Q2 2021 Chromadex Corp Earnings Call
And second quarter 2021 earnings conference call. My name is Ashley and I'll be the conference operator today.
And as time, all participants are in a listen only mode and as a reminder, this conference call is being recorded.
This afternoon from IDEXX issued a news release announcing the company's financial results for the second quarter of 'twenty 'twenty 1.
If you have not reviewed this information both are available within the Investor Relations section of crude and the ductless website and there'll be there'll be there'll be sarcoma Dax dotcom.
I would now like to turn the conference call.
To be on a group of.
Vice President of Finance and Investor Relations. Please go ahead and Mr. Gerber.
Thank you good afternoon, and welcome to <unk> Corporation's second quarter 2021 results Investor call.
With us today are from IDEXX as Chief Executive Officer, Rob Fried founder and Executive Chairman, Frank <unk>, and Chief Financial Officer, Kevin Farr. Today's conference call May include forward looking statements, including statements related to <unk> research and development and clinical trial plans and the timing and results of such trials the timing of future regulatory file.
Wings, the expansion of the sale of <unk> and new markets business development opportunities future financial results cash needs and operating performance investor interest and business prospects and opportunities as well as anticipated results of operations.
We're looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance as to actual future results.
Because forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties. Many factors could cause <unk> actual activities or results to differ materially from the activities and results anticipated and forward looking statements. These risk factors include those contained and chrome and excess quarterly reports on form.
<unk> 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic on our business results of 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 and its expectation.
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.
<unk> section of our website at Www Dot <unk> dot com with that it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried Rob.
Thank you Liana.
Good afternoon, everyone and thank you for joining our second quarter 2021 and industrial.
It was yet another strong quarter for chromebooks, including $17.7 million and total net sales and $640000 and positive adjusted EBITDA, which excludes total legal expense.
Overall sales were up 21% sequentially and continued growth and our existing direct to consumer and <unk>.
We launched <unk>, and Walmart and junior first mass retail launch and the U S.
And a significant accomplishment for the company.
And we had a small shipment of knowledge and ingredients to our new partner row, and we expect to be a strategic long term nitrogen and breeding partner along with HMH Group Nestle Health Science and life extension.
As I mentioned total company net sales for the quarter was $17.7 million.
Commerce sales continued to grow 11% sequentially and they were up 31% over the second quarter of 2020.
We benefited from strong Amazon Prime day sales this quarter as wells and easier comparisons and as a result from the impact of Covid and on our business and the second quarter last year.
We also delivered higher sales to Watson and $2.9 million following last quarter's temporary supply chain disruption.
In total our sales to existing partners and prudent Watson's increase year to date compared to 2020 and we have.
And sales to new partners, Walmart and low and the second quarter.
Gross margins were approximately 61%.
And the second quarter, adjusted EBITDA, which we define as EBITDA, excluding legal expense was as I mentioned the profit of $600000.
$1.3 million improvement from the prior quarter.
Total legal expense was down compared to last quarter, but remains high as we prepare for 3 trials this year.
As I have repeatedly said, we will continue to protect our intellectual property against Infringers and company.
Companies, who try to build their brands on the back of our science and our regulatory accomplishments.
Speaking of our science, the science behind <unk> and has never been stronger. We now have 13 completed clinical trials and nearly 40 more clinical trials in progress and <unk>.
July the results of standard Biotherapeutics days 3 COVID-19 study were published in peer reviewed journal advanced Science.
Researchers showed statistical significance that supplementation with nutritional protocol, including our ingredient nicotinamide riboside reduced time to recovery and symptomatic patients and Turkey by 38% compared to a placebo.
And 38%.
Frank will provide additional updates on the science momentarily.
<unk> remains committed to expanding our knowledge of and patent portfolio around nicotinamide riboside as well as other precursors and is increasing R&D investments from 2021 to maintain that leadership position and this rapidly growing market.
While direct to consumer remains the core engine of the business and we're excited about the opportunity to reach new consumers from <unk> at 3800, Walmart stores and to work with Walmart to build NAV supplements category.
Our new lower price lower dose introductory product should be available on approximately 3800 locations and our standard 300 milligram product should be available on approximately 2800 locations.
Sales to Walmart were strong this quarter due to initial sell in from the launch with product delivered on time to all Walmart locations.
<unk> Skus are also available on Walmart Dot com.
We have a new head of marketing and chrome and <unk>, who is working on a more aggressive campaign targeting Walmart consumers and the short term. We continue to expect that sales will build slowly at Walmart.
Growth should accelerate upon rollout of this campaign.
Overall, it's still early and the launch and we look forward to sharing more information and the future.
I'm proud of and the entire chrome and X team for delivering on this milestone launch it was a cross functional effort and as important foundational and as we continue to build this great global brands.
I'd like to thank our shareholders, our strategic partners and our <unk> and consumers our growing group of true believers.
