ChromaDex Corporation

Ladies and gentlemen, thank you for standing by and welcome to Chromadex Corporation's second quarter 2021 earnings conference call. My name is Ashley and I will be the conference operator today. At this time, all participants are in a listen-only mode. And as a reminder, this conference call is being recorded. This afternoon, Chromadex issued a news release announcing the company's financial results for the second quarter of 2021. 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 Bianna Gerber, Vice President of Finance and Investor Relations. Please go ahead, Ms. Gerber.

Thank you. Good afternoon, and welcome to Chromadex Corporation's second quarter 2021 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Freed, 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 plans, and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of TrueNiagen in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest, and business prospects and opportunities, as well as anticipated results of operations. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, These statements are inherently subject to risks and uncertainties. Many factors could cause 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 not 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?

Thank you, Brianna. Good afternoon, everyone, and thank you for joining our second quarter 2021 investor call. It was yet another strong quarter for Chromadex, including $17.7 million of total net sales, and $640,000 in positive adjusted EBITDA, which excludes total legal expense. Overall sales were up 21% sequentially, with continued growth in our existing direct-to-consumer and B2B TrueNigin business. We launched TrueNigin and Walmart in June, our first mass retail launch in the U.S., and a significant accomplishment for the company. And we had a small shipment of Niagen ingredient to our new partner row, whom we expect to be a strategic long-term Niagen ingredient partner, along with H&H Group, Nestle Health Science and Life Extension. As I mentioned, total company net sales for the quarter were $17.7 million. E-commerce sales continued to grow 11% sequentially, and they were up 31% over the second quarter of 2020. We benefited from strong Amazon Prime Day sales this quarter, as well as an easier comparison as a result of the impact of COVID on our business in the second quarter last year. We also delivered higher sales to Watson's of $2.9 million following last quarter's temporary supply chain disruption. In total, our sales to existing partners, including Watson's, increased year-to-date compared to 2020, and we added sales to new partners Walmart and Lowe in the second quarter. Gross margins were approximately 61%. And the second quarter adjusted EBITDA, which we define as EBITDA excluding legal expense, was, as I mentioned, a profit of $600,000, a $1.3 million improvement from the prior quarter. Total legal expense was down compared to last quarter, but remains high as we prepare for three trials this year. As I have repeatedly said, we will continue to protect our intellectual property against infringers. companies who try to build their brands on the back of our science and our regulatory accomplishments. Speaking of our science, the science behind Niagen has never been stronger. We now have 13 completed clinical trials and nearly 40 more clinical trials in progress. In July, the results of ScandiBiotherapeutics' Phase 3 COVID-19 study were published in the peer-reviewed journal Advanced Science. Researchers showed the statistical significance that supplementation with the nutritional protocol, including our ingredient, nicotinamide riboside, reduced time to recovery in symptomatic patients in Turkey by 38% compared to a placebo, 38%. Frank will provide additional updates on the science momentarily. Chromadex remains committed to expanding our knowledge of and patent portfolio around nicotinamide riboside, as well as other NAD precursors, and is increasing R&D investments in 2021 to maintain that leadership position in this rapidly growing market. While direct-to-consumer remains the core engine of the business, We are excited about the opportunity to reach new consumers for TruNiogen at 3,800 Walmart stores and to work with Walmart to build the NAD supplements category. Our new lower-priced, lower-dose introductory product should be available in approximately 3,800 locations, and our standard 300-milligram product should be available in approximately 2,800 locations. Sales to Walmart were strong this quarter due to initial sell-in for the launch. with product delivered on time to all Walmart locations. Both SKUs are also available on Walmart.com. We have a new head of marketing at Chromadex who is working on a more aggressive campaign targeting Walmart consumers. In the short term, we continue to expect that sales will build slowly at Walmart, but growth should accelerate upon rollout of this campaign. Overall, it's still early in the launch, and we look forward to sharing more information in the future. I'm proud of the entire Chromadex team for delivering on this milestone launch. It was a cross-functional effort and is important foundationally as we continue to build this great global brand. I'd like to thank our shareholders, our strategic partners, and our true Niagen consumers, our growing group of true believers, for your continued support. I have never been as optimistic about our future as I am today. And now I will pass the call over to our chairman, Frank Jacks, for an update on scientific research.

