Q4 2020 Chromadex Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Chroma decks Corporation's fourth quarter 2020 earnings Conference call My.
My name is Chris and I'll be the conference operator today.
At this time all participants are in a listen only mode and as a reminder of this conference call is being recorded.
This afternoon <unk> issued a news release announcing the company's financial results for the fourth quarter of 2020.
If you have not reviewed this information both are available within the Investor Relations section of Chrome and ex this website at www Dot chromite ex tuck on.
I would now like to turn the conference call over to Brianna Gerber, Vice President of financing and Investor Relations. Please go ahead Ms Gerber.
Thank you good afternoon, and welcome to Crown, but ex Corporation's fourth quarter of 2020 results investor call with US today of Crummett ex as Chief Executive Officer, Rob Fried founder and executive Chairman, Frank Jacks, and Chief Financial Officer, Kevin Farr.
Today's conference call May include forward looking statements, including statements related to chromite access research and development and clinical trial plans and the timing and results of such trials the timing of future regulatory filings the expansion of the sale of true NIE adjourn in new markets future financial results business development opportunities.
Future cash needs from a DOCSIS operating performance in the future and the future investor interest that are subject to risks and uncertainties related to crum at axis of 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 of the actual future results.
Forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties.
Many factors could cause criminal acts as the actual activities of result to differ materially from the activities and results anticipated in forward looking statements. These risk factors include those contained in from the next its quarterly report on form 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic on our business results.
The operations financial condition and cash flows.
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 on 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 Companys website present reconciliations to the appropriate GAAP measures. Finally this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www Dot Crumb of docs.
Dot com with that it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried Rob.
Thank you Briana and.
And good afternoon, everyone and thank you for joining our fourth quarter 2020 investor call.
I'd like to begin by welcoming those of you that are joining us from the very first on.
This is an exciting time of chrome and ex when we look forward to sharing our story with you.
I'd also like to express appreciation to.
So the investors partners employees that were supportive of chromite ex during 2020.
As for all companies of this was a challenging year.
And I'm proud of how this company navigators.
Only achieved record financial performance.
But made a positive scientific contribution to the global prices.
We begin 2021 stronger than ever.
I'm excited for the future.
Some of that's had another strong quarter and delivered on our financial outlook for the year.
Total company sales grew 9% sequentially in the 18% year over year E. Commerce sales also grew by 9% sequentially and 20% year over year.
Total company net sales were nearly $60 million and true nine and net sales were $47 million for the year.
This was the meaningful achievement, considering we only launched the <unk> brand as the consumer product in 2017.
The fourth quarter, adjusted EBITDA, which we define as EBITDA, excluding legal expense was the loss of $1 $1 million adjusted EBITDA improved by $1 million year over year.
In February we raised $25 million of cash would ever funds of new International Investor who is quite excited about the large addressable market for <unk> globally.
Well of cash flow breakeven continues to remain a key priority for the company. This incremental capital will enable us to expand the scientific research on nitrogen and other NAD precursors in order to accelerate our product pipeline as well as selectively increase investment in marketing to drive growth in the true knowledge of.
The business.
The science on nitrogen remains very strong and published research, which Frank will discuss in a moment continues to validate its importance from several areas of human health.
We now have over 225 research agreements collaborations with leading institutions around the world.
The study in cardiovascular neurological unity health issues of Smith as well as many other areas all of associated with aging.
This research has led to over 100 published preclinical studies and 11 published clinical studies.
2020 was of great year for scientific research of Chrome and ex.
We expect more of the same in 2021.
In addition to these partnerships with leading research institutions around the world I am proud of our business partnerships with a S. Watson group Nestle Health Science model kind of health and W. R. Grace.
Among many others.
They see the potential of Nigeria.
We are grateful for their commitment to bring our science and product to the world.
Yeah.
This week, we announced the true knowledge and will soon be available in 3000, Walmart stores across the U S.
We believe <unk> is one of the most important dietary supplements to emerge in many years and we are grateful to Walmart in assisting us in our quest to help as many people as possible each better.
Walmart expands our strong and growing distribution footprint.
That now includes Hong Kong, Singapore, Canada, the UK, Australia.
New Zealand as well as cross border online sales into China, Japan, and the EU.
Another important accomplishment in the quarter was the hiring of talented executives and business development create of legal digital marketing.
These new leaders augments, our already strong existing talent across the company.
