This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Ladies and gentlemen, thank you for standing by and welcome to Chromadex Corporation's fourth quarter 2020 earnings conference call. My name is Chris and I'll 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, Chromadex issued a news release announcing the company's financial results for the fourth quarter of 2020. If you have not reviewed this information, both are available within the investor relations section of Chromadex's website. at www.chromadex.com. I would now like to turn the conference call over to Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead, Ms. Gerber.
spk04: Thank you. Good afternoon, and welcome to Chromadex Corporation's fourth quarter 2020 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Fried, Founder and Executive Chairman, Frank Jacks, and Chief Financial Officer, Kevin Farr. Today's conference call may include forward-looking statements, including statements related to Chromadex's research and development and clinical trial plan, and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of TruNiagen in new markets, future financial results, business development opportunities, future cash needs, Chromadex's operating performance in the future, and future investor interest. that are subject to risks and uncertainties related to Chromadex's future business prospects and opportunities, as well as anticipated results of operation. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause Chromadex's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in Chromadex's quarterly report on Form 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic on our business, results of operations, financial condition, and cash flows. Please note that the company assumes no obligation to update any forward-looking statements after the date of this conference call to conform with the forward-looking statement's 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, present reconciliations to the appropriate GAAP measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the investor relations section of our website at www.chromadex.com. With that, it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Freed. Rob?
spk00: Rob?
spk02: Thank you, Brianna, and good afternoon, everyone, and thank you for joining our fourth quarter 2020 investor call. I'd like to begin by welcoming those of you that are joining us for the very first time. It's an exciting time at Chromadex, and we look forward to sharing our story with you. I'd also like to express appreciation to the investors, partners, and employees that were supportive of Chromadex during 2020. As for all companies, this was a challenging year and I'm proud of how this company navigated. We not only achieved record financial performance, but made a positive scientific contribution to the global crisis. We begin 2021 stronger than ever and excited for the future. Chromadex had another strong quarter and delivered on our financial outlook for the year. Total company sales grew 9% sequentially and 18% year over year. E-commerce sales also grew by 9% sequentially and 20% year over year. Total company net sales were nearly $60 million and TrueNiagen net sales were $47 million for the year. This is a meaningful achievement considering we only launched the TrueNiagen brand as a consumer product in 2017. The fourth quarter adjusted EBITDA, which we define as EBITDA excluding legal expense, was a loss of $1.1 million. Adjusted EBITDA improved by $1 million year over year. In February, we raised $25 million of cash with Everfund, a new international investor who is quite excited about the large addressable market for Niagen globally. While cash flow breakeven continues to remain a key priority for the company, This incremental capital will enable us to expand scientific research on Niagen and other NAD precursors in order to accelerate our product pipeline, as well as selectively increase investment in marketing to drive growth in the true Niagen business. The science on Niagen remains very strong, and published research, which Frank will discuss in a moment, continues to validate its importance in several areas of human health. We now have over 225 research agreements and collaborations with leading institutions around the world. They are studying cardiovascular, neurological, immunity, health issues, as well as many other areas, all associated with aging. This research has led to over 100 published preclinical studies and 11 published clinical studies. 2020 was a great year for scientific research at Chromadex. We expect more of the same in 2021. In addition to these partnerships with leading research institutions around the world, I am proud of our business partnerships with AS Watson Group, Nestle Health Science, Matakana Health, and WR Grace, among many others. They see the potential in Niagen, and we are grateful for their commitment to bring our science and product to the world. This week, we announced that True Niagen will soon be available in 3,000 Walmart stores across the U.S. We believe True Niagen is one of the most important dietary supplements to emerge in many years, and we are grateful to Walmart in assisting us in our quest to help as many people as possible age better. Walmart expands our strong and growing distribution footprint that now includes Hong Kong, Singapore, Canada, the UK, Australia, New Zealand, as well as cross-border online sales into China, Japan and the EU. Another important accomplishment in the quarter was the hiring of talented executives in business development, creative, legal, digital marketing, These new leaders augment our already strong existing talent across the company. We have high expectations for the future of Chromadex. And the most important resource to ensure that we realize our potential is people. I have never been more confident in the team than I am today. As I reflect on this quarter and on 2020 in general, I am very proud of our entire team's execution, and I'm quite optimistic about the future for Chromadex. We steadily grew our e-commerce business. We secured regulatory approval and launched in two major international markets. We launched new partnerships, strengthened our foundational processes and operations, and contributed to important scientific research, surpassing our 200th signed research collaboration on Niagen. We accomplished all of this while making significant changes to our organization. We have recruited a world-class team that is passionate about our brand, True Niagen. Our mission has never been more clear to help solve the problem of aging. I would like to thank you, our loyal shareholders, for trusting us with this mission. The addressable market for Niagen is very large. The body of scientific research behind this ingredient continues to grow, and consumer awareness is steadily building. We remain focused on creating long-term value. We progress toward cash flow breakeven while building a strong pipeline for future growth, and all the while vigorously defending our intellectual property against infringers. And now I will pass the call over to our chairman, Frank Jacks, for an update on the scientific research. Frank?
