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spk_0: ladies and gentlemen thank you for standing by a welcome to chrome or decks corporations second quarter twenty twenty earnings conference call my name is josh and i will be the conference operator today at this time all participants are analysts and only mode and as a reminder that corporate call is being recorded this afternoon from shoot a news release announcing the company's financial results for the second quarter twenty twenty if you have not reviewed this information both are available within the investor relations section of chrome indexes website at www dot chrome or decks dot com i would now like a during the conference call over to brianna gerber vice president of a day and investor relations with go ahead with gerber
spk_1: think you could afternoon and welcome to commit acts corporation second quarter twenty twenty results and buster call with us today our products as chief executive officer rog fried founder and executive chairman think jack and chief financial officer kevin far today's conference call me include forward looking statements including statement related to cram it acts as research and development and clinical trial plans and the timing and result of such trials the timing of future regulatory filings the expansion of the sale of true ny agenda new market future financial results business development opportunities to your cash needs it axes operating performance in the future and future investor interest that are subject to risks and uncertainties relating to commit acts as few it's or business prospects and opportunities as well as anticipated results of operations forward looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance as the 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 crewmate exit actual activities or results to differ materially from the activities and result anticipated and forward looking statements these risk factors include those contained in chrome it access quarterly report on form him que most recently filed with the scc including the effect of the covered nineteen pandemic on our business results of operations financial condition and cashflows please note that the company seems no obligation to update any forward looking statements after the date of this conference call to conform with the forward looking statements actual results or to changes and its 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 present reconciliation to the appropriate gap measures finally this conference call it has been recorded via a webcast the web castle be available at the investor relations section of our website at www dot it acts dot com with that is now my pleasure to turn the call over to our chief executive officer rod fried rob
spk_2: thank you brian good afternoon everyone in thank you for joining our second quarter twenty twenty investor for democratic said and mathers grand theatre he told me that sales and fifteen point three million dollars also we achieved the business game of positive adjusted ebitda excluding tony legal experts or five hundred and twenty five thousand dollars overall sales increase seven percent to quench really and thirty eight percent year over year two knives and net sales were eleven point seven million dollars five percent increase sequentially and thirty four percent increase year over year as you know the current buyers and the economic downturn has created headwinds for many businesses including ours or ecommerce business continued to perform well in this challenging environment girls who roughly flat sequentially a retail business including sales to watson's and partners and new international markets have been more impacted by the go to bars that we remain focused on the terrific opportunities ahead i've just mentioned adjusted ebitda excluding total legal expense was a positive five hundred and twenty five thousand dollars in the second quarter he benefited by our initiative to reduce costs when the granted direct hit an objective that is still ongoing let's now discuss the three pillars our business strategy to build a global brand to own the science to focus on the fundamentals first
spk_3: the brand
spk_2: global teenage in that sales represented seventy seven percent of the fifteen point three million total net sales in the second quarter international sales for tonight and represented approximately thirty five percent of tony tonight and cells the seafood sales to watson's in hong kong and singapore cross border sales in china japan europe and sales are partners in australia new zealand the uk and cat it also includes one point six million dollar purchase them arrives to donated bottles of tonight and to the health care workers in hong kong hospitals tales to watson's were one point three million dollars in the second quarter compared to one point eight million in the first quarter this included initial shipments of two knives and beauty sales in the based isn't excluding tonight and beauty were roughly flat sequential watson business continue to be impacted by store closures and declines in chinese tourism in the second quarter the teenage him as a relative out outperform former as their top performing supplements in addition watson is pleased with the early performance tonight and beauty which launched in two hundred and thirty stores in april in addition we introduced tonight and beauty three cross border cells and china as another test launch he commerce net sales were eight point one million dollars and twenty four percent increase year over year and slightly below first scored the grown a virus and economic downturn negatively impacted our us ecommerce business in mid march he responded in april with new relevant marketing messaging highlighting the importance of elevating and a deeper solid defense and resilience in the face of physiological stress these efforts were successful and will be continuing we sell cross border in the uk japan korea germany france italy spain and china which grew approximately one hundred and fifty percent year over year we launched on t mall in china and the second quarter twenty nine team and expanded distribution to jd dot com and kayla a dot com this quarter with a successful june eighteenth mid year shopping festival our marketing strategies focused on in channel advertising and influencers as well as are needed we have been selling on amazon uk since june two thousand and eighteen and began expanding to other major european markets following at so cool we received favorable press in europe including hello magazine and the july issue of french vogue which covered the growing trend behind and eighty supplementation and mention true nigel additionally we are continuing to build our brand with strong global partnerships as mentioned on the first quarter call shipments her new market launches contributed to strong sales tales from these new launches were down sequentially in the second quarter we had we orders from all our new partners and we believe in the long term potential of these markets i'll briefly recap each in april we launched tonight and in over two hundred superdrug uk stores