ChromaDex Corporation

Ladies and gentlemen, thank you for standing by and welcome to Chromadex Corporation's fourth quarter 2021 earnings conference call. My name is Josh and I will be the conference operator today. At this time, all participants are in a listen only mode. 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 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 Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead, Ms. Gerber.

Thank you. Good afternoon, and welcome to Chromadex Corporation's fourth quarter 2021 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Freed, Chief Financial Officer, Kevin Farr, and Senior Vice President of Scientific and Regulatory Affairs, Dr. Andrew Hsiao. 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 TruNiagen 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 to 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?

Thank you, Brianna. Good afternoon, everyone, and thank you for joining our fourth quarter 2021 investor call. In 2021, Chromadex achieved several important strategic milestones. We launched TrueNiagen in 3,800 Walmart stores, our first mass retail launch in the United States. We also partnered with Sinopharm Xinjia, a subsidiary of one of China's largest pharmaceutical companies, to help grow our TrueNiagen cross-border business and to collaborate in securing health food registration in China. We signed agreements with new strategic partners, H&H Group and Rowe, to help build the Niagen ingredient business with their unique customer base. And we announced results of a study on NR supplementation in children with ataxia, an orphan disease characterized by premature aging. We believe this is further evidence of Niagen's potential impact on age-related health declines. This strategic momentum has continued in early 2022. Our Chromedex External Research Program, or CERC, achieved its 100th published peer-reviewed study on Niagen and other ingredients. This milestone was followed by a first-of-its-kind study on Parkinson's disease patients, which was another data point supporting NR's positive impact on neurodegenerative diseases. A Phase II study is currently underway, which will explore these findings in a larger patient population. And finally, we were granted an important new U.S. continuation patent that significantly reinforces Chromadex's intellectual property portfolio. We now have over 40 patents on NR and other NAD precursors. This particular patent adds protection of the manufacturing process of NR and its various salt forms through 2037. While many of these achievements position the company for growth in 2022 and beyond, we also delivered solid financial performance in 2021. True year net sales were 67.4 million, a 14% increase year over year. True nitrogen net sales were 56.7 million, a 20% increase year over year. And our gross margins were 61.5%, a 200 basis point increase versus last year, despite a very challenging global supply chain environment. As I said last quarter, I believe we're at an inflection point for this company, with litigation largely behind us. We are already devoting more resources, both human and financial, to building our true nitrogen brand and developing our science and furthering our relationships with global partners. In the fourth quarter of 2021, total legal expense declined significantly to $1.6 million, which allowed for reinvestment in brand building, as well as improvements in profitability on a reported basis. Our total operating loss was 5.3 million in the fourth quarter of 2021 compared to 8.8 million in the third quarter. In the fourth quarter, we tested television advertising with our existing Shannon Sharp spot to help shape our plans for 2022. And I'm excited to announce that one of our new TV commercials begins airing nationally in March. While the Shannon Sharp ad was targeted at a primarily male and fitness-oriented audience, our new commercial is intended to educate a broader group of potential consumers about the benefits of taking TruNiogen. We'll share more as we scale this campaign and others to support our e-commerce business, as well as improve brand awareness at Walmart. As I said, the recent scientific developments on Niogen have been significant and continue to validate the tremendous market opportunity for this ingredient. Specifically, several studies have shown that tissues in complex organs such as the heart and brain are heavily dependent on NAD. Not a coincidence that these metabolically demanding tissues are the ones we're most concerned about as we age. We now have 20 completed and published clinical trials involving Niagen, and more than 40 additional studies underway. Our focus going forward is to translate this extensive and growing body of science into compelling marketing messages, including aging, heart health, muscle health, cellular health, and others. We're beginning to test benefit-specific messages in our marketing materials. encouraging results. For example, we designed an email and social media campaign highlighting the scientific research behind NR and heart health in February to align with American Heart Month. In addition, we're launching a new true nitrogen product this year to broaden our customer base by targeting another important benefit area. I'm excited to share more once it's in the market. And finally, I'd like to highlight our newest strategic partner, Designs for Health, and give a brief update on Sinopharm. Designs for Health sells premium dietary supplements to its extensive healthcare practitioner network in the U.S. They will offer specifically formulated products with Niagen exclusively to these eight CPs. Chromadex and Designs for Health share a similar philosophy. Both companies are rooted in science and sell research-driven, evidence-based products. The healthcare practitioner channel is strategic for Chromadex to build awareness of Niagen. These practitioners play a pivotal role in educating consumers on the importance of NAD, and providing science-backed health solutions. Designs for Health will complement our internal sales team and help us leverage the tremendous body of preclinical and clinical research on this amazing ingredient. Last quarter, I discussed the tremendous opportunity in China with our new partner, Steino. We've been very impressed with their deep knowledge of the local market. They share detailed marketing plans for TrueNiagen as well as insight into the large and growing NMN market in China, a far less efficient NAD precursor with much less science than nitrogen. We're finalizing the commercial plans and the supply agreement with Sinopharm for initial cross-border sales, as well as our approach to pursuing Blue Hat approval in parallel. All of our new partnerships are in various stages of product development, but we expect them to contribute to increased sales in 2022. In addition, for established relationships like Nestle, we're in discussions about how to make the partnerships more impactful over time. As I reflect on this quarter and on 2021 in general, I'm incredibly proud of our entire team's execution and more confident than ever about the market opportunity for TrueNight. I'd like to thank our loyal shareholders, partners, employees, and customers as we enter this next phase of growth. And now I'll pass the call to Andrew Hsiao, our Senior Vice President of Scientific and Regulatory Affairs, to share more about the strategic importance of our industry-leading CERC program as well as the growing body of exciting research on Niagen.