spk10: Thank you, Rob. 2021 is setting up to be an exciting year for Chromadex. Eleven peer-reviewed published clinical studies to date have validated the safety and or efficacy of nicotinamide riboside, or NR, as an NAD precursor. In 2020 and in early 2021, The published clinical studies extended to important areas of human health including a pilot study indicating that NR may reduce inflammatory cytokines in the white blood cells of stage D heart failure patients. The second clinical study focused on potential cardiovascular benefits of NR supplementation. A phase two study demonstrating a nutritional protocol including NR reduces liver fat and improves liver function. and a double-blind placebo-controlled Phase III study of 309 patients in Turkey with mild to moderate COVID-19 symptoms, finding that the same nutritional protocol including NR reduced recovery time by 38% in that population. The Phase II and Phase III studies were led by Dr. Adil Mardinoglu in partnership with Scandi Biotherapeutics, a biotechnology company focused on the metabolic cofactor supplementation for treatment of diseases associated with metabolic dysfunction. ScaniBio is evaluating the next steps of the Phase 3 COVID-19 study in Turkey. I'll also briefly highlight two newly registered clinical studies looking at the potential impact of NR in other health areas. First, in November, a study was initiated to investigate the impact of NR supplementation on mother's milk production in a neonatal intensive care unit. The clinical study is being conducted at the University of California, Davis, with lead investigator Dr. Bruce German, who is a member of the Chromedic Scientific Advisory Board. This study followed encouraging preclinical results published in cell reports, which showed that NR supplementation benefited both mothers and newborn rodents published by our Chief Scientific Advisor, Dr. Charles Brenner. This is a promising area of research that could benefit a high-risk population. In December, a study was registered by the Veterans Health Administration Office of Research and Development in collaboration with the University at Buffalo to investigate the impacts of NR on functional capacity and muscle physiology in older veterans. Investigators will study 144 patients in a double-blind randomized placebo-controlled trial. Nearly 9 million veterans are now 65 years of age or older with impairments in functional capacity, reduction in quality of life, and an increase in the use of healthcare services and associated costs. An estimated 45 to 50 percent of those over the age of 85 are frail, which could represent well over a million veterans. According to the researchers, frailty is increasingly seen within the aging population and is driven largely by musculoskeletal declines. This study will provide greater insight into NR supplementation as a nutritional therapeutic strategy to stave off frailty and maintain resilience during aging. The World Health Organization has characterized 2021 through 2030 as the decade of healthy aging. According to the World Health Organization, it is through the joint efforts of United Nations, governments, civil society, and the private sector that we will be able to not only add years to life, but also life to years. This speaks to the growing global focus on healthspan rather than lifespan. We believe cellular health will be the next big market opportunity for healthy aging and aligns perfectly with the World Health Organization's objective in improving healthspan. Last month, I participated in a conference dedicated to the topic of cellular health, featuring other industry leaders from the Council for Responsible Nutrition, Life Extension, and Nestle Health Science. I was honored to be presenting alongside such esteemed colleagues in the industry and look forward to furthering the dialogue with industry experts, consumers, and investors. Chromadex continues to deepen its connections with scientific experts in the field of NAD research and partner through its external research program with leading institutions to explore important areas of research on NR. We recently announced that Dr. David Katz, a recognized authority on preventative medicine, has joined our scientific advisory board. Among his many accomplishments, Dr. Katz serves as the president for True Health Initiative, a nonprofit organization he established to discuss the science around nutrition and lifestyle in the service of adding years to lives and life to years around the globe. He has served as an on-air medical contributor for Good Morning America, ABC News, and was a finalist for the James Beard Foundation Award in 2019 for health journalism pieces in New York Magazine. We look forward to working with Dr. Katz on advancing the science surrounding NAD and its precursors. In summary, we are focused on remaining the leader in NR and other NAD precursor research. We are investing in more science as well as our R&D pipeline as the NAD market continues to grow. As I've said before, I believe peer-reviewed published human studies will be the key for a natural transition of our consumer base from the early adopters to large mainstream consumer product companies. We are seeing momentum build with published studies that explore the benefits of NR in important areas of human health with large addressable markets, which makes me optimistic about our future. With that, I'll pass the call to Kevin Farr. Kevin?
