Ladies and gentlemen, thank you for standing by, and welcome to ChromaDex Corporation's, first quarter 2022 Earnings Conference Call. My name is Stephanie 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 first quarter of 2022. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex 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 first quarter 2022 results investor call. With us today are ChromaDex's Chief Executive Officer, Rob Fried, Chief Financial Officer, Kevin Farr, and Chairman and Co-Founder Frank Jaksch. Today's conference call may include forward-looking statements, including statements related to ChromaDex's research and development at clinical trial plans, and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of Tru Niagen 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 statements actual results or the 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 be 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. Rob?

Thanks Brianna, and good afternoon, everyone, and thanks for joining our first-quarter 2022 investor call. Since the beginning of this year, we've made some very important strides in building our Tru Niagen brand. Our new TV commercial, which many of you have seen, began airing in late March, and it was followed by the U.S. launch of our new product, Tru Niagen Immune in April. And we're very encouraged by the recent trends in the second quarter and have other brand-building activities on our road map later this year. Beyond the near-term brand-building initiatives, but strategic to our long-term plan, we were granted yet another U.S. continuation patent that significantly reinforces ChromaDex's intellectual property portfolio, which now is over 40 patents. The scientific momentum on Niagen has never been stronger. And as many of you have seen, we recently announced the results of a peer-reviewed study on Parkinson's disease patients. And there are now two additional clinical studies underway on Parkinson's. Importantly, the growing body of evidence on Niagen suggests with great consistency that metabolicly active tissues are heavily NAD dependent, including the brain, muscle, heart, liver, skin, among others, which continues to validate the tremendous market opportunity for Niagen. The science continues to show that Tru Niagen is certainly among the most important dietary supplements that people concerned about the way their bodies age should be taken. We began to scale the new TV campaign in the second quarter. So it did not have a material impact on the first quarter results which Kevin it will discuss in a moment. Our new commercial is now aired on major networks, including FOX News, FOX Business, CNN, the science channel, NS, NBC, ABC, Bloomberg TV SPN channels. As I said last quarter, this commercial is intended to educate a broader group…

Thank you, Rob. It's a pleasure to speak to you all today. I hope you enjoyed hearing from Dr. Andrew Shao last quarter about the exciting strides that our ChromaDex External Research Program, or CERP, has made to help produce the trusted science behind Niagen, as well as to advance the understanding of NAD in health, diseases, and aging. I'm grateful to Andrew and has entire team for accelerating CERP 's mission, which I began 10 years ago. As we recently announced, CERP has amassed over 250 collaborative agreements with over 235 researchers globally. This includes over a 185 institutions in 33 countries representing over $85 million in estimated total research value. This is a remarkable milestone for any ingredient. Our CERP program was recently awarded the 2022 European NutraIngredients award in the Nutrition Research project category for pioneering research behind Niagen and NAD. It is a testament to CERP 's dedication to quality research and how we are pushing the boundaries of healthy aging science. According to their website, the NutraIngredients awards focus on true innovation, long-term market success, and cutting-edge research. We're honored to be recognized by NutraIngredients along with other industry leaders. Moving onto new and exciting research, I'll briefly highlight two clinical NR studies that we'll register recently. These built on our recent peer-reviewed, published clinical study on Parkinson's disease or PD patients that Andrew reviewed in detail last quarter. The Phase I study or NAD park study showed NR supplementation significantly increased cerebral NAD levels, improved some measures of motor function, and decreased inflammatory cytokines in PD patients. The results of the study, nominate NR as a potential neural protective therapy for PD patients, warranting further Investigation in larger trials. A second study, the no park study, is underway with the same group of researchers.…