Andrew?

Thank you, Rob. It's a pleasure to speak to you all today. I joined Chromadex about two and a half years ago and serve as the Senior Vice President of Global Scientific and Regulatory Affairs. During my time here, I've been incredibly impressed by the company's deep commitment to the science behind NR and other NAD precursors as we build a trusted consumer brand, TruNiagen. Prior to Chromadex, I spent nearly two decades in the global nutrition industry, leading similar functions for organizations such as the Council for Responsible Nutrition and Herbalife Nutrition. Rob asked me to join today's earnings call to provide some perspective on the Chromadex External Research Program, or SERP, which was started by our co-founder and executive chairman, Frank Jacks in 2013 and is now led by Dr. Yasmeen Nkrumaheli. Thanks to Frank's vision, Chromadex is a pioneer in the industry and Yasmeen has brought great focus and passion to accelerate SERP's mission. To date, SERP has accumulated more than 245 collaborative agreements with over 170 institutions in 33 countries representing over $85 million in estimated total research value. Over 90% of studies are investigator-initiated and third-party funded. Our innovative approach results in greater trust in research, as skepticism of industry-funded research has been a challenge in the dietary supplement industry. It's an exciting time for SERP. which recently celebrated its 100th peer-reviewed publication on Niagen and other ingredients. To date, the program has produced more than 45% of all peer-reviewed publications and 70% of the peer-reviewed clinical publications involving NR, and this is a remarkable milestone for an ingredient like ours. Most of the research going through SERP is advancing the science of NAD and NR well beyond the scope of the dietary supplement industry, We're honored to provide the highest quality material to propel science forward and build academia industry relationships. Of course, the milestones that SERP has achieved would not have been possible without all the SERP investigators, their respective institutions, and funding partners. We are grateful for their contributions and look forward to many more future research opportunities. I'll briefly highlight two exciting clinical NR studies that were published since our last update. In January, a study that investigated the anti-inflammatory effects of NR in monocytes, type of white blood cell, extracted from two groups, young, healthy subjects and patients diagnosed with systemic lupus erythematosus, was published in the Journal of Clinical Investigation. This team, led by Dr. Michael Sack, demonstrated that increasing NAD levels through NR supplementation reduced type 1 interferon signaling, which plays an important role in the human immune response. The results from this pilot study are promising. However, more research is needed to understand the implications of NR supplementation for patients with autoimmune disorders like lupus. We look forward to supporting the next phases of this important research through SERP. And just last week, A phase one study showed NR supplementation significantly increased cerebral NAD levels, improved some measures of motor function, and decreased inflammatory cytokines in Parkinson's disease or PD patients. Abnormal energy metabolism due to mitochondrial dysfunction has been linked to PD, which affects more than 10 million people worldwide. and is believed to play a role in the initiation and progression of the disease. This study assessed NR as a potential therapeutic strategy for targeting mitochondrial function and energy metabolism in PD patients. The study builds upon previous preclinical studies exploring the positive impact of NR on neurodegenerative diseases. It is an encouraging step forward for Parkinson's research. We look forward to further research aimed at understanding the role of NR supplementation in Parkinson's patients. A second study is already underway by the same group of researchers. We've learned a great deal about NR and NAD since SIRP began in 2013. Importantly, the growing body of evidence suggests with great consistency that metabolically active tissues are heavily NAD-dependent since they require a lot of energy to function normally, particularly when exposed to stress. This includes the brain, muscle, heart, liver, and skin, among others. Their function tends to be compromised with age as well as with disruption of the NAD system, which highlights the importance of maintaining NAD levels. In 2021, we saw a shift in the number of CERP agreements from predominantly preclinical to predominantly clinical. There is great scientific interest in NR, and we anticipate learning more about the role of NR and NAD in human health over the next few years. We look forward to translating the growing body of research into new claims for Niagen so that more consumers can understand the benefits of this amazing ingredient. With that, I will pass the call on to our Chief Financial Officer, Kevin Farr. Kevin?