spk08: Kevin Farr Thank you, Frank. Chromadex ended the year strong and delivered on our latest financial outlook to investors across all metrics. For full year 2020, we delivered total net sales of 59.3 million, a 28% year-over-year increase with true nitrogen growth of 31%. Gross margins of 60% up approximately 400 basis points year-over-year. Lower selling and marketing expense as a percentage of net sales and an increase of only $2.7 million versus our outlook of $3 to $5 million. A decrease in general administrative expense of approximately $500,000 versus our outlook of an increase of $1 to $2 million. The underlying business as measured by adjusted EBITDA excluding legal expense, a non-GAAP metric, posted a full-year loss of only $1 million compared to the loss of $8.8 million in full-year 2019. This is a significant achievement for the company, demonstrating our operational and financial discipline on the path to achieving cash flow break-even. We ended the year with $16.7 million in cash, including a $1 million milestone payment from Nestle Health Sciences related to their North American launch of Celtria. and we raised $25 million in capital in February, further strengthening our balance sheet. With this incremental cash, we have a clear line of sight to cash flow break even, even with the potential uncertainty surrounding litigation. It also enables us to invest more in our R&D pipeline, which includes NR and other NAD precursors, and invest more in brand awareness campaigns to capitalize on the growing interest in NAD supplements globally. Turning the fourth quarter of 2020, we delivered record sales of 15.4 million, up 9% sequentially and 18% year over year. Gross margins of 61%. Higher advertising expenses and percentage of net sales sequentially and a slight increase versus the fourth quarter of 2019. And higher general administrative expenses sequentially driven by higher legal expense. I'll begin by reviewing the sequential P&L results, and then we'll discuss the year-over-year trends. For the three months ended December 31st, 2020, Chromadex reported net sales of $15.4 million, up 9% compared to $14.2 million in the third quarter of 2020. True Niagen net sales were up 4% sequentially. Importantly, this growth was driven by our e-commerce business, which was up 9%. compared to the prior quarter, an acceleration from prior quarters driven by increased marketing investments to drive new customer growth. Sales to Watson's were $2.1 million in the fourth quarter, roughly flat with the prior quarter on an underlying basis since the third quarter included a shipment of stick packs for the Watson's retail launch. Our nitrogen ingredient sales more than doubled in the fourth quarter to 2.2 million versus 0.9 million last quarter. We expect a headwind in the first quarter of 2021 since we are no longer supplying one of our few remaining nitrogen ingredient customers. We intend to replace this business with new, more strategic partners in 2021. Our gross margin was up 140 basis points, from 59.6% in the third quarter of 2020 to 61% in the fourth quarter of 2020. We continue to deliver on our supply chain and product cost savings initiatives and are benefiting from overall scale. There's also a small benefit from ingredient sales to Nestle this quarter since we recognize a portion of the $5 million of upfront and milestone payments as revenue over the term of this contract. Total operating expense for the fourth quarter of 2020 were $15.5 million, up $2.8 million compared to the third quarter of 2020. Selling and marketing expenses were up $1.1 million to $6.3 million in the fourth quarter of 2020, compared to $5.2 million in the third quarter of 2020. This increase was consistent with our financial outlook. As a percentage in net sales, this expenditure was up 410 basis points in the fourth quarter of 2020 versus the third quarter of 2020. As Rob said, we made key hires to build out our sales, marketing, and business development teams. We also continued to increase investments in digital marketing and brand building while adjusting our creative and testing new messaging. At the same time, we have been optimizing our e-commerce metrics such as customer acquisition costs. As reported, G&A expense was up $1.6 million to $8.2 million in the fourth quarter of 2020 versus $6.5 million in the third quarter of 2020. Legal expense was up $0.6 million compared to the third quarter of 2020. As expected, there was increased investments in the Delaware patent infringement case related to Crane's constructions in the Markman hearing in December. We also incurred expenses related to ongoing discovery in the New York litigation. While overall legal expenses were slightly lower than expected this quarter, we