as well as superdrug dot com launch planes were scaled back and sales have been slower to ramp up due to the corona bars to support the launch climate action superdrug continue to collaborate on pr and influence or efforts as well as in store and digital promotions you do not expect meaningful sales in the uk and twenty twenty but we see the uk is a growth market for tonight and with the potential to expand into super drugs for eight hundred uk stores overtime if the test launches successful we launched tonight and online in australia in march and with one of our proven distributors medical health limited they plan to expand into retail later this year this approach follows they're successful rollout of to nigeria new zealand to small but steadily growing market for us modify on breathe deep knowledge of the local markets as well as the dietary supplement category and our science based products we believe to knowledge in his position for strong growth in a spa strategy and twenty twenty and beyond nestle health science has shared with us that they plan to begin the marketing efforts to educate consumers on the importance of cellular nutrition very soon our work with nestle how science will allow them to bring products related to cellular health containing to nigel to market later this year ultimately the timing will be determined by nestle but we are encouraged by their commitment and their efforts persona nutrition a division of nestle health science and leading personalized vitamin subscription program launched to knowledge and on their direct to consumer platform last quarter tonight and capsules are offered in person as monthly biden impacts packs along with other high quality science based ingredients recommended by their panel of medical experts we believe our partnership with nestle how science and now persona will help build awareness for tonight our second quarter objective is to own the science we're confident in the science behind niger which continues to be studied by leading institutions and universities around the world recently signed are two hundred material transfer agreement to the crime attacks external research program which has resulted in sixty published studies to date including ten publish clinical studies the putting the safety and efficacy of our patented ingredient night several new studies have been registered in published since our last update which will summarize momentarily all of our science on and are can be found on about and eighty dot com which was relaunched this quarter to provide a better user experience in april we announced the first round of results from a combination tissue and in trust that he had called the nineteenth as a reminder there were two key findings from this preclinical study first the coven nineteen introduction to the studied cells cause the eighty percent reduction in and eighty and second these infected cells specifically sought out nikitin of my driver side in an attempt to replenish and id levels in the face and the viral infection we recently announced the results of the second round of pre clinical research by the schools including our chief scientific officer doctor charles bradley they found that and are inhibits replication of a form of corona buyers the virus that causes covered nineteen infection in now sense this suggests that and are may have an anti viral effect may support cells innate immune response to corona viruses and other viruses of course human clinical research is still required in addition chrome or next entered into a preclinical collaboration with the national institute of allergy and infectious disease and i a id a division of the nih to assess the therapeutic potential of night and encoded nineteen animal models this is a logical next step to assess whether increasing energy levels within our supplementation benefits the innate when immune response in a the nineteen model of mice and hamsters this join study is designed to assess whether and are supplementation prior to infection can reduce progression of the inception either by limiting viral replication modulating the severe inflammatory response we're proud to support the and ideas they worked out fine answers find answers to this global pandemic ultimately clinical trials will be required to determine whether niger may have any impact or benefit uncovered nineteen infection and humans we will continue to share the findings of all our collaborative covered nineteen research when appropriate we also continue to build upon and protect our intellectual property which includes our ongoing litigation with a museum health the corona virus outbreak has extended delays in california and new york and no trial dates and been set delaware the that and case is scheduled for trial in september of twenty twenty one with a markman hearing in december of this year we've seen a lead ins initial claim construction arguments and remain as confident as ever in the strength of our license pads as i have repeatedly said we are eager to get to trial and for the facts to be presented to a jury in all three cases or third strategic feller is to focus on fundamentals it is our mission to lead by example in this industry in june frank participated in a panel on master files for dietary supplements hosted by the american conference institute and the council for responsible nutrition and just this week he joined nih for to roundtable discussions in all three presentation it's like champion the importance of greater transparency compliance and enforcement worse in the dietary supplement industry to protect consumers this is an important topic to all of us and is central to our commitment to science and to consumer safety quality control the big part of that in in june or longmont colorado lab received it's i have so accreditations this latest accreditation recognized as complex as consistency meeting the highest international standards and quality control which has been recognized by prestigious regulatory bodies around the world finally our chief scientific advisor doctor charles brenner received the twenty twenty national scientific achievement award from the american society for nutrition for his outstanding research and the feel the bioactive compounds for human health in summary we continue to deliver on our strategic objectives and successfully navigate these unprecedented time there are many listening to believe the tonight and has positively impacted your health and are eager for it to become a household name
spk_4: so are we
spk_2: we are working hard to spread the word global while staying true to our philosophy of responsible science based marketing and communications we clearly have the attention of the scientific community was increasingly studying this amazing molecule and we are investing alongside them to drive important research and now i'll pass the call avatar chairman prank jax for an update on scientific research
spk_5: right