And our continued support.
I have never been as optimistic about our future as I am today and.
Now I will pass the call over to our chairman, Frank <unk> and an update on scientific research right.
And you Rob and.
And the second quarter, there were several preclinical publications on nicotinamide riboside or and are including studies on bone health alcohol induced inflammation and neuro inflammation and.
In addition, and June and article was published demonstrating that systematic treatment with NR as protective and acute chronic mouse models of retinal ganglion cell damage, which often perceived glaucoma.
This is the first preclinical study of its kind and has implications for clinical research on and area of human health net effects of broad population, specifically vision health.
2 new clinical studies also registered since our last update both on May <unk>.
Both studies are part of our chrome Ducks external research program.
First Maastricht University Medical center, and the Netherlands registered a randomized double blinded placebo controlled clinical study to explore whether combined treatment with NR and exercise imposes greater improvements and skeletal muscle mitochondrial metabolism and older adults compared to exercise treatment alone.
Exploratory outcomes of this study include muscle NAD metabolites energy metabolism and physical performance.
34 participants will be given 500 milligrams of and our twice daily for 40 days.
Participants will engage and supervise exercise over a 3 week period, which consist of 4 approximately 30 minutes sessions, including to endurance sessions on a bike and too high intensity interval training sessions.
We've recently seen more studies registered examining the combined effects of NR and exercise.
This is an important area of research given the opportunity for <unk> and their professional sports and fitness community. Many of whom are early adopters of our product.
And in addition to your clinical study entitled and supplementation to prevent progressive neurological disease, and a taxi or <unk> or <unk> T was registered in Norway.
Researchers will investigate the effects of dietary supplementation of NR and children with this rare disease that affects the nervous system immune system and other body movements.
The primary focus of the study will be on neurological symptoms. We are proud to support and important research on a growing list of rare orphan diseases like a T friedrichs ataxia and others like Cockayne syndrome, Warner syndrome, Citron disease and ALS.
In addition, there were 2 newly published clinical studies since our last update.
First and June the results of a randomized double blinded placebo controlled phase III clinical study on patients with mild to moderate COVID-19, and Turkey were published and the peer reviewed journal advanced Science.
Researchers showed a statistically significant and 38% reduction and average time to recovery and the group receiving and nutritional protocol debt included NR compared to placebo.
The placebo group recovered and 9.2 days, whereas the group receiving the nutritional protocol recovered and $5.7 days.
The results were statistically significant with a P value less and 0.0001.
We had previously announced the preprint results of this study but share the update on our blog post on about <unk> dot com with subscribers as well as the medical community through our network of health care practitioners.
In addition, a study entitled combined metabolic activators and proves cognitive function in Alzheimers disease was published and the Preprint server met archive.
The study was led by a Doctor and del Mar Noguchi from the Royal Institute of Technology, and Kings College, London. This.
And this is the first study to investigate the effects of combined metabolic activator supplementation in Alzheimers patients.
This study demonstrated that supplementation with the same combination of metabolic activators used and the COVID-19 study, including and our significantly improved cognitive function and markers of liver and kidney health and moderate to severe Alzheimer's patients, suggesting this may be and effective therapeutic strategy for Alzheimer's disease.
Further studies are needed to build on and validate these initial findings and we are waiting for a study to be peer reviewed before sharing these results more broadly.
Finally, I wanted to highlight chrome and excess participation at a virtual conference hosted by the American Society for nutrition or ASM.
<unk> had a large presence during the session entitled optimizing any day status a call to action from nutrition research.
Featuring speakers from our scientific Advisory Board are Chromatics external research program partners as well as our internal team members. This session was attended by 160 members of the scientific community with high engagement during the Q&A session.
S and event was an opportunity to raise awareness of the importance of any day on human health as well as the extensive body of safety and efficacy data on our proprietary ingredient and are.
Our head of scientific and regulatory affairs, Dr. Andrew Shao also discuss the importance of the dietary supplement database for the industry the.
The topics I previously explored on a panel hosted by the American Conference Institute, and the Council first possible and nutrition.
And finally Doctor and yes mean, the chroma and Ali director of the Chrome and ex external research program and participated in a panel session entitled S and sustaining partner Forum, you're nutrition industry, who we are and what we do.
This is a testament to chrome and excess continued position as a thought leader and the industry.
I continue to believe that 2021 is shaping up to be and exciting year for chrome and X based on completed and ongoing clinical studies.
Furthermore, the robust preclinical research pipeline and recent publications showing the benefit of NR and mouse models represents the seeds for future clinical trials and 2022 and beyond.
Chrome and ex maintains a deep and growing relationship with the scientific community as well as regulatory bodies around the world and is committed to remaining the leader in the growing and market.
With that I'll pass the call to Kevin Farr, Kevin.
Thank you Frank Chrome and ex delivered a strong quarter with total net sales of $17.7 million up 16% year over year or about 30%, excluding the $1.6 million Verizon ventures purchased last year and.