Frank? Thank you, Rob. In the second quarter, there were several preclinical publications on nicotinamide riboside, or NR, including studies on bone health, alcohol-induced inflammation, and neuroinflammation. In addition, in June, an article was published demonstrating that systematic treatment with NR is protective in acute chronic mouse models of retinal ganglion cell damage, which often precedes glaucoma. This is the first preclinical study of its kind and has implications for clinical research on an area of human health that affects a broad population, specifically vision health. Two new clinical studies also registered since our last update, both in May. Both studies are part of our Chromadex external research program. First, Maastricht University Medical Center in the Netherlands registered a randomized double-blinded placebo-controlled clinical study to explore whether combined treatment with NR and exercise imposes greater improvements in skeletal muscle mitochondrial metabolism in older adults compared to exercise treatment alone. Exploratory outcomes of the study include muscle NAD metabolites, energy metabolism, and physical performance. Thirty-four participants will be given 500 milligrams of NR twice daily for 40 days. Participants will engage in supervised exercise over a three-week period, which consists of four approximately 30-minute sessions, including two endurance sessions on a bike and two high-intensity interval training sessions. We have recently seen more studies registered examining the combined effects of NR in exercise. This is an important area of research, given the opportunity for TrueNiagen and the professional sports and fitness community, many of whom are early adopters of our product. In addition, a two-year clinical study entitled NAD Supplementation to Prevent Progressive Neurological Disease in Ataxia Telangiectasia, or AT, was registered in Norway. Researchers will investigate the effects of dietary supplementation of NR in children with this rare disease that affects the nervous system, immune system, and other body movements. The primary focus of the study will be on neurological symptoms. We are proud to support important research on the growing list of rare orphan diseases like AT, Friedreich's ataxia, and others like cocaine syndrome, Warner syndrome, Citrin disease, and ALS. In addition, there were two newly published clinical studies since our last update. First, in June, the results of a randomized, double-blinded, placebo-controlled Phase III clinical study on patients with mild to moderate COVID-19 in Turkey were published in the peer-reviewed journal Advanced Science. Researchers showed a statistically significant 38% reduction in average time to recovery in the group receiving a nutritional protocol that included NR compared to a placebo. The placebo group recovered in 9.2 days, whereas the group receiving the nutritional protocol recovered in 5.7 days. The results were statistically significant with a p-value less than .0001. We had previously announced the pre-print results of the study, but shared the update in a blog post on aboutNED.com with subscribers, as well as the medical community through our network of healthcare practitioners. In addition, a study entitled Combined Metabolic Activators Improves Cognitive Function in Alzheimer's Disease was published in the preprint server MetArchive. The study was led by Dr. Adil Mardinoglu from the Royal Institute of Technology in King's College, London. This is the first study to investigate the effects of combined metabolic activator supplementation in Alzheimer's patients. This study demonstrated that supplementation with the same combination of metabolic activators used in the COVID-19 study, including NR, significantly improved cognitive function and markers of liver and kidney health in moderate to severe Alzheimer's patients, suggesting this may be an effective therapeutic strategy for Alzheimer's disease. Further studies are needed to build on and validate these initial findings, and we are waiting for a study to be peer reviewed before sharing these results more broadly. Finally, I wanted to highlight Chromadex's participation at a virtual conference hosted by the American Society for Nutrition, or ASN. Chromadex had a large presence during the session entitled, Optimizing NAD Status, A Call to Action for Nutrition Research, featuring speakers from our Scientific Advisory Board, our Chromadex External Research Program partners, as well as our internal team members. This session was attended by 160 members of the scientific community, with high engagement during the Q&A session. The ASN event was an opportunity to raise awareness of the importance of NAD on human health, as well as the extensive body of safety and efficacy data on our proprietary ingredient, NR. Our head of scientific and regulatory affairs, Dr. Andrew Hsiao, also discussed the importance of a dietary supplement database for the industry. a topic I previously explored on a panel hosted by the American Conference Institute and the Council for Responsible Nutrition. Finally, Dr. Yasmine Nkrumah-Eli, Director of the Chromadex External Research Program, participated in a panel session entitled ASN Sustaining Partner Forum, Your Nutrition Industry, Who We Are and What We Do. This is a testament to Chromadex's continued position as a thought leader in the industry. I continue to believe that 2021 is shaping up to be an exciting year for Chromadex based on completed and ongoing clinical studies. Furthermore, the robust preclinical research pipeline and recent publications showing the benefit of NR and mouse models represents the seeds for future clinical trials in 2022 and beyond. Chromadex maintains a deep and growing relationship with the scientific community as well as regulatory bodies around the world, and is committed to remaining a leader in the growing NAD market. With that, I'll pass the call to Kevin Farr. Kevin?