spk_6: becky rob as he heard rob say one of our core objectives is to own the science we are committed to romania global scientific authority on an hour and and d research were also setting the standard for excellence in the industry with our commitment to science safety and quality i was very proud to represent chrome and acts and the dietary supplement industry as an innovative science based responsible company at the conferences and panel said rob mentioned earlier since our last call publication of research on and in any diaz continued to accelerate there are forty two ongoing completed or published clinical trials currently registered on clinical trials that gov to investigate the pharmacokinetics and therapeutics attack seminar this is to more than our last update an additional ten clinical trials are registered to test and or in combination with other ingredients for a total of fifty two we also reached a milestone of two hundred sign research collaboration during the quarter up by approximately five compared to our last update as rough said these collaborations have resulted in sixty publications to date including ten published human clinical trials we recently announced the results of a preclinical studies investigating the effects of night and supplementation in mice that has traits or behaviors associate with autism spectrum disorder specifically they studied male mice that we're missing a gene that's partially responsible for the production or release of oxytocin which is essential for feelings of happiness an attachment researchers found that by elevating any be levels and these mice their social deficit such as fearful and anxiety like behavior were corrected allowing them to interact normally with other mice the study was the first to evaluate nine june and an autism mouse model but it joins a growing body of pre clinical data demonstrating that boosting any be levels may have a positive effect on pardon of health in addition a pre clinical study was published last month in the journal of translational animal science in this study the researchers examined the effects of in over or into the egg injection of nicotine why ride the side on pectoral muscle development and growth in checks they found that when injected into the yolk the yolk sac in increase pectoral muscle weight and length by thirty eight percent and twenty two percent respectively and are also increased with deaths and muscle fiber density by a lead nine percent eleven percent and forty five percent respectively effects were significantly greater when injected into the yolk first as the egg white as stated in the paper it is unknown whether the increase in fact or muscle wait due to be effective and are will affect future chick growth and me quality however according to the researchers disaffected potentially impact poultry industry yields and product quality this is an interesting study says it explores the impact of men are on a new adjustable market i'll briefly touched on a newly registered clinical study that was registered in june the study was registered by mclean hospital in collaboration with the national institute on aging the the effects of nine jun on brain energy metabolism oxidative stress and cognitive function individuals with mild cognitive impairment and mild alzheimer's disease fifty participants will be given a thousand milligrams at night and over to twelve week period within the intrinsic capacity framework that i introduced last quarter cognition related studies account for roughly fifty percent of all ongoing research on agent as rub mention we we launched about any the dot com with a goal of making all the science on and are easily accessible this new site has an option to filter the research by intrinsic capacity domain in summary products is committed to remaining a leader in the an hour and a d and cellular health conversation will continue to defend our intellectual property run an hour while exploring the potential next generation and needy precursors which are also protected by a strong and growing patent portfolio we are thankful to our investors for putting their trust in this team to deliver on the opportunity in front of us
spk_7: with that i'll past the call the kevin far kevin thank you frank let's look at our financial results for the second quarter of two thousand and twenty which reflected continued progress against our key financial objectives and strong underlying business performance the underlying business as measured by adjusted ebitda excluding total legal expense a tiebreak break even with a second quarter profit of five hundred and twenty five thousand this was a point eight million improvements sequentially and a two point six million improve eight year over year compared to the first quarter of twenty twenty we delivered strong sequential topline growth higher gross margins slightly higher advertising expenses a percentage of net sales and lower general administrative expenses primarily driven by lower severance and restructuring charges which are related to cost saving initiatives and lower legal expense these results reflect strong operational on financial discipline which have allowed us to navigate the challenging macro economic environment very well we ended the quarter with eighteen point nine million in cash including the five million common stock raised in the second quarter from existing strategic investors while there was not an immediate need for additional capital we believe it was prudent given the economic uncertainty we have additional flexibility with their seven million dollar line of credit which we have not accessed in addition we found one hundred and twenty five million shelf registration the company has no present plans the issue securities under the registration statement however we believe is prudent the have the shelf registration place as a matter of good corporate governance it provides financial flexibility access the capital markets to respond to future financing and business opportunities
spk_8: moving to the second quarter results for the three months ended june thirtieth twenty twenty chrome and next reported net sales of fifteen point three million up seven percent compared to fourteen point three million in the first quarter of two on a twenty year over year net sales were up thirty eight percent compared to the second quarter of two thousand nine