Up 21% sequentially.
And the underlying business as measured by adjusted EBITDA, excluding legal expense and non-GAAP metric posted a profit of $640001.3 million improvement sequentially and up slightly versus the prior year.
We believe adjusted EBITDA, excluding legal expenses remains an important metric to gauge our progress towards cash flow breakeven and we've included a reconciliation to the appropriate GAAP measures and our earnings release slides.
I'll begin by reviewing the sequential P&L results and will then discuss the year over year trends for the <unk>.
3 months ended June 30th 'twenty, and 'twenty, 1 chrome and extra reported net sales of $17.7 million up 21% compared to $14.7 million and the first quarter of 2021.
2 days and net sales were up 24% sequentially. This growth was driven by watches with sales of $2.9 million this quarter compared to 1.6 million and the first quarter.
We benefited from a catch up shipments and the second quarter. Following a $1 million shortfall last quarter, we expect a smaller benefit and the third quarter compared to the baseline demand for once but we have some recent improvements and sell through as the Hong Kong economy recovers from the impact of COVID-19.
What's the store traffic is still down year over year and sales from Chinese tourism and local resident traffic have yet to return to pre COVID-19 levels. We believe this is due to social distancing measures travel restrictions and concerns over the COVID-19 Delta variant that may remain.
A headwind through 2021.
Our E Commerce business was up 11% sequentially, including a boost from Amazon Prime day sales this quarter.
Finally, we successfully shipped the Walmart and the second quarter.
There was a large initial ship in to stock the shelves at their 3800 stores as well as sales and safety stock at their distribution centers.
Our <unk> ingredients sales were up 7% versus the prior quarter, including ongoing sales to life extension and a small shipment to our new partner row.
Our gross margins was down sequentially by 180 basis points from 62, 9% and the first quarter of 2021 to 61, 1% and the second quarter of 2021.
We had a higher mix of business to business sales and the second quarter, which carried a lower gross margin than E. Commerce. This includes sales to what's is at Walmart among other partners.
At the same time, we continue to deliver on our supply chain and product cost savings initiatives and are benefiting from our overall scale as a result, we're tracking well to our full year goal of slightly better than 60% gross margins.
Total operating expenses for the second quarter of 2021 was $16.4 million down <unk> 2 million compared to the first quarter of 2021.
Selling and marketing expenses were down slightly to $6.2 million and the second quarter of 2021 compared to $6.3 million and the first quarter of 2021.
As a percentage of net sales. This expenditure was down 740 basis points from the second quarter of 2021 versus the first quarter of 2021 due to higher net sales to business to business partners with minimal advertising bichromate ex.
As I've previously said this ratio generally declined over time as sales ramp, but the quarterly investments may fluctuate as a result of our marketing campaigns.
As reported and G&A expense was down <unk> 4 million to $9.1 million and the second quarter of 2021 versus $9.6 billion and the first quarter of 2021.
Legal expense was down <unk> 9 million compared to the first quarter of 2021 to $4.2 million and the second quarter of 2021.
As expected activity declined and the second quarter, and we saw a corresponding decline and legal expense. It is difficult to predict the timing and magnitude of pretrial litigation expenses with 3 cases potentially going to trial and the second half of this year.
We have refined our trial budgets and now expect that the third quarter total legal expenses may be higher than the first quarter of 2021, and we'll continue to look for ways to optimize these budgets will bigger asleep protecting our intellectual property.
Excluding legal fees and severance restructuring and equity compensation expense second quarter, 2021 and G&A expense was higher by $2 million versus first quarter 2021 comparable G&A expense.
For the second quarter of 2021, our operating loss was $5.6 million versus $7.4 billion and the first quarter of 2021.
The net loss attributable common stockholders for the second quarter of 2021 was $5.6 million or a loss of 8 cents per share as compared to a net loss of $7.4 million or a loss of 12 <unk> per share for the first quarter of 2021.
Total net sales were up 16% year over year compared to the second quarter of 2020, with 31% growth and true diets, and including a 31% growth and e-commerce, and 32% growth and combined watches and other business to business sales.
Our <unk> ingredient and net sales were down 36% and other ingredient and net sales were down 74% year over year.
We are no longer selling to 1 of our Niobrara and ingredient customers, which remains a short term headwind as we replace this business with new strategic partners like H and H and ROE.
And other ingredients were comping strong sales and Emily Leah and ingredient with immune boosting properties last year during the height of the COVID-19 pandemic.
Gross margin decreased by 170 basis points to 61, 1% compared to 59, 4% and the second quarter of 2020.
Selling and marketing expense as a percentage of net sales increased 280 basis points to 35, 2% compared to 32, 4% and the second quarter of 2020.
We benefited from the sales to Horizon's ventures, and the second quarter of 2020 without any associated marketing investments.
