Q4 2019 Earnings Call
During the fourth quarter 2019 earnings conference call.
My name is Chris and I'll be your conference operator today.
At this time all participants are in listen only mode and as a reminder, this conference call is being recorded.
This afternoon Chromadex issued a news release announcing the Companys financial results for the first fourth quarter 2019.
If.
No reviewed this information both are available within the Investor Relations section from Texas website at Www Dot Chromadex Dot com.
I would now like to turn the conference call over to piano Gerber, Vice President of have Peony and Investor Relations. Please go and scrubber.
Thank you good afternoon, and welcome to come back.
Corporation fourth quarter 2019 results Investor calls with US today, our crummett access Chief Executive Officer, Rob freed founder and executive Chairman frames, Joc and Chief Financial Officer, Kevin Farr. Today's conference call May include forward looking statements, including statements related to credit access research and development.
And clinical trials plans and the timing and results of such trials the timing of future regulatory filings the expansion of the sale of true NIE agenda, Newmarket future financial results business development opportunities future cash needs Chromadex is operating performance in the future and future investor interest.
That are subject to risks and uncertainties relating to chromadex is future business prospects and opportunities as well as anticipated results of operation.
Forward looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance to actual future results.
Because forward looking.
Related matters that have not yet occurred. These statements are inherently subject to risks and uncertainties. Many factors could cause chromadex is actual activities or result to differ materially from the activities. A result anticipated in forward looking statement.
These risk factors include does contain increment acted.
Annual report on form 10-K, most recently filed with the us easy.
Please note that the company assumes no obligation to update any forward looking statements. After the date of this conference call to conform with the forward looking statements actual results or to changes in its expectations.
In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the company's website present reconciliations to the appropriate GAAP measures.
Finally, this conference call <unk>.
Recorded via webcast the webcast will be available at the Investor Relations section of our website at Www Dot Chromadex dotcom with Dod. It's now my pleasure to turn the call over to our Chief Executive Officer Rogge freed Rob.
Thank you Brianna.
Good afternoon, everyone.
Thank you for joining our fourth quarter 2019 investor call.
We had another strong quarter.
Total net sales of 13.1 million.
Overall sales increased 9% sequentially and 44% year over year.
True nitrogen net sales were 10.2.
William 4% increase sequentially on a 57% increase year over year.
Let me first briefly comment on the Corona virus.
We do not anticipate a significant impact on net sales.
However, watson's represented 15%.
Net sales in the fourth quarter, and we do expect to moderate impact in the first quarter.
Tourism and store traffic is down in Hong Kong.
We do not anticipate a supply chain impact at this time.
As we have said in the past there are three pillars to our business strategy.
Number one to build a global brand number two to own the science and number three to focus on the fundamentals.
Let's start with the brand.
As mentioned global true nitrogen saw net sales of $10.2 million in the quarter, 4% increase sequentially.
Julianna, 57% increase year over year.
True Nigel represented 78% of the 13.1 million net sales in the quarter.
Ecommerce net sales were $7.9 million, an 11% increase sequentially.
<unk> <unk>, 2% increase year over year.
For full year 2019, true knowledge and net sales were $36.1 million roughly double last year's levels.
I'm very proud of what we've accomplished in the three short years since we launched this friend.
True nitrogen has become truly global.
With approximately 25.
<unk> net sales from international markets in the fourth quarter.
This includes sales to Watson's in Hong Kong in Singapore Cross border sales in China and Japan.
Sales to our partners in New Zealand and Canada.
We are now expanding into the UK and Australia, and the first quarter of 2020.
Sales to Watson's were $1.9 million in the fourth quarter.
Slight decrease versus the previous quarter, primarily due to the protests.
Watson's Hong Kong point of sale remain remained strong largely driven by successful 11 11 promotion.
Our E Commerce business grew 11% sequentially to $7.9 million in the quarter generated 27.5 million of net sales for the year and 84% increase.
The majority of these sales were from our U.S. business with a small but growing contribution from international cross border sales.
We continue to build our business with fitness professionals in health care practitioners, where H.C. piece.
Two influential and proactive groups in December we introduced our new true nitrogen Pro 500 at the American Academy for anti aging medicine, one of the largest HCP trade shows of the year.
Here.
This represents the largest serving a true nitrogen available worldwide and is exclusive to health care practitioners.
We have a growing base of professional athletes and professional fitness trainers, taking through nitrogen today as well.
Additionally, we are continuing to build our brand with strong global partnerships.
First we signed an agreement with a leading health and beauty retail chain to sell true nitrogen in over 200 stores in the UK.
This represents an initial test launch with the potential for broader distribution overtime.
We will support the launch with PR, social media and Influencer campaigns to drive brand awareness and education.
As well as optimize our existing Amazon UK product page.
We began early market education in the second half of 2019 in London with scientific presentations at both the.
<unk> optimization summit and the food matters summit.
Additionally, we built upon our relationship with Matakana Super Foods to include distribution rights in Australia.
A lot of Cana has done an excellent job in New Zealand and they will launch true nitrogen in Australia. This month.
Australia has one of the highest per capita consumption of dietary supplements in the world.
We are proud to be in business was Nestle health science and are excited for its plans to launch true nitrogen this year.
Marketing efforts will begin in mid 2020 with an online launch expected in the second half of the.
Here.
The initial test launch will be in loose powder format.
Well this will not have a material impact on our 2020 results. It is foundationally important.