We have high expectations for the future of chrome and ex the.
The most important resource to ensure that we realize our potential is people.
I have never been more confident in the team than I am today.
As I reflect on this quarter and on the 'twenty 'twenty in general.
I'm very proud of our entire team's execution and I'm quite optimistic about the future for from an ex.
We steadily grew our ecommerce business.
The secured regulatory approval and launched in two major international markets, We launched new partnerships strengthened our foundational processes and operations and contributed to important scientific research.
Surpassing our 200 signed research collaboration on nitrogen.
We accomplished.
All of this while making significant changes to our organization.
We have recruited of World class team that is passionate about our brand true nitrogen.
Our mission has never been more clear to.
To help solve the problem of age.
I would like to thank you our loyal shareholders for true.
Rustin us with this mission.
The addressable market for nitrogen is very large.
The body of scientific research behind this ingredient continues to grow.
And consumer awareness steadily building.
We remain focused on creating long term value.
The progress toward cash flow breakeven, while building a strong pipeline for future growth.
And all the while vigorously defending our intellectual property against Infringers.
And now I will pass the call over to our chairman Frank Jacks for an update on the scientific research Frank.
Thank you Rob twenties.
<unk> 'twenty 'twenty, one is setting up to be an exciting year for chrome at ex.
11 peer reviewed published clinical studies to date have validated the safety and or efficacy of nicotinamide riboside or NR and NAD precursor.
In 2020 and in early 'twenty 'twenty, one the published clinical studies extended two important areas of human health, including a pilot study, indicating that in our may reduce inflammatory cytokines in the white blood cells of stage the heart failure patients. The second clinical study focused on potential cardiovascular.
<unk> been our supplementation of.
Phase two study demonstrating on nutritional protocol, including an all reduces liver fat and improves liver function.
And the double blind placebo controlled phase three study of 309 patients in Turkey with mild to moderate COVID-19 symptoms finding that the same nutritional protocol, including in a reduced recovery time by 38% in that population.
The phase two and phase III studies were led by Doctor deal Martineau glue and partnership with scanty Biotherapeutics of Biotechnology company focused on the metabolic cofactor supplementation for treatment of diseases associated with metabolic dysfunction.
Skinny bio is evaluating the next steps of the phase III COVID-19 study in Turkey.
I'll also briefly highlight two newly registered clinical studies looking at the potential impact of NR and other health areas.
First in November the study was initiated to investigate the impact of NR supplementation on mother's milk production in the neonatal intensive care unit.
The clinical studies being conducted at the University of California, Davis with lead investigator Dr. Bruce German who is a member of the chromatin scientific Advisory Board.
This study followed of encouraging preclinical results published in cell reports, which showed that NR supplementation benefited both mothers and newborn rodents published by our Chief scientific adviser Dr. Charles Brenner.
This is a promising area of research that could benefit of high risk population.
In December the study was registered by the Veterans Health Administration office of research and development in collaboration with the University at Buffalo to investigate the impacts of NR on functional capacity and muscle physiology and older veterans investigators.
Investigators will study of 144 patients in the double blind randomized placebo controlled trial.
Nearly 9 million veterans are now 65 years of age or older with impairments and functional capacity reduction in quality of life and an increase in the use of health care services and associated costs.
An estimated 45% to 50% of those over the age of 85 of our frail, which could represent well over a million veterans.
According to the researchers frailties of increasingly seen within the aging population and is driven largely by muscular skeletal declines.
This study will provide greater insight into NR supplementation as the nutritional therapeutic strategy to stave off frailty and maintain resilience string aging.
The World Health organization has characterized 'twenty 'twenty, one through 'twenty 30, as the decade of healthy aging of.
According to the World Health organization. It is through the joint efforts of the United Nations governments Civil Society, and the private sector that we will be able to not only add years to life, but also life two years.
This speaks to the growing global focus on health span rather than lifespan.
We believe cellular health will be the next big market opportunity for healthy aging and aligns perfectly with the world health organization's objective and improving health span.
Last month I participated in a conference dedicated to the topic of cellular health featuring other industry leaders from the council for responsible of nutrition life extension and Nestle Health Science.
I was honored to be presenting alongside such steam colleagues in the industry and look forward to furthering the dialogue with industry experts consumers and investors.
