Q1 2022 Chromadex Corp Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by and welcome to Chrome against Corporation.
First quarter 2022 earnings conference call. My name is Stephanie 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.
This afternoon Chroma Dax issued a news release announcing the company's financial results for the first quarter of 2022. If you have not reviewed this information both are available within the Investor Relations section of chroma decks website at Www Dot <unk> Dot com.
I would now like to turn the conference call over to free Ana Gerber, Vice President of Finance and Investor Relations. Please go ahead Ms Berger.
Yeah.
Thank you good afternoon, and welcome to Crumble <unk> Corporation first quarter 2022 results Investor call with US today are crummett access Chief Executive Officer, Rob Fried Chief Financial Officer, Kevin Farr, and Chairman and co founder Frank Jacks 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 two nights in a new market.
Development opportunities future financial results cash needs <unk> operating performance investor interest and business prospects and opportunities as well as anticipated results of operations forward looking.
These 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.
The date of this conference call to conform with the forward looking statements actual results or to changes in its expectations. In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the company's website.
Does that reconciliation to be 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 X dot com with that it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried Rob.
Yes.
And good afternoon, everyone and thanks for joining our first quarter 2022 investor call.
Since the beginning of this year, we've made some very important strides in building our brand.
Brian .
Our new TV commercial which many of you have seen began airing in late March.
It was followed by the U S launch of our new products.
<unk> immune in April .
And we're very encouraged by the recent trends in the second quarter.
Our brand building activities on our road map later this year.
Beyond the near term brand building initiatives, but strategic to our long term plan, we were granted yet another U S continuation patents significantly reinforces chrome elections intellectual property portfolio, which now has over 40 patents.
I anticipate momentum.
There has never been stronger.
And as many of you have seen we recently announced the results of a peer reviewed study on Parkinson's disease patients.
There are now two additional clinical studies underway on Parkinson's importantly, the growing body of evidence of nitrogen suggests with great consistency metabolically active tissues are heavily dependent including the brain muscle heart liver skin, among others, which continues to validate the tremendous market opportunity for.
<unk>.
Science continues to show the true Jim is certainly among the most important dietary supplements with people concerned about the way their bodies age should be paid.
We began to scale the new TV campaign in the second quarter. So it did not have a material impact on the first quarter results, which Kevin will discuss in a moment.
Our new commercial is now aired on major networks, including Fox News Fox business CNN, The science channel MSNBC, ABC, Bloomberg TV and certainly ESPN channels.
As I said last quarter. This commercial is intended to educate a broader group of potential consumers about the benefits of taking two night.
Our marketing team took great care to distill, the deep science behind our ingredient into a 32nd spot based on extensive testing.
While it is early we believe the messages resonating with consumers and sales trends are encouraging in the second quarter.
Later on the call Kevin will discuss some of the leading indicators of TV performance and we are.
Tracking for our E Commerce business.
As expected. This campaign is also improving brand awareness and sell through at Walmart.
Although the timing of the campaign is a little later than we had initially anticipated the results are promising.
Another exciting moment, we're seeing <unk> featured on the April 26 episodes of Dr. Phil During his interview with Brooke Burke.
Brooke as many of you know is a celebrity health and fitness expert as well as one of our original true believers.
Segment was highly impactful, reaching over 2 million viewers and re aired across several markets driving an increase in sales and exposure for the brand.
As I said, we also launched <unk> an immune in April .
Our very loyal community ask for a holistic all in one daily immune supplement versus taking individual settlements.
Based on that feedback.
Our launch of <unk> immune was targeted to existing U S subscribers as a companion to <unk>.
The recommendation that both products be taken together <unk> is the first of its kind combination of proven immune boosting nutrition with <unk> support <unk>.
Our team of scientists were meticulous some strategic and creating this formula.
To ensure high bioavailability and efficacy of the ingredients.
Selected from the highest of quality suppliers.
In addition, there is a larger market opportunity with <unk> immune it helps us target consumers, who are focused on a clear benefit like immune health.
