Q4 2021 Chromadex Corp Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to <unk> Corporation's fourth quarter 2021 earnings conference call.
My name is Josh and I will be the conference operator today.
At this time all participants are in a listen only mode. As a reminder, this conference call is being recorded.
This afternoon Chrome IDEXX issued a news release announcing the company's financial results for the fourth quarter of 2021 .
If you have not reviewed this information both are available within the Investor Relations section of Chrome IDEXX with web site at Www Dot Chrome IDEXX dotcom dotcom.
I'd now like to turn the conference call over to Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead Ms Gerber.
Thank you good afternoon, and welcome to Crown, but ex Corporation fourth quarter 2021 results Investor call with US today are crummy Ducks as Chief Executive Officer, Rob fried.
Chief Financial Officer, Kevin Farr, and senior Vice President of scientific and regulatory up their Doctor Andrew Shao.
Today's conference call May include forward looking statements, including statements related to crummett acts as 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 three nine Gen and 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 operation forward looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance 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 crummett exits 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 statement.
Actual results or to changes in its expectations.
Additionally, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which was 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 Crummett ask 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 fourth quarter 2021 investor call.
2021, crummett execute several important strategic milestones.
We launched two 930 800, Walmart stores, our first mass retail launch in the United States.
We also partnered with final form Zhejiang subsidiaries, one of China's largest pharmaceutical companies.
Great.
Cross border business.
To collaborate.
Health food registration in China.
We signed agreements with new strategic partners, HMH group and ROE to.
To help build the <unk> ingredient business with their unique customer base.
And we announced the results of the study on NR supplementation in children with ataxia and orphan disease characterized by premature aging.
We believe this is further evidence of <unk> potential impact on age related health declines.
This strategic momentum has continued in early 2022.
Comment that's external research program or serp.
It's 100 published peer reviewed study on nitrogen and other ingredients.
This milestone was followed by a first of its kind of steady on Parkinson's disease patients.
It was another data point supporting <unk> <unk> positive impact on neuro degenerative diseases.
Phase two study is currently underway, which will explore these findings in a larger patient populations.
And finally, we were granted an important new U S continuation patents that significantly reinforces <unk> intellectual property portfolio.
We now have over 40 patents on NR and other NAD precursors.
This particular patent protection of the manufacturing process of NR in its various forms through 2030.
Well many of these achievements position the company for growth in 2022 and beyond we also delivered solid financial performance in 2021.
Full year net sales were $67 4 million, a 14% increase year over year <unk> net sales were $56 7 million, a 20% increase year over year.
And our gross margins were 61, 5% 200 basis point increase versus last year.
Had a very challenging global supply chain environment.
As I said last quarter I believe we're at an inflection point for this company with litigation largely behind us.
We are already devoting more resources resources, both human and financial to building, our <unk> brand and developing our science and furthering our relationships with global partners in the fourth quarter of 2021 total legal expense declined significantly to $1 6 million, which allowed for reinvestment in brand building as well as improvements in profitability.
<unk> on a reported basis.
Total operating loss was $5 3 million in the fourth quarter of 2021 compared to $8 8 million in the third quarter.
In the fourth quarter, we tested TV advertising with our existing Shannon Sharpe spot to help shape, our plans for 2022 and I'm excited to announce one of our new television commercials begins airing nationally in March.
While the Shannon Sharpe AD was targeted at a primarily male and fitness oriented audience. Our new commercial is intended to educate a broader group.
Potential consumers about the benefits of taking to Nigel who will share more as we scale. This campaign and others to support our e-commerce business as well as improve brand awareness at Walmart.
As I said, the recent scientific developments on that agenda and significant continue to validate the tremendous market opportunity for this ingredients.
This typically several studies have shown the tissues and complex, Oregon, such as the heart and brain are heavily dependent on that.
Not a coincidence that these metabolic with demanding tissues of the ones. We're most concerned about as we age.
Now have 20 completed and published clinical trials involving <unk> and more than 40 additional studies underway.
Our focus going forward is to translate this extensive and growing body of science into compelling marketing messages, including AG parcel muscle health cellular health.
And others.
We are beginning to test specific messages and our marketing materials with encouraging results. For example, we designed an email and social media campaign, highlighting the scientific research behind Denmark Heart Health in February .
To align with American Heartland and <unk>.
We're launching a nutrient nitrogen product this year to broaden our customer base by targeting another important benefit area.
I'm excited to share more once it's in the market.
And finally I'd like to highlight our newest strategic partner designs for health and give a brief update on final form.
Designed for health sales premium dietary supplements to its extensive health care practitioner network in the U S.
It will offer specifically formulated products with knives and exclusively to these hcp's garner that can design for health share a similar philosophy. Both companies are rooted in science and research driven evidence based products.
The health care practitioner channel is strategic for chromebooks to build awareness of nitrogen.
These practitioners played a pivotal role in educating consumers on the importance of NAD.
Providing science backed health solutions designs for house will complement our internal sales team and help us leverage the tremendous body of preclinical and clinical research on this amazing ingredient.
Last quarter I discussed the tremendous opportunity in China, with our new partner sign offs.
We've been very impressed with their deep knowledge of the local market.
Sure detailed marketing plan for <unk> as well as insight into the large and growing in an end market in China.
Less sufficient NAD precursor with much less science nitrogen.