As reported general and administrative expense was higher by $2.2 million, primarily due to higher legal expenses and 2.3 million.
Finally, our operating loss increased by $1.9 million year over year as higher sales and gross margins and cost savings across the organization were more than offset by higher legal expense and investments and selling and marketing.
Moving to the balance sheet and cash flow our balance sheet remains strong we ended the quarter with $38.8 million and cash, including $1.9 million raised from our $50 million ATM.
This further strengthens our balance sheet and we have not accessed our $7 million committed line of credit and.
And the second quarter of 2021, our net cash use and operations was $7.9 million versus a $5.4 million use of cash and the first quarter of 2021.
Difference this quarter was primarily driven by a decrease in accounts payable due to the timing of payments to our vendors and the payout of the bonuses to employees related to prior year company performance.
As it relates to our 2021 full year outlook, we provided details on key P&L metrics and our earnings press release, along with the slide presentation.
Consistent with our previous outlook, we expect to invest more in marketing and brand awareness customer acquisition and R&D to maintain our position as the leader and the growing and a D plus market yet.
The underlying business is essentially breakeven on a quarterly basis today and for year to date 2021 as measured by adjusted EBITDA, Excluding total legal expense.
This remains a key metric for the organization and we will focus on achieving similar performance for the second half of 2020, 1, but there may be quarterly volatility due to the timing of investments.
As it relates to the full year net sales, we continue to expect steady revenue growth consistent with our previous financial outlook. However, we expect that our third quarter total net sales will be flat to slightly down from the second quarter.
Well the e-commerce business should continue to grow sequentially, a growing portion of our sales are coming from new partners, including Walmart, H, and H, and ROE, which may cause quarterly volatility until they ramped and more steady consistent growth.
We expect to benefit from growing sales to ROE and H and H and the fourth quarter based upon their respective launches of Roman and Swiss products with <unk> and plan for later this year and we are.
Remained bullish about full year 2021, and the 2022 outlook.
We expected our third quarter year over year growth rate will accelerate from 16% reported year over year growth rate and the second quarter and that it will further accelerate in the fourth quarter.
In summary, I'm very proud of how the company continues to execute balancing the long term market opportunity with near term profitability objectives, I believe our strategic pipeline, including business development and R&D is much more robust and our internal team is the strongest I have worked with during my time at <unk>.
<unk>, we have successfully transformed the company over the last 4 years and I remain very optimistic about our future.
Operator, we are now ready to take questions.
Thank you, ladies and gentlemen, if you would like to ask a question at this time. Thank you bestbuy bundle number 1 on your telephone from Bob Dylan.
And then John question Ross.
Your first question comes from Brian Nagel from Oppenheimer. Your line is now open.
And good afternoon.
Nice quarter.
A couple questions on I.
And I guess first with regard to sales and I think Kevin I think you've mentioned.
And as the Covid crisis that are you, referring primarily to the.
And the Hong Kong market. So the question I was starting to see.
And that's obviously very fluid at this point, but maybe.
More reopening generally versus a few months ago.
And are you seeing are you seeing any type of impact.
Impact of reaction and you're in your <unk> sales.
Our reaction to Covid.
Well I guess.
<unk> just from a consumer's perspective is there and just some indication that as the economy started to open you're seeing improving underlying demand trends.
Worldwide and up and down I'm sorry, Brian.
Yes.
And then up and down there have been times, when we see the stores reopening and foot traffic returns and.
And then a few months later COVID-19 picks up and we see a retraction.
1 thing we know is that tourism from mainland China and to Hong Kong is still yet to open up.
And that's always been a significant portion of watson's traffic. So we're impacted by that.
We also know that there is a very loyal core customer base of <unk> and in Hong Kong.
But the overall foot traffic and Hong Kong.
Has especially in the last few months declined.
Okay got it.
And the second question I have this on marketing I think it was a comment I think Kevin you made a comment about a percent and financial outlook about marketing spend and it sounded to me like it would you.
And to your Telegraphing higher spend so the question and.
Is that my hearing that correctly, but can be and more importantly is this just more of the same or will there be some type of is there. Some Kevin you were newer campaign and pressure campaign that youre looking at.
We got from Kevin and Iraq.
Yes, Thank you for us and split I would say, yes, and the prepared remarks from you indicated were going to be spending a little bit more.
And then what we've said previously it's a small for brand building and supporting Walmart and <unk>.
Last quarter, we said it would be yes.
<unk> up and now we're saying, it's a larger increase but it's not it's not huge.
Rob do you want to comment on where we're going to be in terms on the marketing plans and general Brian.
Yes that sounds great.
Okay.
As you know we recently brought in just 4 months ago on new <unk>.
CMO at the company.
And we also just launched on Walmart and.
And so we have indicated that we expect to increase our overall brand awareness marketing.
And we are formulating those plans now.
We understand that the Walmart customers slightly different than our existing customer who is basically and ecommerce based customer.