And importantly, <unk> is the hero ingredients. So the emphasis is on healthy aging, which reinforces the <unk> brand message.
This time to launch Brooke Burke participated in several interviews highlighting <unk> immune for publications.
A swimsuit illustrated in daily now.
Early in the launch and we look forward to sharing updates as it progresses.
We are working on initiatives to educate and consistently engage our consumers, including an expanded loyalty our brand Ambassador program.
We anticipate this will rollout later in the year.
The science on Biogen is very promising which Frank will discuss in a moment.
I mentioned the recently published clinical study in Parkinson's, which will include two additional studies by the same group of researchers and Phase II study 400 patients will be given a gram of NR per day, while the phase III study will administer the highest daily dose of NR in any clinical studies to date at 3000 milligrams per day.
We also made significant progress strengthening our patent portfolio of this quarter. Our two recently granted NRT patents and protection of the manufacturing process of NR in its various platforms through 2037.
In short the process to manufacturer NR chloride or <unk> requires the manufacturer process for NRT is an intermediate step.
Same is true for other salt forms of NR.
Now have over 40 patents on NR and other NAD precursors and we continue to strengthen this portfolio.
I'd like to also give a brief update on our new strategic partnerships for Sino foreign change.
We continue to finalize the commercial plans and supply agreement for initial cross border sales as well as our approach to pursuing blue had approval in parallel.
While we and sign off on we're eager to progress towards launch recent lockdowns due to COVID-19 have slowed the progress we.
We've been impressed by their comprehensive plan to differentiate our science based brand from them in a large and growing category in China.
Main optimistic about the future.
My question another strategic partner in Asia, as HMH group and they are close to launching the Swiss product formulation for nitrogen for the China Cross border market and Australian markets.
It's early in the relationship and we are already in discussion about how to make the partnership more impactful over time.
Of course, we are having similar conversations.
With established strategic partners like Netflix.
In the U S. Our strategic partnership with designs for help with premium dietary supplement supplier in the health care practitioner channel is off to a strong start.
And they will offer specially formulated products with <unk> exclusively to these HCP.
As I said last quarter designs for health will complement our internal sales team and help us leverage the tremendous body of preclinical and clinical research on this amazing ingredient.
And as many of you know another U S partner row launch Rome in life and <unk> in late late 2021.
Or engaged in discussions with their marketing team to share insights on how best to articulate the benefits of this incredible ingredient core respective consumers.
All of our new partnerships are in various stages of product development, but we expect them to contribute to increased sales in 2022.
As I look at the Biz Dev team.
And the pipeline and I'm excited about the recent energy and initiatives to grow the <unk> side of our business.
In particular, there is a renewed focus on building relationships with professional sports teams and athletes as well as ongoing focus on health care practitioners to key influencers groups that are important to our long term strategy.
The changes we are making internally are not designed to deliver short term growth, perhaps but I believe they position us very well for an inflection in growth long term.
Think about how far the company has come in where it is headed I am very proud of our execution and more confidence than ever.
The market opportunity for <unk>.
Before I hand, the mic over to Frank to talk about the scientific developments.
I just wanted to make one quick comment about the macroeconomic environment in which we live.
<unk> as shown in the past and ability to control costs and show financial discipline.
We've been cash flow breakeven without legal for several quarters in the past.
Our existing customer base is extremely loyal.
Our retention rates are very very high people, who take <unk> continued to take to nitrogen.
If you take it for two to three months, who understand the benefits of that.
The company need to put more focus.
<unk> into the bottom line, we feel that we have shown that we can do that and we will do that.
We feel that the customers that we have established will be there with us.
Now I'd like to pass the call to Frank Jacks, our chairman and co founder to share more about the promising research on nitrogen.
Alright.
Thank you Rob.
It's a pleasure to speak to you all today.
I Hope you enjoyed hearing from Dr. Andrew Shao last quarter about the exciting strides that are chromatics external research program or serve has made to help produce the trusted science behind <unk> as well as to advance the understanding of <unk> and health diseases and aging.