Thank you, Andrew. Chromanex delivered on or exceeded our latest full year 2021 financial outlook to investors across all metrics. For the year, we delivered total net sales of 67.4 million, a 14% year-over-year increase with strong growth and true nitrogen of 20%, including 21% growth in e-commerce. Gross margins of 61.5%, up approximately 200 basis points year over year as scale, product mix, and cost-saving initiatives more than offset inflationary pressures across global supply chains. Roughly flat R&D expenses of percentage of net sales as we funded investments in new NAD precursor development. Higher selling and marketing expenses of percentage of net sales as we invested in brand building activities. and a slight decrease in general administrative expense versus our outlook of a slight increase as we tightly manage cost. The underlying business is measured by adjusted EBITDA excluding legal expense. A non-GAAP metric posted a full-year loss of $2.5 million compared to a loss of $1 million in full-year 2020. The increased loss year-over-year was primarily driven by increased brand investments in marketing to position us for 2022 and beyond. This has been a key metric for the organization. However, with the significant litigation expense behind us, we'll be focusing on adjusted EBITDA including legal expense going forward as a proxy for cash used before working capital investments. We've provided a reconciliation to the appropriate gap measures in our earnings release slides. Turning to highlights from the fourth quarter of 2021, Chromadex delivered a solid quarter with total net sales of $17.8 million, up 15% year-over-year, and a gross margin of 61.2%. The underlying business is measured by adjusted EBITDA excluding legal expense, a non-GAAP measure, posted a loss of $1.8 million in the fourth quarter. As I said on our last earnings call, with the significant litigation behind us, We are prioritizing investments in new brand campaigns to drive overall growth and brand awareness at Walmart. As Rob said, our new True Niagin commercial will soon be airing on national TV. Given the current macroeconomic environment, we expect to scale this new brand campaign in a pragmatic fashion in 2022. We'll be looking at leading indicators of success and adjust spending accordingly. I'll begin by reviewing the sequential P&L results, and then we'll discuss the year-over-year trends. For the three months ended December 31st, 2021, Chromadex reported net sales of $17.8 million, up 3% compared to the $17.3 million in the third quarter of 2021. True Niagen net sales were down 5% sequentially. Our sales to Monacana were impacted by COVID-19 restrictions in Australia, that delayed the rollout into more than 2,000 pharmacies. While Australia and more recently New Zealand continue to face significant COVID-19 headwinds, we expect true nitrogen sales to Monacana to resume once restrictions are lifted. As expected, Watson sales were $2.2 million this quarter, compared to $2.6 million in the third quarter, which included the final catch-up in shipments from the first quarter supply chain disruptions. While we have seen some signs of improvement and sell-through as the Hong Kong economy recovers from the impact of COVID-19, the recovery has not been steady. 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 local COVID-19 movement restrictions and social distancing measures and travel restrictions. And most recently, the Omicron variant is having a significant impact on Hong Kong residents, which may remain a headwind in 2022. In the fourth quarter, we partnered with Watson's on marketing campaigns and staff incentive programs to drive higher sell-through. We're evaluating similar programs to support sell-through in 2022 while they manage through these COVID-19-related headwinds. For Watson sales to continue to grow, We need sell-through to return to pre-COVID levels. Our e-commerce business is up 6% sequentially. As we said, the fourth quarter is seasonally strong, driven by promotions in the U.S. and China with singles day on 11-11 and 12-12. We continue to see steady growth in the underlying business. Our nitrogen ingredient sales were up 53% versus the prior quarter, driven by sales-to-life extension and a shipment to H&H Group. While our expectation is that H&H will not launch in the first quarter of 2022 as previously communicated, our R&D team continues to work closely with H&H on the new product formulation. H&H remains excited about the potential of Niagen. There were no Niagen ingredients sales at Nestle this quarter. Our gross margins were up slightly to 61.2% in fourth quarter of 2021 versus 61.1% in the third quarter of 2021 total operating expense for the fourth quarter of 2021 were 16.2 million down 3.2 million compared to the third quarter of 2021 selling and marketing expense increased to 8.6 million in the fourth quarter of 2021 compared to 7.2 million in the third quarter of 2021 as a percentage of net sales this expenditure was up 700 basis points in the fourth quarter of 2021 versus the third quarter of 2021. We continue to see higher costs for new customer acquisitions driven by broader industry trends, including changes in Apple's iOS that are impacting advertising costs and efficiencies primarily on social channels as well as search. In addition, we've invested more on top of the funnel brand advertising that does not immediately drive conversion. This included incremental spending on television advertising as we tested networks and time slots ahead of our new brand campaign rollout. We've also tested top-of-the-funnel investments in Amazon, including streaming television on their platform and tools to prospect a broader audience of consumers across other supplement categories. For full year 2022, we plan to continue our investment in television, but are reducing spend in other areas that proved to be less efficient at driving new customer conversion in the fourth quarter. we have begun to see an improvement in cost per acquisition, especially in search, in the first quarter of 2022. As reported, G&A expense was down 4.7 million to 6.5 million in the fourth quarter of 2021 versus the 11.2 million in the third quarter of 2021. Legal expense was down by 4 million compared to the third quarter of 2021 to 1.6 million in the fourth quarter of 2021. As expected, we incurred baseline legal expense of approximately $1 million in the quarter, as well as nominal expense related to post-trial motions in the California litigation, costs related to the Delaware appeal, and to the Thorne IPR. Importantly, this significant reduction in legal expense allowed us to reinvest in the top-of-the-funnel brand-building initiatives that I mentioned earlier while dropping some of this savings to the bottom line. Excluding legal fees, severance, restructure, and equity compensation expense, fourth quarter 2021 G&A expense was lower by 0.1 million versus third quarter 2021 comparable G&A expense. For the fourth quarter of 2021, our operating loss was 5.3 million versus 8.8 million in the third quarter of 2021. The net loss attributed to common stockholders for the fourth quarter of 2021 was $5.3 million, or a loss of $0.08 per share, as compared to a net loss of $8.9 million, or a loss of $0.13 per share for the third quarter of 2021. Moving to the year-over-year financial results. Total net sales were up 15% year-over-year compared to the fourth quarter of 2021, with 14% growth in true nitrogen including 17% growth in e-commerce and a 5% growth in combined Watsons and other B2B sales. Our nitrogen ingredient net sales were up 14% year-over-year, despite the loss of a key customer, which represented approximately $500,000 of sales in the fourth quarter of 2020. Gross margin increased by 20 basis points to 61.2%, compared to 61% in the fourth quarter of 2020. Selling and marketing expenses of percentage of net sales increased 780 basis points to 48.7% compared to 40.9% in the fourth quarter of 2020. The drivers of this year-over-year increase were similar to the sequential drivers I discussed earlier. As reported, general administrative expense was lowered by $1.8 million, primarily due to lower legal spend of $0.8 million. Finally, our operating loss improved by $0.8 million year-over-year as higher sales and gross margins and cost savings across the organization were partly offset by investments in selling and marketing. Moving to the balance sheet and cash flow, our balance sheet remained strong. We ended the quarter with $28.2 million in cash, and we did not access our committed line of credit. In the fourth quarter of 2021, our net cash used in operations was a negative $4.9 million versus a negative $5.9 million use of cash in the third quarter of 2021. The difference in this quarter was primarily driven by a lower net loss, partially offset by an increase in inventory, a decrease in accounts payable due to the timing of payments to our vendors, as well as changes in accounts receivable due to the timing of collections from our B2B customers. As it relates to our 2022 full-year outlook, we provided details on key P&L metrics in our earnings press release along with the slide presentation. Consistent with our prior year outlook, we expect to invest in marketing, brand awareness, customer acquisition, and R&D to maintain our position as a leader in the growing NAD Plus market. Recognizing the uncertain macroeconomic backdrop, we're balancing these long-term growth investments with near-term sales and profitability objectives. As it relates to the full year 2022 net sales, we expect around 15% to 20% growth year over year. In terms of tailwinds, we expect continued growth in e-commerce as well as more meaningful revenue contribution in aggregate from our new partners in 2021 and designs for health in early 2022. We could see continued headwinds from COVID-19 for several B2B partners, including Watson's in Hong Kong and Singapore and Monacana in Australia and New Zealand. The timing of a more steady, consistent sales growth with these partners is challenging as a result of COVID-19, but we're working closely with them to navigate the challenging environment. Our outlet only includes revenue from existing partnerships and excludes any upsides from potential new partnerships in the pipeline. We're targeting gross margins of slightly better than 60%, similar to last year. We expect that continued supply chain cost savings initiatives and scale will offset the inflationary pressure we're currently experiencing across the global supply chain. We expect that selling and marketing expense will be down slightly as a percentage in net sales on a full-year basis, although there may be quarterly volatility driven by the timing of campaigns and tests. We expect that R&D will be up approximately $2 million as we invest in new NAD precursor development related to our recently granted patent, among others. Finally, we expect that reported G&A will be down $5 to $6 million, driven by a significant reduction in legal expense partially offset by investments in information technology and headcount and key functional areas to support growth. And we have enough cash to fund the growth objectives of the company and will continue to invest pragmatically. In summary, I'm very proud of how the company continues to execute, balancing the long-term market opportunity with near-term revenue growth and profitability objectives. As Rob has said, we're at an inflection point with litigation behind us, and I'm excited for the next phase of realizing true diligence, true potential. Operator, we're now ready to take questions.