Thank you, Frank. Chromadex delivered a strong quarter with total net sales of $17.7 million, up 16% year-over-year, or about 30%, excluding the $1.6 million Verizon Ventures purchased last year, and up 21% sequentially. In the underlying business, as measured by adjusted EBITDA excluding legal expense, a non-GAAP metric posted a profit of $640,000, $1.3 million improvement sequentially, and up slightly versus the prior year. We believe adjusted EBITDA excluding legal expense remains an important metric to gauge our progress towards cash flow breakeven, and we've included a reconciliation to the appropriate GAAP measures in our earnings relay slides. I'll begin by reviewing the sequential P&L results, and we'll then discuss the year-over-year trends. With the three months ended June 30, 2021, Chromadex reported net sales of $17.7 million, up 21% compared to $14.7 million in the first quarter of 2021. True nitrogen net sales were up 24% sequentially. This growth was driven by Watson's with sales of $2.9 million this quarter compared to $1.6 million in the first quarter. We benefited from a catch-up shipment in the second quarter following a $1 million shortfall last quarter. We expect a smaller benefit in the third quarter compared to the baseline demand from Watson's. But we have some recent improvements in sell-through as the Hong Kong economy recovers from the impact of COVID-19, Watson store traffic is still down year over year, and sales from Chinese tourism and local resident traffic have yet to return to pre-COVID levels. We believe this is due to social distancing measures, travel restrictions, and concerns over the COVID-19 Delta variant that may remain a headwind through 2021. Our e-commerce business was up 11% sequentially, including a boost from Amazon Prime Day sales this quarter. Finally, we successfully shipped to Walmart in the second quarter. There was a large initial ship-in to stock the shelves at their 3,800 stores, as well as failed safety stock at their distribution centers. Our nitrogen ingredient sales were up 7% versus the prior quarter, including ongoing sales to life extension and a small shipment to our new partner row. Our gross margins was down sequentially by 180 basis points from 62.9% in the first quarter of 2021 to 61.1% in the second quarter of 2021. We had a higher mix of business to business sales in the second quarter, which carried a lower gross margin than e-commerce. This includes sales to Watson's and Walmart, among other partners. At the same time, we continue to deliver on our supply chain and product cost savings initiatives and are benefiting from our overall scale. As a result, we're tracking well to our full-year goal of slightly better than 60% gross margins. Total operating expense for the second quarter of 2021 was $16.4 million, down $0.2 million compared to the first quarter of 2021. Selling and marketing expenses were down slightly to $6.2 million in the second quarter of 2021 compared to $6.3 million in the first quarter of 2021. As a percentage of net sales, this expenditure was down 740 basis points in the second quarter of 2021 versus the first quarter of 2021 due to higher net sales to business-to-business partners with minimal advertising by Chromadex. As I previously said, this ratio will generally decline over time as sales ramp, but the quarterly investments may fluctuate as a result of our marketing campaigns. As reported, G&A expense was down $0.4 million to $9.1 million in the second quarter of 2021 versus $9.6 million in the first quarter of 2021. Legal expense was down 0.9 million compared to the first quarter of 2021 to 4.2 million in the second quarter of 2021. As expected, activity declined in the second quarter and we saw a corresponding decline in legal expense. It is difficult to predict the timing and magnitude of pre-trial litigation expenses with three cases potentially going to trial in the second half of this year. We have refined our trial budgets and now expect that the third quarter total legal expense may be higher than the first quarter of 2021. We'll continue to look for ways to optimize these budgets while vigorously protecting our intellectual property. Excluding legal fees, severance, restructuring, and equity compensation expense, second quarter 2021 G&A expense was higher by 0.2 million versus first quarter 2021 comparable G&A expense. For the second quarter of 2021, our operating loss was $5.6 million versus $7.4 million in the first quarter of 2021. The net loss of Trivial Commons stockholders for the second quarter of 2021 was $5.6 million, or a loss of $0.08 per share, as compared to a net loss of $7.4 million, or a loss of $0.12 per share for the first quarter of 2021. Total net sales were up 16% year-over-year compared to the second quarter of 2020, with 31% growth in true nitrogen, including 31% growth in e-commerce and 32% growth in combined Watsons and other business-to-business sales. Our nitrogen ingredient net sales were down 36%, and other ingredient net sales were down 74% year-over-year. We are no longer selling to one of our Niagen ingredient customers, which remains a short-term headwind as we replace this business with new strategic partners like H&H and Rho. In other ingredients, we're comping strong sales of Emulina, an ingredient with immune-boosting properties, last year during the height of the COVID-19 pandemic. Gross margins increased by 170 basis points to 61.1%, compared to 59.4% in the second quarter of 2020. Selling and marketing expense is a percentage of net sales increased 280 basis points to 35.2% compared to 32.4% in the second quarter of 2020. We benefit from the sales to horizon ventures in the second quarter of 2020 without any associated marketing investments. As reported, general administrative expense was higher by $2.2 million, primarily due to higher legal expense at $2.3 million. Finally, our operating loss increased by $1.9 million year-over-year as higher sales and gross margins and cost savings across the organization were more than offset by higher legal expense and investments in selling and marketing. Moving to the balance sheet and cash flow, our balance sheet remains strong. We end the quarter with $38.8 million in cash, including $1.9 million raised from our $50 million ATM. This further strengthens our balance sheet, and we have not accessed our $7 million committed line of credit. In the second quarter of 2021, our net cash use and operations was $7.9 million versus a $5.4 million use of cash in the first quarter of 2021. The difference this quarter was primarily driven by a decrease in accounts payable due to the timing of payments to our vendors and the payout of a bonus to employees related to prior year company performance. As it relates to our 2021 full year outlook, we provided details on key P&L metrics in our earnings press release along with the slide presentation. Consistent with our previous outlook, we expect to invest more in marketing and brand awareness, customer acquisition, and R&D to maintain our position as the leader in the growing NAD Plus market. The underlying businesses essentially break even on a quarterly basis today and for a year to date 2021, as measured by adjusted EBITDA excluding total legal expense. This remains a key metric for the organization, and we will focus on achieving similar performance for the second half of 2021, but there may be quarterly volatility due to the timing of investments. As it relates to the full year net sales, we continue to expect steady revenue growth consistent with our previous financial outlook. However, we expect that our third quarter total net sales will be flat to slightly down from the second quarter. While the e-commerce business should continue to grow sequentially, A growing portion of our sales are coming from new partners, including Walmart, H&H, and Rowe, which may cause quarterly volatility until they ramp to more steady, consistent growth. We expect to benefit from growing sales to Rowe and H&H in the fourth quarter based upon their respective launches of Roman and Swiss products with True Niagen planned for later this year. And we remain bullish about full year 2021 and the 2022 outlook. We expect that our third quarter year-over-year growth rate will accelerate from 16% reported year-over-year growth rate in the second quarter, and that it will further accelerate in the fourth quarter. In summary, I'm very proud of how the company continues to execute, balancing the long-term market opportunity with near-term profitability objectives. I believe our strategic pipeline, including business development and R&D, is much more robust, and our internal team is the strongest I have worked with during my time at Chromadex. We have successfully transformed the company over the last four years, and I remain very optimistic about our future. Operator, we are now ready to take questions.