I'm grateful to Andrew and his entire team for accelerating serve submission.
Which I began 10 years ago.
As we recently announced surface amassed over 250 collaborative agreements with over 235 researchers globally.
This includes over 185 institutions in 33 countries representing over $85 million in estimated total research value.
This is a remarkable milestone for any ingredient.
Our <unk> program was recently awarded the 2022 European Nutria Ingredients Award and the Nutrition Research project category for pioneering research behind <unk> and then <unk>.
It is a testament to search dedication to quality research and how we are pushing the boundaries of healthy aging science.
Yeah.
According to their website to neutral ingredients awards focus on true innovation long term market success and cutting edge research.
We are honored to be recognized by neutral ingredients along with other industry leaders.
Moving on to new and exciting research I'll briefly highlight two clinical and our studies that were registered recently.
These built on our recent peer reviewed published clinical study on Parkinson's disease, or PD patients that Andrew reviewed in detail last quarter.
The phase one study or NAD park's study showed NR supplementation significantly increase cerebral <unk> levels improve some measures of motor function and decreased inflammatory cytokines in PD patients.
The results of this study nominate NR as a potential neuroprotective therapy for PD patients.
Warrants further investigation in larger trials.
A second study the <unk> study is underway with the same group of researchers.
This study will recruit 400 PD patients can administer 1000 milligrams of NR daily for 52 weeks the same daily doses to smaller phase. One study finally, a third study the NR safe study began recruiting a couple of weeks ago. The objective is to determine the safety and tolerability of NR at a daily dose of three <unk>.
<unk> milligrams and 20 individuals with PD to enable clinical studies assessing higher doses.
The safety and Tolerability of NR doses up to 2000 milligrams daily have been tested in healthy humans with no signs of toxicity. So this is the highest dose tested in a clinical study to date.
Okay.
All three clinical trials are randomized double blinded placebo controlled in parallel design studies. This.
This is an exciting area of research on NR, and we look forward to learning more.
In summary, Chromatics as foundation is in science. It is in our DNA serves.
<unk> 250, <unk> collaborative agreement speaks to the great scientific interest in our ingredient NR.
And its role in human health and aging.
Importantly, beyond the academic research, we embed science and quality into all of our products since we believe the trusted brands.
<unk> start with trusted ingredients.
With that I'll pass the call onto our Chief Financial Officer, Kevin Farr, Kevin.
Thank you Frank <unk> delivered a solid quarter with total net sales of $17 3 million up 18% year over year and a gross margin of 61%.
With a significant litigation expense behind us, we prioritize investments in marketing, including our new <unk> TV.
Television campaign that began airing in late March while this is only one component of our brand building initiatives. This year and it's still early we're encouraged by several leading indicators in our E Commerce channel.
This includes increases in organic searches and our new website visitors growth in new customers on our own site as well as recent trends on Amazon, where <unk> is now frequently ranked as the best seller in the broader vitamin B three category.
Moving forward as we pragmatically increase our investments in television and other top of the funnel marketing initiatives will be focused on year over year, rather than sequential trends in the business. In addition, as mentioned in the last call we will be focusing in on adjusted EBITDA, including legal expense going forward.
The proxy for cash use before working capital investments.
Provided a reconciliation of the GAAP measure in our earnings release slides total net sales in the first quarter of 2022 were up 18% year over year compared to the first quarter of 2021.
With growth of 20% and.
<unk>, including 13% growth in ecommerce and 43% growth in combined Watson's in other <unk> sales.
<unk>, an ingredient net sales were down 6% year over year.
Gross margins decreased to 61% compared to 62, 9% in the first quarter of 2021.
The decline was primarily driven by business mix since we had lower sales to Watson is last year when shipments were impacted by supply chain disruptions.
We also increased head count in our supply chain to support growth.