We're finalizing the commercial plans and the supply agreement with final form for initial cross border sales as well as our approach to pursuing blue had approval in parallel.
All of our new partnerships are in various stages of product development, but we expect them to contribute to increased sales in 2022 and.
In addition for established relationships like nationally we are in discussions about how to make the partnerships more impactful over time.
As I reflect on this quarter and on 2021 in general I'm incredibly proud of our entire team's execution and more confident than ever about the market opportunity for Tonight.
I'd like to thank our loyal shareholders partners employees and customers as we enter this next phase of growth.
And now I'll pass the call to Andrew <unk>, Our senior Vice President of scientific and regulatory affairs to share more about the strategic importance of our industry, leading circle program as.
As well as the growing body of exciting research a night.
Andrew.
Thank you Rob.
Pleasure to speak to you all today.
I joined <unk> about two and a half years ago and served as the senior Vice President of global scientific and regulatory affairs during.
During my time here I've been incredibly impressed by the company's deep commitment to the science behind NR and other NAD precursors as we build a trusted consumer brand Tonight.
Prior to Chromatics I spent nearly two decades in the global nutrition industry.
<unk> similar functions for organizations such as the council for responsible nutrition.
Herbalife nutrition.
Rob asked me to join todays earnings call to provide some perspective on the chromatics external research program or syrup.
Which was started by our co founder and executive Chairman Frank Jacks in 2013 and is now led by Doctor, Yes, I mean, Nick room of Ellie.
Thanks, two Frank station Chromite acts as a pioneer in the industry and you guys mean has brought great focus and passion to accelerate surface mission.
To date syrup has accumulated more than 245 collaborative agreements with over 170 institutions in 33 countries.
Representing over $85 million in estimated total total research values.
Over 90% of studies are investigator initiated and third party funded.
Our innovative approach results in greater trust in research that skepticism of industry funded research has been a challenge in the dietary supplement industry.
It's an exciting time for <unk>, which recently celebrated its 100th peer reviewed publication on nitrogen and other ingredients to.
To date the program has produced more than 45% of all peer reviewed publications and 70% of the peer reviewed clinical publications involving NR and this is a remarkable milestone for an ingredient like ours.
Most of the research going through syrup.
Advancing the science of NAD and.
And in our well beyond the scope of the dietary supplement industry.
We're honored to provide the highest quality materials for health science forward and build academia industry relationships.
Of course, the milestones that serve has achieved would not have been possible without all of the surf investigators their respective institutions and funding partners. We are grateful for their contributions and look forward to many more future research opportunities.
I'll briefly highlight two exciting clinical and our studies that were published since our last update.
January Ah study that investigated the anti inflammatory effects of NR in mono sites.
Of white blood cell extracted from two groups young healthy subjects and patients diagnosed with systemic lupus you risked metathesis.
Published in the journal of clinical investigation.
This team led by Dr. Michael Sac demonstrated the increasing any day levels through NR supplementation rich.
Reduced type one interferon signaling which plays an important role in the human immune response.
Yeah.
The results from this pilot study are promising however, more research is needed to understand the implications of NR supplementation.
For patients with autoimmune disorders like lupus.
We look forward to supporting the next phases of this important research through Sir.
And just last week.
One study showed NR supplementation significantly increased cerebral any day levels improved some measures of motor function and decreased inflammatory cytokines.
In Parkinson's disease or PD patients.
Abnormal energy metabolism due to mitochondrial dysfunction.
Has been linked to PD, which affects more than 10 million people worldwide and is believed to play a role in the initiation and progression of the disease.
This study assessed NR as a potential therapeutic strategy for targeting mitochondrial function.
Energy metabolism in PD patients.
This study builds upon previous preclinical studies exploring the positive impact of NR on neuro degenerative diseases.
It is an encouraging step forward for Parkinson's research.
We look forward to further research aimed at understanding the role of NR supplementation in Parkinson's patients.
Second study is already underway by the same group of researchers.
We've learned a great deal about NR and NAD since <unk> began in 2013.
Importantly, the growing body of evidence suggests with great consistency.
Okay metabolically active tissues are heavily dependent since they require a lot of energy to function normally.
Particularly when exposed to stress.
This includes the brain muscle heart liver and skin among others.
Their function tends to be compromised with age as well as with disruption of the NAV system, which highlights the importance of maintaining NAD levels.
In 2021, we saw a shift in the number of surf agreements from predominantly preclinical to predominantly clinical.
There is great scientific interest and NR and we anticipate learning more about the role of NR and NAD.
In human health over the next few years.
We look forward to translating the growing body of research into new claims for nitrogen so that more consumers can understand the benefits of this amazing ingredient.
With that I will pass the call onto our Chief Financial Officer, Kevin Farr.
Kevin.
Thank you Andrew <unk> delivered on or exceeded our latest full year 2021 financial outlook to investors across all metrics for the year. We delivered total net sales of $67 4 million, a 14% year over year increase with strong growth in <unk> of 20%.
Including 21% growth in e-commerce .
Gross margins of 61, 5% up approximately 200 basis points year over year as scale product mix and cost savings initiatives more than offset inflationary pressures across global supply chains.
Roughly flat R&D expense as a percentage of net sales as we funded investments in new <unk> precursor development.
Higher selling and marketing expense as a percentage of net sales as we invested in brand building activities and a slight decrease in general and administrative expense versus our outlook of a slight increase as we tightly manage cost.
