Q3 2021 Chromadex Corp Earnings Call
Ladies and gentlemen, thank you for standing by and we will come to come IDEXX corporations third quarter 2021 earnings conference call.
My name is Julie and I will be the conference operator today.
At this time all participants are in a listen only mode and as a reminder, this conference call is being recorded.
Afternoon, <unk> issued a news release announcing the company's financial results for the third quarter of 2021.
You have not reviewed this information both are available within the Investor Relations section that's come IDEXX web site at Www Dot Com index Dot Com I would now like to turn the conference call over to Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to <unk> Corporation third quarter 2021 results Investor call with US today are crummett access Chief Executive Officer, Rob Fried founder and executive Chairman, Frank Jacks, Schott, Chief Financial Officer, Kevin Farr, and Chief Mark.
Getting officer body Corona.
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 Qunar Neogen in new market business development opportunities.
Future financial results cash needs operating performance investor interest and business prospects and opportunities as well as anticipated results of operations.
Forward 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 in forward looking statements.
These risk factors include those contained in <unk> quarterly report on Form 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 in its expectations.
In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the 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 <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 Breanna.
Good afternoon, everyone and thank you for joining our third quarter 2021 investor call.
This quarter marks an inflection point for Thermodox.
Litigation is largely behind us and we look forward to receiving the approximately two and a quarter to $2 5 million that was awarded to us by the California juries.
This is an important milestone.
Because we can now devote more resources, both human and financial to be <unk>.
Tasks of building, our global brand developing our science.
Furthering our relationships with global partners.
Today in addition to hearing from Kevin on the financial results and Frank the significant scientific achievements this quarter.
Our Chief Marketing Officer, Bobby Hill ROM will briefly discuss what we can expect in 2022 as I said the scientific developments this quarter have been significant and Frank will outline in greater detail.
But we now have 15 completed and published clinical trials involving Nigel.
Over 40 additional clinical trials in progress.
Our industry, leading <unk> external research program Sir.
Let's now amassed over 240 collaborative research please.
Our focus going forward is to translate this extensive and growing body of science compelling marketing messages, including aging heartfelt muscle health cellular handoffs.
Yeah.
We're also investing in clinical trials to support future marketing claims.
And to build our product pipeline.
As many of you know.
<unk> intellectual property portfolio and scientific expertise goes well beyond nicotinamide riboside for us.
Still by far the best and safest way to manage on a day level.
It also includes NR H and R T and <unk>.
All have interesting unique properties and potential applications in all could be important to the company's long term plan.
Of our 40, plus total <unk> related patents 19 of these relates to NRT NR H in Iowa.
With maturity dates ranging from 2026 2020, we recently announced results of the first clinical study of NR in children with <unk> posture or ATP.
This study is particularly interesting because ATP is an orphan disease characterized by premature aging.
We believe the fact that supplementation with NR showed a benefit in this patient population is further evidence of <unk> impact on age related health issues.
Previously we discussed the phase III COVID-19 study on NR as part of a cocktail of ingredients in Turkey.
To the best of our knowledge <unk> submission for drug approval of this capital is still being reviewed by the Ministry of health in Turkey.
No further updates at this time.
Finally, I'd like to highlight three of our strategic partnerships.
Sign of farm Ching jaw Walmart.
Perhaps the most strategic event this quarter was our deal with its final form.
<unk> Shah.
City area. Its final form group stayed on Endo clients, one of China's largest domestic pharmaceutical company.
This is possibly the most strategic partner for chromebooks to have in China.
We're very excited about the potential for <unk>, given high consumer awareness of NAD boosting products among Chinese consumers presence.
While the Chinese market is currently led by NMM.
Nicotinamide mono nucleotide.
We believe it should be led by NR based off the clinical evidence and safety data available to date.
China Pharm will initially focus on accelerating <unk> sales across our existing cross border marketplaces.
We are currently in discussions on new product formulations, we anticipate sales of our new product formulation in 2022.
Additionally, the companies will collaborate to secure help food registration in China.
And this is a multiyear process, but would open up a much larger market given Sino forms 10000, plus pharmacies and broad distribution network in China.
We believe this agreement is a significant milestone who come at us.
Does this partnership has the potential to be transformative overtime.
Our Walmart launch earlier this year marked another strategic milestone for the company.
Our first U S mass retail launch for <unk>.
We recently had our first line review with Walmart and we're encouraged by the team's continued commitment.
Building the category.
Our future plans include education programs packaging refresh and of course as we've discussed our national television campaign.
Bobby will discuss this further shortly.
Finally Roman life the product from our new partnership with grow was launched in September.
Enrollment life's packaging prominently features that it has supercharged by chronology.
ROE is taking a phased launch approach with enrollment beginning with their subscribers, we will support them and maximizing awareness.
Consistent with the phased launch strategy.
As many of you know, Oklahoma, that's unique as a company operating in the dietary supplement space.
We do the scientific research, we developed proprietary compounds and we obtain regulatory approvals.
We work with selective valued partners worldwide, including Sino Foreign Ching jaw, Walmart HMH WR Grace the fast growing startup row, and we are currently developing a pipeline of products featuring <unk> alongside their best in class R&D commercial teams.
We believe these companies have partnered with us and chosen.
Because of our reputation as pioneers in the industry and our relentless focus on the science.