Overall this is a solid start to our full year goal of slightly better than 60% gross margins as product cost savings initiatives are currently offsetting inflationary pressures across global supply chains. If inflation remains persistent we'll consider price increases to help offset higher costs.
Selling and marketing expense as a percentage of net sales increased 510 basis points to 47, 7% compared to 42, 6% in the first quarter of 2021.
We are experiencing higher costs for new customer acquisitions, driven by broader industry trends, including changes in Apple's iOS that are impacting advertising costs inefficiencies, primarily on social channels as well as search.
In addition, we are investing more in top of the funnel brand advertising that does not immediately drive conversions.
This included incremental spending on television advertising to support our new true in commercial that began airing in late March.
We are also more top of the funnel investments on Amazon compared to last year, including streaming television advertising on their platform and tools to prospect to a broader audience of consumers across other supplement categories.
For full year 2022, we'll continue to optimize these investments as we balanced brand campaigns with performance or conversion marketing.
As reported general and administrative expense was lower by a negative $600000, primarily due to lower legal spend of $2 $7 million largely offset by higher severance expense investments in technology and head count in key functional areas to support growth.
As expected, we incurred baseline legal expense of approximately $1 million in the quarter as well as nominal expense related post trial motions in the California litigation.
Expenses related to the Delaware appeal and to the Thorn IPR.
We expect the first quarter will have the highest quarterly legal expense of 2022.
Furthermore, the judge in New York recently ruled that Elysium should pay chrome at X.
$2 5 million negotiated settlement to resolve the California, and New York Litigations.
As possible to appeal. This decision with no trial planned. We currently expect full year 2022 legal expense to be under $7 million.
For the first quarter of 2022, our operating loss was $7 7 million versus $7 4 million in the first quarter of 2021.
The net loss attributable common shareholders for the first quarter of 2022 was $7 7 million or a loss of <unk> 11 per share.
As compared to a net loss of $7 4 million or a loss of <unk> 12 per share for the first quarter of 2021.
Finally, our adjusted EBITDA, including legal expense was a loss of $4 5 million compared to a loss of $5 7 million in the prior year.
Moving to the balance sheet and cash flow our balance sheet remains strong we ended the quarter with $21 million in cash and we did not access our committed line of credit.
Yeah.
In the first quarter of 2022, our net cash used in operations was a negative $7 2 million versus a negative $5 4 million net use of cash in operations in the first quarter of 2021.
The difference year over year was primarily driven by a larger increase in our inventory to support growth as well as the decrease in accounts payable due to the timing of payments to our vendors.
As it relates to our 2022 full year outlook, we provided details on key metrics in our earnings press release, along with the slide presentation.
There are no changes to our outlook since our last quarterly update.
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 <unk> plus market.
Finally, as it relates to the second quarter of 2022, we see the following headwinds and <unk> the primary headwind relates to Watson.
<unk> continues to have an impact on Hong Kong residents, although lessening of late.
Due to this backdrop watson's is shifting approximately half of its shipments in the second quarter to the fourth quarter of this year.
As a result, we anticipate the second quarter shipments to be approximately half of the first quarter 2022 shipments, but on a full year basis, our outlook for Watson's is unchanged.
Had success with the brand and Influencer campaigns as well as store staff incentive programs in the fourth quarter of 2021.
We have similar plans for the remainder of 2022 to help Watson's manage through these COVID-19 related headwinds.
Importantly, we see emerging tailwind that our domestic e-commerce business as a result of recent initiatives to drive greater brand awareness.
We expect this will partially offset the watson's headwind in the second quarter and absence of another large macroeconomic disruption. This momentum should continue through the rest of 2022.
In summary, <unk> is a leader in the global market, which is large and growing and we expect to invest to maintain our leadership position.
We think we are starting to raise awareness of a mass audience with our television campaign, which requires an upfront investment in consumer education, which should have a near term payback.
Im excited about our holistic approach to building, the <unk> brand, which emphasizes communication and customer education, including a new TV campaign.
