 140,407 - 279,271
(Gain) loss from equity interests in
unconsolidated affiliates (11,037 ) 3,115,658 (11,037 ) 3,173,106
Acquisition costs 58,825 - 519,236 -
Adjusted EBITDA $ (1,442,702 ) $ 5,719,037 $ 7,208,833 $ 14,068,688
Adjusted EBITDA margin (2.6 )% 13.3 % 6.5 % 16.1 %
Free Cash Flow
We define free cash flow as net cash provided by (used in) operating activities,
less capital expenditures, which consist of purchases of property and equipment
and purchases of license agreements. Accordingly, we believe that free cash flow
provides useful information to investors and others in understanding and
evaluating our operating results in the same manner as our management and board
of directors. Free cash flow may be affected in the near-to medium-term by the
timing of capital investments, such as purchases of machinery, information
technology and other equipment, the launch of new fulfillment centers, customer
service centers and new products, fluctuations in our growth and the effect of
such fluctuations on working capital and changes in our cash conversion cycle
due to increases or decreases of customer and vendor payment terms as well as
inventory turnover. We expect free cash flow to increase over the long term as
investments made in prior years drive increased profitability. If we experience
an unforeseen increase in demand, we may need to make additional capital
investments in manufacturing facility expansion.
The following table presents an unaudited reconciliation of free cash flow to
net cash provided by (used in) operating activities, the most directly
comparable financial measure prepared in accordance with GAAP, for each of the
periods indicated:
Six Months Ended June 30,
2022 2021
Net cash provided by (used in) operating activities
886,174
Purchase of property and equipment (2,226,073 ) (1,136,975 ) Purchase of license agreements (375,000 ) (563,470 ) Free cash flow$ (9,608,962 ) $ (814,271 ) Number of Subscriptions
We define subscriptions as orders resulting from direct-to-consumer (DTC) customers opting into automatic refills or orders that are recurring on Thorne.com and Amazon. Our subscription programs on both platforms offer automatic ordering, payment and delivery of our products to a customer's doorstep.
Subscription Sales as a Percentage of Net DTC Sales
We define subscription sales as sales generated from retail subscription orders
on Thorne.com and Amazon within a given period. Subscription sales are taken as
a percentage of net sales from all DTC orders in that same period. We view
subscription sales as a percentage of net DTC sales as a key indicator of our
recurring sales and customer retention.
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--------------------------------------------------------------------------------LTV to CAC
We define life-time value (LTV) to customer acquisition costs (CAC) as LTV from a specific 12-month period divided by the CAC of a specific period. LTV is defined as the average gross contribution per purchasing DTC customer within a particular 12-month period divided by one less the customer retention rate (Churn Rate) during the same period. Average gross contribution is defined as the cumulative revenue from our DTC customers during a 12-month period, less the cost of goods, divided by the number of purchasing DTC customers in the same period. To arrive at the LTV for a particular period, we divide the average gross contribution by that period's Churn Rate. CAC is defined as the total advertising and marketing expenses, less headcount expenses and associated benefit expenses, in a particular period divided by the number of customers who placed their first order during that same timeframe. We view the LTV to CAC ratio as a key indicator for marketing efficiency.
Orders per Customer
We define orders per customers as the total number of sales orders placed by our DTC customers in a given period divided by the total number of DTC customers who purchased within that same period. We view orders per customer as a key indicator of our customers' purchasing patterns, including their initial and repeat purchase behavior and as an indication of the desirability of our products to our customers. We expect orders per customer to remain steady or increase modestly over the long term as we continue to grow and acquire new customers and as our customers continue to demand our high-quality products.
Factors Affecting Our Performance
Ability to Increase Brand Awareness and Attract New Customers
Our long-term growth will depend on our continued ability to attract new customers. Our historical growth was largely driven by organic customer acquisition. We are still in the early stages of our growth and believe we can significantly expand our customer base as we increase brand awareness. Growing brand awareness through efficient, impactful communications and through building brand equity and loyalty is central to our marketing and growth strategy. We believe optimizing the message of our brand as one that defies expectations of good health differentiates us and is key to our ability to attract customers and retain them within our ecosystem. As our brand awareness grows, we intend to strengthen our reach across demographics and markets.
Growth in Subscriptions
We offer our customers the ability to opt into recurring automatic refills on Thorne.com and Amazon. A customer can cancel or modify a subscription at any time at no cost to the customer on both platforms. On Thorne.com, customers can subscribe monthly, every 45 days, every two months, every three months, or every four months. For each ordering frequency, a discount of 10% or 20% is offered on retail refill orders, depending on the number of products to which a customer is subscribed, with an average discount of approximately 17%. On Amazon, the discount ranges from 5% to 10% depending on the number of products to which a customer is subscribed, with an average discount of approximately 6%. We view our growing subscription business on Thorne.com and Amazon as a key driver of profitable future sales growth. Our subscriptions grew from 61,135 at the end of 2018, to 89,178 at the end of 2019, to 155,305 at the end of 2020 and to 257,070 at the end of 2021, representing a compounded annual growth rate of 61.4%. The total number of subscriptions as ofJune 30, 2022 , was 300,031 and as ofJune 30, 2021 , was 194,778, representing 54.0% year-over-year growth. Subscription sales are expected to continue to grow as we continue to invest in brand awareness, innovate new products and market the convenience and savings of our nutritional supplements and tests.