Dates back over 20 years.
We understand that <unk> has tremendous potential.
And as I said, we believe we're at an inflection point for this company.
And we are just getting started.
I'd like to thank our shareholders partners employees and customers as we enter this next phase of growth.
And now I will pass the call over to our chairman Frank <unk> for an update.
The scientific research Brian.
Thank you Rob.
Since our last update there were several exciting preclinical publications on NR I'll briefly highlight too.
First a study found that systemic treatment with NR as protective in acute and chronic models of retinal ganglion cell survival and builds upon the growing body of preclinical evidence on NR as roeland I health sector.
Second our.
The study demonstrated that administration of NR in a mouse model of Alzheimer's disease increased brain any D levels and reduced neuro inflammation DNA damage and cellular senescence.
And are also improved learning and memory in mice with Alzheimer's.
In addition, as Rob mentioned, we announced promising findings from our first of its kind clinical study on NR and children highlighting improvements for prematurely aging patients with ataxia to languish at Asia or <unk>.
The study included 2480 patients with 17 of them under the age of 18.
The effects of NR, <unk> ataxia, which is a group of disorders that affect coordination balances speech quality of life and.
And standard blood laboratory parameters were analyzed.
And our improved ataxia scores in patients and increase serum in immuno globulin G or antibodies.
Which are important for protection against pathogens patients with ATR known to be immuno deficient with decreased serum immunoglobulin level concentrations.
And on October 25th results from a phase II clinical trial of patients with nonalcoholic fatty liver disease were published in a peer reviewed journal molecular systems biology.
The results found a 10% reduction in liver fat and improved liver function and inflammation participants who received in nutritional protocol for ingredients, including NR.
This is one of several human studies exploring the benefits of this nutritional protocol through our research collaborator scanty biotherapeutics.
We are excited to share the results of several additional completed studies in the coming months and are committed to remaining a leader in the growing <unk> market.
With that I'll pass our call to our Chief Financial Officer, Kevin Farr, Kevin.
Frank.
<unk> delivered a solid quarter with total net sales of $17 3 million up 22% year over year and a gross margin of 61, 1%.
The underlying business as measured by adjusted EBITDA, excluding legal expense, our non-GAAP metric posted a loss of only 621000 in the third quarter.
We believe adjusted EBITDA, excluding legal expense remains an important metric to gauge our progress towards cash flow breakeven and we included reconciliation to the appropriate GAAP measure in our earnings release slides.
Furthermore, with the significant litigation expense behind US, we're prioritizing investments in a larger brand campaign to drive overall growth and support our Walmart launch our larger National TV campaign is currently planned for early 2022.
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 September 32021, chroma extra reported net sales of $17 3 million down 2% compared to $17 7 million in the second quarter of 2021.
<unk> net sales were down 4% sequentially.
As expected the largest driver was lower sales to Walmart following the initial shelf stocking and the second quarters to support the launch of 3800 stores as well as to build safety stock at their 42 distribution centers.
Watson sales were $2 $6 million this quarter compared to $2 9 million in the second quarter.
The catch up in shipments from the first quarter supply chain disruption is complete and.
And we expect slightly lower sales to Watson in the fourth quarter compared to the third quarter, which is more aligned with recent base demand.
<unk> seen some recent improvement in sell through as the Hong Kong economy recovers from the impact of COVID-19, the recovery has not been steady.
What's in store traffic is still down year over year and sales from Chinese tourism and local resident traffic have yet returned 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 at least the end of 2021.
We're working with Watson and marketing programs to drive improved sell through while they manage through COVID-19 related headwinds.
Our ecommerce business was down 1% sequentially, while the underlying business remains strong we face a challenging comparison with Amazon Prime day sales last quarter.
We are optimistic entering the fourth quarter, which is seasonally strong driven by promotions in the U S and China.
Our <unk> ingredients sales were up 30% versus the prior quarter driven by sales to life extension and a shipment that Nestle health science.
Our gross margins were roughly flat at 61, 1% in the second quarter of 2021 in the third quarter of 2021.
We're tracking well to our full year goal of slightly better than 60% gross margins due to supply chain product cost savings initiatives overall scale and product mix and our currently offsetting inflationary pressures across global supply chain.
Total operating expenses for the third quarter of 2021 were $19 4 million up $3 1 million compared to the second quarter of 2021.
Selling and marketing expenses increased to $7 2 million in the third quarter of 2021 compared to $6 2 million in the second quarter of 2021.
As a percentage of net sales. This expenditure was up 650 basis points in the third quarter of 2021 versus the second quarter of 2021, we've.
We have experienced higher cost per new customer acquisitions, driven by broader industry trends that are impacting advertising costs on social channels.
In addition, we are investing more in top of funnel brand advertising that does not immediately drive conversion.
This includes incremental spend on television advertising as we test networks and messaging ahead of our larger brand campaign rollout.
As I previously said this ratio will generally decline over time as sales ramp, but the investments may fluctuate as a result of our marketing campaigns.
As reported G&A expense was up $2 1 million to $11 2 million in the third quarter of 2021 versus $9 1 million in the second quarter of 2021.
Legal expense was up by $1 5 million compared to the second quarter of 2021 to $5 6 million in the third quarter of 2021.