The underlying business as measured by adjusted EBITDA, excluding legal expense, our non-GAAP metric posted a full year loss of $2 5 million compared to a loss of $1 million in full year 2020.
The increased loss year over year was primarily driven by increased brand investments in marketing to position us for 2022 and beyond.
This has been the key metrics for the organization. However.
However, with the significant litigation expense behind us, we'll be focusing on adjusted EBITDA, including legal expense going forward as a proxy for cash use before working capital investments.
We have provided a reconciliation to the appropriate GAAP measures in our earnings release slides.
Turning to the highlights from the fourth quarter of 2021, <unk> delivered a solid quarter with total net sales of $17 8 million up 15% year over year and a gross margin of 61, 2%.
The underlying business as measured by adjusted EBITDA, excluding legal expense, a non-GAAP measure posted a loss of $1 8 million in the fourth quarter.
As I said on our last earnings call with the significant litigation behind US we are prioritizing investments in new brand campaigns to drive overall growth and brand awareness at Walmart.
As Rob said, our new true Nigel and commercial will be soon be airing on national TV.
Given the current macroeconomic environment, we expect to scale. This new brand campaign in a pragmatic fashion in 2022, we'll be looking at leading indicators of success and adjust spending accordingly.
I'll begin by reviewing the sequential P&L results and then we'll discuss the year over year trends for the three months ended December 31, 2021, Goldman extra reported net sales of $17 8 million up 3% compared to the $17 3 million in the third quarter of 2021.
<unk> net sales were down 5% sequentially.
Sales to <unk> were impacted by COVID-19 restrictions in Australia that delayed the rollout into more than 2000 pharmacies.
Australia and more recently, New Zealand continue to face significant COVID-19 headwinds, we expect <unk> sales to Monica to resume once restrictions are lifted.
As expected Watson sales were $2 $2 million this quarter compared to $2 6 million in the third quarter, which included the final catch up in shipments from the first quarter supply chain disruptions.
Well, we have seen some signs of improvement in sell through as the Hong Kong economy recovers from the impact of COVID-19.
<unk> has not been steady.
Watson store traffic is still down year over year sales from Chinese tourism and local resident traffic have yet to return to pre COVID-19 levels.
We believe this is due to local COVID-19 movement restrictions and social distancing measures and travel restrictions.
And most recently the the Koran variant is having a significant impact on Hong Kong residents, which may remain a headwind in 2022.
In the fourth quarter, we partnered with Watson as our marketing campaigns and staff incentive programs to drive higher sell through we're evaluating similar programs to support sell through in 2022, well they manage through these COVID-19 related headwinds.
For Watson sales to continue to grow we need to sell through to return to pre COVID-19 levels.
Our E Commerce business was up 6% sequentially as we've said the fourth quarter is seasonally strong driven by promotions in the U S and China with singles Day on 11, 11, and 12 12, we continue to see steady growth in the underlying business.
<unk> ingredients sales were up 53% versus the prior quarter driven by sales of the life extension and a shipment to <unk> age group well our expectation is that <unk> will not launch in the first quarter of 2022 as previously communicated our R&D team continues to work closely with HMH on the new product.
<unk>.
<unk> remains excited about the potential of Nigel there.
There were no <unk> ingredient sales that nationally this quarter.
Our gross margins were up slightly to 61, 2% in fourth quarter of 2021 versus 61, 1% in the third quarter of 2021 total operating expense for the fourth quarter of 2021 were $16 2 million down $3 2 million compared to the third quarter of 2021.
Selling and marketing expense increased to $8 6 million in the fourth quarter of 2021 compared to $7 2 million in the third quarter of 2021.
As a percentage of net sales. This expenditure was up 700 basis points in the fourth quarter of 2021 versus the third quarter of 2021, we continue to see higher costs for new customer acquisitions, driven by broader industry trends, including changes in Apple's iOS that are impacting advertising cough.
Inefficiencies, primarily on social channels as well as search. In addition, we've invested more in top of the funnel brand advertising that does not immediately drive conversion. This included incremental spending on television advertising as we tested networks and time slots ahead of our new brand campaign rollout.
We've also tested top of the funnel investments in Amazon, including streaming TV on their platform and tools to prospect a broader audience of consumers across other supplement categories for full year 2022, we plan to continue our investment in television, but are reducing spend in other areas. It proved to be.
Less efficient at driving new customer conversion in the fourth quarter we.
We have begun to see an improvement in cost per acquisition, especially in search in the first quarter of 2022.
As reported G&A expense was down $4 7 million to $6 5 million in the fourth quarter of 2021 versus the $11 2 million in the third quarter of 2021.
Legal expense was down by $4 million compared to the third quarter of 2021 to $1 6 million in the fourth quarter of 2021.
As expected, we incurred baseline legal expense of approximately $1 million in the quarter as well as nominal expense related to post trial motions in the California relocation costs related to the Delaware appeal and to the door.
Sure.
Importantly, this significant reduction in legal expense allowed us to reinvest in the top of the funnel brand building initiatives that I mentioned earlier, we will dropping some of the savings to the bottom line.
Excluding legal fees severance restructuring and equity compensation expense fourth quarter 2021, G&A expense was lower by <unk> 1 million versus third quarter 2021 comparable G&A expense.
For the fourth quarter of 2021, our operating loss was $5 3 million versus $8 8 million in the third quarter of 2021.