We and Nestle believed that cellular nutrition.
We're addressing cellular processes within the cell.
The decline with age and under stress is a growing trend.
We're very well positioned by partnering with Nestle to build awareness of true nitrogen and I'd.
That's we had an exit clause in the in our agreement it technical says feasibility or stability in.
Liquid was not achieved by the end of 29 team.
This clause has expired.
We continue to proactively work on liquid stability, although we are uncertain as to if or when this will be achieved.
Last month, we expanded our partnership with Nestle by signing a.
Three year supply agreement with their recently acquired personalized nutrition service persona nutrition.
Persona launch to nitrogen into its customized vitamin and nutritional supplement delivery service last month announced Kelly Rip as its new spokesperson.
Like its parent company Nestle persona shares our.
To science and trusted high quality ingredients paired with peer reviewed research.
Our second core objective is to own the science.
We continue to be confident in the science behind Nicotinamide Riboside with several new studies registered and published since our.
Last update.
Frank will summarize these in a moment as well as explained why NR is superior to the ingredient and the men.
We also continue to build upon and protect our intellectual property, which includes our on <unk> going litigation against the leaves them health.
There were several positive developments and momentum in early 2020.
We are on offense in all cases.
First in January.
At the hearing on the motions for summary judgment in California.
Corny allowed our broader claims rocard regarding stepped of trade secrets.
And confidential information as well as breach of fiduciary duty by Elysium and Mark Morris.
We will last majority for an award of roughly $13 million and compensatory damages along with a request for punitive damages. The trial is set for May 12.
Second.
Judge Connolly granted our motion to lift the stay in our patent infringement case with Dartmouth against the leasing them in Dell in Delaware.
Scheduling conference is taking place today.
And we look forward to an update from our attorneys.
Third.
Judge Mcmahon.
Accused yourself from the New York case, and it was reassigned to judge Louis Jay Lyman.
We're also very confident in this case as we complete discovery and move forward to trial.
We engage new Council in New York case, LTL, a respected trial attorneys and had been representing Chromadex Atlanta Mac than other matters.
As for some time.
And late last week, the Federal Court of Appeals affirmed the decision of the US patent and trademark office, which upheld the validity of dartmouth's isolated NR patents.
These composition of matter patents on an are held by the trustees of Dartmouth and.
Licensed exclusively by Chromadex.
With that federal Court of Appeals affirmation, we will continue to vigorously pursue our legal claims against the Liam.
And are now proceeding with our patent infringement action against the leasing them in Delaware.
This court of appeals to.
Decision is important.
Because the federal court of Appeals deferments triggers a statutory a stoppel that will present the leads him from raising any patent invalidity arguments in the district court that it raised or reasonably could have raised during the IPO are.
We are increasingly.
Confident in the facts of all three cases and are eager to get to trial.
Our third strategic pillar is to focus on fundamentals.
As mentioned earlier, we secured regulatory approvals from the E U and Australia, which includes five and to your exclusivity respectively.
This continues an unprecedented streak of any success successful regulatory acceptance of NR, a key point to destroy differentiation from any other novel antibody precursor.
The recent pace of regulatory approvals is a testament to our commitment to science quality.
And consumer safety, which we continue to champion in the industry.
We also placed much focus on our internal operations in the fourth quarter, including some changes in personnel.
Improvements in management processes.
Improvements in IP and supply chain systems.
While this required some investment that contributed to higher gionee expense in the quarter.
Changes should allow us to grow our business more effectively overtime.
It is our mission to lead by example in this industry.
Frank It's a board member of the natural products Association and this quarter.
I became a board member of the Council for responsible nutrition.
There is an opportunity to influence others in this industry with our quality, our messaging and our science.
In summary.
We're very proud of our accomplishments in the fourth quarter and full year 2019.
Science continues to build.
The market opportunity is tremendous true nitrogen is going global.
We are grateful to our consumers who put their trust in our brand.
And to our investors, who put their trust in this management team to deliver shareholder value.
Now.
Now I will pass the call over to our chairman Frank Jacks for an update on scientific research.
Thank you Rob.
As Rob stated one of our core objectives is to own the science and we're committed to remaining a global scientific authority on NR and energy research.
It is an exciting time to be.
At the forefront at this growing body of research and we are proud to partner with the world's leading scientists.
There are 39 ongoing completed in published clinical trials currently registered on clinical trials Dot Gov to investigate the pharmacokinetics and therapeutic effects have been or.
This is three more than our last.
An additional seven clinical trials are registered to test and are in combination with other ingredients for a total of 46.
We finished the quarter with more than 185 sign research collaborations up by approximately 10 compared to last quarter.
As Rob said, we believe any de awareness is reaching a tipping.
Point with interest growing around the world beyond the core scientific and bio hacker communities.
And our as the only NTD precursor that is clinically proven to be safe, well tolerated and efficacious and boosting anybody in humans.
Six peer reviewed clinical trials using nitrogen have already been.
Published in top tier peer reviewed scientific journals, showing an increase in any D.
Another any de precursor to those recently gained attention is nicotinamide mano nucleotide four and a man.
In contrast to the six clinical trials on nitrogen that I previously mentioned the first clinical study event amend was recently.
Published in which researchers administered three single doses to 10 healthy male subjects.
While this established tolerability of single oral doses of animals and humans. It did not measured the tolerability of daily oral supplementation.
Furthermore, it did not measure and amends effect if.
Any on any de levels.
