ChromaDex Corporation

Ladies and gentlemen, thank you for standing by, and welcome to Chromadex Corporation's second quarter 2022 earnings conference call. My name is Dennis, and I will be your 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 2022. 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 Heather Van Blarkum, Senior Vice President of Legal and Corporate Secretary. Please go ahead, Mrs. Van Blarkum. Thank you.

Good afternoon and welcome to Chromadex Corporation's second quarter 2022 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Freed, Chief Financial Officer, Kevin Farr, Vice President of Finance and Investor Relations, Brianna Gerber, and joining us for the Q&A portion of the call, 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 and the sale of TruNiagen in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interests, 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 the actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause 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, as well as inflationary and adverse economic conditions 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 changes to 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 Fried.

Thanks, Heather, and good afternoon to all, and thanks for joining us on our investor call. The second quarter of 2022 marked an important period of organizational improvement as we adapted to this changing market dynamic and placing an emphasis on fiscal responsibility, on efficiency, and on profitability. The core e-commerce business continued to grow 10% sequentially and 13% annually. The overall net sales declined a bit, however, year over year, primarily due to timing of orders from our partners in Watson, Hong Kong. We believe This timing will be made up in upcoming quarters. As I mentioned, our core e-commerce channel is delivering consistent growth and becoming increasingly efficient. Amazon is our fastest-growing channel within e-commerce. Despite a challenging macroeconomic backdrop, TrueNiogen has been delivering very strong results there. As an example, we're very proud to have reached the status of number one best-selling vitamin B3 supplement. This momentum, also supported by nearly double the number of subscribers since the beginning of last year, has enabled us to reduce spending in the short term by focusing on campaigns that drive the highest conversion. As you heard last quarter, we launched a new TV campaign for TrueNiogen in late March. We and Walmart were very encouraged by the significant increases in sell-through once our campaign aired. But this improvement came a bit late to impact their spring shelf set plans. TrueNiagen will continue to be carried, but in fewer stores going forward, with a focus on the better performing stores and on our introductory 100 milligram SKU. We established that TV advertising works well to drive awareness for TrueNiagen, but it is an expensive channel, particularly the linear television channel. And this is a challenging macroeconomic environment, so we have paused this campaign. to focus on our core e-commerce channel, which delivers consistent growth with measurable return on advertising spend. And we are already seeing efficiencies in the third quarter. We see this difficult market as an opportunity to improve our operations. Our expectation is that we will approach break-even in the third quarter and deliver positive adjusted EBITDA or cash EBITDA in the fourth quarter of this year. At the same time, we know that the addressable market for our ingredient, Niogen, and our brand, True Niogen, remains very strong. This is supported by the science, where numerous preclinical studies published this quarter once again support the efficacy of our novel ingredient, nicotinamide riboside. These include studies investigating the effect of Niogen on cardiomyopathy, on neuropathy, on inflammation, and on myogenesis. In addition, and importantly, Preliminary findings from a study supported by the Gates Foundation and conducted by our chief scientific advisor, Dr. Charles Brenner, were presented at the FACEB NAD Plus Metabolism and Signaling Conference this past June. The study performed in an animal model showed that moms supplemented with Niagen bore offspring with improved body composition and brain development, significantly outperforming NMN. We look forward to sharing more once the results are peer-reviewed and published. And as the science supports the long-term prospects for TruNiagen and Niagen, so does our continued innovation in the NAD precursor space, which we will share in future updates. We also made significant strides in our China strategy this quarter, a large and growing market for NAD supplements. As many of you know, we have a partnership with Sinopharm Xingsha, large state-owned healthcare group in China. As consumers already understand the benefits of elevating NAD in China, we can differentiate TruNiagen as the most trusted and science-based brand with a trusted local marketing partner like Sinopharm. While we have been in discussions with Sinopharm since late last year, we solidified our relationship in June with the cross-border agreement. This now enables us to progress more quickly toward commercialization. We continue to be impressed with their deep knowledge of the local market, as well as commitment to our brand, and we look forward to them taking over the management of the cross-border operations in the coming months. We also signed an agreement to establish a joint venture in China to pursue blue hat approval for in-country sales of true nitrogen. This will open an even larger addressable market to accelerate growth over time. Another strategic market for TruNiogen is South Korea. We recently signed a definitive agreement with Juvenis, our healthcare marketing partner in the country whose focus is on cosmetics and dietary supplements. Lastly, in the broader Asia-Pacific market, our new partnership with H&H is progressing quite nicely. They recently launched their first exclusive product with Niogen, the Swiss Beauty Activator. in Australia, and they have plans to launch this as well as other products targeted at a unique benefit areas in China cross-border as well as other markets. As a reminder, the Swiss brand is the leading brand on China cross-border platforms, and we remain optimistic about the prospects with H&H. We're very excited to enter a new period of corporate development as we continue to grow the TruNigem brand, broadening our revenue base geographically and partnerships, and a strong recurring revenue base of well-informed users who are actively seeking the best science-based supplement to aid in improving their overall health and well-being. Part of this transition, from being a growing startup to a $70 million global revenue run rate for TruNiagen, has been a stepwise series of leadership changes designed to assist Chromedex in its next phase of corporate lifecycle development. This includes meaningful changes to our board of directors, as well as our executive leadership team. In April, we added two outstanding female executives, Ann Cohen and Kristen Patrick, to our board of directors. Ann is a financial expert and our new chair of our audit committee. And Kristen, the new chair of our non-gov committee, brings extensive marketing expertise, most recently at Claire's and previously at Pepsi. And just this week, we welcomed Hamid Shabazi, CEO of WellHealth. Ahmed is a successful healthcare internet entrepreneur whose company is focused on consolidating and modernizing primary healthcare facilities and practices in Canada. These three great executives are injecting new perspectives and energy into our board, and we are very grateful that they have decided to join us. And our executive team has also undergone some changes. As many of you know, our co-founder, Frank Jack, has stepped away from his executive duties to pursue a new entrepreneurial venture in a complementary space of synthetic biology, but he will remain as chairman of our board. We also have a new head of the legal department, Heather VanBlaakem, who is joining us on this call today.