The loyalty of our brand Ambassador program that incentivizes, our most engaged customers to recommend through nitrogen and an expanded product portfolio that caters to different consumer needs, including our recent launch of <unk> in EMEA.
We are at various stages of implementing these initiatives, but are confident they will be in place before year end.
We expect to see accelerated growth exiting 2022, when all of these initiatives are in place.
We have more work to do to capture <unk> full market potential, but I'm very proud of the work we've done to position the company for the next space growth operator, we're now ready to take questions.
Okay.
Thank you at this time I would like to remind everyone to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from Brian Nagel with Oppenheimer.
Your line is open.
Hi, good afternoon.
Congratulations on a very favorable.
Thanks.
So a couple of a couple of questions.
Sure.
Congrats on the TV AD I mean, how should we think about.
With TV.
Is there a plan here in the near term to increase the frequency add new adds and then if you could discuss a little bit more just on.
How you are tracking.
TV is a driver of improving demand or brand building here.
So let me take the second question first.
TV is more difficult to attribute then digital media.
It's more challenging to understand the direct relationship between the TV spot and sales.
Particularly when we're selling.
In retail.
But there are metrics that you can measure one of the metrics you can measure is traffic to your website or even traffic to Amazon.
And you can see the traffic and align that with the timing of the of the AD and we're seeing dramatic increases in traffic on the website and on Amazon and it coincides with when the ads are.
You can also track the conversion rate at that time, and we're seeing dramatic improvements in conversion rate as well.
So the AD seem to be working and we're also encouraged by the sell through that we're seeing since the ads ran.
At Walmart.
So these are the metrics that we're using there is also over the top television.
Dreaming TV and there are more metrics that you can track, it's easier to attribute the airing of the spot to the conversion to a sale with OTT and we're seeing that as well.
And so what we're doing is we've been dramatically increasing the spend but we are sort of measuring as we go and right. Now we're encouraged and we expect to continue to increase but there may be points in time, where we pause analyze the data and then start again.
And so far what we're seeing is it was a good move and it's an effective spot.
We also are testing other spots. So there may be complementary spots that we have behind it.
We're also editing the one spot that we have in optimizing that there might be some slight changes to the one that we have.
No.
So the answer to the question is there are a handful of metrics that you can use and we're using the ones that exist.
So.
The first question what was the first question I guess.
What are you kind of answered just yes, I was asking is basically how should we think about the <unk>.
Kind of a television plan from here.
Additional additional ads.
But you kind of discuss that already.
Okay.
I had a couple of things and then we're seeing increases in organic searches the new website visitors growth in new customers on our own site as well as strong trends on Amazon.
And as Rob mentioned earlier with regard to <unk> and it's now frequently ranked as the best seller in broad vitamin B three category.
And we continue to monitor these trends in e-commerce and update the outlook. We also saw.
Recent Pos trends at Walmart.
Increase substantially however, the timing and the campaign is a bit later than we initially anticipated for Walmart, but we're seeing good.
POS lift at Walmart as a result of the TV campaign.
That's perfect and then my follow up question.
Just with regard to true Nigel immune.
Are you seeing is that a new customer or are you seeing existing <unk> customers, so to say shift over to the new immune product.
It's existing customers, but they're not shifting over there taking both.
Got it and we don't think it's cannibalizing <unk> sales.
Got it.
Okay. Thanks, guys.
Sure.
Your next question comes from Mitch Pinheiro with sort of this company.
Your line is open.
Hello there.
Good afternoon.
Good afternoon.
Hey.
So with TV.
So.
Can you talk can you I mean, how much are we spending on TV right now.
Can we start can you give us some sort of baseline or is that data.
Keeping that closer to the west.
We're keeping a close to the best same with our Kpis because they're proprietary performance measurements.
So we wanted to disclose at the marketplace.
Okay.
And.
And as you look at TV.
When we're coming into.
Mid term election year that Mike.
Get a little more TV.
Yes.
Political AD et cetera is that does that have the potential have you looked at this as a potential sort of crowd you out a little bit in Q3.