Thank you, Frank. ChromaDex delivered a solid quarter with total net sales of $17.3 million up 18% year-over-year, and a gross margin of 61%. With a significant litigation expense behind us, we are prioritizing investments in marketing, including our new Tru Niagen TV campaign that began airing in late March. While this is only one component of our brand building initiatives this year, and is still early, we're encouraged by several leading indicators in our e-commerce channel. This includes increases in organic searches and our new website visitors, growth in new customers on our own site, as well as recent trends on Amazon, where Tru Niagen is now frequently ranked as the best seller in the broader vitamin B3 category. Moving forward, as we pragmatically increase our investments in TV and other top of the funnel marketing initiatives, we'll be focused on year-over-year rather than sequential trends in the business. In addition, as mentioned in the last call, 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 GAAP measure in our earnings release slides. Total net sales in the first quarter of 2022 were up 18% year-over-year compared to the first quarter of 2021, with growth of 20% in Tru Niagen, including 13% growth in e-commerce and 43% growth in combined Watsons and other B2B sales. Our Niagen ingredient net sales were down 6% year-over-year. Gross margins decreased to 61% compared to 62.9% in the first quarter of 2021. The decline was primarily driven by business mix since we had lower sales to Watsons last year when shipments were impacted by supply chain disruptions. We also increased headcount in our supply chain to support growth. Overall, this is a solid start to our…

Thank you. [Operator Instructions]. Your first question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon. Congratulations on --

Hi, Brian.

A couple of questions. I mean, first address on the TV ad, how should we think about with TV? I mean, do you -- is there a plan here in the near-term to increase the frequency, add new ads? And then, if you could discuss a little bit more just on how you're tracking TV as a driver of improving demand or brand building here?

So let me take the second question first. Television is more difficult to attribute than digital media. So it's more challenging to understand the direct relationship between a TV spot and sales, particularly when we're selling in retail. But there are metrics that you can measure, one of the metrics you can measure is traffic to your website or even traffic to Amazon. And you can see the traffic and align that with the timing of the ad, and we're seeing dramatic increases in traffic on the website and on Amazon, and it coincides with when the ads air. You can also track the conversion rate at that time, and we're seeing dramatic improvements in conversion rate as well. So the ads seem to be working, and we're also encouraged by the sell-through that we're seeing, since the ads ran at Walmart. So these are the metrics that we're using. There's also over-the-top television. So streaming television, and there are more metrics that you can track. It's easier to attribute the airing of a spot to the conversion to a sale with OTT, and we're seeing that as well. And so what we're doing is we've been dramatically increasing the spend, but we're measuring as we go. And right now, we're encouraged and we expect to continue to increase. But there may be point in time where we pause,

analyze the data, and then start again. But so far, what we're seeing is it was a good move and it's an effective spot. We also are testing other spots, so there may be complementary spots that we have behind it. We're also editing the one spot that we have and optimizing that. There might be some slight changes to the one that we have. So it's -- so the answer to the question is there are a handful of metrics that you can use, and we're using the ones that exist. The first question, what was the first question again? Or did I cover it?

Well, you answered. Just [Indiscernible] I was asking is basically, how should we think about the [Indiscernible] TV plan from here? Will there be additional ads? But you discuss that.

Yeah. I had a couple of things. We're seeing increases in organic searches and new website visitors, growth in new customers on our own site, as well as strong trends on Amazon. And as Rob mentioned earlier, with regard to Tru Niajen, it's now frequently ranked as the best seller in broad, vitamin B3 category, and we continue to monitor these trends in e-commerce and update the outlook. We also saw recent POS trends at Walmart increase, substantially. However, the timing of the campaign is a bit later than we initially anticipated for Walmart, but we're seeing good POS lift at Walmart as a result of the TV campaign.

That's perfect. Then my follow-up question, just with regard to Tru Niagen immune, are you seeing is that a new customer or are you seeing existing Tru Niagen customers, so to say shift over to the new immune product?

It's existing customers, but they're not shifting over, they're taking both.

Got it.

So we don't think it's cannibalizing Tru Niagen sales.

Thanks, guys.

Sure.

Your next question comes from Mitchell Pinheiro with Sovetec and Company. Your line is open.

Hello, there good afternoon.

Hi. Good afternoon. Hey, Nich.