At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Jeffrey Cohen with Landenberg Thalman. Your line is open.

Hi, Rob, Andrew, and Kevin. How are you?

Good, Jeff.

So I guess my question initially is for Andrew. Andrew, thank you for the walkthrough on the SERP programs. I wondered if you could talk about marketing claims and outcomes on work that's being done now and how that could seep into the markets for NR.

Hi, Jeff. Thank you for your question. substantiating claims is to take the total body of evidence that's available. So that would include, obviously, studies that come through SERP and other studies that are identified in the literature. We look at the whole body of evidence to support claims. Obviously, clinical studies carry the most weight as part of that effort, and we do look to SERP studies as the main source of those clinical studies to inform decisions that we make on claims. As you know, a number of those studies involve disease-related outcomes, disease patients, and so forth, and of course, selling a dietary supplement. We don't use those studies directly to make disease claims. We're not allowed to do that. We're not permitted to do that. But those studies, of course, give us great insights into how Niagen is affecting the body normally, normal function, and normally how NAD affects the function of different organs and different systems. So we really look at it very holistically in using those studies to try to generate and support claims. So that's kind of a general answer to your question. I'm not sure if you had a question about a specific study.

No, that's actually perfect, Andrew. Thank you very much. And as my follow-up, a couple, Kevin, if you could talk about the Q4 legal expense and what you anticipate as legal for 22. And then also with that, just remind us if margins do or do not include outbound freight and if that's going to be impacting margins or if you're measuring that from your margin number. Thank you.