In addition, we have reason to believe that animation is less efficient as an alternative to NR.
As demonstrated by multiple peer reviewed published studies animal must convert to in our before entering the sell this is due to the presence of a phosphate group on a men which.
That's it from entering the sells directly.
Previously published research has suggested that there are no known transporters for phosphorylated compound such as sentiment.
However in the recent study researchers claim that too that they have identified and amend transporter in the small intestine of mice, we believe there flaws.
In the study design and will be interested to see if it can be replicated.
In the meantime, the pathway for NR as well established and beyond refute.
Furthermore, the regulatory acceptability event, and then as a dietary ingredient for use in dietary supplements is uncertain.
Next successfully file to end the I notifications for nitrogen with the FDA, which is virtually unprecedented in the industry. In contrast, no such notification has been filed with the FDA four and a man.
We have been following the research on NDD precursor since 2006, beginning in 2010, we.
Gross to license the patents and build our business around and our rather than and amend because NR was supported by the science.
Our understanding then is the same as it is today, which is that there are no scientifically proven reasons for consumers to take and amend over NR.
I will highlight an interesting recent.
The study on in our since we last spoke.
In January or preclinical study demonstrating the effects of short term and our supplementation in preventing hearing loss and a mouse model for Cockayne syndrome.
It was published in the journal aging and mechanisms of disease, a member of the nature partner journals.
The study was a collaboration between scientists at NIH is National Institute of on aging and the National Institute on deafness, and other communication disorders, and the University of Copenhagen.
It demonstrated a dose dependent reduction in hearing loss from NR supplementation in these mice bye.
Eating auditory interpretation and neurotransmission of sounds to the brain.
These results reinforce earlier preclinical findings with suggest an army help in delaying or reducing age related hearing loss, though further studies are required to confirm these findings in humans.
The hearing loss.
By Cockayne syndrome patients is similar to the age related hearing loss that has experienced by approximately one third of adults between the ages 65, and 74 years old.
There are no preventative measures available today, so in our represents an intriguing area future research with potential public health implications.
Finally, I'll briefly touch on our newly registered clinical trial since we last spoke.
First in November of study was registered by Virginia Commonwealth University to examine whether the use of any accident supplements impacts exercise intolerance.
In individuals with cystic fibrosis this placebo controlled study.
Study is comparing the use of enter in reservoir neutral in both cystic fibrosis patients as well as healthy individuals.
In December study was registered by children's hospital of Philadelphia, and age to measure the effect of combining and aren't exercise in a row the capacity in friedrichs a tax.
Exar taxi a leads to increased risk of diabetes. Therefore, a key secondary objective is to measure the effective NR and exercise in glu glucose homeostasis in this population.
Glucose homeostasis is of critical importance for human health due to the central importance of glucose as a source of energy.
We've written recently seen increased interest in studying the effects event or on exercise and ongoing and published preclinical studies and this is an interesting study on the specific population.
Lastly in February a pilot study to evaluate the effective and are on immune activation in.
Yes. This was registered by the NIH National Heart lung and Blood Institute psoriasis causes chronic inflammation in this study the researchers aim to investigate whether NR supplementation can improve immune system function.
In blood and skin of people with mild to moderate psoriasis in summary.
The next is committed to remaining leader in the NR NTD insane and their health conversation.
We believe that NR or nitrogen is the safest and most efficacious NTD precursor to elevate NTD, there's growing interest in any de among the scientific community doctors sports teams and other influencers.
We have a tremendous opportunity to educate the general public about this incredible molecule, which has the potential to positively impact human health.
I look forward to sharing more in future updates with that I'll pass the call to Kevin Farr, Kevin Kevin.
Thank you Frank let's look at our financial results for.
The fourth quarter and full year 2019, which reflect continued progress against our key financial objectives. We delivered our latest 2019 financial outlook across all metrics for the fourth quarter and full year, including.
Strong sequential top line growth in gross margins significantly.
Improvements in advertising efficiency year over year, it controlled growth in gionee, excluding a $2.2 million write off of our outstanding receivables with lead yet.
This reflects conservative accounting treatment and does not impact or litigation strategy for our assessment of the potential return on it.
Investment in all three cases.
The determination to write off the entire receivables made based on Liam's recently unsealed financial statements through year end 2018.
They subsequently announced a 40 million capital raise but since we have no substantiation to the financial impact we took the.
Conservative accounting approach.
Overall, our underlying business performance for the fourth quarter as measured by adjusted EBITDA. Excluding legal expense was a loss of 2.1 million, which reflected substantial progress year over year.
The decline on a sequential basis due to his planned investments in.
Marketing and R&D.
Lastly, we ended the year with 18.8 million in cash roughly equal to the third quarter and strengthen our balance sheet by securing a 7 million dollar committed line of credit to help manage working capital investments.
We did not drawn the line of credit in the quarter.
For.
The three months ended December 30, Onest 2019, Chromadex reported net sales at 13.1 million up 9% compared to 12.1 million in the third quarter of 2019.
Year over year sales were up 44% compared to the fourth quarter of 2018.
Two nine isn't that sales were up 4% sequentially and grew by 57% year over year with diversified growth across use ecommerce Watson's and international cross border launches year over year.
Watson sales remained solid at 1.9 million in the quarter were down slightly versus the.
Last quarter.
Sales the watson's in the third quarter reflected strong consumer takeaway as well as restocking from low inventory levels in anticipation of the holiday selling season.