Efficiency of Spending on Advertising and Marketing
We are disciplined in measuring and managing CAC and LTV of our customers. We
are consistently looking for new ways to acquire customers more efficiently,
grow revenue per customers and retain our customers for longer periods of time.
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We employ a holistic, full funnel strategy that balances long term brand
objectives with performance marketing goals using a mix of paid, owned and
earned media. We take a data-driven approach to managing our marketing campaigns
constantly optimizing and adjusting to improve performance. At the end of the
first quarter 2022, we launched a 12-week Redefining Healthy Aging Campaign
which will leverage and deploy campaign assets across connected TV, YouTube,
influencers, out of home, Amazon, search and social platforms. Despite the
campaign's orientation toward longer-term brand objectives, we anticipate seeing
sales acceleration within our DTC channel and new customer acquisition
post-campaign in line with the performance achieved in past campaigns, such as
our Olympic "Better Health " brand campaign during the second half of 2021, which
resulted in a DTC sales acceleration on our website with a 24.8% increase in
average daily consumer sales and a 35.6% increase in new weekly DTC customers in
the 20 weeks post-campaign, compared to the prior period.
Ability to Engage and Retain Our Existing Customers
Our success is impacted not only by efficient and profitable customer acquisition, but also by our ability to retain customers and encourage repeat purchases. In 2021, 51.0% of our DTC sales were generated from new, first-time purchasers versus 49.0% from existing customers. We deepen our relationships with our customers and drive retention by engaging them with digital health content and educational resources. Out of our total DTC sales during the three and six months endedJune 30, 2022 , approximately one-third were recurring subscription sales. We expect the growth in net sales each year to continue as we generate and grow sales from existing customers and from newly acquired customers.
Healthcare Professionals
Our growing network of 46,000 health professionals helps serve two key purposes. First, it allows us to distinguish our brand by offering both credibility and validation to patients at times when the industry has struggled with trust. Secondly, health professionals carry, promote and distribute our products to consumers. Based on a 2018 survey conducted with 1,188 consumers, primary care physicians were identified as the most common entry point for supplement category consumers with nearly 60% of patients looking to their primary care providers when considering which supplements to buy. Therefore, retention and expansion of our professional network is important to our strategy.
Ability to Invest
We expect to continue to make investments across our business to drive growth, and therefore we expect expenses to increase. We plan to continue to invest in sales and marketing to drive demand for our products and services. We expect to continue to invest in research and development to enhance our platform, develop new nutritional supplements, expand our testing portfolio, grow our multi-omics database and AI capabilities and improve our brand ecosystem's infrastructure.
Ability to Grow in New Geographies
Entering new geographic markets requires us to invest in distribution and marketing, infrastructure and personnel. Our international growth will depend on our ability to sell in international markets. In 2021, we shipped to 32 countries. We believe capital investment coupled with our regulatory expertise will lead to promising results. However, international sales are dependent upon local regulations and custom practices, which both change continuously.
Components of our Operating Results
Our net sales consist of sales of our nutritional supplements, health tests and sales associated with our services leveraging our AI and multi-omics databases, such as product development services. We recognize net sales when control over the product has transferred to customers in accordance with our revenue recognition policy.
Cost of Sales
Cost of sales consists of depreciation and amortization, product and packaging
costs, including manufacturing costs, inventory freight, testing costs of all
raw materials and finished goods, inventory shrinkage costs and inventory
valuation adjustments, offset by reductions for promotions and percentage or
volume rebates offered by our vendors, which may depend on reaching minimum
purchase thresholds. We expect cost of sales to increase on an absolute dollar
basis and improve as a percentage of net sales over the long term.
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--------------------------------------------------------------------------------Operating Expenses Operating expenses consist of • research and development • sales and marketing; •
payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources;
•
costs associated with use by these functions, such as depreciation expense and rent relating to facilities and equipment;
•
professional fees and other general corporate costs;
• stock-based compensation; and • fulfillment costs. Our research and development expenses support our efforts to add new features to our existing solutions and to ensure the reliability and scalability of our product development and testing. Research and development expenses consist of personnel expenses, including salaries, bonuses, stock-based compensation expense and benefits for employees and contractors for our engineering, product and design teams and allocated overhead costs. We have expensed our research and development costs as they were incurred, except those costs that have been capitalized as software development costs. We plan to hire employees for our science and engineering team to support our research and development efforts. We expect that research and development expenses will increase on an absolute dollar basis in the foreseeable future as we continue to increase investments in our technology platform. However, our research and development expenses may fluctuate as a percentage of revenue from period to period due to the timing and amount of these expenses. Marketing expenses consist of performance marketing media spend, asset creation and other brand creation, as well as sales and marketing personnel-related expenses. We intend to continue to invest in our sales and marketing capabilities in the future and expect this increase in absolute dollars in future periods as we release new products and expand internationally. Sales and marketing expense as a percentage of net sales may fluctuate from period to period based on net sales and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over future periods. Fulfillment costs represent costs incurred in operating, manufacturing, staffing order fulfillment and customer service teams, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing and related transaction costs and responding to inquiries from customers. Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards. We expect to incur expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on the Nasdaq, expenses related to compliance and reporting obligations pursuant to the rules and regulations of theSEC , as well as higher expenses for general and director and officer insurance, investor relations and professional services. We also anticipate that fulfillment costs will fluctuate as a percentage of net sales over the long term. Overall, as we continue to grow as a company, we expect that our selling, general and administrative costs will increase on an absolute dollar basis but decrease as a percentage of net sales over the long term. Interest expense, net
Interest expense, net consists primarily of interest earned on cash we hold and interest incurred on borrowings.