Thank you. Ladies and gentlemen, if you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. Your first question comes from Brian Nagle with Oppenheimer. Your line is now open.

Good afternoon. Nice to meet you. A couple of questions. I guess first with regard to sales, I think, Kevin, I think you've mentioned the COVID crisis. I think you were referring primarily to the Hong Kong market. So the question is, we've started to see, and that's obviously very fluid at this point, but maybe obviously more reopening generally versus a few months ago. Are you seeing any type of impact or reaction in your true nitrogen sales? A reaction to COVID? Well, I guess from a consumer's perspective, is there some indication that as the economy started to open, you're seeing improving underlying demand trends? It's been up and down. I'm sorry, Brian. Yeah, it's been up and down. There have been times when we see the stores reopening and foot traffic returns. And then a few months later, COVID picks up and we see a retraction. One thing we know is that tourism from mainland China into Hong Kong has still yet to open up. And that's always been a significant portion of Watson's traffic, so we're impacted by that. We also know that there's a very loyal core customer base of True Niagen in Hong Kong. But the overall foot traffic in Hong Kong has, especially in the last few months, declined. Okay, got it. Then the second question I have, this is on marketing. I think it was a comment. I think, Kevin, you made a comment about the financial outlook about marketing spend. It sounded to me like you're telegraphing higher spend. So the question I'd say, A, am I hearing that correctly? But then, B, and more importantly, is this just more of the same, or will there be some type of newer campaign, fresher campaign that you're looking at? Were you asking Kevin or Rob? Whoever.

I would say, yeah, in the prepared remarks, we indicated we're going to be spending a little bit more than what we've said previously. It's small for brand building and supporting Walmart. Last quarter we said it would be slightly up, and now we're saying it's a larger increase. But it's not huge.

Rob, do you want to comment on where we're going to be? In terms of marketing plans in general, Brian? Yeah, that sounds great, Bob. Okay. Well, as you know, we recently brought in just four months ago a new CMO at the company, and we also just launched on Walmart. And so we have indicated that we expect to increase our overall brand awareness marketing, and we are formulating those plans now. We understand that the Walmart customer is slightly different than our existing customer, who is basically an e-commerce-based customer. So that means the type of advertising, even to a certain extent the messaging and the distribution, the advertising channels are going to shift a bit towards traditional media like television. So it's our expectation that you're going to see an increase in TV-based advertising in the coming months, but we haven't yet begun that.