The net loss attributable common stockholders for the fourth quarter of 2021 was $5 3 million or a loss of eight cents per share as compared to a net loss of $8 9 million or a loss of <unk> 13 per share for the third quarter of 2021.
Moving to the year over year financial results total net sales were up 15% year over year compared to the fourth quarter of 2021 with 14% growth in true nitrogen, including 17% growth in E Commerce, and a 5% growth in combined Watson's in other b to B sales.
<unk>.
Our nitrogen ingredient net sales were up 14% year over year. Despite the loss of a key customer which represented approximately $500000 of sales in the fourth quarter of 2020.
Gross margin increased by 20 basis points to 61, 2% compared to 61% in the fourth quarter of 2020.
Selling and marketing expenses as a percentage of net sales increased 780 basis points to 48, 7% compared to 49% in the fourth 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 lower by $1 8 million, primarily due to lower legal spend a point 8 million.
Finally, our operating loss improved by <unk> 8 million year over year as higher sales and gross margins and cost savings across the organization were partly offset by investments in selling and marketing.
Moving to the balance sheet and cash flow our balance sheet remains strong we ended the quarter with $28 2 million in cash and we did not access our committed line of credit.
In the fourth quarter of 2021, our net cash used in operations was a negative $4 9 million versus a negative $5 9 million use of cash in the third quarter of 2021.
The difference in this quarter was primarily driven by lower net loss, partially offset by an increase in inventory.
Decrease in accounts payable due the timing of payments to our vendors as well as changes in accounts receivable due to the timing of collections from our b to b customers.
As it relates to our 2022 full year outlook, we provided details on key P&L metrics in our earnings press release, along with the slide presentation.
Consistent with our prior year outlook, we expect to invest in marketing brand awareness customer acquisition and R&D to maintain our position as the leader in the growing and a D plus market.
Recognizing the uncertain macroeconomic backdrop, we're balancing these long term growth investments with near term sales and profitability objectives.
As it relates to the full year 2022, net sales, we expect around 15% to 20% growth year over year.
In terms of tailwind, we expect continued growth in e-commerce as well as more meaningful revenue contribution in aggregate from our new partners in 2021 and designs for health in early 2022.
We could see continued headwinds from COVID-19 for several partners, including Watson's in Hong Kong, and Singapore and Monica.
Trail, yet in New Zealand.
The timing of a more steady consistent sales growth with these partners as challenging as a result of COVID-19, but we're working closely with them to navigate the challenging environment.
Our outlet it only includes revenue from existing partnerships and excludes any upside from potential new partnerships in the pipeline.
We're targeting gross margins are slightly better than 60% similar to last year. We expect the continued supply chain cost savings initiatives and scale will offset the inflationary pressure. We're currently experiencing across our global supply chain.
We expect that selling and marketing expense will be down slightly as a percentage of net sales on a full year basis, although there may be quarterly volatility driven by the timing of campaigns in tests, we expect that R&D would be up approximately $2 million as we invest in new and a precursor development related to our recently granted patent.
Among others.
Finally, we expect that reported G&A will be down $5 million to $6 million driven by a significant reduction in legal expense, partially offset by investments in information technology and head count in key functional areas to support growth.
We have enough cash to fund the growth objectives of the company and we will continue to invest pragmatically.
In summary, I'm very proud of how the company continues to execute balancing the long term market opportunity with near term revenue growth and profitability objectives as Robert said, we're at an inflection point with the litigation behind Us and I'm excited for the next phase of realizing true nine agents true potential.
Operator, we're now ready to take questions.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
First question comes from the line of Jeffrey Cohen with Lindenberg Thalmann. Your line is open.
Oh, Hi, Rob Andrew and Kevin how are you.
Gotcha.
So I guess my question initially is for Andrew Andrew. Thank you for the walk through on the shirt programs I Wonder if you could talk about.
Marketing claims and.
Outcomes on work, that's being done now and how could that could seep into the markets for NR.
Thank you for your question.
The way we look at.
Claims is to take the total body of evidence.
So that would include obviously studies that come through.
Sure.
Other studies that are identified in the literature, we look at the whole body of evidence.
To support claims.
Obviously clinical studies carry the most weight.
As part of that effort and we do look to serve studies.
As the main source of those clinical studies.
To inform decisions that we make on on claims.
As you know a number of those studies involve disease related outcomes disease patients and so forth and of course.
Selling a dietary supplement we don't use those studies directly to make.
Disease claims were not allowed to do that we're not permitted to do that.
But those studies of course give us great insights into how <unk> is affecting the body normally normal function.
Uh huh.
Normally how it.
That's the function of different organs and different systems.
So we really look at it very holistically.
And using those studies to try to generate and support claims that's kind of a general answer to your question I'm not sure. If you had a question about a specific study.
No that's actually perfect Andrew Thank you very much.
That was my follow up a couple Sheldon if you could talk about the two.
Q4, legal expense and where you anticipate legal for 'twenty. Two and then also with that just remind us if margins do or do not include outbound freight and if that's going to be impacting margins or are you measuring that from your margin number. Thank you.
Yeah, I think as we went into the fourth quarter, we saw legal expense drop we were doing.
The motion.
Judgments before the judgment so we did have some.
Legal expense, but we continue to expect in 2022 that you know the majority of legal spending with regard to litigation is behind US. We continue to expect that baseline legal expense, which can do consists primarily of patents general corporate and an internal head count will be around.