As expected litigation related activity increased in the third quarter due to the California trial, and we saw a corresponding increase in legal expense. However, it was lower than expected for the quarter since the Delaware trial did not take place in September.
I will discuss our preliminary outlook for 2022 legal expense in a moment.
Excluding legal fees severance restructuring and equity compensation expense third quarter 2021, G&A was higher by <unk> 1 million versus the second quarter of 2021 comparable G&A.
For the third quarter of 2021, our operating loss was $8 8 million versus $5 6 million in the second quarter of 2021.
The net loss attributable to common shareholders for the third quarter of 2021 was $8 9 million or a loss of 13 per share as compared to a net loss of $5 6 million or a loss of <unk> <unk> per share for the second quarter of 2021.
Moving to the year over year financial results total net sales were up 22% year over year compared to a third quarter of 2020 with 24% growth in <unk>, including 21% growth in E Commerce, and 31% growth in combined Watson's in other <unk> sales.
Our <unk> ingredient net sales were up 89% year over year and gross margins increased by 150 basis points to 61, 1% compared to 59, 6% in the third quarter of 2020.
Selling and marketing expense as a percentage of net sales increased 490 basis points to 41, 7% compared to 36, 8% in the third quarter of 2020.
The drivers of this year over year increase were similar to the sequential drivers I discussed earlier.
As reported general and administrative expense was higher by $4 6 million, primarily due to higher legal expense of $3 7 million as well as investments in technology and head count in key functional areas to support growth.
Finally, our operating loss increased by $4 6 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 in selling and marketing.
Moving to the balance sheet and cash flow our balance sheet remains strong we ended the quarter with $33 1 million in cash and we did not access our $7 million committed line of credit.
In the third quarter of 2021, our net cash used in operations was a negative $5 9 million versus a negative $7 9 million use of cash in the second quarter of 2021.
The difference this quarter was primarily driven by the increase in accounts payable and accrued expenses due to the timing of payment to our vendors and a decrease in accounts receivable due to the timing of collections from business to business customers.
As it relates to our 2021 full year outlook. We have provided details on key P&L metrics in our earnings press release, along with the slide presentation.
<unk> with our prior outlook, we expect to invest more in marketing brand awareness customer acquisition and R&D to maintain our position as a leader in the growing <unk> market.
The underlying business is essentially breakeven 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 in the fourth quarter of 2021, but we may choose to invest more ahead of our larger 2022 brand campaigns as we balance investments in growth and profitability.
As it relates to the full year net sales, we continue to expect steady revenue growth consistent with our previous financial outlook. Our E. Commerce business has grown fairly consistency quarter to quarter, but 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 ramp up to more steady consistent growth.
ROE launched their new product featuring <unk> in September and we expect <unk> will launch later this year or in early 2022.
As such we expect to benefit from sales to ROE and <unk> in the fourth quarter and beyond.
As we look ahead to 2022, we expect a more meaningful revenue contribution from our new partners, including Walmart.
So H and H and Sino farm as well as other potential strategic partnerships in the pipeline.
Our U S partnerships and our own e-commerce business should benefit from the true Nigel National television campaign next year and we are excited about the potential was strong players in China, notably Sino farm and HMH group in 2022 and beyond.
We look forward to sharing more about our plans and theirs on the next earnings call.
Finally, I'd like to address our preliminary outlook for total legal expense in 2022, we expect that baseline legal expense, which consists primarily of pattern general corporate expense and head count expense will be around $4 million in 2022.
Ongoing litigation expense, including the New York case, Delaware appeal, and the Thorn IPR should each cost less than $1 million.
We will continue to look for ways to optimize these budgets and conclude the outstanding litigation and.
In short with litigation largely behind US our legal expense will decline significantly beginning in the fourth quarter of 2021.
We believe this marks an important milestone for shareholders as well as our team at chrome at X just enables us to prioritize additional investments that will accelerate growth in the business.
In summary, I'm very proud on how the company continues to execute balancing the long term market opportunity in the near term profitability objectives as I said last quarter I believe our strategic pipeline, including business development and R&D is much more robust and our internal team is strong.
They've worked with during my time at Chromatics I'm, particularly.
Excited about the global brand building experience that body brings to the company.
Under his leadership the marketing team has continued to build our capabilities and importantly use concept testing the refined our messaging across all channels.
Very optimistic about our potential to accelerate growth as we enter 2022 with that I will turn the call over to body body.
Thank you Kevin.
It's a pleasure to speak to you all today and shed more about know at upcoming events.
I started my career as an engineer at Microsoft.
Road by more traditional brand marketing goes at P&G unnecessarily so.
So my team and I are being methodical and disciplined about how we are building our strategies and plans.
Our work on established marketing science concepts, and then adding to that you've been at scale.
Our vision is that this is a brand that should be better than is the household with someone over 35 and even younger in many cases.
Delivering on this vision requires a straightforward message that makes the concept of aging and central Hudson depended more concrete.
With mass media presence, including National TV.
In early 2022, you can expect to see us scale, our marketing plans, including the use of television, which you have started this quarter using spot shot with one of our true believers Shannon Sharpe.
While our failure.
Our TV presence this quarter is meant to desktop messaging and shape. Our plans for next year that may include different types of creative targeting different consumer needs.