spk_7: nineteen tonight and net sales rep five percent sequentially and grew by thirty four percent year over year with growth driven by u s e commerce a one point six million dollar purchase by horizons who donated true night in the health care workers at hong kong hospitals and international cross border launches year over year lots of sales remain solid at one point three million in the second quarter but as expected were down versus the first quarter which included a issue shipments of true nigel beauty were encouraged by improving trends and consumer take away in the second quarter watson's and expect ship and to more closely align with sell through in the third quarter hour with the recent rise and cold that nitin cases in hong kong this is a risk total knives and related that sales up five percent sequentially and forty percent year over year this included a small shipment to nestle which resulted in recognition of a portion of the form million upfront payment our revenues in the second quarter we have experienced strong demand for night and from other customers but these sales can fluctuate and we expect lower nigel ingredients sales in the second half of the year turning the rest of the piano on a sequential bases are gross margin was up a hundred and fifty basis points than fifty seven point nine percent in the first quarter of twenty twenty to fifty nine point four percent the second quarter of twenty twenty year over year gross margins increased by three hundred and ten basis points the fifty nine point four percent compared to fifty six point three percent in the second quarter of two thousand and nineteen product cost savings initiatives and overall scale on our supply chain drove the improvement gross margins well originally expected supply chain costs even be reflected in their gross margins later in the year a porsche the savings was realized in the form of a rebate for prior year efficiency initiatives which was recorded in the second call order this results in a one time benefit of approximately one hundred and ten basis points in the second quarter we believe product cost savings initiatives as well as they rule mix from growing true dieting consumer product sales represent a tailwind gross margins and twenty twenty on a sequential basis or total operating expenses for the second quarter of twenty twenty was twelve point eight million down one point four million compared to the first quarter of twenty twenty are selling and marketing expenses were up point five million to five million in the second quarter of twenty twenty compared to four point four million in
spk_9: the first quarter of twenty twenty
spk_7: as a percentage and net sales this expenditure was up one hundred and forty basis points in the second quarter of two thousand twenty versus the first quarter of two thousand twenty we continue to monitor daily ecommerce metrics such as consumer acquisition costs to adjust messaging and spending which is increasingly important in this flu environment we also invest in pr to support our launch events with superdrug in the uk as well as mata condor in australia during the second quarter as reportage in a expense was down two million to six point nine million in the second quarter of twenty twenty versus eight point eight million in the first quarter of twenty twenty this included one point eight million of legal fees and point three million a severance restructuring expenses in the current quarter excluding legal fees severance restructuring aqui compensation expense second quarter twenty twenty dna expenses lower by point six million versus first quarter twenty twenty comparable june a expense legal experts was down point five million compared to the first quarter of two thousand and twenty there were ongoing investments in the delaware patent infringement case as we prepare for the claims construction mark i'm hearing in december twenty twenty and trial in september twenty twenty one we also encourage expenses related discovery and the new york litigation we expect legal expense to begin to ramp up and the third quarter driven by the new york and delaware litigation for the second quarter of twenty twenty are operating loss was three point seven million versus five point nine million in the first quarter of twenty twenty the net loss of trudeau calm and shareholders for the second quarter of twenty twenty was three point seven million or a loss of six cents per
spk_10: share as compared to a net loss of five point nine million or a loss of ten cents per share for the first quarter of twenty twenty
spk_7: as we said we believe it's important to focus on sequential trends in our business to demonstrate progress towards cash flow breakeven the help investors better gauge the underlying financial performance of our business in the second quarter of two thousand and nineteen we introduced a new non gap measure adjusted either the excluding totally legal expense roma decks defines adjusted day excluding total legal expense is net income or loss which is adjusted for income tax interest depreciation and amortization noncash stock compensation cost bad debt expense related to elysium severance and restructuring expenses and total legal spending we have included or reconciliation to the appropriate gap measures in earnings release slides is a previously highlighted adjusted ebitda excluding total legal expensive prove a point eight million to a profit of point five million in the second quarter of twenty twenty compared to a loss of point three million in the first quarter of twenty twenty year over year we deliver two point six million improvement in the second quarter of twenty twenty versus a two point one million loss in the second quarter of two thousand and nineteen the improvement the second quarter of two thousand twenty was primarily driven by higher gross margins and higher sales and lower general administrative expenses moving to the balance sheet and cash flow we end of the second quarter of twenty twenty with cash of eighteen point nine million of five point three million versus the first quarter of twenty twenty in the second quarter of two thousand and twenty or net cashews and operations was one point six million versus five point two million first quarter of twenty twenty the sequence you improve this quarter was driven by a lower net loss and a reduction or working capital investment today we've successfully navigated the business during the cold that nineteen pandemic managing are working capital at this time we do not expect any supply chain disruption from cronin virus and have implemented risk assessment strategies to manage this going forward as it relates to our twenty twenty four your outlook we expect to deliver continued topline growth including growth and our ecommerce business which experience temporary slow down and growth in the second quarter due to the macro economic impact of the corona virus we continue to expect gross margin expansion dude if they ruled next from my rowing ecommerce business the product design changes implemented late two thousand and nineteen and additional supply chain cost savings initiatives which we implemented beginning in the first quarter of twenty twenty we continue to expect an increase in selling and marketing expensive three to five million including investments and brand awareness and investments in newmarket launches including cross border platforms in china we expect continued improvement selling and marketing expenses as a percentage than that sales driven by strong sales from returning customers and scale on our business lastly we continue expect the dna excluding severance a restructuring expenses and legal expense will be up by one to two million year over year comparable to two thousand and nineteen dna expense excluding the elysium related bad debt expense in two thousand and nineteen adjusted even a excluding total legal expense remains a key metric we expect a significant improvement for for your twenty twenty versus for your twenty nineteen but there may be quarter to quarter fluctuations driven by the timing of our marketing campaigns and r and d investments we continue to believe that we can achieve cash flow breakeven and seventeen to nineteen million of quarterly revenues if the litigation ends and legal costs decline though the quarterly operating expenses will likely be higher in the near term driven by higher litigation as a result we need sales of approximately nineteen million and gross margins of slightly better than sixty percent to achieve this we believe will deliver higher gross margins as we execute on supply chain cost savings initiatives will continue to manage all lovers of the bnl to deliver on this important objective