Yeah, I think as we went into the fourth quarter, we saw legal expense drop. We were doing pre-motion judgments before the judgment, so we did have some legal expense, but we continue to expect in 2022 that the majority of legal spending with regard to litigation is behind us. We continue to expect a baseline legal expense, which consists primarily of patents. General corporate and internal headcount will be around $4 million in 2022. That's more or less divided by four, and that's probably your quarterly. In addition to the baseline expense, ongoing litigation expense, including New York case, Delaware appeal, the Thorne IPR, and rejuvenation litigation. should each cost less than $1 million. However, the timing and magnitude of litigation expense is more difficult to predict. We do expect in the first quarter of 2022 litigation expense will be the highest expense due to the ongoing expense-related emotions of prejudgment interest in California, the Delaware appeal, and the Thorne IPR. Litigation expense should decline after that in the balance of the year. And we'll continue to look for ways to optimize these budgets and include outstanding litigation. And we recently filed a motion in New York District Court to enforce a $2.5 million settlement that was agreed to by Elysium Health. The details of this are publicly filed with the court. And with regard to our gross margin projection for 2022 of slightly above 60%, again, I think we are factoring in what we see is inflation in the cost of freight and others. But we also have, with regard to gross margins, we have aggressively been pursuing initiatives to maintain our strong gross margin. This will be driven by continued supply chain cost savings initiatives, leveraging overall scale of the business and favorable mix to partially or fully offset inflationary pressures across global supply chain. We did buy some component parts early, like glass bottles and others in 2021. So we won't see inflationary on some of the component parts until late in the year. And we're also considering price increases if inflation remains persistently high.

Super. Thanks for taking our questions.

You're welcome. Your next question comes from the line of Mitch Pinero with Stewart Avant & Company. Your line is open.

Yeah, hey, good afternoon. I guess my first question is, you know, I'm looking at your 2022 sales guidance. You know, while 15 to 20% is nice, it is below what, you know, what I'm looking for. I think I imagine consensus. And I understand that. you know, some of the sort of the global headwinds. But, you know, as you just look here in North America, in the United States, shouldn't that be able to do, you know, support, you know, a mid-20% growth and then, you know, let everything else sort of, you know, fall in, you know, where it does? It just seems like it's... Are you being conservative in your initial outlook here or... you know, just sort of expect the e-commerce in the United States to have a much stronger 2022. Can you talk about that a little bit?

Yeah, let me start, and Rob, feel free to add in. I think, as you know, in the fourth quarter of 2021, we're gearing up accelerated investments in TV in early 2022. And, you know, we're not tone deaf. So I think with regard to the macroeconomic environment has changed significantly since then. including geopolitical instability and increased COVID-19 headwinds in certain countries. And also there are industry headwinds due to changes in the Apple iOS that are impacting bottle and funnel conversion. As such, we're taking a more measured approach to investments in our TB campaign and other growth initiatives versus leaning into these headwinds early in 2022. Would you like to add anything to that, Rob?

Yeah, I think, Kevin, That covers it. That's the reality. There have been a lot of changes of late. The big one is that iOS algorithm change with regard to e-commerce. So what you're seeing is higher customer acquisition costs across the board in digital marketing, in search, in social, and in influencer campaigns. So even though we're seeing growth and we're seeing lots of new customer acquisition, the last few months it's gotten more expensive. At the same time, We are starting to advertise more on television, so we increased our television advertising in the fourth quarter with the Shannon Sharp ad. And now we've shot a new ad, which is sort of a more broader appeal ad that I think more targets the Walmart consumer, and that's going to be launched shortly. But we're expecting, we think that the market is still really, we know the market is really huge out there for what we offer. We expect to continue to grow. We think marketing costs might be slightly more expensive in the coming months until there's a shift. So yes, it is conservative. And yes, it is a very measured and, as Kevin likes to say, pragmatic approach to our investments for growth. What we still continue to have is excellent retention. People who buy TrueNiogen and take TrueNiogen keep taking and buying TrueNiogen. The retention numbers continue to look extremely solid. Amazon has indicated to us that they think we have the highest retention of any dietary supplement that they sell. And we see that kind of support on our website as well. And we know we see that in the other channels that we see. But we're seeing on the macroeconomic environment increased costs, increased inflation, increased costs of media. So we're taking a measured and conservative approach to how we look at the year. I still expect that, and we have research that shows that the number one reason why people take truniogen is actually not because of advertising. It's because of word of mouth. They heard about it from a friend who's taking it. This is why we think a study like the Parkinson's study could be very valuable to us. We know we can't make a Parkinson's claim. We know that it doesn't lead, as Jeff asked, into a direct marketing claim that we can make because it's a disease state. The people who have Parkinson's disease are really looking for answers and looking for solutions, and it's our hope that they eventually read these studies and try it and take it for a period of time, and if they see a benefit like we hope they see, they talk about it to others. So it's our expectation And by the way, this is part of the reason why we did the designs for health field, so that they could communicate with the healthcare practitioners and experts. We still expect that a tipping point is going to be hit on true nitrogen, where it goes from good solid growth to explosive growth. It's just impossible to anticipate when that's actually going to happen.

Yeah, I mean, it just seems that, you know, certainly the momentum by, you know, behind the science is far stronger than the momentum behind the awareness, consumer awareness. And, you know, this has been a tough couple of years, obviously, to operate in, but you would just think there'd be a little stronger response to the research and, you know, hopefully your TV, campaign can address that. My one question is with Shannon Sharpe's TV ad, I mean, are you, I mean, is that, are you getting satisfactory returns in that? Like where, where that, that would be a baseline or are you not happy with like that type of ad? You have to go a different direction.