We are also accelerating working with other they list celebrities who can give us the nationals each from NIH and deserve.
Okay.
We have a list of criteria meant to ensure that whoever you will be presenting 219 as authentic believes in our products and fits our brand image.
I'll briefly touch on how this relates to our plans for Walmart.
As this is our first <unk> launch in the U S. Our top priority has been to test and learn what designates the retail consumer versus our current e-commerce consumer.
Our debt to date have included micro Influencers and point of sale efforts.
That has been to primarily learnings from the early launch results coupled with very value with your guidance. When you see from the team we interact with deaths worldwide.
First education, a SKU and it comes through brand like ours that has an extensive amount of research to make its benefits and you have limited data safe to do so on churn thats. All in line. So we are actively exploring ways to enhance our in store education.
Second given the unprecedented youll be African footprint of one line, we must do with marketing channels is widely such as national television ads.
As I said this is our top priority as we enter 2022, and we believe that there's an extra day growth in our Walmart business and accelerating our e-commerce business when they begin to scale.
Also as you know the consumer education and experience the dollar's been extends well beyond the Walmart. So we are working to enhance consumer experience across all channels from sharing the latest scientific research to increasing our product offering.
I am excited to be part of such a great plan and look forward to sharing more with you in the future now have invested backdrop.
Thank you, Bobby and Frank and Kevin.
Okay, let's turn it over to questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone.
Keypad.
And your first question comes from Brian <unk> from.
Jeffrey Cohen from Ladenburg. Please go ahead.
Legal expenses Big picture for next year will be going down by <unk>.
60, 70, 80%, so how does that tie into the.
Sales and marketing expense going for 40 as far as the overall plan and with with television included in the plan.
So are you asking with a financial question, Yeah, I guess, the I mean, the the Jna will be decreasing by.
Low double digits millions from legal next year. So do we expect that the sales and marketing will will further increase more dramatically than what we had currently expected or type.
How does one name.
<unk> of course with regard to the E Commerce business, we paid very careful real time attention to the return on media spent.
But we will be increasing our overall marketing investment, especially in conjunction with Walmart.
So you can anticipate a high a larger investment an overall sales and marketing.
Yeah, I think if you look at just legal expense. This year year to date is about 15 million and when I went over.
In my prepared remarks have indicated look the baseline for things like headcount as well as Patons and general corporate expenses is about 4 million run rate for the year.
And as we look at the at the fourth quarter. You know I think we do have a court case scheduled is not scheduled but the judges, indicating may happen in November December that could be about a million dollars and we've got that as I mentioned earlier in addition to that $4 million for the full year there's three.
[noise] litigation matters outstanding which is the thorny IPR the.
Delaware.
Appeal as well as a potential New York case in those three would be less each less than $1 million as I mentioned I'm not prepared remarks. So there should be a significant decrease in legal spending for 2022 based on that that information.
And again, I think we're going to that pivot over to marketing and invest in more marketing, we're going to do it in a very disciplined and measured way and as I think about it we're going to be doing a lot of testing to make sure. It works and we're likely to start off by crawling and then walking and then jogging and when we know it's real.
Really work and we got the right message then we will start to run.
[noise] Okay. Thanks, Kevin that's helpful. And then one more if I may could you give us any further color or flavor as far as the the additional formulation and it sounds like you're working on is that gonna be.
Tablets liquid powder sachet any idea is there anything you Wanna say further than a new formulation we.
We do anticipate that in 2022, we will release another capsule product of a formulation that includes nitrogen.
Okay. That's all for Rob that does it for us. Thank you very much.
Sure. Thanks, Jeff.
Yeah next question comes from Brian Michael from all can I. Please go ahead.
Hi, good afternoon, everyone.
Hi, Brian Okay. So I've got a couple of questions.
Alright first off.
One question of the science and one question are marketed separate that but.
Just Rochester closer to <unk> you talk you opened here. The comets issued you just talking about all the scientific work that you and your team have done and which has been impressive.
The question I have here now it, particularly as you embark upon this this next stage so to save the development of Crumpet accident and <unk> are there is there a missing piece or something.
With regard to the science behind behind scrutinizing that still needs to be done or.
Basically complete at this point.
That's a good question, it's never complete because we are always amazed by this molecule.
Remember there are 40 clinical studies in process right now and we have 240 collaborative agreements in place. So there's a great deal of research going on presently.
Some of which we've had some early exposure to some we have not yet, but our expectation is that we will continue to see good news about how nicotinamide drive aside improves health.
So I would not say that it's complete.
There there may be alternative ways for us too.
Take advantage of that research.
Yeah.
Not just in new claims formulations.
But also on new products.
We've got to ask we have enough today to.
To get to where we want to get too.
[laughter].
So it's helpful very helpful.
Second of course, you every market I guess potty welcome by the way.
Welcome to company. Thank you. Thank you so much as I guess this is a question for you and then.
Kevin <unk>, probably related to Kevin as well, but okay. So you also have know someone's having followed your company for awhile use your product for awhile I guess for.
With regard to the marketing plan with and you don't recognize and it's still quite early and talk.
Talk about your Kevin's comment the prior question, but kind of quality.
Kind of step slowly getting towards market, but of course I have is how is as we look over the next few several quarters how much different from your vantage point well. This this new marketing campaign b compared to what we've seen previously and then Kevin.