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--------------------------------------------------------------------------------Income Tax Expense
Our income tax expense consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions. Our effective tax rate is primarily due the recognition of current state tax liability inthe United States without recognizing any tax benefit of corresponding deferred tax assets as a result of our valuation allowance. Judgment is required to determine whether deferred tax assets will be realized in full or in part. Management assesses available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized, or when it is more likely than not that all or some deferred tax assets will not be realized and a valuation allowance must be established. Results of Operations
The following table summarizes our results of operations for each of the periods indicated:
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
Net sales $ 56,067,826 $ 42,889,965 $ 110,736,024 $ 87,373,705
Cost of sales 24,704,294 19,994,229 49,254,885 41,240,751
Gross profit 31,363,532 22,895,736 61,481,139 46,132,954
Gross margin 55.9 % 53.4 % 55.5 % 52.8 %
Operating expenses:
Research and development 1,743,812 1,135,771 3,711,478 2,042,941
Marketing 17,267,461 5,045,945 22,997,714 9,284,962
Selling, general and administrative 18,505,610 12,333,837 36,143,291 23,571,140
Write-off of acquired Drawbridge
in-process research and development - 1,563,015 - 1,563,015
Income (loss) from operations (6,153,351 ) 2,817,168 (1,371,344 ) 9,670,896
Other income (expense), net:
Interest expense, net (31,514 ) (81,256 ) (61,671 ) (363,901 )
Guarantee fees - (140,407 ) - (279,271 )
Change in fair value of warrant
liability 594,899 317,725 528,980 (1,310,026 )
Loss on Drawbridge Transaction - (165,998 ) - (165,998 )
Other income (expense), net (13,761 ) 38,143 44,094 38,143
Total other income (expense), net 549,624 (31,793 ) 511,403 (2,081,053 )
Income (loss) before income taxes and
loss from equity interest in
unconsolidated affiliates (5,603,727 ) 2,785,375 (859,941 ) 7,589,843
Income tax expense 174,553 3,008 207,098 43,538
Net income (loss) before loss from
equity interest in unconsolidated
affiliates (5,778,280 ) 2,782,367 (1,067,039 ) 7,546,305
Gain (loss) from equity interests in
unconsolidated affiliates 11,037 (3,115,658 ) 11,037 (3,173,106 )
Net income (loss) (5,767,243 ) (333,291 ) (1,056,002 ) 4,373,199
Net loss - non-controlling interest (176,538 ) (245,061 ) (444,356 ) (245,061 )
Net income (loss) attributable to
Thorne HealthTech, Inc (5,590,705 ) (88,230 ) (611,646 ) 4,618,260
Undistributed earnings (loss)
attributable to Series E convertible
preferred stockholders - (88,230 ) - 4,618,260
Net income (loss) attributable to
common stockholders-basic $ (5,590,705 ) $ - $ (611,646 ) $ -
Net income (loss) attributable to
common stockholders-diluted $ (5,590,705 ) $ - $ (611,646 ) $ -
Earnings (loss) per share:
Basic $ (0.11 ) $ - $ (0.01 ) $ -
Diluted $ (0.11 ) $ - $ (0.01 ) $ -
Weighted average common shares
outstanding:
Basic 52,731,604 17,650,035 52,648,653 17,650,035
Diluted 52,731,604 17,650,035 52,648,653 17,650,035
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Net sales
Three months ended
Net sales for the three months endedJune 30, 2022 , increased by$13.2 million , or 30.7%, to$56.1 million , compared to$42.9 million during the three months endedJune 30, 2021 . Net sales were driven by continued growth across both the DTC and B2B business due to increased order volume, subscription growth and an expanded network of healthcare professionals. Our DTC sales were$28.9 million for the three months endedJune 30, 2022 , compared to$17.0 million for the three months endedJune 30, 2021 , which represents an increase of$11.9 million , or 69.6% compared to the corresponding period in the prior year. Our B2B net sales were$27.2 million for the three months endedJune 30, 2022 , compared to$25.9 million for the three months endedJune 30, 2021 , which represents an increase of$1.3 million , or 5.1% compared to the corresponding period in the prior year.
Six months ended
Net sales for the six months endedJune 30, 2022 , increased by$23.4 million , or 26.7%, to$110.7 million , compared to$87.4 million during the six months endedJune 30, 2021 . Net sales were driven by continued double-digit growth across both the DTC and B2B business due to increased order volume, subscription growth and an expanded network of healthcare professionals. Our DTC sales were$54.7 million for the six months endedJune 30, 2022 , compared to$36.4 million for the six months endedJune 30, 2021 , which represents an increase of$18.3 million , or 50.1% compared to the corresponding period in the prior year. Our B2B net sales were$56.0 million for the six months endedJune 30, 2022 , compared to$50.9 million for the six months endedJune 30, 2021 , which represents an increase of$5.1 million , or 10.0% compared to the corresponding period in the prior year.