So that means the type of advertising even to a certain extent the messaging and the distribution and advertising channels are going to shift a bit towards traditional media like TV. So it's our expectation that youre going to see and increase in TV based advertising and the coming months, but we havent yet.
We've done that.
Got it.
Going back to your to your question on Hong Kong and I think for the first half of 2021 shifting up versus the first half of 2020.
And we have seen some recent improvements and sell through as Hong Kong economy recovers and the impact of COVID-19.
Although we and Watson's believe underlying consumer demand remains strong as Rob said the store traffic is down year over year.
Watson is investing and new marketing campaigns. This year and we expect to see sell through trends returned to normal post the pandemic.
Perfect. Thank you very much again.
Sure.
Your next question comes from Jeffrey Cohen Ladenburg Your line is open.
Oh, Hi, Rob Frank and curves and how are you.
Jeff.
So are there on a few sorry to bounce around interest and sounded like 2800, Walmart you're getting 100 milligrams like 20 blocks and then another.
Addition, 3800 or getting the on 300 milligrams and that's correction.
And you're going to have their data centers and start to improve.
So first let me just say, it's the other way around it's the larger numbers with 100 milligrams and a smaller numbers with 300 milligrams.
Oh.
Okay and just.
<unk> centers from any approach loans.
Got 42 distribution centers. So that's basically what we're doing is we're shifting them to distribution centers and then they ship them too and in June to the stores that are setting.
More or less the.
<unk> product on the plot and grams in June and July and continues and the August.
Okay. So youre most of the way through that as far as shipping assurance with day to Skus.
Yeah, we're not 100% certain upset at all stores, but.
And the next few weeks it should continue to be.
Put on shelf.
And then it's early to tell where we stand with regard to consumer takeaway.
But our expectation.
For the third quarter is we will have tough comps against the second quarter.
And because where we're shipping in for the 38 and 2800 stores and then they also have more and they're 42 distribution centers about a 4 to 6 week supply so that they can replenish.
And basically what our orders will be for the third quarter and fourth quarter is based upon P. O S, which we have low expectations for out of the gate, but we expect it to build over time as we do more on marketing.
Okay got it and then Kevin and looked like you did more.
With less and the second quarter and then your revenues up $2.7 million over Q1 sequentially why Youre spend went down sequentially.
And I imagine, there's some nice flow through the App and as you pointed out and you've got some.
You got a big order and the Watson and wallboard. So that's part of I guess you back from them.
And where you talked about sequential.
Flat to down in Q3, and anything further on Q4 and a year and there.
And now from the 17.7 from.
Second quarter.
Yes, I think the thing we said in my prepared remarks is that we expect the year over year growth to be.
Greater than the third quarter or the.
Second quarter growth of 16%, so we expect that to be higher than 16% and the third quarter and the fourth quarter and accelerating.
Okay 6.2.
Can you repeat and when you say the battle and I heard something about.
And to the broker channel.
Sure.
Yes, I think I think that's our business development opportunity with ROE and with the H and H, we are selling and the ingredient and.
And they are mixing that ingredient with some of their primary products.
And we saw a.
Shipment to row, a small shipment and.
Second quarter, we don't expect to shift to either of them in the third quarter, because they are and the process of manufacturing their product and their intent is to <unk>.
Actually sell it and in the fourth quarter and bring it to market.
Perfect, Okay and that goes from me thanks for taking the questions.
Welcome.
Your next question comes from Rodrigo Silver Archie with H C. Wainwright Your line is open.
Hi, Thanks, very much for taking my questions and congrats on a very solid quarter.
Personally I was wondering if you could comment on potential expansion of the.
A walmart store presence to all of the U S. Walmart store because based on the June announcement and it looks like there probably are still from Walmart stores.
And our product placement and has not yet occurred just wanted to get an update on the potential timing of that when that might be and.
Kind of low.
Walmart footprint.
The worldwide.
We're in and the vast majority of their stores at this point.
We don't yet know exactly how many of the 3800 stores have actually place the product on the shelves at this point.
Just only have begun to begin to receive reports from the stores.
And we know that we successfully shipped to the distribution centers.
And most of the stores have received from the distribution centers and have placed them on the shelves.
So until we see how which stores are performing better than others, which we do not yet know.
We're not going to have additional conversations with Walmart about expanding into the remaining stores.
But suffice it to say I think there's about over 5000, and Walmart stores and are you at.
On the original arrangement, what's for tonight's and to be placed and 3800 of them in principle. There is nothing excluding qunar origin from eventually breeding and every Walmart store right that is correct. The initial idea was 1000 stores and they suggested going into 2000 and then further.
Suggested going.
Even further so and there is nothing and our arrangement with Walmart that would preclude going into all of the Walmart stores.
The first opportunity is if we get good philosophy behind the 300 milligram 30, count you would expect that to expand from the 2800 stores and they selected.