expect these to ramp up in early 2021, driven by trial preparation for New York and Delaware litigations. Excluding legal fees, severance, restructuring, and equity compensation expense, Fourth quarter 2020 G&A expense was higher by $0.9 million versus the third quarter of 2020 comparable to G&A expense. We have a higher incentive accrual to reflect the actual financial results for the year relative to our financial objectives. There were also higher accounting fees in the fourth quarter and recruiting fees as we strengthened our sales and marketing teams. For the fourth quarter of 2020, our operating loss was $6.1 million versus $4.2 million in the third quarter of 2020. The net loss attributable common stockholders for the fourth quarter of 2020 was $6.1 million, or a loss of $0.10 per share, as compared to a net loss of $4.2 million, or a loss of $0.07 per share for the third quarter of 2020. Moving to year-over-year financial results, Total net sales were up 18% year-over-year compared to the fourth quarter of 2019, with 21% growth in TrueNiagen, 20% growth in e-commerce, and 27% combined growth in Watson's and new B2B business partnerships being the key highlights. Gross margins increased by 400 basis points, 61% compared to 57% in the fourth quarter of 2019. Marketing efficiency is measured by selling and marketing expenses as a percentage of net sales decreased by 190 basis points, primarily driven by increased digital marketing and brand awareness investments. As reported, general administrative expenses were lowered by $1.9 million, primarily due to the absence of the $2.2 million of Elysium-related bad debt expense, which we wrote off in the fourth quarter of 2019. Finally, our operating loss improved by $2.8 million year-over-year as our organizational realignment and supply chain cost savings initiatives are enabling investments in the business, coupled with the absence of the bad debt expense this year. To help investors better gauge the underlying financial performance of our business and progress towards cash flow breakeven, in the second quarter of 2019, we introduced a new non-GAAP measure adjusted EBITDA excluding total legal expense. We have included a reconciliation to the appropriate gap measures in our earnings release slides. As I previously highlighted, adjusted EBITDA excluding total legal expense was a loss of $1.1 million in the fourth quarter of 2020 compared to a loss of $0.1 million in the third quarter of 2020. Year over year, we delivered $1 million improvement in the fourth quarter of 2020, versus a loss of 2.1 million in the fourth quarter of 2019. Furthermore, this metric has improved from an average quarterly loss of 4 million in 2018, 2 million in 2019, to essentially break even in 2020 as we put important foundational processes and systems in place. While we're making strategic investments in the near term, this remains a key objective for the company. Moving to the balance sheet and cash flow, we ended this quarter with $16.7 million in cash and have not accessed their $7 million committed line of credit. As mentioned up front, this included a $1 million launch milestone payment from Nestle. In the fourth quarter of 2020, our net cash provided by operations was $22,000 versus a negative $3.8 million used in the third quarter of 2020. The difference this quarter was primarily driven by lower working capital investments, giving the timing of inventory purchases and other expenses. As it relates to our 2021 full-year outlook, we've provided details of key P&L metrics in our earnings press release along with the slide presentation. A key objective this year is to deliver positive adjusted EBITDA, excluding total legal expense, but we do plan to invest more in market and R&D. So the year-over-year improvement will not be as significant as the last two years. As a result, cash flow break-even will be above $19 million of quarterly sales. While we do not expect a significant increase in spending, we believe these incremental investments are prudent to maintain our position as the leader in the growing NAD market. In summary, we remain committed to delivering profitable growth as we are very close to achieving an important milestone of a profitable adjusted EBITDA excluding total legal expense, followed by positive adjusted EBITDA including total legal expense once the litigation is behind us. As always, we will balance this near-term objectives with the long-term opportunity for the business. It's an exciting time to be part of Chromadex. I'd like to thank the entire Chromadex team for their discipline and commitment that has brought us this far, and for their passion which will bring us to the next stage of growth. Operator, we're now ready to take questions.