So with the TV. So can you talk -- can you -- how much are we spending on TV right now? Can we start -- can you give us some sort of baseline or is that going to -- you are keeping that closer to the vest?

We're keeping it close to the vest, same with our KPIs because of proprietary performance measurements. So we will not disclose that to the marketplace.

Okay. When -- and as you look at TV, when you were coming into mid-term election year, that might get a little more TV -- more political ads, et cetera. Is that -- does that have a potential, have you looked at this as substantial crowd you out a little bit in Q3? Are you preparing for maybe a rate increase in ads? And can you talk about that a little bit?

Well, there are a lot of factors that affect the rates of ads, and that's one of it -- one of them. But we're also seeing the impact of the economy of late. It's -- we're seeing that there's more available remnant ads on television playfully. So we think that if we're particular with the buys, certainly in the near-term future, there might be an opportunity. But it's hard to know. [Indiscernible] in the third quarter.

I mean, sometimes when -- in the last election cycle while the remnant and ad rates went up, the eyeballs were way above average, so you get what you paid for. But I was just curious from a budgetary point-of-view, whether that was included in your thinking for this year. So second question is just around, Rob, you talked about, obviously, your recurring customers. The retention is strong and you're obviously getting growth there. Was there new customer growth in the first quarter?

What a surprise question, Mitch. Actually, we had the most dramatic increase in new customers over the last several months than we had seen in a couple of years. And it wasn't just related to the TV campaign, but the TV campaign did show a dramatic increase in new customers. Now, the, it didn't necessarily have an impact dramatically on the overall new customer revenue, because what we see is a lot of people buying the lower-priced skews like the single month and trying that out. But the number of new customer purchases over the last weeks and months has been higher than we've seen in a very, very long time. The question is, will these new customers have the same retention rate that we've historically had.

Why wouldn't they? You've had your new customers and your new -- your recurring -- the recurring customer growth has been probably pretty stable.

Yes.

So why would you expect this new cohort of customers be any different? Is there any thoughts around that?

There are a couple of possibilities why their retention rate might not be as high. One is, we find that when people take it for two to three months, that's when they seem to notice the impact on their physical performance and the retention rates there are much higher. So if somebody is just buying it for a month or even trying it for a few weeks, there's a greater likelihood that they're going to not reorder. And then the other is, the impact of television. These are people who are, in some cases less informed. They spend less time researching Tru Niagen. So we don't know yet, it's early yet. And again, we will measure and we will see what the retention rates are. But it's a very high number of new customers that have come in.

Okay. And then -- so are you saying with respect to the second quarter, it sounds like you said you were very encouraged by the recent trends. So the e-commerce growth is a little slower than I had thought in my estimate, and I was just wondering whether you might see Q2, maybe see a little acceleration, given all that you've talked about.

Well, let me just say one thing about the first quarter. There's fewer days in the first quarter. And the way we're averaging per day, if you normalize the number of days in the fourth quarter and the number of days in the first quarter, I think you'd see -- you'd probably be closer to what you might have estimated. And then with regard to the second quarter, I'll let Kevin answer.

I think we talked about the second quarter in my discussion and we see the following headwinds and tailwinds. The primary headwind is Watsons. The Omicron variant continues to have an impact on Hong Kong residents, although lessening of late. Due to that backdrop, Watsons is shifting approximately half of its shipments in the second quarter to the fourth quarter of this year. As a result, we anticipate second-quarter shipments to be down about half of what it was in the first quarter. But our full-year outlook for Watsons is unchanged. We had success with the brand and influencer campaigns, as well as store staff incentive program in the fourth quarter of 2021, and have similar plans for the remainder of 2022 to help Watsons since manage through these COVID-19 related headwinds. Importantly, we're seeing emerging tailwinds as Rob just indicated in our domestic e-commerce business as a result of the recent initiatives to drive greater brand awareness. We expect that growth in e-commerce will largely offset the [Indiscernible] headwind in the second quarter, and in the absence of another micro economic disruption, this momentum should continue through the rest of 2022.