spk_0: in summary we continue liver consistent topline growth while demonstrating operational and financial discipline i'm very proud of how the entire chrome addicts team is executed in this challenging macro economic environment
spk_11: operator we are now ready to take questions
spk_0: at this time ever by to remind everyone in order to ask a question faster than a number one on your helicopter's bad
spk_12: tie your question the county if first question comes from japan be valium can go ahead
spk_2: i'm personally say congratulations on a strong result especially with yeah the pandemic background
spk_13: on can you speak a little more about the project without cheese lab arm how that came about made you can touch on your thinking around selling their strain in siam protection and potential immunity enhancement from turn age and and and i guess what other studies on are you watching most closely that are that are currently on
spk_14: going
spk_13: yes i'll begin the answer to that nana and then i'll pass robert frank to contribute as well
spk_2: of before i do
spk_15: i quickly
spk_16: say that there's a website called raising and a d dot com which compiled in some bid is a very impressive list of investor questions and we want
spk_7: you to know that we've read them all and some are fairly technical we plan to answer many of these questions and post or answers on the investor website in our i our website
spk_15: in response your question
spk_2: on the saudi lab they saw
spk_13: the initial data that was published on by archives that show that there was an eighty percent decline in any day when the koran have grown a virus attached to the south and they found that very interesting obviously there's bad
spk_6: particularly interested in this cytokine storm and how the reduction in i'll six information marker might impact cytokine storm or there's a connection between a one of the original cofounders of of comedy acts and a member of that vouch team in the colorado lamp in fact i'm going to pass over to frank right now if you want to elaborate on that a little bit more yeah so on the the researcher who's who's doing the study had in fact been on sort of looking and energy metabolism and mitochondria as as a contributor to our current a virus on and good sort of pick up on not like robin mention on the by archive the initial publication of the bio archive study that showed the decline of any the inability to potentially rescue that as as a way of of helping out and that's exactly what they're going to be studying in serve a two stage mouse my it's a mouse model and a hamster model
spk_17: tom mice can't naturally be become infected by corona virus so they have to actually produce specific mice that can be infected i'm and they they were successful able to do that and now we're going to be looking at that model is one of the model so that the will be toast prior to becoming infected so get steve
spk_12: the effect that has on on mice that we're witnessing before an hour before they got infected and then see what the impact is afterwards as well and the hamster model hamsters in fact do become infected without having any modifications to to do so
spk_2: so you know their thesis is that it's essentially gonna happen to a significant impact on repairing the and eighty and having an impact on not only controlling the the virus itself meaning replication of the virus or but also survivability and and recovery and the animals and that's really sort of the core of it did he have any other
spk_16: or specific questions on manner
spk_2: no that's that's really helpful and then i guess our i wanted to get your sansa of which studies which other studies and mean that's a terrific study the which other studies are near most focused on
spk_18: well the let limited to first i say there there there are a number of important conversations happening between chrome relax and other research entities that we have not yet announced and are still exploring at this point in time
spk_12: but we are excited about the possibilities
spk_7: okay
spk_2: ah hello and that maybe that got just one other your comment on and is that look i think it's good that we're going to have you know a a mouse model or an animal model study in place prior to evaluating their studies well i think it's a it's responsible way of of looking and in as well
spk_19: absolutely
spk_2: and then if we could just turn to nestle for a all men i'm anymore call you can give us some sort of an update of you work with nestle how that's evolving and then i guess always a month for with nestle as a partner this year made touch on my little bit
spk_16: so we speak with nestle frequently a we're very excited about what they're doing and they're very excited about nigerian and their business plans but they like everybody else have been impacted by
spk_12: corona buyers so they initially planned to begin their marketing in june and they moved it to july the product launch in september in late september is now the beginning of august and marketing launch hasn't commenced although they assure us that it's imminent we are expected to be imminent and the product launch is obviously gonna be slightly delayed we don't think it'll be significantly delayed
spk_15: but you know they're thinking long term and they're thinking and a significant way and they have many facets of their organization working on it we think there are they've got a good idea for how they want to pursue it
spk_2: but at this point in time it's really up to nestle when they do it and how they do it we like what they're doing and we like what what what they see that we don't really know much beyond that
spk_15: okay that's help on and if i get to squeeze one more and on on your marketing plans i know you see the va does ah maybe you can dispatch on on how year you i guess changing does for second half around anti aging vs selling their protection
spk_2: on the more we should anticipate near term by so let me answer that question this way the market for dietary supplements has been quite interesting over the last few months
spk_15: sales of immunity base dietary supplements have been doing extremely well
spk_16: sales of dietary supplements that are not and june based have not been doing well another interesting phenomenon is ecommerce in general has been doing extremely well retail in general is experiencing headwinds
spk_15: so what that means for tonight and in chrome or is sort of a mixed bag we are predominantly any commerce company
spk_7: but our international strategy has had significant retail components as well