spk06: Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Brian Nagel with Oppenheimer. Your line is open.
spk02: Hi, good afternoon. Hi, Brian. Hi, Brian.
spk11: Nice quarter. Congratulations.
spk02: Thank you.
spk11: So I wanted to basically center my questions on the announcement today with Walmart. So I'm just going to kind of put a few questions together. First of all, I think it's an extraordinarily exciting step for you, so congratulations on that. In the release, you mentioned, or you made mention of some type of special pricing and packaging. So maybe some more details on that with regard to Walmart. How then, is there any initial thought on, you know, the stocking in Walmart? You know, from a Chromadex standpoint, is there any financial commitment to get the supply ready to stock Walmart buy? by June? And then, you know, stepping back, I mean, this is obviously not your first, you know, retail partnership, but how does what you're doing with Walmart compare with what, say, you've done with Watson's overseas? Thanks.
spk02: Sure. We plan to have a SKU with a lower dose and lower price point for Walmart. We think that there is some overlap between between Walmart customer base and our existing customer base, but not a lot. So we are offering a new SKU that we haven't offered before that we think might be of appeal to that customer base, and we did so with the advice and consultation of Walmart. Yes, we do have very successful experience in Hong Kong with Watsons in retail. This is different for a number of reasons. One is It's mass retail in the United States. There are small specialty retail partners that we have in the U.S., but just a handful of stores, nothing significant. This is 3,000 stores, so this is a much more important effort and requires a different type of marketing campaign. In Hong Kong, The nature of the relationship is a bit different with Watson's as well, as they bear the brunt of the advertising responsibility. In this particular case, the onus will be on us to create the awareness. With regard to supply chain.
spk08: Yeah, I think with regard to 2021, we think this is going to be a small contributor to overall sales and growth in 2021. We are loading into 3,000 stores, but it's a couple of facings. So with regard to that load in, it's not going to be a huge amount of revenues, but obviously as we ship it in, it will be filling shelf space and will be filling their distribution centers to support what are, you know, I think conservative numbers for 2021 as we launch it and Also want to make sure that we're getting the right velocity and sell-through for Walmart in 2021.
spk11: Got it. I appreciate the color. I'll let someone else ask a question now. Thank you. Thanks, Brian.
spk06: Our next question is from Ram Selvaraj with HC Wainwright. Your line is open. Hi, Rob, Frank, and Kevin.
spk07: This is Maz speaking on behalf of ROM. We were very interested in your COVID-19 trial in Turkey. I'll group some of our COVID questions together. We were interested in investor interest over the past several weeks. Do you think this has been catalyzed by the potential of true nitrogen in COVID-19? And then in terms of the Turkish study, how applicable is the standard of care in Turkey versus the U.S.? ? And then in terms of the trial, what's the development plan for COVID-19 in the U.S.? Is a trial planned? And then if other territories are under consideration as well for COVID-19. Thank you.
spk02: I'll talk about the overall strategic. You could get into any details about the studies of the science, Frank. Sure. So there are a number of studies that have been announced or that are in discussion in the United States relating to COVID-19. There were two studies that were preclinical that we made public. There was an NIH preclinical study that we announced had commenced and is not yet complete. there is another clinical study that is underway and another clinical study that is in discussion right now. So there is work being done, a fair amount of work being done, on nicotinamide riboside and COVID-19. The studies that we made public last year indicate what we had expected, which is When COVID-19, when the virus attaches to a cell, NAD levels dramatically go down right away, and this is intuitive because the cell is fighting off the invader. And what we've also shown is that when nicotinamide riboside is added to the solution, it shows a protective benefit. So we weren't surprised by the Phase II or Phase III results that came out of Turkey. Of course, that study was done in conjunction that the cocktail that was offered was TruNiagen plus three other dietary supplements. So we can't say that it was TruNiagen per se that caused such a dramatic result, but the result is consistent with the preclinical studies that we've seen thus far. The standard of care in turkey in the phase two was Hydroxychloroquine. And during the phase three was hydroxychloroquine. Plus one other one. I can't remember. Plus another ingredient that neither of us can recall. I can't remember the other drug.