<unk> 4 million in 2022.
More or less divided by four and that's probably a quarterly.
In addition to the baseline expense ongoing litigation expense, including New York case, Delaware appeal, the door and IPR and rejuvenation litigation should each cost less than $1 million.
However, the timing and magnitude of litigation expense is more difficult to predict we do expect in the first quarter of 2022 litigation expense will be the highest expense due to the ongoing expense related emotions of prejudgment interest in California, The Delaware appeal in the door and IPR litigation expense.
Should decline after that and the balance of the year and we will continue to look for ways to optimize these budgets include outstanding litigation.
And we recently filed a motion in New York District Court.
<unk> $2.5 million settlement that was agreed to by Elysium health. The details of this are publicly filed with the court.
And with regard to our gross margin projection for 2022.
Slightly above 60%.
Again, I think we are factoring in.
What we see as inflation in the cost of freight and others, but we also have with regard to gross margins, we have aggressively pursuing initiatives to maintain our strong gross margin can be driven by continued supply chain cost savings initiatives leveraging AUM.
Overall scale of the business and favorable mix, partially or fully offset inflationary pressures the clock across global supply chain. We did buy some component parts early like glass bottles and in others.
<unk>.
'twenty one so we won't see inflationary on some of the component parts until late in the year and we're also considering price increases if inflation remains persistently high.
Sure Thanks for taking our questions.
Youre welcome.
Your next question comes from the line of Mitch Pinheiro with student Ivana <unk> Company. Your line is open.
Yes.
Good afternoon.
I guess.
My.
First question is you know I'm looking at your 2022 sales guidance.
While 15% to 20% nice it is below what you know what I'm looking for I think I imagine consensus and I understand.
Some of the sort of the global headwinds, but you know.
As you just look here in North America, and the United States.
Shouldn't you shouldn't that be able to do.
<unk> support.
Support you know our mid 20% growth and then you know what everything else sort of you know.
Fall, where it does it just seems like it's.
Are you being conservative in your initial outlook here or.
Is it.
Just sort of expect the e-commerce in the United States to have much stronger 2022.
You talk about that a little bit.
Yeah, Let me, let me start and Rob feel free to add in I think as you know in the fourth quarter of 2021, we're gearing up accelerated investments in television in early 2022.
You know, we're not tone deaf so I think with regard to the macroeconomic environment has changed significantly since then.
<unk> geopolitical instability and inquiries COVID-19 headwinds in certain countries.
Also there are industry headwinds due to changes in the Apple iOS and are impacting bottle and bundle conversion as such we're taking a more measured approach to investments in our television campaign and other growth initiatives versus leaning into these headwinds early in 2022.
Like to add anything to that.
Kevin that covers it.
There've been a lot of changes of late.
The big one is that iOS algorithm change.
With regard to e-commerce , so what you're seeing is higher customer acquisition costs across the board in digital marketing.
In search.
And and social.
And and Influencer campaigns, so even though were seeing growth and we're seeing lots of new customer acquisition.
Last few months, it's gotten more expensive at the same time.
We are starting to advertise more on television so we increase our TV advertising in the fourth quarter with the Shannon Sharpe head.
Now, we've got a new AD, which is sort of a more broader appeal add debt.
I think more targets, the Walmart consumer and thats going to be launched shortly.
But we're expecting.
We're seeing that the market is still really we know the market is really huge out there for what we offer.
We expect to continue to grow we think costs marketing costs might be slightly more expensive in the coming months until theres a shift.
So yes, it is conservative and yes. It is a very measured and as Kevin likes to say pragmatic approach.
Two our investments for growth what.
But we still continue to have.
It is excellent retention people, who buy through Nigel and take two nine.
Keep taking in buying <unk>.
Retention numbers continue to look extremely solid.
Amazon has indicated to us that they think we are the have the highest retention of any dietary supplement that they sell.
And we see that kind of.
Support on our website.
As well.
And we know we see that in the other channels that we see.
But we're seeing on the macroeconomic environment increased costs increase inflation in food increased cost of media.
So we're taking a measured and conservative approach to.
How we look at the year.
I still expect.
That and we've seen we have research that shows that the number one reason why people.
<unk> is actually not because of advertising, it's because word of mouth.
I heard about it from a friend who's taking it.
This is why we think a study like the Parkinson's study could be very valuable to us. We know we can't make a Parkinson's claim we know that it doesn't lead as Jeff asked into a direct marketing claim that we can make because it's a disease state.
The people who have Parkinson's disease are really looking for answers and looking for solutions and where it's our hope that.
They eventually read these studies and try it and take it for a period of time and if they see a benefit like we hope they see they talk about it to others.
That's our expectation and by the way. This is part of the reason why we did the designs for health deal.
So that takes you communicate with health care practitioners and experts.
We still expect that a tipping point is going to be hit on <unk>, where it goes from good solid growth to explosive growth.
Just impossible to anticipate when that's actually going to happen.
Yes, I mean, it just seems that you know certainly the momentum by you know behind the science is far stronger than the momentum behind the awareness consumer awareness.
And and.
You know I mean, this has been a tough couple of years, obviously to be to operate in but you would just think they are.
Be a little stronger response to the research and.
And you know and.
Okay.
Fully your T V.
Campaign can address that my one question is with Shannon Sharps TD Ed I mean are you I mean is that are you getting satisfactory returns in that.