Chromonychia continues to deepen its connections with scientific experts from the field of N. A day of research and partner through its external research program with leading institutions to explore important areas of research on NR.
We recently announced that Doctor David Katz of recognized authority on preventative Medicine has joined our scientific Advisory Board.
Among his many accomplishments Dr. Katz serves as the President for true Health initiative, a nonprofit organization. He established to discuss the science around nutrition and lifestyle on the surface of adding years, two lives and life two years around the globe.
He has served as an on air medical contributor for good morning America, a B C news.
And was a finalist for the James Beard Foundation of award in 2019 for Health Journalism pieces of New York Magazine.
We look forward to working with Doctor of cats on advancing the science surrounding any day and its precursors.
In summary, we are focused on remaining the leader in N R and other any day precursor research.
We are investing in more science and as well as our R&D pipeline.
As the market continues to grow.
As I've said before I believe peer reviewed published human studies will be the key for a natural transition of our consumer base from the early adopters to large mainstream consumer product companies.
We are seeing momentum build with published studies that explore the benefits of NR in important areas of the human health with large addressable markets, which makes me optimistic about our future.
With that I'll pass the call the Kevin Farr Kevin.
Thank you Frank.
Chromite ex ended the year strong and deliberate on our latest financial outlook to investors across all metrics for full year 'twenty 'twenty, we delivered total net sales of $59 3 million.
A 28% year over year increase with true Nigel growth of 31%.
Gross margins of 60% up approximately 400 basis points year over year.
Lower selling and marketing expense as a percentage of net sales and the increase of only $2 7 million versus our outlook of $3 million to $5 million of.
The decrease in general administrative expense of approximately 500000 versus the outlook of an increase of $1 million to $2 million.
The underlying business as measured by adjusted EBITDA, excluding legal expense a non.
Non-GAAP metric posted a full year loss of only 1 million compared to the loss of $8 8 million in full year 2019.
This is the significant achievement for the company, demonstrating our operational and financial discipline on the path to achieving cash flow breakeven.
We ended the year with $16 7 million of cash, including 1 million milestone payment from Nestle Health Science is related to the North American launch of self true.
And we raised 25 million of capital in the February further strengthening our balance sheet with this incremental cash we have a clear line of sight, the cash flow breakeven, even with the potential uncertainty surrounding litigation.
It also enables us to invest more on our R&D pipeline, which includes NR and other at a day precursors and invest more on brand awareness campaigns to capitalize on the growing interest in a day supplements globally.
Turning the fourth quarter of 2020, we delivered record sales of $15 4 million up 9% sequentially and 18% year over year.
Gross margins of 61%.
Higher advertising expense as a percentage of net sales sequentially and a slight increase versus the fourth quarter of 2019, and higher general and administrative expenses sequentially driven by higher legal expense.
I'll begin by reviewing the sequential P&L results and then we'll discuss the year over year trends for the three months ended December 31, 2020, chroma. The extra reported net sales of $15 4 million up 9% compared to $14 2 million in the third quarter of 2020.
True net sales were up 4% sequentially.
Accordingly, this growth was driven by our e-commerce business, which was up 9% compared to the prior quarter and acceleration from prior quarters, driven by increased marketing investments to drive new customer growth.
Sales to Watson's were $2 1 million in the fourth quarter roughly flat with the prior quarter on an underlying basis since the third quarter included a shipment of stick packs for the watches retail launch.
Our nitrogen ingredient sales more than doubled in the fourth quarter to 2.2 million versus <unk> 9 million last quarter.
We expect the headwind in the first quarter of 2021 since we are no longer of supplying one of our few remaining non agent ingredient customers. We intend to replace this business with new more strategic partners in 2021.
Our gross margin was up 140 basis points from 59, 6% in the third quarter of 2020% to 61% in the fourth quarter of 2020.
We continue to deliver on our supply chain and product cost savings initiatives and are benefiting from overall scale.
It was also a small benefit from ingredients sales domestically this quarter since we recognize the portion of the $5 million of upfront and milestone payments as revenue over the term of this contract.
Total operating expense for the fourth quarter of 2020 were $15 5 million up $2 8 million compared to the third quarter of 2020.
Selling and marketing expenses were up $1 1 million to $6 3 million in the fourth quarter of 2020 compared to $5 2 million in the third quarter of 2020. This increase was consistent with our financial outlook as the percentage of net sales. This expenditure was up 410 basis points in the fourth quarter of 2020.