spk10: But, yeah, the standard of care is different.
spk02: Yeah, I don't think there is a standard of care across the U.S. at this point. I think it's not like they have there.
spk10: They required that to be part of the trial.
spk02: Right. Okay, the other question you asked had to do with investor interests as a result of making the result of that trial. Yeah. Of course, you're far more of an expert on that particular question than I or any of us here. We don't know. We saw that there was a lot of trading activity around the stock soon after that press release went out. We don't really know why or what the expectations were. From day to day, we focus on running our business. We think we've done a pretty good job of building a foundation, establishing a brand. What we see for the future is very exciting. We have a lot of confidence, but sometimes there's a direct relationship to the stock price, and sometimes there is not.
spk07: Okay. And then in terms of trial plans in the U.S., then if you're exploring in other territories as well.
spk10: Well, I mean, the only one I think we can talk about is the one that posted with – with Harvard, which is basically looking at long haulers. So that's not necessarily looking at COVID itself, but it's looking at the potential of nicotinamide riboside to repair NAD function related to these people that are having these long hauler sort of side effects post-COVID. So that's one area. And we are exploring a couple other trials. I don't think we're really prepared to talk about those, at least at this point.
spk07: Okay, that's really helpful. I'll ask one follow-up, if I may, and then I'll jump back in the queue. We were curious about what other context might prove beneficial for combining regimes with true nitrogen, you know, with other supplements or other chelated minerals, for example.
spk10: Well, I think that the Scandi, the collaboration that we've had with ScandiBio goes beyond COVID. I mean, they had actually started with studies of that cocktail in liver, and we reported results on that earlier this year. And they've also been looking at other neurodegenerative disorders with the same cocktail as well. And I think their plan is to continue to go to do follow-on clinical studies to further develop those indications. And we're still working with them on turkey as it relates to the results from this COVID study. But we don't have anything to report on that yet. So generally, yeah, I mean, the potential of nicotinamide riboside working as a cocktail with other things I think is interesting. I think it's also important for us to understand what nicotinamide riboside does on its own. so that we understand clearly where it would fit. There were liver studies that were performed with nicotinamide riboside by itself before it was done in a cocktail. So we know nicotinamide riboside is important. Alzheimer's is the same. So mild cognitive impairment neurodegenerative disorders in Alzheimer's have also been evaluated with nicotinamide riboside by itself before they started evaluating it as a cocktail. So I think it's important for us to understand what nicotinamide riboside does on its own as well as in combination with other things like ScandiBio has been working on.
spk07: It's very helpful and fascinating. Thanks, and I'll jump back in the queue.
spk02: Thanks very much.
spk06: Our next question is from Jeffrey Cohen with Leidenberg-Fallman. Your line is open.
spk05: Hi, this is actually Destiny on for Jeff. I hope you all are well, and thank you for taking the questions. I'll make my brief here. I'm just wondering if you could provide any additional color into the changes in your marketing strategy and investment through 2021, especially given your previous commentary about the minimal overlap between your messaging for Walmart and then your messaging for your current customer base. I would be curious to know how the messaging is different and if you're going to continue to use influencers as heavily as you have in the past.
spk02: We will continue to use influencers as we have in the past. It's a growing group of influencers. There are professional celebrity influencers and then there are non-celebrity influencers on social media. We use both. Effectively, we expect to continue to use both and to grow the group of true believers. It's not necessarily a change in message. It's a change in cohorts. You know, Chromadex has developed a fairly sophisticated understanding of the various cohort groups that purchase our product and why. So there are some people that buy TrueNiagen specifically for aging. There are some that purchase it for fitness. There are some that purchase it for energy metabolism. There are some cohort groups that believe that it is therapeutic for a specific condition that they are managing, and they purchase it for that reason. There are also variations in demographic data. So we endeavor to target those different cohort groups with slightly different channels of distribution and slightly different creative materials. We believe that if we are going to mass retail at Walmart, there is a slight variation in the demographics and the cohort interest levels of that customer base versus the existing customer base. That will mean a variation in the channels, So a suggestion of that might be a slight increase in, for example, television or radio versus digital marketing spend. It would be an example of how that would impact. We don't yet know exactly what the Walmart customer is looking for when they purchase TruNiagen. The likelihood is aging. aging and energy metabolism. But we will test that thesis and find out. And if that's where we find success, we will press that narrative more to that cohort group.