Got it. Going back to your question on Hong Kong, I think for the first half of 2021, shipping's up versus the first half of 2020. And we have seen some recent improvements in sell-through as Hong Kong economy recovers from the impact of COVID-19. Although we in Watson's believe underlying consumer demand remains strong, as Rob said, store traffic is down year over year. But Watson's is investing in new marketing campaigns this year, and we expect to see sell-through trends return to normal post the pandemic.

Perfect. Thank you very much again. Sure.

Your next question comes from Jeffrey Cohan with LeadingBurke. Your line is open.

Oh, hi, Rob, Frank, and Kevin. How are you?

Great. You too, Jeff.

So, uh, I've got a few, sorry to bounce around here. So it sounded like, uh, 2,800, uh, Walmarts are getting a hundred milligrams, uh, like 20 bucks.

And then another, in addition, 3,800 are getting the, uh, 300 milligrams. That's correct.

So far, do you have any idea how many data centers they've stocked into?

So let me just say it's the other way around. It's the larger numbers with a hundred milligrams and the smaller numbers with 300 milligrams.

Okay. And distribution centers, how many approximately?

They've got 42 distribution centers. So basically what we're doing is we're shipping them to distribution centers, and then they've shipped them in June to the stores that are setting more or less the product on the planograms in June and July and continues in August.

Okay, so you're most of the way through that as far as sitting shelves with the two SKUs?

Yeah, we're not 100% certain it's at all stores, but I think over the next few weeks it should continue to be put on shelf. And then it's early to tell where we stand with regard to consumer takeaway. But our expectation for the third quarter is we'll have tough comps against the second quarter. because we're shipping in for the 38 and 2,800 stores. And then they also have more in their 42 distribution centers, about a four to six-week supply so that they can replenish. And basically what our orders will be for the third quarter and fourth quarter is based upon POS, which we have low expectations for out of the gate, but we expect it to build over time as we do more marketing.

Okay, got it. And Kevin, it looked like you did more with less in the second quarter, meaning your revenues popped, you know, $2.70 over Q1 sequentially while your spend went down sequentially. I imagine there's some nice gold through that, but as you pointed out, you've got some, you've got, you know, big order in the Watsons and Longwood.

So that's part of, I guess, your back half commentary where you talked about sequential. Flatted down Q3 and Anything further on Q4 of the year as it may play out from the 17-7 from second quarter?

Yeah, I think the thing we said in my prepared remarks is that we expect the year-over-year growth to be greater than the third quarter, or the second quarter growth is 16%. So we expect that to be higher than 16% in the third quarter and the fourth quarter, accelerating.

Okay, 16. And can you repeat what you said about, I heard something about nitrogen into the Roman channel later this year?

Yeah, I think that's our business development opportunity with Ro and with H&H. We are selling them the ingredient, and they're mixing that ingredient with some of their primary products. And we saw a a shipment to Roe, a small shipment in the second quarter. We don't expect to ship to either of them in the third quarter because they're in the process of manufacturing their product, and their intent is to actually sell it in the fourth quarter and bring it to market.

Perfect. Okay, well, those are for me. Thanks for taking the questions.

You're welcome.

Your next question comes from Raghuram Sovaraju with HSC Wainwright. Your line is open.

Hi, thanks very much for taking my questions and congrats on a very solid quarter.

Firstly, I was wondering if you could comment on potential expansion of the Walmart store presence to all of the U.S. Walmart stores, because based on the June announcement, it looks like there probably are still some Walmart stores where product placement has not yet occurred. Just wanted to get an update on the potential timing of that, when it might be, you know, kind of full Walmart footprint store-wide. We're in the vast majority of their stores at this point. We don't yet know exactly how many of the 3,800 stores have actually placed the product on the shelves at this point. We just only have begun to begin to receive reports. from the stores. We know that we successfully shipped to the distribution centers, and most of the stores have received from the distribution centers and have placed them on the shelves. So until we see which stores are performing better than others, which we do not yet know, we're not going to have additional conversations with Walmart about expanding into the remaining stores. But suffice it to say, I think there's about over 5,000 Walmart stores in the U.S. The original arrangement was for True Niagen to be placed in 3,800 of them. In principle, there's nothing excluding True Niagen from eventually being in every Walmart store, right? That is correct. The initial idea was 1,000 stores. Then they suggested going to 2,000. Then they further suggested going... even further. So there is nothing in our arrangement with Walmart that would preclude going into all of the Walmart stores.