Versus the third quarter of 2020.
As Rob said, we made key hires to build out our sales marketing and business development teams. We also continue to increase investments in digital marketing and brand building, while adjusting our creative and testing new messaging.
At the same time, we have been optimizing our e-commerce metrics, such as customer acquisition costs.
As reported G&A expense was up 1.6 million to $8 2 million in the fourth quarter of 2020 versus $6 5 million in the third quarter of 2020.
Legal expense was up <unk> 6 million compared to the third quarter of 2020.
As expected there was increased investments in the Delaware patent infringement case related to claims constructions and the markman hearing in December.
We also incurred expenses related to ongoing discovery in the New York Litigation.
Well overall legal expenses were slightly lower than expected. This quarter. We expect these to ramp up in early 2021, driven by the trial preparation for New York, and Delaware Litigations, excluding legal fees severance restructuring and equity compensation expense fourth quarter 'twenty.
'twenty G&A expense was higher by point $9 million versus the third quarter of 2020 comparable to G&A expense.
We are of higher incentive accrual to reflect the actual financial results for the year of relative to our financial objectives. The.
There were also higher accounting fees in the fourth quarter and recruiting fees as we strengthen our sales and marketing team.
For the fourth quarter of 'twenty 'twenty, our operating loss was $6 1 million versus $4 2 million in the third quarter of 2020.
The net loss attributable common stockholders for the fourth quarter of 2020 was $6 1 million or a loss of 10 cents per share as compared to a net loss of $4 2 million or a loss of 0.07 cents per share for the third quarter of 2020.
Moving to year over year of financial results total net sales were up 18% year over year compared to the fourth quarter of 2019 with 21% growth in true Nigel 20% growth in ecommerce and 27% combined growth in Watson and new B to B business partnerships being the key high.
Delights.
Gross margins increased by 400 basis points of the 61% compared to 57% in the fourth quarter of 2019.
Marketing efficiency as measured by selling and marketing expenses as a percentage of net sales decreased by 190 basis points, primarily driven by increased digital marketing and brand awareness investments.
As reported general administrative expense were lower by $1 9 million, primarily due to the absence of the 2.2 million of Elysium related bad debt expense, which we wrote off in the fourth quarter of 2019.
Finally, our operating loss improved by $2 8 million year over year is our organizational realignment the supply chain cost savings initiatives are enabling investments in the business.
Coupled with the absence of the bad debt expense this year.
To help investors better gauge the underlying financial performance of our business and progress towards cash flow breakeven in the second quarter of 2019, we introduced a new non-GAAP measure adjusted EBITDA, excluding total legal expense.
We have included a reconciliation to the appropriate GAAP measures in our earnings release slides.
As I previously highlighted adjusted EBITDA, excluding total legal expense was the loss of $1 1 million in the fourth quarter of 2020 compared to a loss of <unk> 1 million in the third quarter of 'twenty 'twenty.
Year over year, we delivered $1 million improvement in the fourth quarter of 2020 versus the loss of $2 1 million in the fourth quarter of 2019.
Furthermore, this metric has improved from an average quarterly loss of 4 million of 2018 2 million in 2019 to essentially breakeven in 'twenty 'twenty as we put an important foundational processes and systems in place.
We're making strategic investments in the near term. This remains a key objective for the company.
Moving to the balance sheet and cash flow. We ended this quarter was $16 7 million in cash and have not accessed or $7 million committed line of credit.
As mentioned upfront. This included the 1 million of launch milestone payment from Nestle.
In the fourth quarter of 'twenty 'twenty, our net cash provided by operations was 22000 versus the negative $3 8 million used in the third quarter of 'twenty 'twenty.
The difference this quarter was primarily driven by lower working capital investments, giving the timing of inventory purchases and other expenses.
As it relates to our 'twenty 'twenty, one full year outlook, we provided details of key P&L metrics in our earnings press release, along with the slide presentation of.
A key objective this year is to deliver positive adjusted EBITDA, excluding total legal expense, but we do plan to invest more on marketing and R&D.
So the year over year improvement will not be as significant as the last two years.
As a result cash flow breakeven will be above $19 million of quarterly sales well, we do not expect the significant increase in spending we believe these incremental investments are prudent to maintain our position as the leader in the growing and a day market.