It got to the fault of the prior question, but you know it gets more financial stamps already recognizing that some of the financial obligations of financial weight on the copier now be lifted as you move past with litigation I mean, how much how much investment will will you be willing to throw at it at this new marketing campaign.
Yeah. So let me start by answering the first part of the question.
So as you know when you have pneumonic you wouldn't like this one usually in the first few years you guys usually the early adopters people, who don't need the education that would go seeking the education. They would go seeking the research.
And then they will people like me I mean me and my entire family has been using to split up for a long time and that's how I ended up.
I reached out to Rob and then I wasn't looking for a job blend I didn't know they were recruiting and then one thing that my mother, So people like me.
Probably the ones that in the first few years I going to come to you, but after that then you know to to skiing.
Given how wide the wide ranging effects of this product or this.
Often I adjourn.
We must do the work of education. This is a new category for for consumers and we have so much science behind that.
[noise] effect on the <unk> Ah so is aging that our marketing.
Our job is in marketing team is 280 educate the consumers about how about the effect. So I think the difference between the previous stays in this thesis that the previous phase was.
It's amazing like has been done to make the product available to have like you know a <unk> E Commerce machine and now, but the next phases about going to a much larger audience cause as I said previously in my when I you know in my in the same <unk> I made what I was eating earlier.
No I truly believe and we truly believe that this store that needs to be in every household with anyone above the age of 30 or 35, and many case, even younger people. So to do that to take Liars extensive education at scheme and that's what me and my team have been testing methodically they.
Day after day using like very very novel quick research tools to ensure that the message we're going to have as a message that will resonate that scale and that's when the bring to life, the amazing and life changing benefits of the molecule behalf.
Got it.
It's helpful. Thank you.
And your next question comes submit child Tenera, that's from Star does it. Please go ahead.
[noise] hi, yeah good afternoon.
Question for you I, just staying uhm.
Alright on Brian's question.
So sorry, you said that you need to make like you know the benefits around you know your D V D E G message to be more concrete.
<unk>.
Does that.
Does that mean.
I mean, you know you can't make specific you know health claims about diseases, but.
You know.
Is is there more you can do.
That you haven't been doing.
In terms of your messaging around specific and concrete benefits a lot of the two nights you know aging is in in some way you know this is a you know prophylactic uhm as much as anything and it's hard to you know.
Some people you know you don't really know what the benefits are you may not feel then you may see them and blood work or other things, but you get <unk> to get a concrete message seems to be the key to Unblocking you.
You know some some faster growth and I was wondering if you could talk about that.
Yeah, Great question that the answer is absolutely okay. So if.
If you for example, and take a look one of the ways with testing messaging. Some of the best thing. We do is life does think someone we used to it. So one of the nice desk. We're doing is the Shannon Sharpe copy you know the famous <unk>.
You know football.
Hold of Famer and we have a copy like now on T. V. Some of you might have seen it and then if you see that coffee there are other intonations that guy is going to come up.
We thought he speaks about.
How it's he speaks about sending their energy and then he says it's like be smart for your sense. So one of the most important hallmarks of aging according to our research.
His energy so as we age is good you know I'm on the age of 30 35 40 years old one of the things. We feel is you know.
We have we don't have the same level of energy during the day and I think if we go ahead and talk to our subscribers. That's the first thing or the most frequent thing that they report among other things of course, which is.
I'm not having that same feeling in the afternoon that I need to take a nap I have more energy to be with my family to click with my grandkids and so on and so forth so at energy or Senator energy.
Feeling more energetic basically is is something that we we have heard you know consumers reporting now we're working in 30, Yeah. That's actually the question you as you want us to like I stood up woodworking to substantiate it more through through science. So we can make some good claims around it.
Then that added benefits. It out you know as Rob also mentioned in his within the microphone in the yard which is you know Hawk has.
<unk> has liver. So all of these are the link to signs of aging. So what we're trying to figure out is how can we through the funding because you know you have the top of the fun of you go on television and you cannot talk about all of this but.
When you go on T V or more of the top of the fun and you think up off the phone and <unk> you talk about the agenda as message about once once consumers start engaging with you online how can we understand why they came to us and make the message more personalized to how they are experiencing aging. So this is the kind of like we're doing now.
So that this makes sense.
It does it does it <unk> I I I I have to sort of C. C. V final you know work to see what the differences are that screen, yeah, what you've been doing and what you plan to do.
Yeah, I guess I'm gonna have to answer your.
Question.
Okay Alright.
The second part was how do we make people feel it one of the so as you said this is not something you feel immediately this is the feeling you know the the what you feel is very subtle and sometimes it takes a few weeks. So what we do and this is a few buying our product at Walmart.
What we've been engaging more and more whether it's to packaging inserts communication three men to tell our subscribers what to expect so what's happening in the first week that you were taking nitrogen what's happening inside your body, what's happening in the fourth week, what's happening in the first months what do you expect after six months, let's see any happening in terms of.
What does N a D lead to one of our most successful Blockboard Stefan was nine benefits of any D, where you could see that consumers are really interested to know what's happening inside their bodies.
And then we talk about sending their health center that would be bad and so on and so forth. So so we are engaging one of the most important things. We're working on is how to engage with consumers and education.