Like we're aware that that would be a baseline or.
Are you not happy with that type of that has to go a different direction.
No. The marketing Department has told us that the those ads is actually played quite well and we've used those ads in the past and they played quite well. So we expect to continue to use the shine and shocked that it's just a more.
More specific cohort group what he.
What we're thinking now is that we could go much broader than just sort of a male fitness sports related cohort.
We think it's a much broader base market in that in this new campaign is just targeting.
Wider audience, but we still intend to you Shannon in sports.
Or in other in other territories.
I also agree with you I think that the science continues to be amazing I mean, as Andrew was saying, we're now seeing a spate of published peer reviewed clinical studies showing that <unk> works on a whole host of of age related.
Issues in disorders. So.
And yet the awareness is still not that great.
The problem we have.
As you can't make a claim so I just question was right on the dot.
Science comes out, but you have to be very careful about how you promote it.
So we have to be very careful we're very measured we're very conservative in the way we promote it and we just take it one step at a time until it hits that tipping point.
Yes, I mentioned I think it's more than just the TV spot. The we've developed tested and since they simplified message to articulate the benefits of true nitrogen.
The 32nd TV spot.
They were doing through brand building.
Requires bringing together a holistic play and that includes communication and.
In consumer education, including a new TV campaign.
<unk> our brand ambassador program that incentivize their most engaging customers to recommend <unk>.
And an expanded portfolio that caters to different consumer needs and Rob referred to that product portfolio. We're also in various stages of implementing these initiatives, but they are a roadmap for 2022 we expect to see accelerated growth exiting 2022, when all of those things in place.
Okay.
If you were.
If you were looking for.
Why you would.
They have upside to the current sales forecast what are the couple of key things that youre going to have to see.
Did you better than your current forecast what do you think they are.
There are a number of things that could happen that could make it go from.
15, 20% growth.
Multiples of that.
And buying it paying for it doing a large campaign is one but it isn't necessarily the most cost efficient way to do it.
We are.
As you know we make deals with a number of partners. We have partners with ROE, we have H N H, we have nationally.
We have sign up any one of those deals could yield we could make more deals like that we could expand into other categories like pet nutrition infant nutrition.
And.
There could be a.
It's very difficult to understand publicity in viral activity and.
When a product goes from.
Well known to talked about it at every dinner table.
You can't force that it's very difficult to know when word of mouth, just catches and it takes off but.
But we feel that we're pretty close to that.
So it's just the right people, saying the right Influencers, saying the right thing at the right time to the right people and we know the product works.
So it's very that's really what happened in Hong Kong a few years ago. There was sales were very good in Hong Kong, but then there was an influencer who independently.
Did a video on his personal experience taking <unk>, that's when sales exploded in Hong Kong.
We were waiting for that to happen here, but you have to be very careful about trying to make that happen because you can't make claims.
So that's another thing that could happen that could create explosive growth and then of course the television campaign itself I mean, as Kevin said, we're going to be measured and careful about it but it may just very well work.
We have a new marketing department at a company that had been added for only 10 or 11 months, but they are an excellent team they.
They do a lot of research there very thoughtful very careful they are taking it one step at a time they put a lot of time and energy into the script of the spot and they've tested.
It's not the only spot they're going to be producing other spots behind it.
But we expect we have high hopes that that it will succeed, but we're still creating very conservative expectations for how we will succeed.
And just last question.
So I was just my last question was just simply.
I'm sorry go ahead.
So I was just going to indicate that look we're seeing again COVID-19 .
Impacting our businesses in places like New Zealand, and Australia, and consumer takeaway in Hong Kong.
Is that basically.
He is down for a consistent amount of time, you know that could help us too.
To hit die around this range.
Okay got you and then last is just necessarily.
No no sales this quarter and.
What what's happening at Nestle is.
There are conversations I know you talked about you know trying to.
Looking at other plans, but if you could talk about what's happening there I'd appreciate it. Thank you.
Honestly as you know over the last few years has been acquiring many companies in this space in fact, they announced another one a month ago.
They bought bountiful last year for $5 billion.
But another company here in California last months I forgot what it's called.
But they've become the largest dietary supplement company in the World. In addition to being the largest food company.
And they know very very well how unique nicotinamide riboside as an extremely impressed with what we've done with the <unk> brand.
Creating this recognizable and highly trusted brand with basically an e-commerce effort in the last.
Three years.
Build it to where it is.
And they are excited to develop the relationship further as you know they have many divisions. There they have a pet nutrition division to have an infant nutrition division. They even have a pharmaceutical division and then they have all these dietary supplement.
Divisions, So we expect and hope that the relationship with Nestle will expand but it has to be done in a way that optimizes our shareholders' interests.
We know that the initial the initial deal was for them to create this brand sell Trent and they.
Committed quite a bit of money to have towards <unk>. It still has yet to take off as a brand, but we are under the impression that they are continuing to invest in it.
But they continue to have interest income reduction in true nitrogen and finding ways to extend the relationship. So we that may be something that we see during the year and we certainly are exploring it.
Alright, thank you so much.
Thanks Mitch.
Your next question comes from the line of Jeff Van <unk> with B Riley Your line is open.
Hi, everyone I, just had kind of a follow up on around the AD campaigns are.
Target, it and driving Walmart or I guess a broader demographic.