Cost of Sales and Gross Profit
The following table summarizes our cost of sales and gross profit for the
periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2022 2021 Change (1) Change (2) 2022 2021 Change (1) Change (2)
Net sales $ 56,067,826 $ 42,889,965 $ 13,177,861 30.7 % $ 110,736,024 $ 87,373,705 $ 23,362,319 26.7 %
Cost of Sales:
Other Cost of
Sales 23,916,064 19,334,832 4,581,232 23.7 % 47,657,458 40,101,770 7,555,688 18.8 %
Percent of net
sales 42.7 % 45.1 % -240 bps (5.4 )% 43.0 % 45.9 % -290 bps -6.2 %
Depreciation
and
amortization 671,015 659,397 11,618 1.8 % 1,388,901 1,138,981 249,920 21.9 %
Percent of net
sales 1.2 % 1.5 % -30 bps (22.2 )% 1.3 % 1.3 % 0 bps -3.8 %
Stock-based
compensation 117,215 - 117,215 n.m. 208,526 - 208,526 n.m.
Percent of net
sales 0.2 % 0.0 % 20 bps n.m. 0.2 % 0.0 % 20 bps n.m.
Cost of Sales $ 24,704,294 $ 19,994,229 $ 4,710,065 23.6 % $ 49,254,885 $ 41,240,751 $ 8,014,134 19.4 %
Percent of net
sales 44.1 % 46.6 % -260 bps (5.5 )% 44.5 % 47.2 % -270 bps (5.8 )%
Gross profit $ 31,363,532 $ 22,895,736 $ 8,467,796 37.0 % $ 61,481,139 $ 46,132,954 $ 15,348,185 33.3 %
Percent of net
sales 55.9 % 53.4 % 260 bps 4.8 % 55.5 % 52.8 % 270 bps 5.2 %
(1) Changes in percentages throughout this "Management's Discussion and Analysis" are presented in basis points (bps).
(2) Not meaningful (n.m.) year-over-year comparison as there is no comparative in the corresponding period in the prior year.
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Three months ended
Cost of sales for the three months endedJune 30, 2022 , increased by$4.7 million , or 23.6%, to$24.7 million , compared to$20.0 million during the three months endedJune 30, 2021 . This increase in cost of sales was primarily due to a 30.7% increase in net sales and associated product costs, partially offset by continued reductions in our product manufacturing costs. The increase in cost of sales was lower than the increase in revenues on a percentage basis, primarily due to lower production costs. Gross profit for the three months endedJune 30, 2022 , increased by$8.5 million , or 37.0%, to$31.4 million , compared to$22.9 million during the three months endedJune 30, 2021 . This increase was primarily due to the increase in net sales described above and additional efficiencies in our manufacturing processes, including increased capacity, increased batch sizes and improved fixed cost leverage. Gross profit as a percentage of net sales for the three months endedJune 30, 2022 , was 55.9%, an increase of 260 bps, or 4.8%, compared to the corresponding period in the prior year.
Six months ended
Cost of sales for the six months endedJune 30, 2022 , increased by$8.0 million , or 19.4%, to$49.3 million , compared to$41.2 million during the six months endedJune 30, 2021 . This increase in cost of sales was primarily due to a 26.7% increase in net sales and associated product costs, partially offset by continued reductions in our product manufacturing costs. The increase in cost of sales was lower than the increase in revenues on a percentage basis, primarily due to lower production costs. Gross profit for the six months endedJune 30, 2022 , increased by$15.3 million , or 33.3%, to$61.5 million , compared to$46.1 million during the six months endedJune 30, 2021 . This increase was primarily due to the increase in net sales described above and additional efficiencies in our manufacturing processes, including increased capacity, increased batch sizes and improved fixed cost leverage. Gross profit as a percentage of net sales for the six months endedJune 30, 2022 , was 55.5%, an increase of 270 bps, or 5.2%, compared to the corresponding period in the prior year. 46 --------------------------------------------------------------------------------
Operating Expenses
The following table summarizes our operating expenses for periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2022 2021 Change Change (1) 2022 2021 Change Change (1)
Research and
development
Other research and
development $ 1,435,370 $ 1,066,851 $ 368,519 34.5 % $ 3,165,358 $ 1,974,021 $ 1,191,337 60.4 %
Percent of net
sales 2.6 % 2.5 % 10 bps 2.9 % 2.9 % 2.3 % 60 bps 26.5 %
Depreciation and
amortization 74,484 68,920 5,564 8.1 % 148,967 68,920 80,047 116.1 %
Percent of net
sales 0.1 % 0.2 % 0 bps (17.3 )% 0.1 % 0.1 % 10 bps 70.5 %
Stock-based
compensation 233,958 - 233,958 n.m. 397,153 - 397,153 n.m.
Percent of net
sales 0.4 % 0.0 % 40 bps n.m. 0.4 % 0.0 % 40 bps n.m.
Marketing
Other Marketing 16,945,917 5,045,945 11,899,972 235.8 % 22,486,200 9,284,962 13,201,238 142.2 %
Percent of net
sales 30.2 % 11.8 % 1850 bps 156.9 % 20.3 % 10.6 % 970 bps 91.1 %
Stock-based
compensation 321,544 - 321,544 n.m. 511,514 - 511,514 n.m.
Percent of net
sales 0.6 % 0.0 % 60 bps n.m. 0.5 % 0.0 % 50 bps n.m.
