Ladies and gentlemen, thank you for standing by, and welcome to ChromaDex Corporation's Third Quarter 2020 Earnings Conference Call. My name is Jody, 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 third quarter 2020. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex's website at www.chromadex.com. I would now like to turn the conference call over to Brianna Gerber, Vice President of FP&A and Investor Relations. Please go ahead, Mrs. Gerber.

Thank you. Good afternoon, and welcome to ChromaDex Corporation's third quarter 2020 results investor call. With us today are ChromaDex's Chief Executive Officer, Rob Fried; Founder and Executive Chairman, Frank Jaksch; and Chief Financial Officer, Kevin Farr. Today's conference call may include forward-looking statements, including statements related to ChromaDex's research and development and clinical trial plans and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of Tru Niagen in new markets, future financial results, business development opportunities, future cash needs, ChromaDex's operating performance in the future, and future investor interest that are subject to risks and uncertainties relating to ChromaDex's future 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 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 Fried. Rob?

Thank you, Brianna. Good afternoon, everyone, and thank you for joining our third quarter 2020 investor call. I'm pleased to say that ChromaDex had another strong quarter financially and strategically. E-commerce sales grew by 7% sequentially and 21% year-over-year. Sales to Watsons grew 93% sequentially and 10% year-over-year. Tru Niagen overall net sales were up 22% year-over-year. In addition, we delivered an adjusted EBITDA loss, which we define as EBITDA excluding legal expense, of only $125,000 in the third quarter and break-even year-to-date, an important achievement for this company. The signs on Niagen have been very strong since our last update. We announced completed clinical and preclinical research in areas such as autism, cardiovascular and immune health, metabolic health and most recently on coronavirus. Frank will go through this research in more detail shortly, as well as some additional preclinical research showing that Niagen may have an impact on several of the nine hallmarks of aging, which are gaining the attention of the scientific and investment communities of late. Earlier this year, we committed to advancing collaborative COVID-19 research on Niagen and sharing the findings when appropriate. I’m very proud to say that we have delivered on this commitment and have more studies in the pipeline. This includes our collaboration with the National Institute of Allergy and Infectious Diseases, or NIAID, a division of the NIH, to assess the therapeutic potential of Niagen in COVID-19 animal models. And last month, we announced results of a controlled clinical study in Turkey, showing that a nutritional protocol, which included nicotinamide riboside in combination with the therapeutic standard of care, reduced recovery time in COVID-19 patients by nearly 30% from 9.3 days to 6.6 days. This study included 100 patients with mild-to-moderate COVID-19. And researchers are now enrolling for a Phase 3 clinical trial with 300 patients. We're very proud to support research to find answers to this global pandemic. And we look forward to sharing more results of these endeavors in future updates. ChromaDex also delivered on our launch expectations for Tru Niagen with Nestlé Health Science, one of the world's great food science companies. Last month, Nestlé launched Celltrient Cellular Energy, a protein-based flavored drink mix featuring Tru Niagen. This is one of three products under the new Celltrient brand, which will help address the effects of age-associated cellular decline, or AACD. Nestlé began marketing in August by launching a new unbranded website, myaacd.com to educate consumers about AACD. According to that site, AACD is the time-related deterioration in the way our cells function as we age, often beginning in our 40s and accelerating in our 60s. This partnership with Nestlé Health Science to launch Celltrient Energy is an exciting opportunity to reach a new base of consumers and introduce them to the cellular health and healthy aging benefits of Tru Niagen. We're proud to be in business with Nestlé and we are encouraged by their commitment to this new product launch. Two additional accomplishments on our core e-commerce business this quarter were: one, the relaunch of our U.S. truniagen.com website, which features our full suite of products and improved customer experience, and two, a record-breaking Labor Day promotional event, leveraging our new CRM, which enabled us to customize emails and offers by audience segmentation. We appointed a new Head of Marketing earlier this year, who assembled a strong new team with expertise in acquisition, retention, creative and third-party marketplace. Going forward, we see opportunities to optimize each of these areas. We also continue to build upon and protect our intellectual property, which includes our ongoing litigation against Elysium Health. In Delaware, the patent case is scheduled for trial in September of 2021 with a Markman Hearing in December of this year, where the judge will rule on claims construction arguments. We remain as confident as ever in the strength of our licensed patents, following Elysium’s unsuccessful attempts to invalidate them with the PTAB Office and the U.S. Court of Appeals. We are also very confident in the other litigation against Elysium. They never paid for the NR that ChromaDex supplied to them. W.R. Grace, which holds patents on