Demographic is it too early to have any of our rois on that as it been tested yeah. Just wondering on the status and then maybe you can just give us kind of an update on Walmart sales is it ramping.
And then just kind of a multipart question, but just I guess can you speak more about anticipated contribution from some of the newer programs.
This year like age and age for example, including international Thanks.
So when you do go ahead also take the Walmart would be one.
So yes.
Yes, let me start with the international piece.
International has been tough because of Covid and now Hong Kong is in a very very severe lockdown right now.
There are 50000 cases in a population of 5 million people right now.
And their hospitals are all booked in <unk>.
Have a formal lockdown and foot traffic is not that great and stores and hopefully it'll die down the way it has here and in Europe and then.
Things will hopefully get back to normal and we've seen a similar kind of problem in Australia and New Zealand.
In other parts of the world So the.
International sales have grown but not as much as they would and will when COVID-19 dies down.
In terms of the rollout for the campaign no. It's too early we haven't even launched this new spot that marketing Department just shot.
It's more difficult to measure ROE as honest difficult specific spot on television it's much easier on the digital marketing.
The ROE as for the digital marketing has gone up in the last six months and Thats, mostly due to a lot of testing that we've done but also because of the iOS algorithm changes that have taken place I.
I think actually our timing is pretty good to begin shifting towards traditional media given what's happening in the digital media marketing marketplace, but ROE as is very very important to us, especially considering the macroeconomic environment. These days.
So we are increasing our attention not just on growth, but also on marketing efficiency and that is why we describe our approach as a measured.
Pragmatic approach to spending our marketing dollars.
Take Walmart, Yeah, I'll take Walmart and I think overall, we expect a more meaningful revenue growth in aggregate for our new partners in 2021 and designed for health as I've mentioned in my remarks through 2022.
And I just want to highlight again I think in my prepared remarks, we have not really included any revenues from.
Potential new partners that are in the pipeline and then with respect to Walmart, we don't provide sell through based upon our retail partners.
It continues to build slowly, but our expectation that it will accelerate as we scale our national TV campaign in 2022.
And we are just launching the new TV campaign, we shared this campaign with Walmart and they remain enthusiastic about us building.
A D plus category together with them, we and Walmart are aligned on the launch expectations and they are committed to building the true Nigel business over time.
Yes.
Okay. Good to hear thanks for that.
And then I think you mentioned, a new <unk> product that Youre planning to launch this year.
Just wondering if you can speak more about that timing.
What the launches targeted out of where you might launch it.
Target market their planned advertising to support it that kind of thing.
So first let me just.
We have basically been a single product company for the last few years <unk>.
We have partners to whom we have supplied nitrogen and they have created formulations with nitrogen life.
Life extension question Nestle.
HMH is planning a formulation product that includes nitrogen.
And they haven't yet released it will we expect it to be shortly we expected them to Abbott released in December it looks like they were a little delayed.
But this will be our first formulation product that includes Nigel.
Remember we are at the center of this phenomenon.
And we are the leading company for anyone interested in NAV, which we all should be interested in and specifically nicotinamide riboside and we sold it as just a pure single ingredient product.
So this year, we intend to release a product that includes nitrogen.
But also adds to and other ingredients that we think are very special and very important and that we've gone through the meticulous process of making sure that it is absolutely the highest grade that exists on the planet.
We know that the people, who who presently are our customers are exceptionally well educated.
We think it could be close to 40% of our customers have graduate degrees.
This is a highly sophisticated educated group of people that are very very smart and a research the product.
If youre going to take another product by another product from chrome at X. You can trust that we will make it as good as it can be so what we're planning is to release a formulation product that targets a specific indication in the dietary supplement space that includes <unk> and a few other ingredients that are extremely well sourced and care.
Formulated to provide a very specific benefit to people I expect it to be released in the next few months.
It'll be a soft launch there will be marketing behind it.
It will be primarily e-commerce online launch and then we'll take it from there and see how it goes of course, there is interest on that product from.
Many of our partners, but we're taking it one step at a time.
Okay good to hear.
Sure.
And then just around the just to clarify around the patent litigation can you touch on the new patent or manufacturing I think you said runs through 2037, I guess, maybe if you can just kind of hit what does that really mean for <unk> and <unk> and competitors.
So.
As you know <unk> has a very deep patent portfolio and we also have this exclusive relationship with Grace who has a manufacturing.
Of.
Patent on the actual manufacturing process that <unk> developed.
But race.
Patented in exchange for this exclusive relationship and of course Theres the Dartmouth patent.
But in addition, we were very excited to be issued a new NRT a patent nicotinamide Riboside triacetate patent and then there is a second <unk> patent pending.
The combination of these two NRT patents nicotinamide Riboside triacetate are very very important for chrome at X.
Because we know of no manufacturing process.
That does not require NR T as an intermediate step to get to nicotinamide riboside.
Yeah.
So in order to get to NR, you got a start with NRT.
And these are patents that involve.
NRT in the process of manufacturing NRT. So we feel very very good about the addition of this patent that's been issued and hopefully the one that's pending to our existing strong patent portfolio of nicotinamide riboside.
Okay. So Rob is it fair to say and I don't want to put words in your mouth, but is it fair to say that this new patent in the pattern that is pending around this manufacturing process will make it really difficult for others to manufacture juveniles.
And.
Uh huh.
We I think that it's safe to say that it will be difficult, but we could we could not comment on whether or not anybody that we know of is infringing on it presently.