Selling, general
and administrative
Other selling,
general and
administrative 15,258,241 11,761,443 3,496,798 29.7 % 30,781,505 21,982,407 8,799,098 40.0 %
Percent of net
sales 27.2 % 27.4 % -20 bps (0.8 )% 27.8 % 25.2 % 260 bps 10.5 %
Depreciation and
amortization 778,250 548,251 229,999 42.0 % 1,327,731 1,054,068 273,663 26.0 %
Percent of net
sales 1.4 % 1.3 % 10 bps 8.6 % 1.2 % 1.2 % 0 bps (0.6 )%
Stock-based
compensation 2,469,119 24,143 2,444,976 10,127.1 % 4,034,055 534,665 3,499,390 654.5 %
Percent of net
sales 4.4 % 0.1 % 430 bps 7,723.4 % 3.6 % 0.6 % 300 bps 495.3 %
Write-off of
acquired Drawbridge
in-process research
and development - 1,563,015 (1,563,015 ) (100.0 )% - 1,563,015 (1,563,015 ) (100.0 )%
Percent of net
sales 0.0 % 3.6 % -360 bps (100.0 )% 0.0 % 1.8 % -180 bps (100.0 )%
Operating expenses
86.9 %$ 62,852,483 $ 36,462,058 $ 26,390,425 72.4 % Percent of net sales 66.9 % 46.8 % 2010 bps 42.9 % 56.8 % 41.7 % 1500 bps 36.0 %
(1) Not meaningful (n.m.) year-over-year comparison as there is no comparative in the corresponding period in the prior year.
47
--------------------------------------------------------------------------------
Three months ended
Total operating expenses for the three months endedJune 30, 2022 increased by$17.4 million , or 86.9%, to$37.5 million , compared to$20.1 million during the three months endedJune 30, 2021 . Total research and development expense for the three months endedJune 30, 2022 increased by$0.6 million , or 53.5%, to$1.7 million , compared to$1.1 million during the three months endedJune 30, 2021 . The increase was primarily driven by$0.4 million related to payroll and personnel related expenses, associated with increased headcount to drive new product development and clinical trial investments and$0.2 million related to stock-based compensation. Total marketing expenses for the three months endedJune 30, 2022 increased by$12.2 million , or 242.2%, to$17.3 million , compared to$5.0 million during the three months endedJune 30, 2021 . The increase was primarily driven by$10.6 million related to advertising spend,$1.0 million related to professional and consulting fees,$0.3 million related to stock-based compensation and$0.3 million related to payroll and personnel related expenses. Increases in marketing spend are driven by our strategy to expand brand awareness, as well as continuing to invest in creative assets to support our Redefining Healthy Aging Campaign which ran through the second quarter of 2022. Total selling, general and administrative expenses for the three months endedJune 30, 2022 increased by$6.2 million , or 50.0% to$18.5 million , compared to$12.3 million during the three months endedJune 30, 2021 . The increase was primarily driven by$2.4 million related to stock-based compensation,$1.8 million related to professional, consulting and sponsorship fees, driven by legal expenses and incremental public company costs. Additionally, distribution and freight related costs increased$0.9 million and commissions increased$0.7 million , each driven by sales growth.
Six months ended
Total operating expenses for the six months endedJune 30, 2022 increased by$26.4 million , or 72.4%, to$62.9 million compared to$36.5 million during the six months endedJune 30, 2021 . Total research and development expense for the six months endedJune 30, 2022 increased by$1.7 million , or 81.7%, to$3.7 million , compared to$2.0 million during the six months endedJune 30, 2021 . The increase was primarily driven by$0.8 million related to payroll and personnel related expenses and$0.4 million related to professional and consulting fees, both associated with increased headcount to drive new product development and clinical trial investments. Additionally, there were increases of$0.4 million related to stock-based compensation. Total marketing expenses for the six months endedJune 30, 2022 increased by$13.7 million , or 147.7%, to$23.0 million , compared to$9.3 million during the six months endedJune 30, 2021 . The increase was primarily driven by$11.7 million related to advertising spend,$1.1 million related to professional and consulting fees,$0.5 million related to stock-based compensation and$0.4 million related to payroll and personnel related expenses. Increases in marketing spend are driven by our strategy to expand brand awareness, as well as continuing to invest in creative assets to support our Redefining Healthy Aging Campaign which ran through the second quarter of 2022. Total selling, general and administrative expenses for the six months endedJune 30, 2022 increased by$12.6 million , or 53.3%, to$36.1 million , compared to$23.6 million during the six months endedJune 30, 2021 . The increase was primarily driven by$3.5 million related to stock-based compensation and$2.9 million related to professional, consulting and sponsorship fees, driven by legal expenses and incremental public company costs. Additionally, distribution and freight related costs increased$2.1 million , driven by sales growth. Payroll and personnel related expenses, including sales commissions, increased$1.8 million , associated with increased headcount driven by sales growth and acquisition related costs increased$0.5 million . 48 --------------------------------------------------------------------------------
Other Income (Expense), net
The following table summarizes our other income (expense), net for the periods
indicated:
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2022 2021 Change Change 2022 2021 Change Change