spk_19: true knowledge in is known well known as an anti aging supplement and over the last year also as a fitness supplement
spk_16: not as an immune based dietary supplement
spk_13: having said that we understand the science behind nikitin of my driver's side extremely well
spk_16: we understand that there is likely to be a benefit to a cellular health when a virus attached to a cell so that hasn't been part of the positioning and the marketing previously but we need immediately began to do research and studies initially preclinical as frank
spk_15: said first dish an animal than human clinical
spk_16: to verify what we instinctively believe we understand the mechanisms well enough to believe that there's a therapeutic and perhaps prophylactic benefit we need to prove that scientifically
spk_7: there is plenty of science for us to say things like sell defense cellular health cellular protection
spk_2: so what we did is in addition to launching these studies is we pivoted of the away from fitness and anti aging per se and more towards this idea of sell resilience and sell that defense and sell strength
spk_7: at at the end of the day we still see this as an anti aging dietary supplement but we see some cohort groups that are important
spk_2: that speak to fitness speak to speak to immunity and perhaps speak to other
spk_12: cohort whoops as well
spk_20: and presently a lot of our time and attention is on this concept of zelda fan sell your resilience and sell health what we've seen is that messages working so we plan to continue of course we don't know nobody really knows what the future of corona virus is going to be worldwide and in the mark
spk_0: in our an hour markets the was appointed time where it look like a was drawing to a conclusion then we see a resurgence now we see resurgence in certain markets it's hard to know it's difficult to know what we think in a long run it's likely that them people in general are going to be sensitive to this idea of immunity health cellular
spk_21: health and viruses and that is likely to be part of our narrative for a long time to come
spk_22: okay that's helpful advice or taken my questions and and best of luck
spk_2: and the exchequer
spk_22: next that i'm concerned right angle and oppenheimer please go ahead hi good afternoon
spk_2: i think you ever in my questions to my my first question isn't a getting a bit of a followup that that that that last question robin and cabin you you both discussing kercher comic just of of the headwinds to tonight and sales given the coven nineteen crisis in united states and elsewhere so my question maybe just more elaborate on what kind of what is that is is it up is is a function of your stories i guess is if he mostly or procedure stores be closed is a different you know maybe just
spk_16: beginnings in general economic malaise won't work for consumers are trimming a budgets
spk_2: and then as big as these headwinds have started to abate know i hear you i said knows where have you start have you seen him in improving improving demands ran for for tonight and
spk_15: yes we have seen in improving the man trend for tonight and
spk_2: domestically and abroad
spk_7: in the middle of the quarter we saw a significant improvement in watson sell through
spk_2: when they may and june we're strong stronger and continued dad to show strength and so we're confident that know that watson's is coming back so to speak yes initially the downturn was simply because it's a store closures and lack of foot trap
spk_7: thick as opposed to lack of consumer demand
spk_2: now hong kong very recently
spk_22: as seen something of a resurgence are we still are highly confident in the performance of the hong kong sales but there is obviously some uncertainty there
spk_2: same is true with our u s e commerce business we saw in march
spk_23: fairly dramatic and fairly immediate impact but we are able to recover in the middle of the quarter and finish fairly strong so we have confidence that were spin still see continued growth in the basic ecommerce dinners as well as watson's in the future
spk_2: okay then my follow up question
spk_16: this with regard to market your those of us have follow
spk_2: robert action tonight very closely know it was watching the science and i are in all these studies well
spk_13: what it is arab is there what do you would he would you waiting for what you need to wait for from a of i guess from the science from the studies in order to give you the
spk_16: conviction or leeway to me more into marketing about some of these other potential benefits of true into as as a supplement
spk_2: well it's a good question we take great pride in the fact that we are fundamentally sound operations and conservative in the way we approach on business
spk_24: and that's true on the financial side on the operating side and on the marketing side we have great pride in the relationships that we have with regulatory bodies with the ft a with the ftc with international regulatory bodies and we have we have we have those relationships in large part because of the way we approach it
spk_16: in the u s
spk_2: you can't mention a disease of any type if you are not an approved drunk to the best you're going to do with the dietary supplement or food is a structure function claim and in order to make a structure function can't claim you need to publish clinical study
spk_16: generally more than one now we aren't we see what goes on in the business we see what the other dietary supplement companies tax some actually even steal the ingredient and don't even pay for it
spk_7: some actually pretend that the sciences there's or that they have patents when they don't
spk_19: but often people lean into these health claims when the science isn't there to support it and they're just hoping that the f t a or the ftc is not gonna go after them
spk_25: we're very careful and we understand that i being careful by licensing patents and paying royalties and by being conservative in the way we approach it in by letting published studies precede claims that we make that there is it takes more time
spk_22: and that we understand that there are investors that are frustrated because they don't want to take more time they wanted to happen today they believe in the ingredient they don't understand why other ingredients are making claims on television and sales are growing quicker it's just not our way we're doing it one step at a time brick by brick and
spk_26: probably away and building an organization that has built to last and that's just the way we're going about doing a quarter by quarter year by year
spk_27: we wish there was a quick way to do it we don't see it
spk_28: by pre show a color
spk_29: thank you very much thanks brian like back
spk_15: next session and some geoffrey howe and company
spk_2: if i
spk_15: hi this is actually destiny on for just i want to echo the congratulations on a nice quarter and my posting is really more around the healthcare practitioners and are you have any insights into how they're coping with and very restrictions that and nathan place on them and and do you think that there are some customers that maybe we're