In the fourth quarter, we continue to see solid consumer take away driven by successful 2000 1911 11.
And 12 12 promotional programs.
Total nitrogen related sales were up 16% sequentially and 63% year over year with strong demand from our customers.
Turning to the rest of the piano on a sequential basis, our gross margins was up 100 basis points from.
56% in the third quarter of 2019% to 57% in the fourth quarter of 2019.
Year over year gross margins increased by 510 basis points to 57% compared to 52% in the fourth quarter of 2018.
Increase through nitrogen consumer product.
Sales and product cost savings initiatives drove the improvement in gross margins. We believe both of these factors represent a tailwind to gross margins and twentytwenty.
On a sequential basis, our total operating expenses for the fourth quarter of 2019 was 16.3 million up 2.7 million.
Compared to the third quarter of 2019.
This includes a onetime noncash bad debt charge of 2.2 million related the write off of our lease them receivable.
Our selling and marketing expenses were up $8.5 million to 5.1 million in the fourth quarter of 2019.
Compared to 4.6 million in the third quarter of 2019.
As a percentage of net sales. This expenditure was up 60 basis points in the fourth quarter versus the third quarter of 2019.
We made continued progress improving marketing efficiency in our true not hedges business driven by strong.
Turning customer growth, while investing in initiatives to drive new customer growth both in the us and internationally.
In the fourth quarter 2019, Gionee expenses were largely flat with the third quarter of 2019, excluding the 2.2 million bad debt expense related to leave Hello.
Including the bad debt write off as reported DNA was up 2.1 million to 10.1 million versus 8 million in the third quarter of 2019.
As expected legal expenses lower in the current quarter do delays in the California trial.
We completed most of the preparation.
But we will incur higher try related costs in the second quarter of 2020 with the trial scheduled for May 12.
Excluding bad debt of 2.2 million legal fees of 2.2 million an equity compensation expense fourth quarter 2019, Gionee expense was higher by point Sixmillion.
Versus the third quarter of 2019.
The higher Gionee expense included higher royalties, resulting from the sequential growth in our true nitrogen business as well as investments and process improvement initiatives. These include the implementation of a new ERP system that will reduce manual processes derive at.
Fishing season, Twentytwenty and beyond.
For the fourth quarter 2019, our operating loss was 6.7 million, excluding bad debt expense of 2.2 million versus $6.9 million in the third quarter of 2019, a slight sequential improvement.
As reported our operating.
Loss was 8.9 million.
The net loss attributable common stockholders for the fourth quarter of 2019 was $8.9 million or a loss of 15 cents per share as compared to a net loss of 7.2 million or a loss of 12 cents per share for the third quarter of 2019.
The fourth quarter net loss per share include the four cents per share bad debt expense.
As we've said we believe is important to focus on sequential trends that our business demonstrate progress towards cash flow breakeven.
To help investors better gauge the underlying financial performance or business last year, we introduced a new.
Non-GAAP measure adjusted EBITDA, excluding total legal expense.
We've included a reconciliation to the appropriate GAAP measure in our earnings slide presentation.
Litigation expense represents the majority of our legal spend today.
We're excluding total legal spending from adjusted EBITDA since we expected.
Declined significantly after the trials are completed.
In the fourth quarter 2019, we began excluding severance and restructuring expenses that delivered measurable sustainable cost savings. We believe these investments will contribute to where bottom line results in late 2020 and beyond. These include an end to end the.
Calculation of our supply chain as well as head count realignment actions to reduce redundancies.
Rule, the majority of severance restructuring expenses for headcount related activities will be incurred in the first quarter of twentytwenty, including severance related to these organizational changes.
The majority.
We already have cash payments related to these charges we paid over the next 12 months, we'll provide more details in our full year cost savings targets and associated investments on next quarter's call.
We are only excluding severance and restructuring expenses that are tied to specific project. These accounted for 200000 in the fourth quarter.
Peter as I mentioned, we also incurred slightly higher GNS expenses in the quarter related to process improvement initiatives, such as implementing an ERP system that automates manual processes across the company.
These expenses are not being excluded from adjusted EBITDA.
We also exclude the onetime noncash.
Cash leasing related bad debt expense.
In summary from index defines adjusted EBITDA, excluding total legal expense as net income or loss, which is adjusted for income tax.
The interest depreciation amortization noncash stock compensation.
Yes.
Bad debt expense related to Louisiana.
Severance and restructuring expenses and total legal expense.
Adjusted EBITDA, excluding total legal expenses was up slightly to a loss of 2.1 million in the fourth quarter of 2019 compared to a loss of 1.9 million in the third quarter of two.
2019.
The current quarter includes planned investments in marketing strategic R&D projects and process improvement initiatives year over year, we delivered a 1.8 million improvement in the fourth quarter of 2019 versus a loss of 4 million in the fourth quarter of 2018.
The improvement in the fourth quarter of 2019 was primarily driven by higher sales and gross margins and improved marketing efficiency year over year.
Moving to the balance sheet and cash flow.
We ended the fourth quarter of 2019 with a solid balance sheet with cash of 18.8 million.
Roughly flat to the third quarter cash Bell.
In the fourth quarter 2019, our net cash used in operating activities was point 6 billion loss versus 7.8 million in the third quarter of 2019.
Consistent with our expectation the lower cash outflows from operations this quarter.
Were driven by working capital, which was a 3.9 million source of cash in the fourth quarter of 2019 compared to a 2.9 million use of cash in the third quarter 2019.