Yeah, and I think the first opportunity is if we get good velocity behind the 300 milligram 30 count, you would expect that to expand from the 2,800 stores that they've selected to at least 3,800 stores. So, again, I think this is part of their launch strategy of having customers probably – sample the 100 milligram and then hopefully move up to the 300 milligram product.

Got it. And then with respect to the row arrangement, can you just provide us with some additional background on the specific Roman product or product line that are likely to incorporate truniogen and what specific market segments those might be targeting? At this point, there is only one product that they are going to release. It's their – well, they have a name. They haven't yet released the name, but it's a sort of a life extension product, and they're combining TruNiagen with a couple of other ingredients, but obviously the hero ingredient is Niagen. I expect them to launch the product in the fourth quarter. we haven't had discussions with them yet about any subsequent products, but any additional product that they would propose, obviously, we would have to approve. Okay. And how many Roman products are there right now? I don't know. I don't know how many products they have. Obviously, the core of their business is – And also, this is only because they have a male division and a female division. This is initially just targeting their male division, the Roman division. Got it. And then with respect to the H&H collaboration, can you confirm whether, because this is going to be primarily positioned within the context of the Swiss product lineups, if regionally speaking, Australia is likely to be the most substantial driver of pull-through demand, or if you expect broader regional demand than Australia, which is where I think the Swiss product lineup enjoys the most favorable positioning from a market ranking standpoint. We don't know if they expect their cross-border business into China to be bigger than their Australia business, but those are clearly the top two markets that they're going to pursue.

And they are the leading brand in supplements in China. On cross-border. On cross-border.

Okay. Any notable...

additional initiatives with respect to increasing the e-commerce contribution to your overall revenue mix that uh you expect to take root over the course of the second half of this year the way we view e-commerce is steady and consistent growth there's a very large and growing and extremely loyal consumer base that purchases online either on amazon or on our website The retention rates are very, very strong, and we expect that to continue to grow. You've seen over the last four years steady, consistent growth. We expect that to continue. But I also anticipate that as we launch a brand campaign, which has television as a major component of it, not only do we think that that will be helpful for the Walmart sales, we also think that will have an impact on our e-commerce sales as well.

Great. Thank you very much.

Thank you very much. Sure. Thanks, Ryan.

Your next question comes from Jeff Vance in Durand with B. Riley. Your line is open.

Good afternoon, everyone. Thanks for taking my questions. Multi-part question. First, I know you spoke about development and science around trinitrogen and that you plan to spend more on R&D. So I guess I'm wondering where the R&D dollars are going. Maybe you could just touch on which studies that are underway right now are maybe leading you to think about where you want to invest the R&D dollars, if you had to pick a couple of those. And then I guess just give us a better sense of where it makes the most sense to spend R&D and what the potential impact is for the business. Of course, there's a wide range of investments that include R&D, some of which are studies. some of which are just development of new products. There are various NAD-related molecules that we have strong intellectual property around in which we intend to develop and commercialize and build into products. There's also a growing and burgeoning NAD IV market, as well as a global NMN market. And of course, Most people who are on this call and are very familiar with Chromadex know that the science is pretty clear that nicotinamide riboside is significantly superior to both of those molecules. Both of them are nucleotides, meaning that they're phosphorylated, meaning they don't have any mechanism for entering the cell, whereas nicotinamide riboside not only has a clean mechanism for entering the cell, but what we've proven is that when the cell is under stress, it actually opens up a pathway specifically looking for nicotinamide riboside. So from a scientific standpoint, neither of those molecules stand up to nicotinamide riboside in terms of their ability to improve the health of the cell and elevate NAD. So part of the investment is to just sort of invest in studies that further support that thesis, that idea which is already fairly proven in the scientific literature, but we can support further. So you've got the development of additional molecules, the comparison of our molecule to others, bioequivalence of certain molecules, proof of the superiority of nicotinamide riboside. as well as the investment in certain studies for nicotinamide riboside to further extend our understanding of the molecule, as well as the ability to make additional health claims. But as you know, there are many clinical studies ongoing, recently published or soon to be published on a whole host of health claims that And they've been fairly consistent in yielding pretty positive results, not just the recent peer-reviewed, published, double placebo-blinded COVID study that came out recently of truniogen as part of a cocktail of ingredients, but several others that Frank Jacks mentioned recently. But there are some additional studies. As you know, Harvard is doing the Long-Hauler study on COVID. We may make some investments in some of these studies. We won't pay for them outright, but we may support and contribute to some of those studies. But as our understanding of nicotinamide riboside extends and grows, our investment in some of those studies will increase. I'd also like to point out that we have a very deep and strong patent portfolio that extends well beyond even the ones for which we have been protecting against infringers. But we are making further investments and even extending the patent portfolios even further. So all of those investments ladder up to R&D. They're not just studies per se.