Interest expense, net $ (31,514 ) $ (81,256 ) $ 49,742 (61.2 )% $ (61,671 ) $ (363,901 ) $ 302,230 (83.1 )%
Percent of net sales (0.1 )% (0.2 )% 10 bps (70.3 )% (0.1 )% (0.4 )% 40 bps (86.6 )%
Guarantee fees - (140,407 ) 140,407 (100.0 )% - (279,271 ) 279,271 (100.0 )%
Percent of net sales 0.0 % (0.3 )% 30 bps (100.0 )% 0.0 % (0.3 )% 30 bps (100.0 )%
Change in fair value
of warrant liability 594,899 317,725 277,174 87.2 % 528,980 (1,310,026 ) 1,839,006 (140.4 )%
Percent of net sales 1.1 % 0.7 % 30 bps 43.2 % 0.5 % (1.5 )% 200 bps (131.9 )%
Loss on Drawbridge
Transaction - (165,998 ) 165,998 (100.0 )% - (165,998 ) 165,998 (100.0 )%
Percent of net sales 0.0 % (0.4 )% 40 bps (100.0 )% 0.0 % (0.2 )% 20 bps (100.0 )%
Other income
(expense), net (13,761 ) 38,143 (51,904 ) (136.1 )% 44,094 38,143 5,951 15.6 %
Percent of net sales (0.0 )% 0.1 % -10 bps (127.6 )% 0.0 % 0.0 % 0 bps (8.8 )%
Three months ended
Interest expense, net for the three months endedJune 30, 2022 decreased by$49.7 thousand , or 61.2%, to($31.5) thousand , compared to($81.3) thousand for the three months endedJune 30, 2021 . This decrease was primarily due to the repayment of the$20.0 million loan inOctober 2021 . See note 3 and note 10 included within our condensed consolidated financial statements for additional information and "Liquidity and Capital Resources" below. Change in fair value of the warrant liability for the three months endedJune 30, 2022 increased by$0.3 million , or 87.2% to$0.6 million , compared to$0.3 million for the three months endedJune 30, 2021 . The increase is due to the change in assumptions used to fair value the warrant. See note 13 included within our condensed consolidated financial statements for additional information.
Six months ended
Interest expense, net for the six months endedJune 30, 2022 decreased by$0.3 million , or 83.1%, to($0.4) million , compared to($0.1) million for the six months endedJune 30, 2021 . This decrease was primarily due to the repayment of the$20.0 million loan inOctober 2021 . See note 3 and note 10 included within our condensed consolidated financial statements for additional information and "Liquidity and Capital Resources" below. Change in fair value of the warrant liability for the six months endedJune 30, 2022 increased by$1.8 million , or 140.4% to$0.5 million , compared to($1.3) million for the six months endedJune 30, 2021 . The increase is due to the change in assumptions used to fair value the warrant. See note 13 included within our condensed consolidated financial statements for additional information.
Income tax expense
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2022 2021 Change Change
2022 2021 Change Change
Income tax expense
49
--------------------------------------------------------------------------------
Our effective tax rate was (3.1%) for the three months ended June 30, 2022 ,
compared to 0.1% for the three months ended June 30, 2021 . Our effective tax
rate was (24.1%) for the six months ended June 30, 2022 , compared to 0.6% for
the six months ended June 30, 2021 . As of June 30, 2022 , we continue to maintain
a valuation allowance for our worldwide federal and state net deferred tax
assets.
Liquidity and Capital Resources
Loan Agreement
OnApril 8, 2022 , we entered into a Loan Agreement withBank of America, N.A . (Loan Agreement), with an effective date ofMarch 31, 2022 . Under the terms of the Loan Agreement,Bank of America N.A . (BofA ) provided a revolving line of credit to the Company in the amount of$15.0 million (the Line of Credit). Under the Loan Agreement, we may repay principal amounts and reborrow them as necessary untilMarch 31, 2027 (the Expiration Date). Outstanding borrowings under the Loan Agreement will be subject to interest at a rate equal to the Bloomberg Short-Term Bank Yield Index rate (BSBY), plus 1.50%, adjusted on the first day of each month (the Adjustment Date). Interest is calculated on the basis of a 360-day year and the actual number of days elapsed. We agreed to pay interest on any outstanding borrowings beginningApril 30, 2022 , and then on the same day of each month thereafter, until all principal outstanding is repaid under the Loan Agreement. Should the first day of a calendar month fall on a day that is not a banking day, then the Adjustment Date shall be the first banking day immediately following thereafter. The Line of Credit is subject to an Unused Commitment Fee equal to 0.2% per year. The Unused Commitment Fee was due onMay 1, 2022 , and on the same day each following quarter until the expiration of the Loan Agreement. As a sub-facility under the Line of Credit, the Lender has provided up to$6.0 million in commercial and standby letters of credit (the Letters of Credit). Any outstanding and undrawn Letters of Credit shall be reserved under the Line of Credit and such amount shall not be available for borrowings. Letters of Credit issued under the Loan Agreement are subject toBofA's customary issuance, presentation, amendment and other processing fees and other standard costs and charges.
All borrowings under the Loan Agreement are guaranteed by our subsidiary,
Upon the occurrence of any default, all outstanding and unpaid amounts, including unpaid interest, fees, or costs will bear interest at a rate equal the then effective interest rate, plus 6.0%.
The Loan Agreement is subject to customary covenants, including the following financial covenants:
i.