The source of cash in the fourth quarter was related to an increase in accounts payable largely due to higher nitrogen ingredient.
Says as we invested in inventory for 2020 and lower legal payments.
Now, let's look at RPL expectations for full year 2020 versus full year 2019, we expect strong growth in topline driven by our us E Commerce business, New international markets, such as the UK and.
Earlier, and new platforms, such as persona nutrition, we anticipate a slight moderation in the growth rate for the 47% growth in 2019 due to the larger base revenues the impact of Corona virus under Watson's business in the first quarter and the impact of divesting our.
Your next regulatory consulting business. This business accounted for roughly 700000 2019 net sales, which was included in our analytical referenced the others and services segment.
Gross margin expansion due to favorable mix from growing ecommerce business the product design changes implemented.
Late 2019, and additional supply chain cost savings initiatives.
An increase in selling and marketing expenses of three to 5 million, including investment in brand awareness and new market launches. We expect continued improvement in selling and marketing expenses as a percentage and that sales driven by.
On customer retention.
Lastly, we expect gionee, excluding severance and restructuring expenses and legal expense will be up by one to 2 million year over year comparable 2019, Jana expenses, excluding the lease bad debt expense in 2019.
Consistent with our plan to scale the company in the second half of 2019 for the longer term, we invested in key personnel and ICTI finance and HR, which increased our run rate expense for 2020.
As I mentioned, we expect our new systems and processes to enable us to scale more efficiently going forward.
Severance and restructuring expense will be included in reported Gionee.
We are excluding severance restructuring expense from our financial outlook, but as I previously indicated there will be weight to the first quarter driven by our organizational realignment initiative.
We estimate the first quarter severance and restructuring.
Just to be approximately 700000.
We're also excluding legal expense from our outlook since two of the three trial dates have not yet been set which makes it difficult to predict.
Adjusted EBIT, excluding total legal expense remains a key metric we expect this to improve throughout the year, we continue to believe.
We can achieve cash flow breakeven at $17 million to $19 million revenues, if the litigation and legal costs decline.
Total operating expense will be higher in the near term driven by the higher litigation expense. So we're working and cost savings initiatives delivered gross margins that are slightly better than the 60%.
To help offset this.
Of legal costs do not decline our breakeven sales maybe closer to the upper end of the 17 to 19 million range.
In short the overall framework is unchanged and we will continue to manage all levers that the PML to deliver on this important objective.
Based upon.
On our current financial outlook, we believe we have enough cash to reach cash flow breakeven, including or $7 million line of credit.
However, as I said last quarter litigation expenses unpredictable in terms of timing and magnitude and could change or cash needs.
As previously.
Mentioned, we're currently anticipating impact in first quarter sales from the grown a virus. We currently do not expect any supply chain disruptions, we have sufficient safety stock of finished goods and have contingency plans in place for upcoming production.
As you can see we continue to focus on the fundamentals, which.
Building a sound operation for the long term, we are much stronger company today, we have a highly motivated team, whose acting with greater urgency to capitalize on the market opportunity in front of us.
We remain committed to achieving cash flow breakeven as soon as possible and delivering at our mission.
Building global where.
Operator, we're now ready to take questions.
Ladies and gentlemen in order to ask a question you do need to press star one on your telephone please standby will be compiled acuity roster.
Your first question is from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hi.
Robin freight.
How are you.
Yes.
Good.
Few questions, so as far superior to write off.
VCM.
What's the barrel answer is there anything behind what was written off for the fourth quarter.
The balances zero, so we wrote off.
The entire.
Accounts receivable.
Okay Fantastic and then secondly can you talk about that.
It's study for through your sort of tax year can you talk about the.
The size of the study, perhaps year end points dosing time frames et cetera.
Frank.
Sorry, I was on mute.
Could you repeat the question.
Could you talk about the Chubb and Ace study for for your taxes for his number patients sizes study endpoints dosing timeframe et cetera.
The study small the population is small so you're dealing with like around 10 people.
The study.
Okay got it okay.
Okay, perfect and then.
Lastly from me could you guys talked about.
Persona, a little bit for Sony Nutrition and talk about the.
The the Nestle inventory trade and talk a little bit about will that be the one channel will be using as they come to market. This year or will there be a number chairman.
So persona is already launched.
So it is available you can buy true nitrogen through their personalized medicine.
Nutrition offering today.
They've already placed their first order through to us.
No. We expect that Nestle will also on offer a product for sale to consumers in a small test.
Launch in September.
That will be an online version of a powder form of nicotinamide riboside.
Okay got it and then lastly could you talk about.
Any trends, you're seeing as far as stickiness of the online business stores trends reorders through your direct.
So.
We continue to be very impressed with the stickiness.
Retention rate is high and seems to be getting higher.
The majority of our revenues at this point in time is from repurchases and Reorders, but we have not provided specific numbers yet to that effect.
Thanks.
Okay got it does it for me thanks very much.
Thanks, Jeff Thanks, Jeff.
Your next question is from Jeff Van Sinderen with B. Riley Your line is open.
Good afternoon, everyone.
Wanted to just clarify on Nestle I think you.
In the technical feasibility clause is it fair to say that they that's been effectively waived at this point for the year beyond that at this point.
The clause has been wave, yes, our efforts to achieve stability in liquid is still ongoing.
Okay got it.
So you continue to move forward with that albeit timing unknown is that how we should look at it.
Yes, there are a number of approach is being taken there's binding to whey protein.