Are you preparing for maybe a rate increase in ads.
Can you talk about that a little bit.
Well there are a lot of factors that affect the rates of ads and thats one of it one of them.
We're also seeing.
The impact of the economy of late.
We're seeing that there is more available remnant ads on television lately. So we think that if were particular with the buy certain in the near term future.
There might be an opportunity.
But it's hard to know.
In the third quarter.
Sometimes like in the last election cycle, while the remnant and.
AD rates went up the eyeballs were way above.
Average so you sort of get what you pay for it but I was just curious from a budgetary point of view whether that was included in your in your.
Thinking for this year.
So second question is this.
Brian you talked about obviously your recurring customers.
<unk> is strong.
Youre, obviously getting growth there.
Was there a new customer growth in the first quarter.
What a surprise question Mitch.
So you have.
[laughter].
Actually we had.
The most dramatic increase in new customers over the last several months and we had seen in a couple of years.
And it wasn't just related to the television campaign, but the television campaign did show a dramatic increase in new customers.
Now the it didnt necessarily have an impact dramatically in the overall new customer revenue because what we see is a lot of people buying the lower price skus like the single month and.
And trying that out.
But the number of new customer purchases over the last weeks and months has been higher than we've seen in a very very long time. The question is will these new customers.
Have the same retention rate that we've historically had.
Okay.
Why wouldn't they.
I mean, you've had your new customers and Youre your recurring recurring customer growth.
It has been probably pretty stable.
So why.
Why would you expect this new.
Cohort of customers.
B any different is there any any any thoughts around that.
There are a couple of possibilities why their retention rate might not be as high.
One is we find that when people take it for two or three months thats when they seem to notice the impact on their physical performance and the retention rates there are much higher.
So somebody is just buying it for a month or even trying it for a few weeks is a greater likelihood that they're going to not reorder.
And then the other is the impact of television.
These are people who are in some cases less informed.
They spend less time researching <unk>.
So we don't know yet it's early yet and again, we will measure and we will see what the retention rates are but it's a very very high number of new customers that have come in.
Okay.
And then.
So are you saying.
With respect to the second quarter.
I mean, it sounds like.
You said you were very encouraged by the recent trends.
<unk>.
So.
E Commerce growth was a little slower than I had thought.
And my estimate and I was just wondering whether you might see Q2.
Maybe see a little acceleration.
Given all that you've talked about.
Well, let me just say one thing about the first quarter. There is fewer days in the first quarter.
And the way, we're averaging per day, if you normalize the number of days in the fourth quarter. The number of days in the first quarter I think you'd see.
It would probably be closer to what you might've estimated.
And then with regard to the second quarter I'll, let Kevin answer.
Yes, I think we talked about the second quarter.
My discussion.
And we see the following headwinds and <unk> the primary headwind as Watson.
Amazon variant continues to have an impact on Hong Kong residents, although lessening of late due to.
With that backdrop Watson's is shifting approximately half of its shipments in the second quarter to the fourth quarter of this year.
As a result, we anticipate second quarter shipments to be down.
About half of what it was in the first quarter.
Our full year outlook for Watson's is unchanged.
We had success with the brand and Influencer campaigns as well as store staff incentive program in the fourth quarter of 2021 and have similar plans for the remainder of 2022 to help Watson's manage through these COVID-19 related headwinds importantly, we're seeing emerging <unk>.
Rob just indicated in our domestic e-commerce business as a result of the recent initiatives to drive greater brand awareness, we expect that growth in E. Commerce will largely offset the watkins headwind in the second quarter.
And absent another.
Microeconomic disruption this momentum should continue through the rest of 2022.
Okay and then just one last question for me is just on the.
Gross margin for.
The ingredients little little lowers that is 50% the right gross margin or was there some mix in there that caused the margin to be a little lower in the first quarter.
I think the mix is around $50 to 55% so nothing out of the ordinary with regard to.
The.
Gross margins on that segment of the business.