Okay. And then just as kind of a follow-up to that, I know you mentioned the study in Turkey around COVID.

Is there anything that's been done recently in terms of studies that will allow you, I know this is subject to various laws in different markets, but is there anything that will allow you to make different claims or new claims than you have been able to make up until now?

Anything that's brewing there that may sort of unleash new claims for you?

Yes, there are studies that may enable us to extend our claim portfolio, not necessarily related to COVID, but there are studies that are being done and looked at, and we're anticipating there are some on cognition, there are some on liver health, there are some on muscle health, heart health, there are inflammation studies. There's a whole range of studies that are listed on clinicaltrials.gov. some of whom could yield extension of our claim portfolio. But with regard to COVID, it's a very difficult issue, as you know. Even though we have this peer-reviewed published study that shows the cocktail reduced time to recovery by 38%, The regulatory authorities are hypersensitive to non-drugs making claims about COVID in disease states in general. So it's a challenge to communicate to consumers the efficacy of a dietary supplement for a disease state, but specifically and especially COVID.

Okay, that's helpful.

And then just anything new to add on the partnership with Nestle? There's nothing new to add other than the fact that I can further confirm that Nestle has a deep understanding of the value of nicotinamide riboside, a deep interest in nicotinamide riboside. They've recently acquired some companies in the dietary supplement space, so it's a much higher priority today than it was even a couple of years ago, and they understand the value of nicotinamide riboside throughout the Nestle Health Science portfolio of companies. And there is a very strong and positive relationship there. I don't know how it will evolve, but we're interested in working with them more, and they are as well.

Okay, great. Well, if I could squeeze one more, and I know this is a big topic, but I know you said you have three cases that could go to trial in the second half.

Anything, any new developments, I guess, to speak to on litigation at this point versus last quarter, or is it pretty much status quo? Not really. I mean, it's fairly quiet right now in anticipation of the trials. I think both companies have done their homework and are prepped and ready, and we're just waiting for the trial to begin.

Okay. Thanks for taking my questions and best of luck.

Thanks, Jeff. As always.

Your next question comes from Mitch Pinero with Sturtevant. Your line is open.

Hi. Good afternoon. Just a couple of odd and end questions here.

First, with regard to the e-commerce group, I always ask, but I'm just curious, new customer growth versus recurring revenue, was it evenly split part of the growth? Did one drive more of the growth this quarter than the other? I think you've asked that question before. Am I wrong? Like I'm having a flashback. You should be prepared. We did see some acceleration in new customer growth this past quarter. But, as always, retention is very strong here at the company. We have fairly low cancellation rates, so people who start to take it, certainly those that take it for two or three months seem to retain. I mean, if they pay attention, they begin to notice the improvement in their physical performance. But, yes, we are seeing improvements in new customer acquisition. And, you know, related to that, why wouldn't Watson, who, you know, you're lower store traffic, but you have, you know, a fair amount of people that have been taking TrueNigin, why wouldn't they become recurring customers online? If they're Watson's e-commerce, why do they have to go to the store to pick it up? If I were out of my true nitrogen and I'm not going to the store, I would order it online. Is there an issue there or some bottleneck or some gating factor that wouldn't allow recurring revenue at Watson's? No, I think that that is a good question, and subscription is an important part of their business. But I think Watson's strategy has been to use TrueNitrogen to attract people to the stores. So they are not very interested in selling it online as much as they are selling in the stores because it has been a draw for them in Hong Kong to get people into the stores. And I think that continues to be the case. Another question is just around the studies. The most recent study, Alzheimer's disease, the conclusions there were relatively meaningful and I think impactful to some people, those that would get a chance to read it. And so that study seemed to me to have you know you can't make claims off that i i don't think but it seems more it seemed bigger uh in usefulness to to you and are there are you designing new studies to have you know more impact rather than on the uh the nitty gritty science you know um you know um studies where you know they're looking at a particular aspect of something it seemed like the Alzheimer's disease is something more that you should be looking at not that disease by itself but others are you able to formulate better studies so you can use them more effectively in your messaging so remember we have this program that we call the SERP program where we work with researchers to design their study, and we supply the ingredient, but we do not finance the study. And then as part of that program, if there's any intellectual property that comes from it, it's licensed back to Chromadex. And with that program, we've been able to get perhaps $75, maybe $100 million worth of research to the company without us putting up that money. But the downside is, it's their study. We can influence it, but we can't design it. So mostly for studies that we're not financing, it's not our call. But it is conceivable in the future that we might design some studies that specifically lead to claims or areas that we think are opportunistic. For example, we think inflammation is a particularly interesting area for nicotinamide riboside. We think that we're seeing a fairly consistent level of studies that show results indicating a reduction of certain important inflammation markers. So we can see designing studies around that, knowing that that is a likely expected outcome that might enable us to strengthen our marketing claims and target a specific audience. With regard to Alzheimer's, we agree with you. We think that Alzheimer's, there are many related diseases autoimmune diseases or neurological conditions that we think are relevant when you elevate NAD or elevate PARP functionality, improve mitochondrial function. Many disease states, obviously you know the obvious complications when you're marketing specifically to a disease, but cognition in general we think is a very, very important area for this product. We think we understand mechanistically why it would improve cognition levels. not just reduction of inflammation, but there are other things. We've shown that it breaks the blood-brain barrier and elevates NAD. So, yes, we do see that we are opportunistic about pursuing specific studies and perhaps applying dollars for specific research that we think will yield the result and enable us to expand our claims. But before I get off that question, let me give Frank Jacks, would you like a chance to take a shot at that question too?