Beating the process of beating and there's a process of prevailing all of these are being we're experimenting with all of.
And combinations thereof.
Okay. Good.
And then just turning to.
The regulatory approval, yet in the EU and Australia.
And I think you said side retailers in both regions I know you've got the beauty retailer in the EU can.
Speak more about the next steps in launching there in those regions and I guess, how how we should anticipate.
Product to roll out there.
So starting with the UK.
We are.
We are taking the EU in general and UK specifically.
We carefully we are taking one step at a time, we started by selling cross border on Amazon into the UK.
Then we supported that with some earned media and PR in the UK, we received quite a few interesting articles about nitrogen and chromadex there.
And then we sought out and made a deal with a very good partner in the UK and with that partner. We're doing this 200 store test launch.
I don't expect it to be material in terms of the financial impact, but we are ceding the market and growing awareness in the UK much like.
We did initially in the us.
This is our strategy across the board. We are also selling cross border into Germany, and Spain and France.
And we are talking to various partners in that region and also working to develop earned media press to build awareness of Nigel.
One of any D.
Of cellular metabolism.
Energy metabolism in those local countries.
It takes a lot of time and resources and attention to launch in these countries you only have an opportunity to launch once.
So we are being we're being very vigilant.
Coolant.
We are working quickly, but we are working carefully.
The same is true in Australia, we had a partner in New Zealand that did an excellent job called Matakana. They did an excellent job distributing in New Zealand.
And they have an infrastructure in Australia, we decided to extend the relationship to include.
In Australia.
So there were some online sales and initially into Australia.
And we've done quite a bit of.
Of of earned media and press in Australia, There is a.
Fairly high awareness of nicotinamide, Riboside and a d. in Australia.
Ready so theres some demand already in that country and Matakana will begin their launch later this month. It will initially be an online launch.
Our expectation is that it will later evolve into retail distribution.
The same is true with China by the way we are selling.
Cross border into China presently with T Mall.
We are talking to partners about helping guide us and creating a partnership to help lead us in China.
We are having those conversations even in advance of getting regulatory approval in China. This is the strategy that we have.
Opted for entering into new territories, it's a careful vigilant cost efficient aggressive approach.
Okay, Great and then just turning to.
I think one of the studies that you talked about in your prepared comments touched on immune.
Some function.
And I'm, just wondering I guess, given the potential for improved immune system function for those taking true nitrogen how are you thinking about consumer awareness around that given the backdrop of covet 19.
Okay.
We understand.
That true nitrogen elevates energy levels.
We understand further that when a cell is under physiological stress.
That uses that in a D to combat that stress.
Not only through energy metabolism, but elevating the repair enzymes within the cells.
So we understand the importance of this and other viruses, we understand the importance of this particular trend and we are working on it.
With important researchers around the world and.
We are committing resources to studying and investigating the impact of true nitrogen on this and other similar viruses presently.
Interesting okay. Good to know thanks for taking my questions and continued success.
Anytime thanks, Thanks, Jeff.
Your next.
Next question is from Mitch scenario with the Sturtevant Enco. Your line is open.
Hi, good afternoon.
Couple questions first sort of on the retail strategy in the international markets is.
Finally, our if you announced the partner.
Name in the UK.
We have not Theyve asked us to not yet announced their partner until the day of the launch.
Okay and at this this business retailer has.
More than 200 stores.
More than 200 stores was not just the test.
Lumber.
Can both be true.
Yes, they have more and yes. This is the test Nebraska.
Yes, okay.
Okay.
So.
To use retail in Canada with whole foods.
Hello.
This this is unknown partner here in the UK.
What does that.
I mean, clearly you'd give up margin if you did the United States, but wouldnt visibility wouldn't there be offset and have you considered all looking at a retail strategy.
In the United States.
We also have retail partners in Hong Kong and in Macau and in Singapore.
And there is some level of retail here in the United States already there were in Bristol farms here in Los Angeles, and we sell to healthcare practitioners on a wholesale basis here in the United States.
We we sell stick packs to accompany here in L.A. cold pressed juice sorry.
We have very very.
They're fully and slowly dipped our toe in the water.
But there are people here at this company that have a great deal of experience dealing with the large retail chains.
And we are waiting till it's the right time and the right opportunity and there is the right level of brand awareness. So that we're not taking too big a risk.
When we go.
And that we're preserving the unique brand identity.
At such time, as we might enter into retail the opportunities are there. However.
Are you getting calls from retailers.
We do get us retailers.
Okay.
Second question.
Regarding nestle so.
So.
Clauses waived.
Still have ongoing efforts to.
So if we look to solve the problem is it just.
Is it a matter if I mean.
How comfortable are you in Leslie.
In in achieving solutions.
To the issue.
First let me say that were not sure that.
That the deal would be bigger if it was in liquid form.
We're actually quite interested in the powder format.
We think.
Tip in powder format like to stick stick packs that would be added to a beverage or even as it.
As an independent product is actually an interesting opportunity. So we're very curious on how this test goes and how this rollout product goes.
But yes, we did it is look nicotinamide riboside.
It is found in trace amounts in milk.
So nature has already solved the problem in trace amounts.
And beating has encapsulation has worked in the past and other.
Encapsulation.
Stability issues. So we.
I have confidence that eventually the problem that particular problem, we'll get solved but it has not been solved yet and of course, there's no guarantee that it will be solved.
In the.
In the fitness market.
They are using that.