the two known nicotinamide riboside chloride morphologies and sells this ingredient Niagen exclusively to ChromaDex, has also sued Elysium for patent infringement. We are encouraged to see a blue-chip manufacturer like W.R. Grace protect the intellectual property surrounding Niagen. W.R. Grace is an important partner of ours, and we see a tremendous opportunity to grow the Tru Niagen business with them over time. ChromaDex will not be incurring legal fees for that case, and it does not impact our litigation against Elysium, although we believe it further validates Elysium’s egregious behavior. As I reflect on the quarter and the year-to-date, I'm extremely proud and grateful. I'm proud of the entire team at ChromaDex, who pivoted quickly when the coronavirus hit, adjusting marketing messaging, advancing the science, adjusting to a virtual work environment and reducing costs. This is reflected in the stability of our operations, as well as our strong financial results year-to-date. I'm also proud of our science and to be part of the conversation around potential solutions to the COVID-19 global pandemic. This is unique for a dietary supplement company, and it is thanks to our deep commitment to science and our hundreds of research collaborations globally. We have been able to quickly put together these studies. We will continue to invest in the science behind Niagen and fiercely protect our intellectual property against infringers, which we believe creates long-term value for our shareholders. And I am grateful to our business partners, Watsons, Nestlé Health Science and W.R. Grace, among many others, who believe in Tru Niagen and have committed to building the business with us. With that, I will pass the call over to our Chairman, Frank Jaksch for an update on scientific research. Frank?

Thank you, Rob. Since our last update, peer-reviewed publication of research on NR and NAD has continued to accelerate. In addition, there were two newly registered clinical studies on NR, and ChromaDex signed nine new research collaborations as part of our CERP program. There are now 43 ongoing, completed or published clinical trials currently registered on clinicaltrials.gov to investigate the pharmacokinetics and health benefits of NR. In addition, 11 clinical trials are registered to test NR in combination with other ingredients for a total of 54. Earlier this year, we committed to advancing research on NR related to COVID-19 and are encouraged that our ingredient is being studied as a potential nutritional solution. As Rob noted, we recently announced initial results of an open-label, randomized, placebo-controlled Phase 2 study, which included 100 COVID-19 positive patients with mild-to-moderate symptoms and were published in medRxiv, a preprint server for health sciences. This clinical study was registered in October by ScandiBio Therapeutics and conducted at the University of Health Sciences, Istanbul Training and Research Hospital in Turkey. The objective was to assess the clinical efficacy, tolerability and safety of the combination of a nutritional protocol, including nicotinamide riboside and the local standard of care that includes hydroxychloroquine, compared to a placebo and the local standard of care. The key findings were the combination treatment reduced average recovery time by 29% compared to the placebo group. There was an improvement in markers of liver function for the combination treatment on day 14 compared to day zero as measured by plasma ALT, AST and LDH, and adverse events were uncommon, benign and self-limiting. According to the investigators who conducted the study, the Phase 3 trial will be double-blinded and include 300 patients at eight clinical sites in Turkey. We are currently exploring other research opportunities to see how NR may be part of the solution to the COVID-19 pandemic. A second clinical study was registered in August by the National Heart, Lung and Blood Institute, part of the NIH, and the University of Washington to assess the mechanisms by which raising blood and heart NAD levels in humans helps mediate changes in mitochondrial function, protein and epigenetic modifications, as well as inflammation. If the results are positive, this would provide evidence to proceed with additional studies of NR as a potential nutritional solution for heart failure patients. In August, we announced the results of a pilot study, which indicated that Niagen may reduce inflammatory cytokines in Stage D heart failure patients. This marked the 11th published clinical study, and the second study focused on the potential cardiovascular benefits of Niagen in humans. According to the lead researchers, by increasing mitochondrial health of peripheral blood mononuclear cells, or PBMCs, in the studied patients, pro-inflammatory cytokine production was reduced. The key marker studied was IL-6, a known pro-inflammatory molecule that was suggested to play an important signaling role between mitochondrial function and inflammation in PBMCs. These new findings build upon a growing body of evidence identifying how Niagen may support cardiovascular health. Rob mentioned the nine hallmarks of aging in his remarks, a reference to the landmark article called The Nine Hallmarks of Aging published seven years ago. A group of researchers identified nine cellular and molecular hallmarks of aging that contribute to the aging process and together determine aging. Many listening may be familiar with some of these such as cellular senescence, telomere attrition, stem cell exhaustion and, of course, mitochondrial dysfunction, our strategic focus. I'll briefly highlight two important preclinical studies that were published in