Heavily brand out there every brand manager C. M O in the world wants to engage more with consumers, but it's Ah consumers have very little time and will allow only the brands that are the most consequential on their lives. So engaged with them. We believe we are.
Actually one of the most consequential bands that they consume it can be can be using because again from my personal experience.
<unk> stops working you leave it behind your phone stops working you buy another one but when your body stops working you have on the one that you cannot change it so being able to get for your body.
It's it's very consequential of <unk> on one's life and then this is how this is why we when we communicate with all consumers, we see them really opening that hands and hearts to listen to what we have to say.
Cause they know that's what we think is very important to them. It has an impact on their health that happiness. You know that you know how long they would live on how you know ultimately has been linked to happiness. So.
This is why you know we're taking advantage of this ability to connect with consumers to explain to them how these.
Southern changes as we go what to expect first on you know from the first week. After the first year and then get them to understand more of the value of heartburn.
[noise], Okay, well I look forward to seeing what happens there I have two more questions.
May I ask you. This every every quarter, but can you give us some color around the commerce growth.
Breakdown, how new customer versus returning customer looked.
Yes, I can.
The overall gross look steady and consistent Mitch as it always does the reason remembers second quarter was there was a big growth from the first quarter a lot of this has to do with the number of days in the quarter, but also these special events.
And there was an Amazon Prime event for three days in June where the numbers were significantly high.
And so did you actually remove if you normalized it it was just another steady growth quarter for us on new customers as well as retain retained customers, but if you put that day back in it was a slight decrease in new customer acquisition.
But we've been where you are steady we are consistent we have noticed.
Sort of in conjunction with the Apple changes.
That there's a slight increase in social media marketing costs. So we're seeing a bit of a bumped in customer acquisition costs, an e-commerce of late.
We're monitoring this on a day to day basis, but the quarter was steady and consistent with previous quarters.
There's one other thing is that we didn't have an answer an opportunity to answer Brian's question.
Spend so uhm Mitch do you mind, if I quickly ask Kevin to address that and then we'll come back to see if you have an additional question.
Sure I have one more question.
Okay, alright, okay, Thanks, Mitch and like with regard to Brian's question. He asked how are we how are we going to manage it and scale. It so.
So obviously with 18 years of experience at Mattel, we'd spent a lotta time looking at advertising and being disciplined about that and.
And will continue to do that here I think as I mentioned before we know you know how to scale investment and we know we need to invest at a level that sufficient to ensure success overtime and we know at looking at metrics like frequency and reaches important and we also know that as <unk>.
Scale that is going to as we mentioned earlier.
<unk> the growth rate on both R e-commerce business as well as on Walmart and the good news about R. E Commerce business. It has 70% margin so future funding it can be done with the.
The proceeds from increasing in our business and we'll be working to scale it and as I said as it as we become successful and more confident or confident in the fact that we got the right message will continue to scale it over time and achieve the metrics overtime that will make this as successful marketing pro.
Graham.
Submit she'd got another question Okay. Okay Yep last question on sign up for them.
Could you just.
So sign of farms going to have a.
Start selling.
I guess cross border in the.
In the first half the 22 can you remind me when that you think that would start.
And.
Is that something where you are a supplier or will sign of harm be doing any you know core mutilation and and then.
Manufacturing.
So as you know, we presently operate across border business ourselves.
Ah Tmall Koala, J D dot com and we chat.
So they will be taking over those.
Those platforms.
But they're doing a very heavy detailed analysis about pricing about messaging and about formulations. So we expect that it'll be within six months I don't know for sure but at a certain point in time, probably within that timeframe, they're gonna take over the management of those platforms and in conjunction with that there is likely to be.
<unk>, a new formulation product in addition to the existing to Nigel product and there is likely to be a campaign in connection with that into China.
Alright, well. Thank you very much I appreciate that thank.
Thank you judge.
Yeah next question comes from Ram suffer Ryan some H T plan right. Please go ahead.
[noise]. Thanks, so much for taking my questions first.
Firstly I wanted to drill down a little bit on the final farm relationship and specifically App, what you expect to be the process B O, which you anticipate in the Chinese market, specifically it might be possible to position.
True nitrogen as sort of the soul.
Real nicotinamide riboside product and effectively get rid of you know the saturation currently with respect to N. M. N based products that are being you know sold by other purveyors and to what extent you expect final farm to potentially be <unk>.
Mental and sort of cleaning up that picture.
Thank you for that question.
As you know Rahm Mmm is quite popular in China.
We don't know exactly how much we think it's in excess of $100 million, we could be off by a factor of two or three we could be overestimating, but that's a rough estimate.
And it's only been on the market a year, maybe a year and a half so there's a great perilla proliferation of N M N and there are a great deal number of companies that are selling NMM in China, All cross border.
But fairly recently the Chinese government has cracked down on and a man because it does not have regulatory approval, but worse than that they're making claims many of which are actual NR claims like who's taking it and what it does.
But as many of you listening no.
N R has significantly superior to N M N.
The main scientific spokesperson for N M N as a researcher at Harvard who himself has published a study showing.
That and and then converts to NR in the bloodstream in order to be taken up into the cells.
Indeed to make and I'm in your first step to make NR.
So really all N M N is very inefficient and very expensive NR and it doesn't have we're not sure about the level of safety Sino knows this.