Consolidated Total Leverage to EBITDA Ratio: maintain a consolidated Funded Debt to EBITDA not exceeding 2.5:1.0. Funded Debt is defined as all outstanding liabilities for borrowed money (including any outstanding Letters of Credit) and other interest-bearing liabilities, including current and long-term debt, less the non-current portion of Subordinated Liabilities. Funded Debt shall not include operating lease liabilities.
ii.
Consolidated Fixed Charge Coverage Ratio: maintain a consolidated Fixed Charge Coverage Ratio of at least 1.25:1.0. Consolidated Fixed Charge Coverage Ratio is defined as the ratio of (a) consolidated EBITDA, less the amount of unfinanced capital expenditures, plus rental expense for such period, to (b) the sum of Federal/state/local taxes, interest expense, lease expense, rent expense, the current portion of long term debt, the current portion of finance lease obligations and any Restricted Payments incurred or made during the period.
As of
50
--------------------------------------------------------------------------------Credit Facilities
OnFebruary 14, 2020 , we entered into an Uncommitted and Revolving Credit Line Agreement, withSumitomo Mitsui Banking Corporation (SMBC) as the lender (2020 Credit Agreement). Upon the closing of the 2020 Credit Agreement, we borrowed$20.0 million from the revolving line of credit. OnFebruary 12, 2021 , we entered into an Uncommitted and Revolving Credit Line Agreement, with SMBC (2021 Credit Agreement) to refinance and replace the 2020 Credit Agreement. The terms of the 2021 Credit Agreement are substantially similar to the terms of the 2020 Credit Agreement. Under the 2021 Credit Agreement, SMBC may in its sole discretion elect to make unsecured loans to us untilFebruary 11, 2022 , in an aggregate principal amount up to but not exceeding$20.0 million at any time. Each loan made under the 2021 Credit Agreement will have a maturity date that is not less than one day and not more than twelve months after the date that such loan is disbursed, as we and SMBC may mutually agree. SMBC may, in its sole discretion at any time, terminate in whole or partially reduce the unused portion of the credit line under the 2021 Credit Agreement. SMBC is not obligated to make any loan under the 2021 Credit Agreement. We may prepay any outstanding loans under the 2021 Credit Agreement in whole or in part at any time without penalty, other than customary prepayment fees or additional costs as determined by SMBC. OnFebruary 12, 2021 , we drew down the full$20.0 million under the 2021 Credit Agreement to refinance our outstanding loans under the 2020 Credit Agreement. The loan under the 2021 Credit Agreement bears interest at a per annum rate quoted by SMBC and agreed to by us when such loan is made. Interest on a loan is payable in arrears on the maturity date of such loan. Principal of a loan is due on such loan's maturity date. We are also obligated to pay other expenses and indemnities customary for a credit facility of this size and type. Our obligations under the 2021 Credit Agreement are guaranteed by Kirin and Mitsui. We are required to pay each guarantor an annual fee equal to 1.20% of each of their$10.0 million guarantees annually and upon the occurrence of any change of control in respect of our company. We recorded$0.1 million and$0.2 million , respectively, of related expense during the three and six months endedJune 30, 2021 , which are included within guarantee fees in the condensed consolidated statements of operations. OnOctober 4, 2021 , we fully repaid the$20.0 million of outstanding borrowings, plus all accrued and unpaid interest 2021 Credit Agreement through the date of repayment. We incurred incremental fees related to the payoff totaling$7 thousand . Upon repayment of the outstanding borrowings under the 2021 Credit Agreement, the related Mitsui and Kirin guarantees were released and terminated.
Standby Letter of Credit
OnOctober 31, 2018 , we entered into a Reimbursement Agreement with SMBC (LC Reimbursement Agreement), under which we may request SMBC to issue up to$4.9 million in letters of credit in the aggregate and we agree to reimburse SMBC for any drawings under such letters of credit. Our obligations under the LC Reimbursement Agreement are guaranteed by Kirin and Mitsui. We pay each guarantor an annual fee equal to 12-month LIBOR, plus 3.0%, of$2,450,000 for such guarantees annually and upon the occurrence of any change of control in respect of our company. In consideration of the future cessation of LIBOR interest rates, we are discussing with Kirin and Mitsui shifting to a SOFR based rate on terms yet to be negotiated. The 12-month LIBOR rate was last set onFebruary 12, 2021 . Under the Fee Letter datedNovember 30, 2018 , between us and Mitsui (2018Mitsui Fee Letter ), amounts paid by Mitsui under its guarantee shall be deemed made for our benefit in consideration for our debt or equity securities on terms reasonably satisfactory to Mitsui and us. Under the Fee Letter datedNovember 30, 2018 between us and Kirin (2018Kirin Fee Letter ), amounts paid by Kirin under its guarantee shall be deemed made for our benefit in consideration for our debt or equity securities on terms reasonably satisfactory to Kirin and us. The LC Reimbursement Agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, reporting requirements and compliance with applicable laws and regulations and customary negative covenants limiting our ability, among other things, to merge or consolidate, dispose of all or substantially all of its assets, liquidate or dissolve. Upon the occurrence and during the continuance of an event of default, SMBC may declare all outstanding obligations owing under the LC Reimbursement Agreement immediately due and payable and may exercise the other rights and remedies provided for under the LC Reimbursement Agreement and related documents. The events of default under the LC Reimbursement Agreement include, subject to grace periods in certain instances, payment defaults, cross defaults with other indebtedness, certain material judgments, breaches of covenants or representations and warranties, a material adverse effect as defined in the LC Reimbursement Agreement and certain bankruptcy and insolvency events. 51 -------------------------------------------------------------------------------- To support the obligation of our subsidiary,Thorne Research, Inc. , to make a security deposit under its facility lease inSummerville, South Carolina , SMBC has issued an irrevocable standby letter of credit pursuant to the LC Reimbursement Agreement in the amount of$4.9 million with an original expiration date ofDecember 3, 2019 and automatic renewals untilOctober 31, 2037 . This letter of credit has an annual fee of$20 thousand . OnOctober 29, 2021 , we deposited$4.9 million into a restricted interest-bearing account with SMBC to fund the standby letter of credit and release guarantees provided by Kirin and Mitsui. During the three and six months endedJune 30, 2021 , the Company incurred total guarantee fee expense for the standby letter of credit of$41 thousand and$81 thousand , respectively, which has been included in guarantee fees in the condensed consolidated statements of operations.