And at least 38, hundreds or so again I think this is part of their launch strategy is.
Having customers probably.
Sample the 100 milligram and.
And then hopefully move up to the 300 milligram product.
Got it and.
And then with respect to the ROE arrangement can you just provided but from additional background on the specific Rome and product or product line and are likely to incorporate true NIE adjusted and what specific market segments those might be targeting.
At this point there is only.
On 1 product that they are going to release its there.
Well they have a name that haven't yet released the name it but it's a sort of a life extension product and they're combining <unk> and with a couple of other ingredients are and obviously the hero ingredient is low.
<unk>.
I expect them to launch the product in the fourth quarter.
We haven't had discussions with them yet about any subsequent products, but any additional product that they would propose obviously, we would have to approve.
Okay, and how many Rome and Prada.
Are there right now.
And I don't know.
I don't know how many products they have obviously the core of their business.
Is.
And also this is only because they have a head of mail division and a female division. This is <unk>.
<unk> initially just targeting their mail division.
The realm and dependent.
Okay.
Got it.
And then with respect to the <unk> collaboration can you confirm whether this is going to be primarily positioned within the context of that.
<unk>.
On a product lineup.
Regionally speaking, Australia is likely to be the most substantial driver of pull through demand or if you expect broader regional demand than Australia, which is where I think that's with product lineup.
Enjoy the most favorable positioning from a market ranking standpoint.
We don't know if if they expect their cross border business into China to be bigger than our Australia business.
But those are clearly the top 2 markets that theyre going to pursue.
And they are and the leading brand and.
Supplements and China.
And on cross border.
Yeah.
Okay.
Any notable.
Additional initiatives with respect to increasing the e-commerce contribution to your overall revenue mix that you.
You expect to take root over the course and the second half of this year.
The way, we view e-commerce, as steady and consistent growth Theres, a very large and growing and extremely loyal.
Tumor base set purchases online either on Amazon or on our website and read.
Pension rates are very very strong.
And we expect that to continue to grow you've seen over the last 4 years steady consistent growth, we expect that to continue.
But I also anticipate that as we launched a brand campaign, which has a television is a major component of it.
Not only do we think that that will be helpful. For the Walmart sales. We also think that will have an impact on our e-commerce sales as well.
Great. Thank you very much very much sure.
And so on.
Your next question comes from Jeff Johnson, Darren and other B Riley Your line is open.
Hi, good afternoon, everyone. Thanks for taking my questions.
Multipart question first I know you spoke about development.
And through knowledge and and they.
And spend more on R&D.
So I guess I'm wondering where the R&D dollars are going on.
Maybe what you maybe you could just touch on which studies that are underway right now.
On may be leading you to think about where you want to invest the R&D dollars and you had to pick a couple of those.
And then.
And I guess, just give us a better sense of where it makes most sense to spend on R&D.
And what the potential impact to us from the business.
And of course, there's a.
Wide range of investments and include R&D, some of which are studies.
Some of which are just development of new products, there are various and <unk>.
Related molecules that we have strong intellectual property around and which we intend to develop.
Or and commercialize and build into products.
There is also a growing and burgeoning.
And Ivy market as well as a global and EM and market and of course.
Most people who are on this call and are very familiar with chrome and edge nodes at the science is pretty clear that nicotinamide riboside is significantly superior to both of those molecules both of them on nucleotide meaning that there is a there is phosphorylated and many are they don't have.
And he mechanism for entering the cell, whereas nicotinamide riboside not only has a clean.
Mechanism for entering the sub and what we've proven is that when the seller is under stress and it actually opens up a pathway specifically looking for nicotinamide riboside. So from a scientific standpoint, neither of those molecules.
Stand up to nicotinamide riboside in terms of their ability to do it.
And prove the health of the cell and elevate and <unk>.
So part of the investment is to just sort of invest and studies that debt further support that thesis.
That idea, which is already fairly proven and the scientific literature, but we can support further so.
And so you've got the addition to the development of additional molecules the comparison.
Of our molecule to others bio equivalents of certain molecules proof of the superiority of nicotinamide riboside as well as the investment and certain studies for nicotinamide Riboside to further extend our understanding of the molecule as well as the ability to make additional health claims.
But as you know there are many clinical studies ongoing recently published or soon to be published on a whole host of health claims and they've been fairly consistent and yielding pretty positive results not just the recent peer reviewed published double placebo blinded Covid study that was.
And that came out recently and <unk> as part of <unk>.
Cocktail of and other ingredients.
But several others that Frank Jacks mentioned recently that there is some additional studies as you know we Harvard is doing the long haul our study on Covid.
We may make some investments and some of these studies, we won't pay for them outright, but we may support and contribute to some of those studies.
But as our understanding of nicotinamide riboside extends and gross.
Yeah.
Our investment and some of those studies will increase I'd also like to point out that we have a very deep and.
And strong patent portfolio that extends well beyond.