In summary, we remain committed to delivering profitable growth as we were very close to achieving an important milestone of of profitable adjusted EBITDA, excluding total legal expense.
Followed by positive adjusted EBITDA, including total legal expense once the litigation is behind us.
As always we will balance this near term objectives with the long term opportunity for the business.
It's an exciting time to be part of chrome at ex.
I'd like to thank the entire chrome of ex team for their discipline and commitment that has brought us the spar and for their passion, which will bring us to the next stage of growth operator, we're now ready to take questions.
Yeah.
Ladies and gentlemen to ask a question you will need the press star one on your telephone zone to withdraw your question press the pound or housekeeping. We ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
Our first question comes from Brian Nagel with Oppenheimer. Your line is open.
Hi, good afternoon.
Hi, Brian Hi, Brian.
Nice quarter congratulations thank.
Thank you.
So I wanted to I guess with.
Set of my question is on the the announcements day with with Walmart.
So I'm just kind of kind of corporate of few questions together.
The first of all I can think of it the extraordinary exciting step for ease of congratulations on that.
In the release you mentioned you meet your you made mention of some type of special pricing and packaging. So maybe some more details on that.
With regard to Walmart.
Yeah.
And is there any additional any initial thought on you know the the what how many of the the stocking in Walmart you know from a from a chromatin ex standpoint.
Is there any financial commitment to get the supply ready to the stock Walmart by by Jim and then stepping back. This is obviously not your first channel retail partnership how does how does how does what youre doing with the Walmart compare with what you say you've done with with Watson's overseas. Thanks.
Sure.
We plan to have a skew with a lower dose and lower price point for Walmart.
We think that there are some of there is some overlap.
Between the Walmart customer base, and our existing customer base, but not a lot.
So we are offering of new SKU that we have an offer before that we think might be of appeal to that customer.
Customer base, and we did so with the advice and consultation of Walmart.
Yeah.
Yes, we do have very successful experience with in Hong Kong with Watson's in retail there's different for a number of reasons one is.
It's a mass retail in the United States. There are small specialty retail partners that we have in the U S. But just a handful of stores nothing significant this is 3000 stores.
So this is a on a.
On much more important effort.
And requires a different type of marketing campaign.
In Hong Kong, the nature of the relationship is a bit different with watson's as well as they bear the brunt of the advertising responsibility in this particular case.
Of the onus will be on us to create the awareness.
With regard to supply chain.
Yeah, I think with regard to our 2021, we think there's going to be a a small contributor to overall sales and growth in 2020. One we are loading into 3000 stores, but it's a couple of facings.
With regard to that load and it's not going to be a huge amount of of revenues, but obviously as we ship. It in it will be filling shelf space and will be filling their distribution centers to support.
Are you know I think conservative numbers for 2021, as we launch it and also want to make sure that we're getting the right velocity and sell through.
For Walmart in 2021.
Got it I appreciate the color on what someone else all of US asking question on thank you.
Thanks, Brian.
Our next question is from ran the silver rounds with H C. Wainwright. Your line is open.
Hi, Rob trend from Kevin just speaking on behalf of from.
Hi.
He was very interest in your COVID-19 trial and Turkey, All group some of our Covid questions because together we were interested in.
In.
Investor interest over the past several weeks do you think the scene catalyzed by any of the potential from the Biogen and COVID-19.
In terms of consulting study how applicable is the standard of care.
Okay awesome.
Yes.
Hum for themselves.
Kyle.
Hum for COVID-19, some of the U S.
On the other territories.
And as well.
The team.
Thank you.
Yeah.
I'll talk about the overall strategic you could get into the details about the studies of the science right.
So there are a number of studies that have been announced or that are in discussion in the United States relating to COVID-19. There were two studies that were of preclinical that we made public there was an NIH preclinical study that we announced had commenced and is not yet complete there is.
Another clinical study that is underway and another clinical study that is in discussion right. Now. So there is work being done fair amount of work being done on nicotinamide Riboside.
And COVID-19, the studies that we made public last year indicate what we had expected which is when COVID-19.
When the virus attaches to of cell and a day levels dramatically go down right away and this is intuitive because of the cell is fighting off the invader and what we've also shown us that when nicotinamide Riboside is added to the solution that is it shows the protective benefits. So we weren't surprised by the phase II or phase.
III results that came out of Turkey.