In stick format does that they're putting in smoothies shakes and things like that is that how.
Thats been taken or do you think the fitness market and.
As in the incident capsule form.
Yes, I did we think that well I think the fitness market will be both.
I mean, it is already both.
But many people use it in powder format and added to their to their smoothly.
Right.
Any any update or you talked about you know in your.
In your remarks your prepared remarks about.
The fitness market the healthcare professionals.
Any.
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Anything tangible you can talk about in in that sector. Besides the launch of profile.
Okay.
In the healthcare practitioner market or in the fitness.
Yes, well you sort of account.
Either.
So as to did what markets.
We said those two separate markets.
Yeah.
Well I am interested investors.
We see this market is more of a demographic.
And we see the healthcare practitioner market it more as a wholesale customer base.
And no we have not provided any specific metrics yet in either I can only tell you that both are growing.
Okay.
Last question just.
Kevin the breakeven.
Do you get the cash flow breakeven in.
17th.
Revenue range.
You mentioned that.
Like.
Litigation.
Doesn't and breakeven could still happen at the higher into that range did I hear that correctly.
That's correct Mitch.
What what we're working on is to continue.
When you do make progress on our supply chain as well as SGN expense and we think over time that we can basically get to cash flow breakeven, including legal expense.
But the one variable is really what is litigation expense in terms of predicting.
Yes in terms of timing and magnitude so.
So that could impact our cash flow outlook, but at this point in time, we're working very hard with respect to cost savings programs to be able to be cash flow breakeven, even with legal expense continuing at the two to 3 million per quarter.
Okay. Thanks, very much for the questions.
Sure.
Your next question is from Brian Nagel with Oppenheimer. Your line is open.
Hi, This is Andrew Chaz.
How are you.
Hi.
Hi, Andrew.
If we could just dive a little.
Little bit deeper into the marketing.
I know you guys talked a little bit about the international expansion.
But just thinking domestically.
Are there any specific commentary you can add some marketing strategies.
Shifting strategy or maybe just an expansion of dollars.
Thank you.
Well, we had a change in.
Leadership in the marketing department over the last several months.
By the overall strategy continues to be heavily performance driven Facebook online digital marketing some amount of television we established.
Established a group of.
Influencers that we call true believers and that is the crux of the creative.
It's very very science based.
But what you're going to see now is greater emphasis on the brand and on the messaging and more consistency across all touch points.
Thanks very much.
Your next question is from Ram.
My apologies Ram Selvaraju with HC Wainwright your line is open.
Thank you very much can you hear me.
Yes.
Yes, so just to start with.
Regarding the Hell.
Benefits of NR I was wondering if at this juncture since there have been a number of studies that have been done.
If there is a clearer picture emerging on what appears to be the swiftest route to potentially obtaining specific help clean for an hour.
And if you have a sense of how that might play out and in what specific area that could potentially occur.
Well, if you look at and I'll answer it and then Frank.
Where do you would also support the answer but if you look you know studies that are happening right now and some of the.
Results that have been published thus far it does look like liver kidney cardiovascular.
And and some cognition related.
We're starting to see a level of consistency.
And we are also seeing studies come to completion.
Many of which are still unblinded, but some of which we.
Have some insight into the data that are consistent with this we have high expectations and hopes for.
Four studies that will get published in the coming year.
Frank anything you want to contribute to that.
Yeah the.
Obviously, we're we're just waiting for peer reviewed to come out on data that we're excited to hopefully share with everybody on that front, but I agree with Rob the only other one I'll add to would be.
Broadly, which ties into the aging story and it also cheat sheet ties into the others as implementation broadly and.
There's challenges in terms of messaging that has a claim. However, there are there are ways of doing it appropriately as long as we have data to support it which we still have to check into but <unk>.
I think that's an exciting area for us broadly.
Further to this point.
Is it possible to envision conduction of a proof of concept study specifically in cockayne syndrome patients that focuses on whether or not and our might be able to attenuate hearing loss specifically in that group.
Yes, yes [laughter].
The thing we could do it collaboratively.
Work on that so that's one potential way of doing it.
Doing it under the guise of a former land deal related clinical trial is different but the way that you stages, a proof of concept would be one good way to.
Actually look at it is hearing hearing envision or the two ways of sort of quantifying a but has an effect by by raising any do you know will we see something measurable in the two things you can really look out or hearing loss.
Which is measurable and vision.
And it wouldn't be possible to do this in.
Okay and syndrome patients like before they're they're hearing is irrevocably damaged right that's possible.
That's a difficult one to answer because the question is when does the damage start and when do you sit when we when would you start enrolling somebody in a proof of concept trial.
And.
So I guess, it's hard to answer because these kids in particular these kids, even an early age or are so.
Challenged across all areas of health that it's difficult to assess what level of damage and whether or not that's recoverable.
Okay understood.
I wanted to ask about Youre kind of projections for 2020, and what those assume about the length of time that there might be impact from the Corona virus minor, though it might be could you could you perhaps comment on that.
Yes, I think I think we're right now at this point in time think there's an impact in the first quarter, but full year, it's really difficult to predict so.
At this point our forecasts over that.
It is going to impact.
Full year, but that could change over time.
We also.
Thirdly don't know if it in the long run has an impact positively or negatively.
Okay that's interesting.
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Do you anticipate any further near term restructuring initiatives and if so what might these look like and what would be the expenses associated with those or at.
This juncture is that not on the carts.