Well, you've done such a good job in answering it already. But, yeah, just to layer in on it, I mean, the one positive, at least from this Alzheimer's study, and you're right, I mean, Alzheimer's is good in the sense that it does go to cognition, like Robin said. I mean, in reality, in order to make a claim or use the study to support a claim, it would have to be something more along the lines of mild cognitive impairment as the primary outcome, whether we're looking for enrolling people with that rather than Alzheimer's. But, you know, you need to look at, do these studies in things like Alzheimer's to really root out those mechanisms. In this case, their primary focus was around improving mitochondrial function. you know, that mitochondrial function seems to play a central role in Alzheimer's and progression of Alzheimer's. And then we can utilize that to build awareness around the importance of it there as we go after other studies, which are underway. If you look at clinicaltrials.gov, you'll find the mild cognitive impairment type studies that are out there.

One more question.

You've had a steady build in your e-commerce business. It's a 30% type of growth rate, plus or minus, which is terrific growth. I'm curious, if you're looking to accelerate the growth, is it going to come in the form of just better... digital marketing? Is it going to be TV? Is it going to be a true believer or spokesperson, credible spokesperson? Obviously, it's probably a cocktail of all of them, but is there one that really is going to be, in your view, the real, the one that does unlock perhaps an acceleration of this strong growth? Well, as you know, we have a new head of marketing, and he's formulating his strategy and his plan, and he's very methodical in the way he's going about it. But my guess is, based on the work that I've seen being done, is that you're going to see more TV. And in seeing more TV, we anticipate that will increase Walmart sales as well as e-commerce sales, just by increasing awareness. Although the conversion rates are strong and the retention rates are excellent, we still think the overall awareness of true nitrogen is not that high. So the opportunity is terrific here in the U.S. and, frankly, globally. But we just don't think that many people know about it yet. Right. And we can expect, did you say, is that a second half, perhaps, the TV? You said in the coming months. Is that, you know, second half? That would be my expectation. Okay. Thank you for your time. Thank you.

Your last question comes from JP Mark with Farmhouse Equity. Your line is open.

Hi.

Thanks so much for taking my call, and congratulations also on a great quarter.

So most of my questions have been asked and answered, but I do want to ask a little bit about the pro market, which I think is something you talked about on the last call, but only tangentially, and wondered if there's any update on whether that's a real growth opportunity or where you see that going.

Yes, we very much think that the true nitrogen pro market is a significant growth opportunity. If for no other reason, and this is one of Kevin's favorite topics, because the We have these fantastic studies that are coming out. Some of them are preclinical, but some of them are clinical that address disease states, but we're a dietary supplement. But the rules around marketing to healthcare practitioners are different than the rules around marketing to general consumers. So there is more flexibility. in marketing to healthcare practitioners and letting them know about the great research on nicotinamide riboside and niagen specifically. So what we sell to healthcare practitioners is true niagen pro. So, yes, I do see that as a growth opportunity for us. And you would never actually have the 500 milligram formula on your own site then, right? It's always going to just be for that other channel, is that right? No, I would not say never.

Okay.

However, it is important to distinguish between the two. Got it. Okay. Thank you very much. Again, congratulations. Thank you. Thank you.

This concludes the Q&A session. I will now turn the call back to Brianna Gerber for closing remarks.

Thank you, Ashley. 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 997-2229. Thank you, everyone, for joining us today and for your continued support of Cremadex.

This concludes the conference call. You may now disconnect.