spk05: Okay, I got it. So less about the messaging, more about the channels. Okay, I'm just going to ask one follow-up here. You referred to your product pipeline a couple of times as well as an investment in R&D. So I'm just curious, would this include or could this include new formulations or improvements to the existing product? Or is it something that would be complementary? Thank you.
spk02: That's a very good question. The answer to the question is both. As you know, Chromadex has a very deep understanding of NAD. And we have a fairly developed patent portfolio on precursors besides NR. And we are investing in R&D and developing those next generation precursors that we think are complementary to NR, but perhaps in combination with NR, or perhaps even better than NR. In addition, we are investigating combination products of NR in addition to something else. And the purpose of that would be to either to create a more therapeutic benefit or to improve health claims. If it's an ingredient that comes with some significant efficacy as well as health claims, we are studying it and researching it. So we are looking at both of those types of product extensions, and we're also looking at alternative ways of delivering NR as opposed to simply just capsules. These are all product extensions that we are looking at. As you know, we do have a powder form of NR presently. We're looking at other delivery mechanisms as well. Thank you for that question.
spk05: Yeah, thank you.
spk06: Our next question is from Mitch Pinier with Sturtevant & Co. Your line is open.
spk09: Yeah, hi. Good afternoon. Hi. Hey, just a follow-up on Walmart. I'm curious, two things. One, how did that relationship start? Did you approach them? Did they approach you?
spk02: Walmart approached us.
spk09: And when, you know, when you're dealing with Walmart, you know, a product can't sit on the shelf, right? That's, you know, just won't happen for long. So is your support in Walmart going to be – in-store support in addition are you going to be are there going to be special walmart you know circular deals um how much do you think you're going to have to spend um you know as part of the launch i mean are we talking significant amounts to kind of get it going or can you talk a little bit to those questions well as kevin suggested this is going to be a
spk02: brick-by-brick, one-step-at-a-time approach. We're not going to do anything very major or very dramatic at launch. We're going to place it in the stores. We are going to do some advertising in conjunction, but we're going to be measuring the data and then making decisions after that.
spk08: I'd add to that I think we and Walmart are aligned on the launch expectations, and they're committed to building this business over time. So as Rob said, it is a brick-by-brick approach, you know, build of the business. And I think the buyer really believes in true Niagen. I believe it's a true Niagen.
spk02: Walmart was very persuasive. They spent a fair amount of time trying to persuade us to offer the product in Walmart. As you know, it's not part of our core U.S. distribution strategy or wasn't. But they understood the product extremely well, had spent a great deal of time researching it, and were frankly, consumers of it. And we thought it made a convincing case for why it would succeed there. But also, as Kevin is saying, that we don't expect it to be – the expectations are not high in the short run. We're going to take it one step at a time so that we are successful with this launch.
spk09: And just last on Walmart, will there be any – so obviously, you know, you can buy the product at Walmart, would there be a reason for that customer to shift channel to, you know, you're either through Amazon or is there something, maybe some sort of, is there a tie-in at all longer term between the channels or how do you approach that?
spk02: We don't have a plan for that. It is our hope that it is extremely successful at Walmart for Chromadex and for Walmart.
spk09: One more question. So, you know, you had nice sequential growth of knives and in the quarter. Can you talk about you know, new customer versus your existing customer, growth rates, any color around that would be helpful.
spk02: We're not sharing the actual growth rate, but what we can tell you is that the new customer increase was substantial in the fourth quarter, which is encouraging for us because we had seen that flattening out during 2020.
spk09: Thank you for your time. Thank you.
spk08: Thanks, Mitch.
spk06: Our next question is from Jeff Van Sinderen with B Reilly. Your line is open.
spk03: First, let me add my congratulations. Walmart is a terrific partner. Really happy to see that. I guess my question is, how are you thinking about or how are you approaching perhaps adding other retailers in the future? How are you thinking about a time frame for that? Would it make sense for you to go into the drugstore channel or perhaps other retailers? Just wondering how you're thinking about that at this point.