Of course that study was done in conjunction that the the the cocktail that was offered was true Nigel plus three other dietary supplements. So we can't say that it was true nitrogen per se that caused such of a dramatic result, but the result is consistent with the preclinical studies that we've seen thus.
Far.
The standard of care in Turkey in the phase two was.
Hydroxychloroquine and during the phase III was hydroxy chloroquine in plus one other one I can't remember the plus another ingredient that neither of US can recall I can't remember the other drug but the standard of care is death is different.
I don't think there is a standard of care across the U S. At this point I think it's not like they have their they required debt to be part of the trial.
Right.
The other question you asked had to do with Investor interest as a result of.
Making the results yet.
Yeah.
Yeah.
Of course, you're far more of an expert on that particular question, then am I or any of US here. We don't know we saw that there was a lot of trading activity around the stock.
Soon after that press release went out.
We don't really know why or what the expectations were.
From day to day we.
Focus on running our business we.
We think we've done a pretty good job of building a foundation of establishing the brand what.
What we see for the future is very exciting we have a lot of confidence, but sometimes theres a direct relationship to the stock price and sometimes there is not.
Okay, and then in terms of the.
Tayo problem from the U S Senate, you're exploring the TARP.
Please as well.
Oh.
Well I mean, the only one I think we can talk about is the one that posted with.
With Harvard, which is basically looking at long haulers, so that that's not necessarily looking at COVID-19 itself, but it's looking at the potential of of.
Nicotinamide riboside to repair on a D function related to these people that are having these long haul or sort of side effects post COVID-19.
So that's one area and we are exploring a couple of other trials.
We are really prepared to talk about those at least at this point.
Okay. That's really helpful color on ask one follow up on me and then I'll jump back on the Q.
Curious about Oh, the context, Mike proved beneficial for combining gratiae Swift true nitrogen wave of.
On the supplemental.
<unk> minerals for example.
Well I think the the scan D. The the the collaboration that we've had with skinny bio goes beyond the Covid I mean day, they had actually started.
With the studies and the of that cocktail in liver and we reported results on that earlier this year and they've also been looking at other neurodegenerative disorders with the same cocktail as well and their I think their plan is to continue to go to to do a follow on clinical studies too.
Further develop those those indications.
So and and we're still working with them on on Turkey as it relates to Turkey as it relates to the results from this Covid study so, but we don't have anything to report on that yet so.
Generally yeah, I mean, the potential of nicotinamide riboside working in cockpit as a cocktail with other things I think is.
It is interesting I think its also important for us to understand with nicotinamide Riboside does on its own.
So that we understand clearly where it would fit with their work liver studies that were performed with nicotinamide Riboside myself before it was done in a cocktail. So we know nicotinamide riboside is important.
Alzheimers is the same so mild cognitive impairment neurodegenerative disorders, and all timers have also been evaluated with nicotinamide riboside by itself.
Before they started evaluating it as a cocktail so I think it's important for us to understand what nicotinamide Riboside does.
On its own as well as in combination with other other things like like.
The skinny bio has been working on.
That's very helpful and fascinating, thanks, and I'll jump back in the queue.
Thanks very much.
Our next question is from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hi, This is actually the destiny on for Jeff I Hope you are all the while and thank you for taking the question.
I'll make my brief here I'm just wondering if you could provide any additional color into the changes in your marketing strategy in investment through 2021, especially given your previous commentary about the minimal overlap between them.
Your messaging for Walmart and on your messaging for your current thoughts from a base and I guess I would be curious to know how of the messaging is different and if you're going to continue to use influencers as heavily as you have in the past.
We will continue to use influencers as we have in the past.
It's a growing group of Influencers there are professional celebrity Influencers and then there are.
Non celebrity employers influencers on social media, we use both effectively we expect to continue to use both and to grow the group of true believers.
It's not necessarily a change in message, it's the change in cohorts.
Chromite ex has developed a fairly sophisticated understanding of the various cohort groups that purchase our product and why.
So there are some people that buy true Nigel specifically for Asia.
There was some of that purchase it for fitness, there's some the purchase of for energy metabolism.
There are some cohort groups that believe.
That it is therapeutic for specific specific condition that they are managing and they purchase it for that reason.
They're also variations and demographic data.
So we endeavored to target those different cohort groups with slightly different channels of distribution and slightly different AD creative materials.