spk_2: we're getting night and threw them that had transitioned into the ecommerce channel and in order to continually and had night and elite receive margin
spk_16: yeah i think that's a very interesting question
spk_29: are you one hand market more aggressively to healthcare practitioners than to consumers
spk_2: healthcare practitioners but you can present preclinical studies animal studies to them to show the supporting data and then there is confidence that they would distill that data and then translated to the end consumer in a responsible way so our connections to healthcare practitioners is extremely important and we see that as a as a very in strategic and growing part of our business a both in the sports community as well as the direct health care practitioner communities nutritionist nurse practitioners chiropractors and physicians themselves and yes we do believe that many consumers start are introduced by to tonight and through their health care practitioner some healthcare practitioners are actually resellers of the product themselves they actually purchase wholesale a bottles from chrome and action and resell it to their patients
spk_15: some just recommended but we do see that many of these consumers then becomes a direct to consumer ecommerce customers of hours okay variants thing i appreciate that and then i heard and a brief mention of some are in the investments and just wondering affair and in some high level you know color you can give us some what you're working on
spk_29: a are anti investments across
spk_6: many spectrum stairs are there are supply chain ingredient manufacturing investments were were constantly reducing costs and i think we've done a very very good job working with some of our partners to increase our gross margins and improve the manufacturing processes are also investments in research so that week the stronger for claims but also have a deeper knowledge of this incredible molecule and this incredible ingredients and then there are also product investments were were trying to find other ways to offer nikitin my driver side to the consumer and there it's a powder or a food or beverage or or or even the various formulations that we think would come out and nigerian combination with other ingredients that might have benefit a particular sub market marking group and all of these latter up to our in the investments for the company okay thank you and and then phrase you've been pretty busy and at different conferences and a round tables i'm just curious as or anything and coming up that we should be aware as well
spk_29: well i mean i say that there seems to be a lot more on to spend a lot more news lately about the f t a and very tax aspects of the regulations and that's largely what on you know the round table that i participated in this week for an age as well as
spk_30: the event that are robbed spoke about his well we're were largely about ft a related regulations and the need for the ft a to enforce her better enforce those regulations for those the har in fact being responsible i'm so i would say that you know my i'm definitely going to be spending time
spk_0: ah beating the drama the fact that the ft a needs to do their job to enforce regulations within the space better than they have been on
spk_31: and as long as we need to keep beating the drum and that we're going to arm
spk_32: i think it's an important topic not just for chrome and next but it's also a good one that's what the whole industry already got it thank you for taking questions thank you thank you
spk_33: oh you ask the present yourself to one question and one follow up your next question comes amid money or else that in and help please go ahead
spk_34: good afternoon
spk_32: don't you know following up on like you know your cautious approach to a way you can say in marketing
spk_2: when when do you think you'll have the ability to more directly address
spk_16: viruses
spk_15: and you know of and related
spk_32: aspects to and a day him his his are we talking you know you out two years out six months out and just curious when you think could be realistic to the evidence dress directly oh course when you conduct day human clinical study there's no way to know for sure what the results are gonna be the preclinical studies or an indication of what you might expect that when you do clinical studies there are so many other variables that are harder to control that it's hard to known until you complete a study with the results that you are hoping for you really can't make a strong claim so he could be a few months
spk_15: it's theoretically possible that it could be weeks it's not likely but it's theoretically possible i don't think it would be as much as a year but it's even possible that it could be it depends on when these studies are completed and what the results say
spk_2: yet his heart he has it is difficult to sell a product without being a to help people
spk_19: why they needed to take it directly instead of the you know beating around the bush
spk_13: oh it's to sort of important
spk_15: hit marketing and speaking of marketing the market's gonna be at three to five million for the year it was up a naughty in in the first half so that suggest
spk_32: and acceleration in the second half what what gives you the confidence me theater csc commerce's was flat in the quarter i sequentially that is what gives you the confidence that you know it's the right thing to do in this to to take sorry marketing why they said it was flat it was flat in the second quarter versus the first quarter but the first half of the second quarter was down significantly and then it recovered so we're looking at trends dear
spk_35: and we're seeing strength we're seeing we were seeing significant rebounding guerin so we're seeing growth that in a one reason in another reason as we know it the product is and we know what the retention is and we know that customers that
spk_2: ah that begin to be become tonight and customers especially those that stick with it for a couple of months tend to stay for a very very long time so there are many many metrics that we look at an ecommerce business that suggests this business is going to be around and growing for a long time to come in any one quarter anything can happen
spk_36: you could have events like the corona buyers that might be disruptive for a quarter to but we see and believe that long term this is a very significant business and will continue to grow up
spk_0: and he says of the follow up and my final question is just any any color you can provide as to
spk_37: in the commerce channel with new customer growth sequentially
spk_7: weaker was there you know with for attention rates different lower
spk_38: a car will be helpful
spk_7: in the beginning of the quarter we saw the first time an actual reduction in retention rates in the very like in march and we saw some headwinds and new customer acquisition but then by the end of the quarter we saw that turn around and retention rates are turned to the right to the good rate that we've been used to and then new customer acquisition stuff improved as well
spk_37: thank you sure they switch