Okay. And then it's just one last question for me. Is just on the gross margin for the ingredients, little lower, is that -- is 50% the right gross margin, or was there some mix in there that caused the margin to be a little lower in the first quarter?

I think the mix is around 50% to 55%, so nothing out of the ordinary with regard to the gross margins on that segment of the business.

Okay. Thank you.

Ladies and gentlemen, to allow time for all questions we do ask that you please ask one question and one follow-up. Your next question comes from [Indiscernible] with H.C. Wainwright. Your line is open.

Thanks very much for taking my questions. I was just wondering if you could first of all, provide us with maybe some updates on the Sinophram and Nestle Health Sciences front if you expect any noteworthy developments with respect to either of those collaborating companies.

We are working closely with both of them. We are in constant discussions with them about ways to expand our business relationship. But we are very precise as are they in the terms and we hope to have something to say, but we don't at this time.

Okay. And then with respect to the outlook for pricing, do you think that there is potential for specific percentage price increases without seeing meaningful demand pull back, as we look at this ultra-inflationary environment that we're currently in? And if so, what might the magnitude of those percentages potentially look like? And would they be applicable across all SKUs or only some of them?

[Indiscernible] one question, one follow-up, you got like four questions in there. The answer is yes, we don't know yet exactly how much, but we do think that we can increase the price without having a meaningful impact on retention or conversion. We're looking at that presently. We don't know exactly what that number will be. And the answer to the question, could it be across all customers and consumers? No it probably can't be across all, but most.

Yeah. Thanks.

I think with regard to gross margins, consistent with Rob just said, we’re trying to maintain our strong gross margins just slightly better than 60% in 2022, which is similar to the 2021 levels. It's driven by continued supply chain cost savings initiatives. We've got those initiatives in flight, and we also, most recently, have been looking at other design changes that could help us have an incremental savings in 2022. We're seeing overall scale on our business. We're seeing favorable mix, which is [Indiscernible] setting. We are seeing some inflationary pressures across our global supply chain. And I think if there are consistent pressure that we are considering a price increase, as I said in my prepared remarks, if inflation remains persistently high.

Thank you very much.

Your next question comes from Sean McGowan with ROTH Capital. Your line is open.

Thank you. Hi, guys.

Hi.

Couple of questions to clarified things. Can you talk a little bit about the timing of the increases in R&D that you expect to see? And will that be primarily in the consume segment, or are you looking for increases and other segments as well?

I think it's going to be over the year. I mean, I think it's going to be as we get each quarter or that you should see a slight increase. And then with regard to, I forgot the second question, Sean.

Will it be concentrated in the consumer segment or are you looking for an outside increase in any of the other segments?

Yes. The consumer segment mostly.

Okay. And then my other follow-up slash clarification question. Just on this Watsons shift, when you say half of what it was for the first quarter, do you mean just the shipments to Watsons? That's what's shifting none of the -- and when you say it's half, you mean just Watsons, right?

Yeah. Just Watsons.

Okay.

Sean, I just want to also contribute to Kevin's answer to your first -- previous question, if you don't mind.

Please.

I just -- we recognize how significant ChromaDex's investment has been and continues to be in the R&D in the science, in the intellectual property, and in protecting others from stealing our shareholders’ intellectual property. And we recognize that it is very, very important for us to monetize that investment. And it is quite conceivable that the monetization of that intellectual property and that science that we have will not be a direct consumer product. And it is something that we've discussed and work on.

Okay. Thank you. Appreciate that

Your next question comes from Bill Dezellem with Tieton. Your line is open.

My question will have parts A through Z and the follow-up will only be A through M. Let us begin if we may with your comment that was pretty tantalizing what you just said there, that it may not be a consumer product. Would -- I'm not asking you to disclose earlier than you want to, but could you give us some indication examples that might fall under that category, please.