We believe that if we are going to mass retail at Walmart there is a slight variation in the demo demographics and the cohort interest levels of those that customer base versus the existing customer base that will mean, a variation in the channels so suggestion of that.
It might be a slight increase in for example television or radio versus digital marketing spend it would be an example of how that would impact.
We don't yet know exactly what the Walton Walmart customer is looking for when they purchase true nights and the likelihood is aging.
Aging in energy metabolism, but we will test that piece that thesis and find out and if that's where we find success, we will press that narrative more to that cohort group.
Okay I got it so a lot less about the messaging more about the channel. Okay. I'm just going to ask one follow up here you referred to your product pipeline a couple of times eyeballs on investment in R&D. So I'm. Just curious does this include or could this include new formulations on improvements to the existing product or is it something that would be.
Complementary.
Thank you.
That's a very good question and the answer to the question is both.
As you know chrome at ex has a very deep understanding of M D.
And we have a fairly developed.
Patent portfolio on on pre crushers Besides NR.
And we are investing in R&D and developing those next generation pre crushers that we think are complementary to NR, the perhaps in combination with NR or <unk> or <unk>.
Perhaps even better than NR.
In addition, we are investigating combination products of NR. In addition to something else and the purpose of that would be to either to create a more therapeutic benefit or to improve health claims.
If it's in ingredients that comes with it some significant.
Efficacy as well as health claims we are studying it and researching it.
So we are looking at both of those types of product extensions and we're also looking at alternative.
Ways of delivering.
N R I S.
Just the as opposed to simply just capsules. These are all product extensions that we were looking at as you know the.
We do of a powder form of of NR presently.
We're looking at other delivery mechanisms as well.
Thank you for that question.
Yeah. Thank you.
Our next question is from Mitch <unk> with the Sturtevant <unk> co. Your line is open.
Hi, good afternoon.
Hi.
Just.
Just to follow up on Walmart I'm curious on two things one.
Out of that relationship start did you approach them they approach you.
Walmart approached us.
And when when.
You're dealing with Walmart.
The product can't sit on the shelf right. That's that's.
You know.
Just won't happen for long so.
Are you is your support and Walmart going to be in.
The store support in addition of area you're going to be are there going to be special Walmart.
Circular deals.
How much do you think youre going to have the spend.
As part of the launch I mean are we talking significant amount to kind.
End of getting going or can you talk a little bit to those questions.
As Kevin suggested this is going to be a brick by brick one step at a time approach, we're not going to do anything very major of very dramatic at launch we're going on.
Place it in the stores, we are going to do some advertising in conjunction but we're gonna be measuring the data.
And then making decisions after that.
I'd add to that I think we and Walmart are aligned on the launch expectations and they are committed to building. This business over time, so as Rob said it is of brick by brick.
Hum.
Build of the business and I think the buyer really believes in true Nigel I believe he's a true nitrogen.
The Walmart was very persuasive the they spent a fair amount of time.
Trying to persuade us.
To offer the product in Walmart as you know, it's not part of our core U S distribution strategy of it wasn't.
But they they understood the product extremely well had spent a great deal of time researching it.
Frankly consumers of it.
And we thought made of convincing case for why it would succeed there.
But also as Kevin is saying that we don't expect it to be the expectations are not high in the short run we're going to take it one step at a time. So that we are successful with this launch.
And just last on Walmart will there be any.
So obviously you know.
You can buy you can buy the product at Walmart would there be a reason for that customer.
Ship channel.
You're either through Amazon or what's the is there something to be some sort of.
Is there a tie in at all longer term between the channels or how.
How do you approach that we.
We don't have a plan for for that it is our hope that it is extremely successful at Walmart for chromatin ex and for Walmart.
Okay.
One more question.
So you had nice sequential growth.
Of.
Of the 19 in the quarter.
What can you talk about you know.
New customer versus your existing customer.
Growth rates and any color around that would be helpful.
We're not sharing the actual growth rates, but what we can tell you is that the new customer increase was substantial in the fourth quarter, which is encouraging for us because we had seen that flattening out during 2020.
Okay.
Thank you for your time.
Thanks Mitch.
Our next question is from Jeff Van <unk> with B Riley. The your line is open.
First let me add my congratulations.
Walmart is a terrific partner I'm really happy to see that.
I guess my question is how are you thinking about or how are you approaching.