Okay Fair enough. Thank you for taking all my questions.
Yeah.
Yeah.
Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.
Hi, Good afternoon. Thanks for taking my question Ron Bryan.
My question is a follow up to at least a couple of private Reits and just with respect to <unk>.
On the topic of marketing to them.
This initial 22 sales guidance, so I'll kind of merge them together, but one is you talk about the I guess the forthcoming television ads, it's done in partnership with Walmart.
When does when are you expecting that to watch and as that is to what degree is that TV ad.
Contemplated in that guidance.
2015 to 20.
Percent.
And then secondly, you talked a lot about Shannon Sharpe and me as long as I've been associated company Shannon Sharpe.
The Bachelorette spokesperson is there any is there any thought to.
Bringing someone new someone new win.
Kind of what's worked side by side with Shannon Sharpe.
So.
I think we can Bob I'll start the answer to the second question is yes. There is discussion about and we've had discussions with other celebrities of course, we also work with Brooke Burke. In addition, Shannon Sharpe and there are other what we call true believers out there.
Ryan Lochte as you know Gabby Reece and there have been others that have we've worked within the past, but I think what you mean is going after a big name like <unk> like.
Thank you, Tom Brady or an Oprah Winfrey.
Along those lines.
The answer is yes, we have had meetings we have had discussions some of these people can be very pricey and we also want to make sure that anybody that we go with.
A couple of things one is they are actually a true believer they've taken the product.
And they're not we're not just buying their endorsement, but that has incredible endorsement, which I think is consistent with the brand that we have and the second is it's one thing to pay them, they're expensive fee, but it's another thing you have to then support it with significant TV spots and media.
So it is it is not an insignificant commitment to go there and we we need to be measured and careful about that but the answer to your question is yes.
We did do a deal.
With goop and the recently.
The group is Gwyneth <unk> brand she has been taking <unk> for quite a while and it.
It was the first and only.
Product that group endorsed with what is now the group sort of seal of approval.
She is not the only there are many that we know of in the Hollywood community in the sports community that are truly hooked onto nitrogen and take <unk>, but.
But we have not yet landed on what we consider to be the right additional spokes person to broken Shannon.
To take it to the next level.
But we do work on it.
Okay. The other question was had to do with the new AD campaign that we shot not in conjunction with Walmart, but.
Targeting Walmart.
Okay.
Yes.
The new head of marketing and chrome at <unk> has been here as you know less than a year.
And has a great deal of experience.
Creating these types of campaigns.
These are the types of products that he has worked on in the past.
So.
The campaign that he has.
Launching in the AD that is created is targeted towards the type of consumers that he has worked with in the past that he believes purchases at Walmart, but we have been conservative in our projections of.
How it will convert into sales at Walmart because until we launch it and measure it we just don't know.
Yes.
Yes.
Your last question comes from the line of Sean Mcgowan with Roth Capital Partners. Your line is open line is open.
Thanks, Hi, guys good to be back.
I've got a question.
Couple of questions.
On your guidance of 15% to 20% can you give us any color on how that's going to play out across kind of the three segments consumer ingredient standards and services.
Yeah.
Okay.
Okay.
I think it's going to be the growth is going to come from me of the engine, which is our e-commerce business and I think what we've said is in aggregate.
You know it was going to come across our partners, which our partners are and the NIH and category.
So that's going to be it's going to be between <unk>, and <unk> and that drives that growth okay.
Okay.
So you would expect.
You would expect growth in both consumer and ingredients.
Okay.
Yes.
Okay great.
Second on the when you talk about that guidance not including.
We're not contemplating any contribution from partnerships that are in the pipeline can you can you kind of handicap what is there.
And about that that could contribute or are we talking about small numbers. If everything does kick in in a more more of the future or could there be a meaningful contribution in 2022 from those.
Partnerships are not currently part of your guidance.
Okay.
You know I think if we go back to our experience in 2021 with regard to ROE and H H.
I think that it takes a while for them to get the product to the marketplace.
And.
I think with regard to that I think it will be additive I think the one that's.
More near term as Sino farm, but again, we've got they've got to bring it to market and you know this is probably more of a second half of the year or fourth quarter items. So I think from orders of magnitude.
It would be it will be additive, but how big is yet to be determined.
Okay. Thank you.
Two other quick ease.
Kevin when you were talking about the ingredient sales did you say it was up 53% increase sequentially.
Yes, yes.
Okay Alright.
And then finally when will the 10-K be filed.
Our 10-K is due.
On the.
The 15th of the month, so it'll be between earnings and the.
<unk>.
Very good thank you very much.
But sean.
Sean.
Just want to do.
Before I left I just wanted to welcome you here, we've known and worked with Sean for many years and we're very privileged and honored that you have decided to cover us and we're looking forward to working with you and Ralph.
Yes. Thank you.
Yes.
Yeah.
Yes.
Natalia.
And I wanted to clarify the 53% that was sequentially it grew quarter over quarter.
It grew by 14%.
Okay got it thank you.
Yes.
And is all the time, we have for questions I'll turn the call back to Brianna Gerber for closing remarks.
Thank you Josh there will be a replay of desktop beginning at 430 PM Pacific time today.
My number is one 800 700.
<unk> and the conference Heidi <unk> 6168, Thank you to everyone for joining us today and for your continued support of <unk>.
This concludes today's conference call you may now disconnect.
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Yeah.
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