Okay.
Alright, thank you.
Thanks Mitch.
Ladies and gentlemen to allow time for all questions. We do ask that you. Please ask one question and one follow up.
Our next question comes from.
John .
Are you from H C Wainwright.
Your line is open.
Thanks, very much for taking my questions. I was just wondering if you could first of all provide us with maybe some updates on the final farm and Nestle Health Science is front.
If you expect any noteworthy developments with respect to either of those collaborative companies.
We are working closely with both of them.
In constant discussions with them about ways to expand our business relationship but.
But we are very precise as are they in the terms and we hope to have something to say, but we don't at this time.
Okay, and then with.
With respect to the outlook for pricing.
Do you think that there is potential for.
Specific percentage price increases without seeing meaningful demand pullback as we look at the ultra inflationary environment that we're currently in.
So what might the magnitude of those percentages potentially look like and would they be applicable across all skus only some of them.
I think you're supposed to ask one question one follow up.
You got to like four questions in there.
The answer is yes.
We don't know yet exactly how much but we do think that we can increase the price without having a meaningful impact on retention or conversion.
We're looking at that presently we don't know exactly what that number will be.
And the answer to the question could it be across all.
Customers and consumers no it probably can't be across all but most.
Yes, I think with regard.
I think with regard to gross margins.
Susan with Rob just said, we're trying to maintain our strong gross margins are slightly better than 60% in 2022, which is similar to the 2021 levels.
It's driven by continued supply chain cost savings initiatives, we've got.
Those initiatives in flight and we also most recently have been looking at other design changes that could help us.
Incremental savings in 2022, we're seeing overall scale in our business, we're seeing favorable mix.
Which is offsetting we are seeing some inflationary pressures across our global supply chain and I think if there are consistent.
Pressure that we are considering a price increase as I said in my <unk>.
Repaired remarks delivery.
Inflation remains persistently high.
Thank you very much.
Your next question comes from Sean Mcgowan with Roth capital.
Your line is open thank you.
Thank you hi, guys.
Alright.
Good questions to clarify things can you talk a little bit about the.
Timing of the increases in R&D that you expect to see well that and will that be primarily in the.
Consumer segment or are you looking for increases in other segments as well.
Okay.
Hello.
Yes, I think thats going to be over the year I mean, I think it's going to be.
As we get each quarter that you should see a slight increase.
And then with regard to I forgot the second question Sean.
Will it be concentrated in the consumer segment or are you looking for kind of an outsized increase in any of the other segments.
Yes, the consumer segment, mostly.
Okay.
And then my other sort of follow ups last clarification question just on this Watson shift when you say half of it.
What it was for the first quarter do you mean, just the shipments to Watson Thats whats shifting none of it when you say it's half you mean just watches right.
Yes, just watson's yeah, Okay, Sean I just want to also contribute to Kevin's answer to your previous question. If you don't mind.
Please.
I just we recognize.
How significant <unk> investment has been.
And continues to be in.
In the R&D in the science in the intellectual property and in protecting others from stealing our shareholders' intellectual property and we recognize that it is very very important for us to monetize that investment.
And it is quite conceivable that the monetization of that intellectual property and that science that we have will not be a direct consumer product.
And it is something that we've discussed and work on.
Yeah.
Okay. Thank you appreciate that.
Your next question comes from Berlin to Xyrem.
Yes.
Yes.
My question will have parts, a through Z and the follow up will only be a through M.
Yes.
Let us begin if we may.
Your comment.
It was pretty tantalizing, what you just said there that.
May not be a consumer product.
I'm not asking you to disclose earlier than you want to but could you give us some indication examples that might fall under that category. Please.
So.
The laws are very clear as most people listening know that if youre, a dietary supplement company and youre selling a dietary supplement that is therapeutic or prophylactic for a disease you cannot make that claim or imply that claim.
Everybody here Who's followed the company knows that we had studies on Covid and now see that we had this fairly interesting study on Parkinson's disease.