Perhaps adding other retailers in the future how are you thinking about the timeframe for that when it makes sense from you to go into the drugstore channel or perhaps other retailers just wondering how you're thinking about that at this point at this point, yes. That's a good question as you know we do get frequent phone calls from potential partners.
And retail has not been part of our core strategy.
The Walmart people are very smart and very persuasive and of course, Walmart is a great company ultimately what we decided is that.
Everybody deserves to age better and benefit from nicotinamide Riboside.
Not just people who can afford an extremely expensive product online.
So we understand that it is our mission to get as many people exposed to true Nigel as possible and hopefully getting as many <unk>.
Taking it is possible, we think it improves their health, particularly as they age or when they're under physiological stress and of course as many of US know growing all of their is of physiological stress.
So it is conceivable that at some point, we will expand to other retail partners, but we don't have plans for that right now wed like to succeed with what is there.
And then take it one step at a time.
Okay Fair enough well you know what it's worth I think it's a brilliant plan with Walmart, making it more accessible at lower price points I think that's gonna be.
The extremely successful.
Just any update you can give us on nestle any metrics there to speak about it and I guess the outlook around working with nationally.
And then also how are you thinking about working with <unk>.
Potential new partners for similar products inclusion in the future.
As I mentioned, we do get quite of few phone calls from potential partners, but we're very very careful and we're very very selective.
You know we are.
<unk> business with some great companies right now we think Nestle is one we think Walmart is one we think Watson is one we love of our partnership with Grace.
There are other companies with whom we have had and are having conversations of.
But.
Much to the chagrin of many we're very careful and very deliberate and very slow. So it has to fit in strategically and it has to make sense for our shareholders to do a deal like that but yes. It is possible that you could see another deal like the nestle deal with another.
Partner.
Generally our primary goal is is to build the global brands. So we're building a global consumer brand. So it's a partner that has their own consumer brand. It's very delicate situation, we want them to succeed with their brands and at the same time, we need to further our strategic goal.
<unk> so sometimes these can be.
<unk> negotiating points to work out.
The other question was how is it going with Nestle.
Act.
So the necessarily relationship I would describe is excellent we speak to them frequently in fact more frequently now than ever before they did they did launch their brand sell trends there is a great deal of interest at nationally.
And are in fact, many of the things that chromite ex is doing.
And there have been discussions on ways to expand the relationship help them to help both companies to succeed.
As you know we did a deal with persona. That's another division of Nestle, where we supply <unk> finished capsules to that division of nationally call persona. There are other areas at the net within the Nestle family with whom we have a relationship and have had discussions but there is nothing eminent and.
There are no announcements that we're about to make.
Okay.
Okay. Thanks for taking my questions I'll take the rest of offline.
Sure Yeah. Thanks, Joe Thanks, Joe.
Our next question is from Bill does along with Titan Capital Management. Your line is open.
Thank you I'll ask one Walmart question a couple of numbers questions. Please relative to the Walmart will you be selling under the true nitrogen name and will the bottle look the same have the same color scheme et cetera.
Yes to both.
Thank you and then G&A jumped up a fair amount in the fourth quarter versus the third quarter.
What's driving that.
Yeah, I think as I said in my comments that the.
The big driver was that from a incentive calculation perspective, we exceeded what we expected to do in the in the full year.
For the fourth quarter and it was a bigger incentive accrual.
There's some other accounting fees and recruiting fees that were in that number in the fourth quarter.
Great and then.
Lastly, you did mentioned that you expect legal expense to increase in the first half of <unk> of this year, what's the magnitude of of the increase that we should anticipate.
Yeah, I think when you when you look at it this year in 2020, it was a bit lower because we didnt go to trial next year, we think it's going to be higher. This year was eight five next year you know I think it's gonna be consistent what we've said before two to 3 million of quarter.
And the court cases are happening the Delaware case in September the California case in September and I think the judge in the New York case said to be ready in August so it's more likely its going to be.
To the high end of the range.
And maybe your reference back to 2019, where can we were working on all three cases, but none of those went to trial in 2019.
Great. Thank you both.
Thank you.
And ladies and gentlemen, this is all of the time, we have for today I'll now turn the call back over to MS. Gerber for any closing remarks.
Thank you Chris there'll be a replay of this call beginning at 430 P. M Pacific time today. The replay number of one 805 85867 on the conference I D is 8433848.
You everyone for joining us today and for your continued support of kind of ex.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect.
Yeah.
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