Even the ones that for which we have been.
Protecting against Infringers.
We are making further investments and even extending the path and push for the portfolios.
Portfolios, even further so all of those investments ladder up to R&D and Theyre not just studies per se.
Okay, and then just as kind of a follow up to that.
I know you mentioned, the study and Turkey around Covid.
There anything that's been done recently introduced that and that will allow you.
And subject to.
There's laws and different markets, but.
Is there anything that will allow you to make different claims or new claims and you have been able to make up until now and it's.
Drilling there and made.
And sort of unleash new claims for Ya.
Yes, there are studies that may enable us to extend our claim portfolio.
Not necessarily related to Covid.
But there are studies that are being done and looked at and we're anticipating and there are some on cognition and there are some on liver health or some on muscle health Heart health.
Inflammation studies and Theres a whole range of studies that are listed on clinical trials Dot Gov.
Some of whom could yield extension of our client portfolio.
With regard to Covid and it's a very.
Difficult issue as you know even though we have this peer reviewed published study that shows the cocktail reduce time to recovery by 38%.
The regulatory authorities are hypersensitive to non drugs, making claims about COVID-19 and disease States and general So it's a challenge to communicate to consumers the efficacy of the dietary supplement for a disease safe and specifically and especially Covid.
And.
Okay. That's helpful.
And then just anything new to add on the partnership with nationally.
There is nothing new to add other than the fact that I can further confirm that necessarily has a deep understanding of the value of nicotinamide riboside, a deep interest and nicotinamide riboside they've recently.
<unk> acquired some companies and the dietary supplement space. So it's a much higher priority today than it was even a couple of years ago and they understand the value of nicotinamide riboside.
Throughout the Nestle health science portfolio of companies and there is a very strong and positive relationship. There I don't know how it will evolve, but we're interested in working with them more and they are as well.
Okay, great and if I could see.
And more and more and I know this.
Big topic, but and then you said you had 3 cases that could go to trial and second half.
On anything new developments I guess 2 on litigation at this point versus last quarter or is it pretty much status quo.
Not really I mean, it's fairly quiet right now in anticipation of the trials I think both both companies have done their homework and are prepped and ready and we're just waiting for the trial to begin.
Okay. Thanks for taking my questions and best of luck.
Thanks, Jeff as always.
Your next question comes from and that's been.
Zero.
Your line is open.
Hi.
T O.
Just a couple of R&D and questions here.
Sure.
Hard to the e-commerce growth.
And I always ask but I'm just curious.
New customer growth versus recurring revenue.
And is it evenly split part of the growth and 1 drive more of the growth this quarter than the other.
Well I think you've asked that question before on Lora.
[laughter] cycle.
Third quarter.
Karen.
We did see some acceleration and new customer growth this past quarter.
But as always retention is very strong here at the company, we have fairly low cancellation rates of people who start to take it.
Certainly those that take it for 2 or 3 months seem to retain them and they begin to if they pay attention to begin to notice the improvement and their physical performance, but yes, we are seeing improvements and new customer acquisition.
And.
And then.
Related to that why Wouldnt Watson.
And you know youre slower store traffic, but you have and fair amount of people that have been taking true nausea, and why would they become recurring customers online.
And what can be commerce, why do they have to go to the store.
I guess, if I were if I were out of my true nitrogen I would.
And Im not go into the store I would order online.
Is there and see there are some bottleneck or something gating factor that within the low recurring revenue losses.
No I think that debt is a good question and subscription is an important part of their business, but I think Watson strategy.
Has been to use tonight and to attract people to the stores. So they are not very interested and selling it.
Online as much as they are selling and the stores because it has been a draw for them.
In Hong Kong to get people into the stores.
And I think that continues to be the case.
Okay.
And then the question is actually around the studies.
And most recent study.
Alzheimer's disease and the conclusions there.
And we're.
Relatively meaningful and I think impactful.
And to some people that those that we get a chance to read it and.
And.
So that study seem to me to have you.
You can't make claims on that I don't think but it seemed more seem to bigger.
And usefulness.
And for you and.
Are there are you designing new studies.
<unk>.
More impact rather than on the day.
Nitty gritty science.
No.
Yes.
Studies, where they're looking at a particular aspect of something and it seemed like the alzheimers disease and something more that you should be looking at net.
Itself, but others are you able to formulate and.
And <unk> studies.
Use them.
More effectively and your messaging.
So remember we have this program that we call the surf program.
Where we work with researchers to design their study and we supply the ingredients, but we do not finance. The study and then as part of that program. There is a license if theres any intellectual property that comes from and its licensed back to chrome and X.
And with that program, we've been able to get.
Perhaps 75, maybe $100 million worth of research to the company without us putting up that money.
But the downside is.
It's their study we can influence it but we can't we can't designed.
So mostly for studies that were not financing.
Not our call.