So the laws are very clear as most people listening know that if you're a dietary supplement company and you're selling a dietary supplement that is therapeutic or prophylactic for a disease you cannot make that claim or imply that claim. Everybody here who is followed the company knows that we had studies on COVID and now see that we had this fairly interesting study on Parkinson's disease. So it is conceivable that there will be some sort of drug approval on either one of those indications at some point in time. And if that's the case, there is a business opportunity for ChromaDex either in a licensing arrangement or a joint venture or a partnership arrangement of some sort. But the science continues to impress us and others about the effectiveness of nicotinamide riboside towards various disease states.

That's helpful, and I'll attribute that question to you Rob, since you brought it up with the last question. So I do, in all seriousness, have a couple more. First of all, relative to the Turkey COVID study that we're so successful, what's the update there or is there an update relative to Turkey? And can the results from that study be used in China by Sinopharm?

The results of that, when you say, can they be used, I'm not sure what you mean exactly.

If they would be able -- if Sinopharm would be able to market them.

No, they will not be able to make that claim. We still have to get with Sino's assistant regulatory approval to sell inside of China, and we are working on that. And we think we have a great partner in pursuing that in Sinopharm. In terms of their cross-border initiatives, if and when that deal closes and they take over that, that's still not a claim that they'll be able to make in their cross-border sales into China, COVID, but they will be able to use it in other ways. For example, it will be part of their dossier or their dossiers in order to obtain regulatory approval there because it's an example of excellent science that shows that nicotinamide riboside is both safe and has been shown effective.

That is helpful. And then, relative to the Turkey update?

We have not received a Turkey update. Even still, I know the quarters go by, and we don't have an update there. There have been a lot of challenges that have gone on in Turkey. I think I read recently the over 60% inflation rate.

Yeah, and I think the same would go for the study on Parkinson's. I mean, Sinopharm could use that also.

Yeah. For sure.

Great.

We don't have an update in Turkey for the drug application.

Super. And thank you for that. And if you will allow, I would like two more questions, please. The supply chain headcount increase that you referenced in the press release to scale the business, when will that be happening and what's the behind the scenes as to why? And then my second question is you referenced new partners that are not included in the guidance. Relative to those new partners, how would they fit into your current ecosystem?

I'll answers supply chain first. So we've added those bodies in 2021 to keep up with demand and complexity and supply chain as we're going into different territories, or more customers, or a differentiated product lineup. And it's not a significant amount of people, but it is something that is impacting the supply chain costs.

Any other question?

Do you have a follow up?

New partners with the -- the ecosystem that you currently have of partners?

Okay. What was the question?

How will the new partners that you are in discussions with in the pipeline fit into the current ecosystem of partners?

I'm having trouble tracking the mental gymnastics of that one, Bill.

No worries. I know that you're not going to have a new partner that is directly competing with Sinopharm, for example. So there are essentially holes in your partnerships or distribution system that I'm suspecting that you're wanting to build out or fill out. And that's where I'm trying to get some understanding of where you think that these new partnerships that you're evaluating may fit in?

Well, we think the opportunity for nicotinamide riboside, and Niagen -- Tru Niagen specifically in China is significant. And you know that we've been saying that for a year now or less. But it is an important initiative by the China government to manage the conditions related to aging. They have a rapidly aging population, they expect in the coming years to have 600 million people over the age of 60. And that's one of the reason Sinopharm is so interested and has been interested. But in order for us to take advantage of the opportunity, not only will we be partnering with Sinopharm, but there might be other partners that get into the mix as well. We are taking our time, and have been taking our time as many of you have pointed out, to put together the right strategy, the right partners and the right infrastructure to take advantage of that opportunity, and we think we're very close.

Great. Thank you for taking all the questions and for your patience with my lack of clarity on the last one.

Great questions. Thank you, Bill

There are no further questions at this time. Brianna Gerber, I turn the call back over to you.

Thank you, Stephanie. There will be a replay of this call beginning at 04:30 PM Pacific Time today. The replay number is 18007002030, and the conference ID is 4126168. Thank you, everyone for joining us today and for your continued support of ChromaDex.

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