This was a big reason why Sino gotten business with chromatics. They are aware of the fact that M N as popular and they're aware of the fact that N N artists superior. So this is the opportunity that drove them to do the deal.
So we are excited to work with them to capture a market that's already been established and then grow well beyond.
As you know, it's estimated that there'll be maybe four or 500 million people over the age of 60 in China in the coming years.
Aging and aging health is a very high priority and in with the Chinese government. So we see this as a significant opportunity.
And and so does sign up.
That's very helpful and I was wondering if you could also clarify kind of the demarcation between what you expect final harm to be prioritizing doing with their collaboration with you folks, particularly on the product development five and what you expect it to come out.
[noise] of the net play Health Sciences relationship in other words, we all know that final farm is a pretty diversified organization and that it's not solely focused on pharmaceuticals, but obviously pharmaceuticals is a big part of their business. So I wanted to better understand to what extent the final farm relationship is gonna be more in the.
Rumor products Arena versus you know for example, the medical nutrition Arena and whether that's gonna be solely the purview of naturally health sciences, or whether you expect final farm to be doing some of that type of product development work with you guys as well.
That's another very good question Ron Thank you.
So China was carved out of the necessarily deal. So in the in the case of medical foods.
Nestle does not have those rights.
They of course have expressed interest in operating in China, but that was excluded from the deal.
Secondly, you know that nicotinamide riboside as well as N. A R N N O R H and NR tea half.
Significant potential beyond just the dietary supplement market.
And both nationally and Sino do operate in the form of arena as do other companies, who are keenly aware of the potential benefits of these molecules. So it is possible down the road in the future that there will be discussions about.
Developing some sort of either a medical food or a drug based product with one or both of those companies or other companies for that matter. We have spent a lot of time with the Sino scientists and we expect to spend more time with the Sino scientists. We've spent much time with the necessarily scientists. So all of these things are possibility.
Is there not imminent, they're not short term possibilities, but they are certainly longterm possibilities.
Great and then just one more for me I was wondering if you could provide an update on the situation in Turkey, and whether we should expect any near term additional news further studies looking at the potential of nicotinamide riboside specifically in the car.
Text of treating COVID-19 infection, I mean, certainly not you know with respect to you know, making actual medical pharmaceutical claims, but you know I know that you know historically there has been some work published on the combination of Nicotinamide Riboside you know with for example.
Like <unk> and I was just wondering if you had any additional updates there you know if you anticipate any further clinical exploratory work being done in Turkey for the Turkish market.
[noise] well before I, even answer let me ask Frank Jax would you like to address that.
Yeah, I can I can take that the as you probably saw Romney did they it was probably the the the earlier.
[noise] met archive version had been recently published.
And that was one that was one piece of it but you know we're still waiting <unk>.
Right now in terms of the process almost going on in in Turkey. We we don't have any further updates on that in terms of where it's at but it's it's it's underway.
There there are no and there are no plans for additional clinical studies I think it's really more of a regulatory waiting game at this point.
[noise]. Thank you.
Okay.
Thank you Rob.
He gave me Tonight to ask a question first how long on your telephone keypad.
And your next question comes from Cancer Center in Cindy Ratty. Please go ahead.
Hi, everyone just wanted to follow up a little bit more on on marketing any color you can I realize it's early by the way, but any color you can give us on what's working best or and any metrics you might want to share in terms of how T. V AD spend in terms of the testing you're doing when you run it.
It.
Is driving sales or any of the other things you're testing and that sort of curious, especially relevant to Walmart if you're seeing any response or Walmart shelves around that.
Did you want to take that.
Yeah sure so.
Yes, we.
Basically mentioned during the we used two types of testing one is life like having to Shannon Sharpe coffee on T. V. And then you know of course looking into.
Weekend, and maybe you can look at how this is impacting anything from Google searches up two acquisition.
And then we have offline testing was way within you know we have to lose weight, maybe we can within a day.
Text messaging with thousands of people in that and then it right and best again, so sofa on the life. So let me start with a lot of <unk> on the offline testing, we've been really haunting one that I've messages, we order, let me see what messages and have to make more with people because we have so much to.
C right.
We had backed by 175 research studies that I've mentioned earlier with almost at 250, such collaboration we have nobody price windows behind the bed, we have more than 25, five and so and then we that's on the in terms of like the backing of the Science then we we have all the benefits. So this is what I'm trying to figure out how to.
Fitness and a message that take 15 to 30 seconds on the shot and shot coffee, yes, we we've been dead. We're starting to see results. It's too early to comment, but we're starting to see D salt and.
And then this is what Kevin and drops will come up with anything yet which is now we can learn from this and start the scale basically so.
Now to summarize this I would say in the category that has so much noise. So many competitors, making really unsubstantiated thing when we speak about the science, we can see that it says anything and it says anything <unk>.
And I'd add that we are tracking the T V ads in real time.
So we can increase or decrease the investment in television media based on those results.
Yeah.
But I'll be going Okay, do you like glass it or [noise].
Yeah, Yes. Please please.
What would you like to take that one of my question or.
No go ahead sorry.
Okay. So for Walmart.
Rob mentioned earlier, we just had the lines of you with them you know we're dealing with you know they are very passionate about the category. They they really understand the need for education. So as we mentioned earlier.