No, the marketing department has told us that the, the, those ads have actually played quite well. And, you know, we've used those ads in the past, and they've played quite well. So we expect to continue to use the Shine and Sharp ad. It's just a more specific cohort group. What we're thinking now is that we could go much broader than just sort of a male fitness sports-related cohort. We think it's a much broader-based market than that, and this new campaign is going is targeting a wider audience. But we still intend to use Shannon in sports and other territories. I also agree with you. I think that the science continues to be amazing. I mean, as Andrew was saying, we're now seeing a spate of published peer-reviewed clinical studies showing that Niagen works on a whole host of age-related issues and disorders. And yet the awareness is still not that great. The problem we have is you can't make a claim. That's why Jeff's question was right on the dot. Science comes out, but you have to be very careful about how you promote it. So we're very careful, we're very measured, we're very conservative in the way we promote it, and we just take it one step at a time until it hits that tipping point.

Yeah, Mitch, and I think it's more than just the TV spot. We've developed, tested, and sent a simplified message to articulate the benefits of true niagen. in a 30-second TV spot, but more broadly, we're doing true brand building, which requires bringing together a holistic plan that includes communication and consumer education, including our new TV campaign, a loyalty or brand ambassador program that incentivizes our most engaging customers to recommend TruNiagin, and an expanded portfolio that caters to different consumer needs, and Rob referred to that product portfolio. We're also in various stages of implementing these initiatives, but they are a roadmap for 2022. We expect to see accelerated growth exiting 2022 when all of this is in place.

If you were looking for why you would have upside to the current sales forecast, what are the couple key things that you're going to have to see you know, to do better than your current forecast? What do you think they are?

There are a number of things that could happen that could make it go from, you know, 15, 20% growth to the, you know, multiples of that and buying it, paying for it, doing a large campaign is one, but it isn't necessarily the most cost efficient way to do it. We are, As you know, we make deals with a number of partners. We have partners with Roe. We have H&H. We have Nestle. We have Sino. Any one of those deals could yield. We could make more deals like that. We could expand into other categories like pet nutrition and infant nutrition. And there could be a, you know, it's very difficult to understand publicity and viral activity and when a product goes from you know, well-known to talked about at every dinner table. You can't force that. It's very difficult to know when word of mouth just catches and it takes off, but we feel that we're pretty close to that. So it's just the right people saying the right influencers saying the right thing at the right time to the right people. And we know the product works. So it's very difficult. You know, that's really what happened in Hong Kong. A few years ago there was sales were very good in Hong Kong, but then there was an influencer who independently posted a video on his personal experience taking true knives. And that's when sales exploded in Hong Kong. We we're waiting for that to happen here, but you have to be very careful about trying to make that happen because you can't make claims. So that's another thing that could happen that could create explosive growth. And then of course the TV campaign itself, I mean, As Kevin said, we're going to be measured and careful about it, but it may just very well work. We have a new marketing department at the company. They've been at it for only 10 or 11 months, but they're an excellent team. They do a lot of research. They're very thoughtful. They're very careful. They're taking it one step at a time. They put a lot of time and energy into the script of the spot, and they've tested the spot. It's not the only spot. They're going to be producing other spots behind it. But we expect, we have high hopes that it will succeed, but we're still creating very conservative expectations for how it will succeed.

And just last question, Mike. My last question was just simply, I'm sorry, go ahead.

I'm just going to indicate that, look, we're seeing, again, COVID impacting our businesses in places like New Zealand and Australia and consumer takeaway in Hong Kong. So that, you know, if that basically, you know, dies down for a consistent amount of time, you know, that could help us to, to hit the high or run to the range.

Okay. Gotcha. And then last, it's just Nestle, you know, no, no, no sales this quarter. And what, what's happening at Nestle is where, where, where are conversations? I know you talked about, you know, trying to, you're, looking at other plans, but if you could talk about what's happening there, I'd appreciate it. Thank you.

Well, Nestle, as you know, over the last few years has been acquiring many companies in the space. In fact, they announced another one a month ago. They bought Bountiful last year for $5 billion. They bought another company here in California last month. I forgot what it's called. But they've become the largest dietary supplement company in the world, in addition to being the largest food company. And they know very, very well how unique nicotinamide riboside is, and they're extremely impressed with what we've done with the True Niagen brand, creating this recognizable and highly trusted brand with basically an e-commerce effort in the last three years to build it to where it is. And they're excited to develop the relationship further. As you know, they have many divisions there. They have a pet nutrition division. They have an infant nutrition division. They even have a pharmaceutical division. And then they have all these dietary supplement divisions. So we expect and hope that the relationship with Nestle will expand, but it has to be done in a way that optimizes our shareholders' interests. We know that the initial deal was for them to create this brand, Celtrian, and they committed quite a bit of money towards Celtrian. It still has yet to take off as a brand, but we are under the impression that they are continuing to invest in it. But they continue to have interest in Chromadex and in TruNiagen and finding ways to expand the relationship. So that may be something that we see during the year, but we certainly are exploring it.

Thank you so much.

Thanks, Mitch. Your next question comes from the line of Jeff Van Syndrome with B. Riley. Your line is open.