Sources and Uses of Our Cash and Cash Equivalents
The following table summarizes our cash and cash equivalents and changes in our cash flows for the periods presented:
December 31,
June 30, 2022 2021 Change
Cash and cash equivalents $ 27,810,526 $ 51,100,915 $ (23,290,389 )
Restricted cash 4,900,000 4,900,000 -
Cash and restricted cash $ 32,710,526 $
56,000,915
Six Months
Ended
2022 2021 Change
Net cash provided by (used in) operating
activities $ (7,007,889 ) $ 886,174 $ (7,894,063 )
Net cash used in investing activities $ (18,463,360 ) $ (3,112,724 ) $ (15,350,636 )
Net cash provided by (used in) financing
activities $ 2,367,060 $ (3,315,698 ) $ 5,682,758
Operating Activities
Cash provided by operating activities consisted of net income (loss), adjusted
for non-cash items, including depreciation and amortization, change in fair
value of warrant liability, non-cash lease expense, stock-based compensation and
certain other non-cash items, as well as the effect of changes in working
capital and other activities.
Net cash used in operating activities increased $7.9 million for the six months
ended June 30, 2022 , compared to the corresponding period in the prior year. The
increase in cash used is primarily due to a decrease in net income after the
impact of non-cash items of $8.2 million , partially offset by a net increase in
operating assets and liabilities of $0.3 million . These changes in operating
assets and liabilities are primarily driven by timing of collections and vendor
payments and purchases of inventory during the period.
Investing Activities
Our primary investing activities consisted of purchases of property and equipment, mainly to increase our manufacturing and fulfillment capabilities to support our growth, as well as leasehold improvements. Use of cash for investing activities also includes payments for acquisitions, payments to support agreements with non-consolidated subsidiaries and the purchase and use of certain license and research agreements. Net cash used in investing activities increased$15.4 million for the six months endedJune 30, 2022 , compared to the corresponding period in the prior year. The increase is primarily driven by the acquisition of Nutrativa for$14.9 million during the first quarter of 2022. 52 --------------------------------------------------------------------------------
Financing Activities
Net cash provided by financing activities increased$5.7 million for the six months endedJune 30, 2022 , compared to the corresponding period in the prior year. The increase is primarily driven by gross proceeds from the issuance of ownership interest in Thorne Asia JV for$2.6 million during the first quarter of 2022 and payment of related offering costs for$3.0 million in 2021.
Contractual Obligations and Commitments
We have contractual obligations in the form of noncancelable leases, equipment loans which incur interest and commitments related to certain agreements. As ofJune 30, 2022 , future minimum payments under these obligations were$3.1 million ,$4.9 million ,$4.1 million ,$3.7 million ,$3.4 million due in the years endingDecember 31, 2022 , 2023, 2024, 2025 and 2026, respectively. Thereafter, we have remaining obligations totaling$35.8 million . See notes 10, 11 and 16 to our condensed consolidated financial statements for additional information. Upon the completion of our IPO inSeptember 2021 , we raised$60.0 million of net proceeds. As ofDecember 31, 2021 , we had$51.1 million of unrestricted cash and cash equivalents. During the six months endedJune 30, 2022 , we used$14.9 million to purchase Nutrativa and had negative free cash flow of$9.6 million . As ofJune 30, 2022 , we had$27.8 million of unrestricted cash and cash equivalents. Considering recent market conditions, including inflation, supply chain disruptions, rising interest rates, rising energy costs, the war inUkraine and the ongoing COVID-19 pandemic, we have reevaluated our operating cash flows and cash requirements and continue to believe that current cash balance and future cash flows from operating activities, together with the available borrowings under the BofA Loan Agreement, will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the condensed consolidated financial statements included herein. Our future capital requirements will depend on many factors, including our revenue growth rate, our working capital needs primarily for inventory build, our global footprint, the expansion of our marketing activities, the timing and extent of spending to support product development efforts, the introduction of new and enhanced products and the continued market consumption of our products. We may seek additional equity or debt financing in the future in order to acquire or invest in complementary businesses, products and/or new supportive infrastructures. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or general cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.
Off Balance Sheet Arrangements
We currently do not have, and did not have during the periods presented, any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K filed onMarch 16, 2022 , and, during the three and six months endedJune 30, 2022 , there were no material changes to those previously disclosed.
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