spk_39: your next question comes from jp mark with dark have equity research please go ahead
spk_7: i good afternoon and that congratulations also on a positive adjust at all panicking so reporting that measure actually and you talked about getting to positively the thought of rom legal an astonishing to take thing as sitting there and a when i heard was that it sounds like it was down sequentially but it may ran back up a little bit as you go into another phase and is that correct yeah that's correct we expected to increase in the third quarter due to the litigation in delaware and need litigation in new york
spk_40: and then by the enemy by the end of next year didn't believe that that goes away and only the temps as on one way the other correct
spk_0: it's hard to predict illegal spending in terms of magnitude and timing but the in i think that the case that the is the most important cases of delaware case that is scheduled for september of next year
spk_41: the we're hopeful as we get to that cases is rubs said we want to get the trial that that the that case with the resultant legal spending to moderate after that case
spk_6: okay and then my last question is a bag gross margin the personally talking about improvement over one hundred ten basis points on that was related to pie your initiatives in recognizing the square also heard that sounds like gross margin is still improving said even now you got this one time benefit your are you still shouldn't optimistic that you get to sixty percent plus gross margins of next few quarter is that sort of at the plant get a permit timing perspective we a really said the timing but i think get work done a design change that we implemented in the fourth quarter of two thousand and nineteen and was taken the configuration of or three month supply from three bottles the one bottle that resulted in lower bottle cost smaller packaging and lower shipping cost there was we go through the first through the third quarter that a that will be an improvement vs last year because we launched in the fourth in a we also did some some work in the first quarter this year which we expected to hit in the second half of the year summer that has come through in the second quarter we would see benefits in the in the third and fourth quarter and then i think with regard to our savings programs we have also highlighted that done in a we expect about two million dollars a savings based the by what with implemented already and most the that would show up in in two thousand twenty one thank you hm
spk_42: next question comes from mulder and sell us with a to the wainwright please go ahead
spk_43: afternoon and his my speaking on behalf of from the when right thing sigma question five to
spk_6: that is your view and f ft a's regulation of nutraceuticals evolved recently and how has that impacted you
spk_44: hi this is frank what i wouldn't say that it's evolved recently
spk_41: it's the same basic regulations that were put into place
spk_6: based on to say and eighty ninety four on those have implemented over the course of time between nineteen eighty four man ah but that you know the core of those regulations really around good manufacturing practices in the second one is around and the eyes and the enforcement the biggest issue isn't necessarily the the regulations themselves it's really like i was saying before it's really more about the enforcement of the regulations and how those are are enforced as a responsible company meaning how chromo next operates like ron said multiple times on on the call today ah i'm in a were responsible company that spends money and aus the rules that the a few is laid out there are a lot of companies that don't do that
spk_2: i'm in the problem is that sometimes the companies that are spending the money don't necessarily get the benefit that they should buy in fact following the regulations that with they should be
spk_6: so i would say it's more of enforcement than really about structure that the regulations
spk_41: that answers your question
spk_0: yeah make them
spk_45: and the second question relate to this fascinating study was published in a press release recently about the year social deficits in autism
spk_2: tom
spk_45: well the researchers if you know this are planning on replicating miss him of female mice to in addition to the mail
spk_2: i'm that's a good question i don't know if there were plans are i think that they specifically study the mail mouse model ah because it was probably easier to replicate it i don't know if they plan to to take a pass that
spk_39: i'm in in a female mouse model and at in i think it would be more hopeful for us is that like a lot of like rabid mention that we'd we'd pass star two hundredth
spk_22: collaborative study in a lot of the collaborative studies that have started in studies like this
spk_16: i'm and transition from successful i'm preclinical studies mouse model type studies into human clinical trial so it was may be hopeful that you know somebody would want to investigate this further in some formed clinical trial
spk_45: may maybe more so than even looking in an additional mouse mouse model
spk_16: and you don't have a fantastic palm and thanks for take my license true
spk_45: and some back to bite your company and ask him hi this is matt and i'm in capital management
spk_2: i'm wanted to delve a little deeper into the covert nineteen studies or our current a virus days that that have been referenced on the call
spk_45: you obviously referenced the at the couple animals take that came out as well as that smith the on to the an age lab there a curious how much efforts or work is being done around humans and doing studies and human is that something that that's developing our people
spk_15: looking at it and i don't know how much would the just a formal study vs
spk_46: i'm something otherwise sensitive such as a rapidly evolving and
spk_13: eighty situation where in right
spk_45: we haven't announced any human studies yet but we are having discussions with numerous researchers
spk_15: is there anything that's being done in formally that you're aware of that whether it's in a hospital situation or or things like that where it where people are are doing research or are looking into think that that might be published bowler or assist we know of various things that are taking place but none that have
spk_13: that we've announced publicly or disgust
spk_16: wanted to also ask about failed out of china you announced that you added that the two additional partners here this quarter or on top of the area pirates of the asians was curious what you're seeing how to china
spk_45: how that markets developing for you and yanni ipo i be great
spk_27: it's definitely growing there is a surging interest there and so we see it as a as an opportunity and we intend to invest more in it
spk_0: is it material this point of up
spk_1: i wouldn't say it's material yet remember we still don't have blue at approval to sell in china it's still a cross border business
spk_47: but have been done
spk_48: but but we are we worked on it every day
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