Hi, everyone. Just kind of a follow-up around the ad campaigns targeted at driving Walmart or, I guess, a broader market. demographic. Is it too early to have any ROAs on that? Has it been tested yet? Just wondering on the status. And then maybe you can just give us kind of an update on Walmart sales. Is it ramping? And then it's kind of a multi-part question, but just, I guess, can you speak more about anticipated contribution from some of the newer programs this year, like H&H, for example, including international? Thanks.

So you want me to do it? Go ahead. I'll take the Walmart whenever you want.

Okay. So yeah, let me start with the international piece. You know, international has been tough because of COVID and now Hong Kong is in a very, very severe lockdown right now. They have 50,000 cases in a population, you know, 5 million people right now and their hospitals are all booked and they have a formal lockdown and foot traffic is not that great in stores. And Hopefully, it'll die down the way it has here and in Europe, and then things will hopefully get back to normal. And we've seen a similar kind of problem in Australia and New Zealand and other parts of the world. So the international sales have grown, but not as much as they would and will when COVID dies down. In terms of the ROAS for the campaign, no, it's too early. We haven't even launched this new spot that our marketing department just shot. It's more difficult to measure ROAS on a specific spot on television. It's much easier on the digital marketing. The ROAS for the digital marketing has gone up in the last six months, and that's mostly due to a lot of testing that we've done, but also because of the iOS algorithm changes that have taken place. I think actually our timing is pretty good to begin shifting towards traditional media, what's happening in the digital media marketplace. But ROAS is very, very important to us, especially considering the macroeconomic environment these days. So we are increasing our attention, not just on growth, but also on marketing efficiency. And that is why we describe our approach as a measured, pragmatic approach to spending our marketing dollars. Do you want to take one more?

Yeah, I'll take Walmart. And I think, you know, overall, you know, we expect more meaningful revenue growth in aggregate for our new partners in 2021 and Design for Health, as I mentioned in my remarks, for 2022. And I just want to highlight again, I think in my prepared remarks, we have not really included any revenues from potential new partners that are in the pipeline. And then with respect to Walmart, we don't provide sell-through based upon our retail partners. But it continues to build slowly, but our expectation that it will accelerate as we scale our national television campaign in 2022. And we are just launching the new TV campaign. We shared this campaign with Walmart, and they remain enthusiastic about us building the NAD Plus category together with them. We and Walmart are aligned on the launch expectations, and they are committed to building the true nitrogen business over time.

Okay, good to hear. Thanks for all that. And then I think you mentioned a new true nitrogen product that you're planning to launch this year. Just wondering if you can speak more about that timing, what the launch is targeted at, where you might launch it, target market there, planned advertising to support it, that kind of thing.

So first, let me just You know, we have basically been a single product company for the last few years, TrueNiagen. We have partners to whom we have supplied Niagen, and they have created formulations with Niagen, Life Extension, and, of course, Nestle. H&H is planning a formulation product that includes Niagen, and they haven't yet released it, but we expect it to be shortly. We expected them to have it released in December. It looks like they're a little delayed. But this will be our first formulation product that includes Niagen. Remember, we are at the center of this NAD phenomenon. And we are the leading company for anyone interested in NAD, which we all should be interested in, and specifically nicotinamide riboside. And we've sold it as just a pure single ingredient product. So this year, we intend to release a product that includes Niagen. but also adds to it other ingredients that we think are very special and very important and that we've gone through the meticulous process of making sure that it is absolutely the highest grade that exists on the planet. We know that the people who presently are our customers are exceptionally well educated. We think it could be close to 40% of our customers have graduate degrees. This is a highly sophisticated, educated group of people that are very, very smart and they research the product. If you're going to take another product, buy another product from Chromadex, you can trust that we will make it as good as it can be. So what we are planning is to release a formulation product that targets a specific indication in the dietary supplement space that includes Niagen and a few other ingredients that are extremely well sourced and carefully formulated. to provide a very specific benefit to people. I expect it to be released in the next few months. It'll be a soft launch. There will be marketing behind it. It'll be primarily an e-commerce online launch, and then we'll take it from there and see how it goes. Of course, there is interest on that product from many of our partners, but we're taking it one step at a time.

Okay, good to hear. And then just to clarify around the patent litigation, can you touch on the new patent for manufacturing that I think you said runs through 2037? I guess maybe if you can just kind of hit, what does that really mean for Chromadex and competitors?

So as you know, Chromadex has a very deep patent portfolio, and we also have this exclusive relationship with Grace, who has a manufacturing patent on an actual manufacturing process that Chromadex developed, but Grace patented in exchange for this exclusive relationship. And of course, there's the Dartmouth patent. But in addition, we were very excited to be issued a new NRTA patent, nicotinamide riboside triacetate patent, and then there is a second NRTA patent pending. The combination of these two NRT patents, nicotinamide riboside triacetate, are very, very important for Chromadex because we know of no manufacturing process that does not require NRT as an intermediate step to get to nicotinamide riboside. So in order to get to NR, you've got to start with NRT. And these are patents that involve NRT and the process of manufacturing NRT. So we feel very, very good about the addition of this patent that's been issued and hopefully the one that's pending to our existing strong patent portfolio of nicotinamide riboside.