Well I think we're looking end to end of supply chain and looking for other opportunities to invest to get a return so.
Only working with Cmos that blended encapsulate.
And label our bottles and we're also looking across the supply chain.
And with regard to our distribution partners Threepl and we continue to look at the product. We made a major change in 2019 that was launched in the fourth quarter going from three bottles for 90 days supply one bottle.
So we're we're not spending a three bottles now we're spending a one bottle the packaging.
Then become smaller and then the distribution expenses become smaller because the packages for so I think as we look across our company. We're looking for other opportunities to scale, our costs and reduce costs and that will be ongoing this year and if we're making investments restructuring we expect.
A good return on that in a quick payback.
Okay, Great and then last question as with respect to the May 12 trial, just wanted to understand what the outlook is in the wake up that trial proceeding being concluded.
In other words, what is your expectation regarding the timing with which decision might.
The rendered and what avenues, if any would elysia him have for appeal at that juncture also if you could perhaps comment on any indication we are seeing that.
The way things have been going so far might be making them more inclined to settle.
If that's possible to comment on.
We don't know if there are more inclined to settle and.
Obviously any settlement would have to be one that's satisfactory to us on behalf of our shareholders. We've invested a lot in this.
Their behavior has been consistently unconscionable.
What's the more.
Since I have the less surprised I get by people in general.
The facts have come out many of them are public and can be read.
It's hard to imagine that as these facts come out they their confidence would be boosted.
But again nothing surprises me specifically when it comes.
So we'll easier.
Yes, they will have an opportunity to appeal whatever that jury decides on may 12.
The it would not surprise me if they tried to delay it further by doing that I mean that has been their primary tactic.
And we expect that the trial will last approximately two weeks.
Okay, great. Thank you very much.
And our last question is from JP, Mark with farmhouse equity research. Your line is open.
Hi, good afternoon.
Just a couple of quick questions here, you mentioned about a liquid form and I was curious to know.
How hard is it to actually create that.
Would form and how important would it be if you could help how important would be to the long term growth for the company is this a new opportunity that is much bigger than the.
Current form or or is it.
And the additive to what you've already got.
Well the initial thinking in the relationship with Nestle is that it would be part of the.
Appalachian of a product they have called boost.
Which is mostly a liquid based protein meal replacement beverage.
But in order to do that we'd have to achieve stability in liquid.
Meaning nicotinamide riboside when exposed to liquid.
Begins to break down over time, the nicotinamide riboside separate.
So it's not harmful, but it's not as efficacious, if you're taking lets say half a dose of NR and the other half is nicotinamide.
So nestle was interested in us trying to solve.
That problem, we are interested in solving that problem because there are other beverages out there that are interesting besides boost.
The again, they only have the right to protein based meal replacement products.
There are many beverages out there that do not are not protein based.
So we see it as an enormous opportunity.
Once the problem is solved.
However, with the passage of time, what we've observed from Nestle is maybe putting it in boost is not the big idea, maybe just such a separate powder based product that could be added two but to boost or other beverages is a bigger idea. So.
We're not sure that we lose that much.
But we are continuing to pursue the science here pursue the stability because there are potential business opportunities to pursue.
So you're not trying to create necessarily a liquid form at this point is that right or you're still pursuing it but.
It's less important than that you have a powder that works well in a liquid.
Again, we have established that the powder is stable.
Okay, and Nestle is proceeding forward with the powder product.
Okay.
Second question I had was about pricing I'm curious to know.
How about how you price online I guess your two major.
And.
Ways of selling online or through Amazon or direct on your website and there's differences in pricing and I was curious to know what youre.
Strategy was there.
Well of course.
It's important that theres consistency and pricing across the board and we do supply to some companies and Theres map pricing across the board there.
And we it's important that there is not an advantage versus buying on Amazon versus buying on the website.
Secondly, nicotinamide riboside is not inexpensive.
I have to make there is a lot of complex organic chemistry in that process.
So therefore, we do achieve as you see close to 60% gross margins as a company in order to do that we do have to price around that level on a retail level.
But we are.
Constantly working on reducing our cost of goods and there are that was that has been a very major initiative at the company. The last few months and we'll continue to be.
And if we if we can bring continue to bring the price down on the cost of good we will experiment with some price testing at a retail level.
It looks to me.
The online, but if you go to the web your web sites, you actually do get a significant discount versus buying at Amazon, even if you subscribe and Amazon you got gets the same discount as you would it you're going direct view is that it did I get that wrong.
He said this yes, I mean, it's not I'm sorry go ahead.
Got it too.
Okay.
It's not a one to one identical product in the cases that youre looking at in some cases for many months supply Im sorry go ahead.
No sorry, there's a delay in.
The lag and here for me.
Okay, Yes, no we because the products the shipping costs and the.
Discounts available by Amazon or limited their subscribe and save is limited it ends up being an in perfect match, but we try to match it as precisely as possible.
Okay.
Okay very good. Thank you very much appreciate thank you.
Ladies and gentlemen.
That concludes our loved to time Fourq, you've been a I'll now turn things back over to Briana Goldman for any closing remarks.
Thank you Chris there will be a replay of this call beginning at 430 PM Pacific time today, the replay number as one 805 858367.
The conference I'd is 766546 part thank you everyone for joining us today and for your continued support of crime attack.
Ladies and gentlemen, this does conclude todays conference call. You may now disconnect. Your phone lines can we do appreciate.
I appreciate your participation. Thank you.
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