We know that d'aviation cannot only happened on shelves there'll besides what we're doing in terms of Heartlands of masking marketing, which you know using T V and other methods. We I'd also we discussed with the one my team the need for connecting with the consumer beyond the shelf. So we have one month and of course.
Forget you have one myself.
They've been incredibly helpful. We're talking to some of the smartest buyers in the world. So they have a lot of experience and they have been helping US three the you know figured out how to how to Jive awareness for the Walmart shopper at all nitrogen and the benefits of imagine.
[noise] okay.
And then.
Maybe we can shift to I just wanted to follow up on the on the this idea of sort of inflationary raw ingredient prices.
What you are seeing around that or maybe <unk> W. A crazy seeing and I guess what level of gross margin impact my you anticipate from inflationary ingredient inputs raw material inputs and also since labour and shipping or components. Maybe you can also touch on any anticipated impact.
On the P&L.
Around kind of labor shipping those sort of things going forward.
Yeah with regard to 2021, I don't see a major impact on.
Margins, so I think getting to the slightly higher than the 60%.
Is achievable I think if you look at our year to date gross margins through September it's about 61.9% for.
For next year, we're focusing on trying to maintain our margins it slightly better 60%, there's a lot of moving pieces.
We are looking at continuous supply chain cost savings initiatives we.
We see overall scale on our business, helping us favorable mix and ultimately.
If costs are going up will look at pricing is silly.
Something to maintain our margins, but again I think that there is a pretty dynamic environment and I think all the things that you talked about are in play and we will give you more detail on our plans for 20.
22.
When we provide our outlook on the next on the next earnings call, but again I think we're at we're gonna be looking for things to offset all of those things and it doesn't it won't have an impact on our margins that we expected cheap in 2021 cents.
The products already made at the end of September.
Okay, Great and then just kind of a follow up on Walmart. When you did your mind meeting with them today indicate or are I guess do you perceive that day.
Would like to have more products from you in other words sort of I guess the line building idea.
Rather than.
<unk> more skews are better for them to kind of have a real brand presence or just any comments around that.
I don't think we have much to comment about that Walmart is seems very happy with the product and with Chromatics. We're excited about the future of the relationship but we don't know if that means there'll be further line extensions at this point or not yeah, I do think that the line review, though that we presented the 2020.
Two product to them and that they were interested in carrying that.
Okay. Good to hear thanks for taking my questions and best of luck.
And if you have time for one more question.
Hemmingsen Bell, that's all I have some tightened capsule. Please go ahead.
Oh, Thank you I'd actually like to ask two science questions. If I may the.
A T a.
That you described in the press release adhere today, how does that compare to cockaigne syndrome that you all have have interacted with in the past.
Hey, Bill is Frank.
It it's a similar a genetic abnormality, it's a different genetic defect basically that leads to similar sorts of problems. So there is an accelerated aging type of component to a T.
And it does affect the the.
Sort of under 18, if you will population, but it's not it's not as severe as cockaigne cocaine is way more severe than.
Then a T is.
But there's no truth, but there still is no treatment for for a T.
[noise] great. Thank you Franken, and then specific to the Alzheimers a study that you referenced.
Was that done on a prophylactic basis or was it truly in the middle of memory loss and it reversed the the effects of of Alzheimers.
[noise] I'd say, it's more of the ladder [laughter], it's it's more of something I wouldn't say it was.
Eight all timers, and and prophylactic is kind of tough you usually trying to find out.
Whether it's mild cognitive impairment or or alzheimers or any of them are trying to find out whether treatment can be restored I've been some way to improve or either improve or or lessen the decline changed.
Change the curb there on that.
And and you actually with the the mouse study were able to reverse.
Reverse the decline and we're at least if I understood the comments correctly and if that is correct.
Was that temporary and then you know it should it bent the curve or was there more of a a longer lasting benefit.
[noise] I'm I don't I don't think it went out far enough to so that we would have seen whether or not it continue if it continued to or how far it would have continued.
I think the main thing was really to show if they could chose the the main intent was really to show whether there were some signs of reversal.
Great. Thank you and then one additional question relative.
Relative to sign O farm and the studies like this one does that are that are on on mice rather than humans.
That's something that in China that they can use and and would be well received so I guess, they're kind of almost two questions embedded number one from a regulatory standpoint, and the second would be from the consumers have you.
Right, well and and you're you're actually you're onto something there the the Chinese government has [noise].
Sort of and all the regulatory bodies around the world have sort of different.
Ways of regulating claims and China, they're actually have a a limited list of approved claims and some of the claims are actually.
You can support with just animal studies, not not even having human data.
So they do have mechanisms that allow claims just based on doing studies. Following the approved study formats that they have so you basically have to do the studies in accordance with the way the th one who you'd want they would want you to do them in a few <unk>. If you did that then you'd be able to make a claim.
Great. Thank you for all the perspective.
And there are no further questions at this time I will tend to call back over to Brianna for closing remarks.
Thank you Julie there'll be a replay of desktop beginning at 430 P M Pacific time today.
My number is one 800 700 kids 030 in the conference I D is 4126168. Thank you everyone for joining us today and for your continued support from it.
This concludes today's conference call you may now disconnect.
[music].