spk02: Yeah, that's a good question. As you know, we do get frequent phone calls from potential partners, and retail has not been part of our core strategy. But the Walmart people are very smart and very persuasive, and, of course, Walmart is a great company. Everybody deserves to age better and benefit from nicotinamide riboside, not just people who can afford an extremely expensive product online. So we understand that it is our mission to get as many people exposed to true nitrogen as possible and hopefully getting as many taking it as possible. We think it improves their health, particularly as they age or when they're under physiological stress. And of course, As many of us know, growing older is a physiological stress. So it is conceivable that at some point we will expand to other retail partners, but we don't have plans for that right now. We'd like to succeed with what is there and then take it one step at a time.
spk03: Okay, fair enough. Well, you know, for what it's worth, I think it's a brilliant plan with Walmart, you know, making it more accessible at lower price point. I think that's going to be extremely successful um just any update you can give us on nestle any metrics there to speak about and i guess the outlook around working with nestle um and then also how are you thinking about working with potential new partners for similar product inclusion in the future
spk02: As I mentioned, we do get quite a few phone calls from potential partners, but we're very, very careful and we're very, very selective. You know, we are in business with some great companies right now. We think Nestle is one. We think Walmart is one. We think Watson's is one. We love our partnership with Grace. There are other companies with whom we have had and are having conversations, but we much to the chagrin of many, we're very careful and very deliberate and very slow. So it has to fit in strategically, and it has to make sense for our shareholders to do a deal like that. But yes, it is possible that you could see another deal like the Nestle deal with another partner. You know, generally, our primary goal is is to build a global brand. So we're building a global consumer brand. So if it's a partner that has their own consumer brand, it's a very delicate situation. We want them to succeed with their brand, and at the same time, we need to further our strategic goals. So sometimes these can be difficult negotiating points to work out. The other question was, how's it going with Nestle? Correct. So the Nestle relationship I would describe as excellent. We speak to them frequently, in fact, more frequently now than ever before. They did launch their brand, Celtrient. There is a great deal of interest at Nestle and are, in fact, many of the things that Chromadex is doing. And there have been discussions on ways – to expand the relationship, help both companies to succeed. As you know, we did a deal with Persona, that's another division of Nestle, where we supply TruNiagen as finished capsules to that division of Nestle called Persona. There are other areas within the Nestle family with whom we have a relationship and have had discussions, but there is nothing imminent and there are no announcements that we are about to make.
spk03: Okay, thanks for taking my questions. I'll take the rest offline.
spk02: Sure.
spk08: Okay, thanks, Jeff. Thanks, Jeff.
spk06: Our next question is from Bill Desalong with Titan Capital Management. Your line is open.
spk01: Thank you. I'll ask one Walmart question and then a couple of numbers questions, please. Relative to Walmart, will you be selling under the true Niagen name, and will the bottle look the same, have the same color scheme, et cetera?
spk02: Yes, to both.
spk01: Thank you. And then GNA jumped up a fair amount in the fourth quarter versus the third quarter. What was driving that?
spk08: Yeah, I think as I said in my comments, that the big driver was that from an incentive calculation perspective, we exceeded what we expected to do in the full year for the fourth quarter, and it was a bigger incentive accrual. There were some other accounting fees and recruiting fees that were in that number in the fourth quarter.
spk01: Great. And then lastly, you did mention that you expect legal expense to increase in the first half of this year. What's the magnitude of the increase that we should anticipate?
spk08: Yeah, I think when you look at it, this year in 2020 it was a bit lower because we didn't go to trial. Next year we think it's going to be higher. This year it was 8.5. Next year, you know, I think it's going to be consistent with what we've said before, 2 to 3 million a quarter. And, you know, the court cases are happening, the Delaware case in September, the California case in September, and I think the judge in the New York case said to be ready in August. So it's more likely it's going to be to the high end of the range, and maybe you reference back to 2019 where we were working on all three cases, but none of those went to trial in 2019.
spk01: Great. Thank you both. Thank you.
spk06: Ladies and gentlemen, this is all the time we have for today. I'll now turn the call back over to Ms. Kerber for any closing remarks.
spk04: Thank you, Chris. There will be a replay of this call beginning at 4.30 p.m. Pacific time today. The replay number is 1-800-585-8367, and the conference ID is 843-3848. Thank you, everyone, for joining us today and for your continued support of CRIMEDEX.
spk06: Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.
Disclaimer