Okay. So, Rob, is it fair to say, and I don't want to put words in your mouth, but Is it fair to say that this new patent and the patent that is pending around this manufacturing process will make it really difficult for others to manufacture true nitrogen?

I think that it's safe to say that it will be difficult, but we could not comment on whether or not anybody that we know of is infringing on it presently.

Okay. Fair enough. Thank you for taking all my questions.

Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon. Thanks for taking my questions. Brian. My questions are a follow-up to at least a couple of the prior questions just with respect to the topics of marketing and then this initial 22 sales guide. And so I'll just kind of merge them together. But One is you talk about, I guess, the forthcoming TV ad that's done in partnership with Walmart. When are you expecting that to launch? And to what degree is that TV ad contemplated in that guidance for 15% to 20%? And then second, we talked a lot about Shannon Sharpen. I mean, as long as I've been associated with the company, Shannon Sharpen has been a key ambassador, a spokesperson for you. Is there any thought to... you know, bringing someone new in, you know, kind of almost work side by side with Shannon Sharpe?

So, I think we can both, I'll start. The answer to the second question is yes, there is discussion about, and we've had discussions with other celebrities. Of course, we also work with Brooke Burke in addition to Shannon Sharpe, and there are other what we call true believers out there. Ryan Lochte, as you know, Gabby Reese, and there have been others that we've worked with in the past. But I think what you mean is going after a big name, like a Tom Brady or an Oprah Winfrey. The answer is yes, we have had meetings, we have had discussions. Some of these people can be very pricey. And we also want to make sure that anybody that we go with, a couple of things. One is they are actually a true believer. They've taken the product, and we're not just buying buying their endorsement, but that it's a credible endorsement, which we think is consistent with the brand that we have. And the second is, it's one thing to pay them their expensive fee, but it's another thing, you have to then support it with significant TV spots and media. So it is not an insignificant commitment to go there, and we need to be measured and careful about that. But the answer to your question is yes. You know, we did do a deal with Goop recently. Goop is Gwyneth Paltrow's brand. She's been taking TruNiagen for quite a while. And it was the first and only product that Goop endorsed with what is now the Goop sort of seal of approval. She's not the only. There are many that we know of in the Hollywood community and the sports community that are truly hooked on True Niogen and take True Niogen. But we have not yet landed on what we consider to be the right additional spokesperson to Brooke and Shannon to take it to the next level. But we do work on it. Okay, the other question had to do with the new ad campaign that we shot, not in conjunction with Walmart, but targeting Walmart. Okay. The head of marketing at Chromadex has been here, as you know, less than a year and has a great deal of experience creating these types of campaigns. These are the types of products that he's worked on in the past. So the campaign that he is launching and the ad that he's created is targeted towards the type of consumer that he has worked with in the past that he believes purchases at Walmart. But we have been conservative in our projections of how it will convert into sales at Walmart because until we launch it and measure it, we just don't know.

Your last question comes from the line of Sean McGowan with Roth Capital Partners. Your line is open.

Thanks. Hi, guys. Good to be back. Hey, Sean. I've got a couple of questions. On your guidance of 15% to 20%, can you give us any color on how that's going to play out across kind of the three segments, consumer, ingredients, and standards and services?

Sure.

I think the growth is going to come from the engine, which is our e-commerce business. And I think what we've said is, in aggregate, it's going to come across our partners, which our partners are in the Niagen category. So it's going to be between Niagen and true Niagen that drives that growth.

So you would expect growth in both consumer and ingredients? Yes.

Okay.

Great.

Second, when you talk about that guidance not including, you know, not contemplating any contribution from partnerships that are in the pipeline, can you kind of handicap what, like, is there an amount that that could contribute? Or are we talking about, you know, small numbers if everything does kick in and, you know, more in the future? You know, could there be a meaningful contribution in 2022 from those

partnerships that are not currently part of your guidance?

I think if we go back to our experience in 2021 with regard to Rho and H&H, I think that it takes a while for them to get to the product to the marketplace. And I think with regard to that, I think it will be additive. I think the one that's More near term is Sinopharm, but again, they've got to bring it to market. This is probably more of a second half of the year or fourth quarter item. I think from orders of magnitude, it will be additive, but how big is yet to be determined.

Okay, thank you. Two other quickies. Kevin, when you were talking about the ingredient sales, did you say It was a 53% increase sequentially.

Yes. Yeah, OK. That's what I thought I heard.

And then finally, when will the 10-K be filed?

10-K is due on the 15th of the month. So it'll be between earnings and the 15th.

OK. Very good. Thank you very much. Bye, Sean.

Sean, I just wanted to, before you left, I just wanted to welcome you here. We've known and worked with Sean for many years, and we're very privileged and honored that you have decided to cover us, and we're looking forward to working with you and Roth. Thank you. Appreciate that, Rob.

Good to be on this side of the call.

And I wanted to clarify the 53%. That was sequentially it grew. Quarter over quarter, it grew by 14%. Got it.

Thank you.

That is all the time we have for questions. I'll turn the call back to Brianna Gerber for closing remarks.

Thank you, Josh. There will be a replay of this call beginning at 4.30 p.m. Pacific time today. The replay number is 1-800-700-2030, and the conference ID is 412-6168. Thank you, everyone, for joining us today and for your continued support of Chromadex.

This concludes today's conference call. You may now disconnect.