So it is conceivable that there will be some sort of drug approval on either one of those indications at some point in time.
And if that's the case there is a business opportunity for chromebooks, either in a licensing arrangement or a joint venture or a partnership arrangement of some sort, but the science continues to impress us and others about the effectiveness of nicotinamide riboside towards various disease states.
Okay. That's helpful and I'll attribute that question to you Rob since you brought it up with the last question. So in all seriousness have a couple more first of all.
Relative relative to the.
Turkey Covid.
The study that were successful.
What's the update there is there an update relative to Turkey, and Ken Ken that the results from that study be used in China by Sino pharma.
The results of that when you say can they be used I'm not sure what you mean exactly.
If they would be with Sino foreign would be able to market them.
No they will not be able to make that claim we still have to get.
With Sino Us assistant regulatory approval to sell inside of China, and we are working on that and we think we have a great partner in pursuing that in Sino farm in terms of their cross border initiatives.
And when that that deal closes and they take over that that's still not a claim that they'll be able to make in their cross border sales into China Covid.
Okay.
But they will be able to use it in other ways. For example, it will be part of their dossier or their data in order to obtain regulatory approval. There because it's an example of excellent science that shows that nicotinamide Riboside is both safe and has been shown effective.
That is helpful and then relative to the Turkey.
Turkey uptake.
We have not received the Turkey update even still I know the quarters go by and we don't have an update there.
Been a lot of challenges that have gone on in Turkey.
I think I read recently, they have a 60% inflation rate.
I think the same would go.
Or.
Study participants.
Good news also.
Sure.
But we probably don't have an update in Turkey for the drug application.
Super Thank you for that and if you will allow me I would I would like two more questions. Please.
The supply chain head count increase that you referenced in the press release to scale the business.
When when will that be happening and kind of what's the behind the scenes as to why and then my second question is you referenced new partners that.
Are not included in the guidance relative to those new partners and how would they fit into your current ecosystem.
Yes, I'll answer the supply chain.
First so we've added those bodies in 2021 to keep up with demand and complexity in supply chain as we're going into different territories or more customers or a differentiated product lineup.
And it's not a significant amount of people, but it is it is.
Something that is impacting.
Supply chain costs.
The other question.
That new new partners with the ecosystem that you currently have with partners.
Okay, what was the question.
How will the new partners that you are in discussions with that are in the pipeline will fit into the current ecosystem of partners.
I am having trouble tracking the mental gymnastics of that one bill.
No worries at all.
Okay.
Know that youre not going to.
To have a new partner that is directly competing with Sino pharma for example, so.
Hey, there.
Essentially holes in your partnerships or distribution system that I am suspecting that you're wanting to build out or fill out and that's where I'm trying to.
I guess I'm understanding of kind of where are you where do you think that these new partnerships that you're evaluating may fit in.
Well, we think the opportunity for nicotinamide riboside or <unk>, specifically in China is significant.
And you know that we've been saying that for a year now or less.
But.
It is an important initiative by the China government too.
Manage the conditions related to aging.
Have a rapidly aging population they expect in the coming years to have 600 million people over the age of 60.
And Thats one of the reasons Sino pharma so interested in has been interested.
But in order for us to take advantage of the opportunity.
Okay.
Not only will we be partnering with Sino foreign but there might be other partners that get into the mix as well we are taking our time and have been taking our time as many of you have pointed out.
You put together the right strategy, the right partners and the right infrastructure to take advantage of that opportunity and we think we're very close.
Great. Thank you for taking all the questions and for your patience with my lack of clarity on the last one.
Great question. Thank you Bill.
Yes.
Hey.
At this time.
I'll turn the call back over to you.
Thank you Stephanie there will be a replay of this call beginning at 430 PM Pacific time today. The replay number is one 800 700 2030 and the conference I'd <unk> 6168. Thank you everyone for joining us today and for your continued support of <unk>.
<unk> X.
Thank you.
Today's conference call you may now disconnect.
Okay.
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