But it is conceivable on the future that we might design. Some studies that specifically lead to claims or areas that we think are opportunistic. For example, we think inflammation is a particularly interesting area for nicotinamide Riboside, we think that we're seeing a fairly consistent level of.
And of studies that show results, indicating a reduction of certain important inflammation markers.
So we can see designing studies around that knowing that that is a likely expected outcome that might enable us to strengthen our marketing claims and target a specific audience.
With regard to all timers, we agree with you we think that all simers. There are many related diseases autoimmune diseases or neurological conditions that we think are relevant when you elevate NAD elevate parked functionality improve mitochondrial function many.
And disease States, obviously, you know the obvious complications when you're marketing specifically to a disease.
But cognition and general we think is a very very important area for this.
Product.
We understand Mechanistically why it would improve cognition levels.
Not just reduction of inflammation, but there are other things that we've shown that it breaks the blood brain barrier and.
And elevates NAD.
So yes, we do see that we are opportunistic about pursuing specific studies and perhaps applying dollars for specific research that we think will yield a result, and and enable us to explain expand our claims.
But before I get asked that question, let me give Frank Jacks, if you or would you like a chance to take a shot at that question too.
Well, you've done such a good job on answering it already but.
[laughter], but yeah, just and layer in on and I mean the.
The 1 positive at least from this Alzheimers study and you're right I mean, Alzheimers is good and the sense that it does go to cognition.
Like Robin said.
And reality in order to make a claim or use this study to support a claim it would have to be something more along the lines of mild cognitive impairment.
The primary outcome, where they're looking for enrolling people with that rather than all timers, but Mike you.
And you need to look at do these studies and things like Alzheimers, 2 really rude out those mechanisms and this case their primary focus was around improving mitochondrial function.
The debt mitochondrial function seems to play a central enrollment and Alzheimers and progression of Alzheimer's and then we can utilize that to build awareness around the importance and the importance of it there as we go after other studies, which are underway, if you've looked at clinical trial and stuck up you'll find.
The mild cognitive impairment type studies that are out there.
Okay and 1 more question on.
And can you have.
We've had a steady.
Build and your and your ecommerce business.
30% type of growth rate, plus or minus and it's which is terrific growth.
And I'm curious.
If you and looking to accelerate that growth.
Is it going to come in the form of just better at it.
Digital marketing.
Is it going to be TB and.
Is it going to be a true believer or spokes person incredible spokesperson.
Obviously, it's probably a cocktail of all of them but.
Is there 1 that really is going to be and your view.
The real the 1 that does unlock.
<unk> and acceleration of the strong growth.
Well as you know we have a new head of marketing and he's formulating his strategy and his plan and it's very methodical and the way he's going about it so.
But my guess is based on the work that I've seen being done is that youre going to see more TV.
And and seeing more TV and we anticipate that will increase.
Walmart sales as well as.
E Commerce sales just by increasing awareness, although the conversion rates are strong and the retention rates are excellent excellent. We still think the overall awareness of <unk> and is not that high so the opportunity is terrific here and the U S and frankly globally.
But we just don't think that many people know about it yet.
Alright.
And we can expect did you say is that a second exam and perhaps the Tvs that you said in the coming months.
Second half.
And on my expect that would be and my expectation.
Okay.
Okay. Thank you for your time.
Thank you.
Yeah and last question comes from Keith and Mark and welcome farmhouse equity. Your line is now open.
Hi, Thanks for taking my call and congratulations also on and on a great quarter.
And so most of my questions have been asked and answered and I do want to ask a little bit about the pro market, which you can see some of them and we talked about on our last call, but on the tangentially and wondering if there's any update on <unk>.
And we will growth opportunity or where you should see that go on.
Yes, we very much think that day to night and pro market as a significant growth opportunity.
If for no. Other reason and this is 1 of Kevin's favorite topics because we have these fantastic studies that are coming out some of them are preclinical, but some of them are clinical that address disease states.
And a dietary supplement, but the rules around marketing to healthcare practitioners on.
And are different and the rules around marketing to general consumer So there is more flexibility.
And marketing to healthcare practitioners and letting them know about the great research on nicotinamide Riboside and nitrogen specifically, so what we sell to health care practitioners and <unk> Pro So, yes, I do see that as a growth opportunity for us.
And you would never actually have the 500 milligram formula on your on site and it's always going to see this quarter.
On the channel.
No I would not say never.
Okay.
However, it is important to distinguish between the 2.
Got it okay. Thank you very much and congratulations.
Thank you. Thank you.
This concludes the Q&A session I will now turn the call back to be anecdotal day for closing remarks.
Thank you Ashley there'll be a replay of this call beginning at 430 PM Pacific time today. The replay number is 1.805 858367 and the conference I E is 99, 7 QQ Q 9. Thank you everyone for joining us today and for your continued support.
And have come back.
This concludes today's conference call you may now disconnect.
And then.
[music].
Okay.