October, which are related to the nine hallmarks of aging: stem cell exhaustion and telomere attrition. First, a mouse study published in Nature Immunology found that NR improved T-cell function, which is a component of new cancer immunotherapies. T-cells are immune cells tasked with recognizing and eliminating damaged or cancerous cells. This research built upon a previous preclinical study that found NR could improve cancer treatment by preventing chemotherapy-induced stem cell depletion, including T-cells. We know mitochondrial function is essential to the function of energy-expensive cells, including stem cells and immune cells. The results of these recent preclinical studies suggest that NR can support these cells; however, further research is required to verify this. Proper immune cell function in turn may play a key role in a wide array of diseases, including many forms of cancer. Stem cell exhaustion, as explained in the nine hallmarks of aging, is the age-related deficiency of stem cells, which contribute to many of the physical problems associated with aging, including a weak immune system. As such, while early, this is an interesting area of research for NR. Second, a preclinical study from the National Institute on Aging at NIH published in the EMBO Journal found that replenishing NAD with NR alleviated telomere damage, providing a protective effect to DNA as cells replicate. Telomere attrition, or shortening, is another of the nine hallmarks of aging, which refers to the gradual loss of protective caps on chromosomes. It is well accepted that telomeres play a significant role in aging and nutrition has been linked to many age-related health conditions. These promising findings suggest that NAD repletion with NR may play a role in maintaining healthy telomere function; however, additional research is needed. In summary, we are committed to remaining a global scientific authority on NR and NAD research and being an innovative, science-based responsible company. The growing body of clinical research supports the potential for sales of our patented NAD-boosting ingredient Niagen and our consumer product Tru Niagen. I look forward to sharing more in future updates. With that, I’ll pass the call to Kevin Farr. Kevin?

Thank you, Frank. We continue to focus on operational and financial discipline on our path to achieving cash flow breakeven. This discipline is again evident in our third quarter 2020 financial results, which reflect continued progress against our key financial objectives and strong underlying business performance. The underlying business is measured by adjusted EBITDA, excluding total legal expense, which was a loss of $125,000 in the third quarter, essentially breakeven, and $1.7 million improvement year-over-year compared to the second quarter of 2020. We delivered slightly lower net sales driven by a tough comparison with the $1.6 million Horizon purchase last quarter. Sequential and year-over-year growth in our core Tru Niagen consumer products sales, higher gross margins, higher advertising expense as a percentage of net sales and lower general and administrative expense were key drivers. I'll begin my review of the sequential P&L results and then discuss the year-over-year trends. For the three months ended September 30, 2020, ChromaDex reported net sales of $14.2 million, down 7% compared to $15.3 million in the second quarter of 2020, which included a $1.6 million purchase from our shareholder Horizon Ventures who donated Tru Niagen bottles to healthcare workers in Hong Kong hospitals during the height of the pandemic. Tru Niagen’s sales were up 2% sequentially, or mid-teens excluding the Horizon purchase. Importantly, this growth was driven by our e-commerce and Watsons businesses, which were up 7% and 93% respectively compared to the prior quarter. Sales to Watsons were $2.5 million in the third quarter, roughly double the $1.3 million sales in the second quarter, with sequential growth in both Tru Niagen and Tru Niagen Beauty brands. Conversely, and as expected, we experienced headwinds from our Niagen Ingredient business in the third quarter, and we continue to expect lower Niagen sales in the second half of the year. Our gross margin was up 20 basis points from 59.4% in the second quarter of 2020 to 59.6% in the third quarter of 2020. As a reminder, last quarter we included 110 basis points from a rebate related to prior year supply chain efficiency initiatives, so the underlying improvement was stronger. Product cost savings initiatives, favorable mix and overall scale and our supply chain drove the improvement in gross margins. Total operating expenses for the third quarter of 2020 were $12.7 million, down $1.1 million compared to the second quarter of 2020. Selling and marketing expense was up $0.3 million to $5.2 million in the third quarter of 2020 compared to $5 million in the second quarter, consistent with our expectations. As a percentage of net sales, this expenditure was up 440 basis points in the third quarter versus the second quarter. We continue to monitor daily e-commerce metrics, such as customer acquisition costs, to adjust messaging and spending. At the same time, we increased spending this quarter consistent with our full year financial outlook. Some of the investments this quarter were focused on brand building, which has higher customer acquisition costs in the short-term, but is important for increasing awareness and for long-term customer retention. As reported, G&A expense was down $0.3 million to $6.5 million in the third quarter of 2020 versus $6.9 million in the second quarter of 2020. This included $1.9 million of legal fees and $0.2 million of severance and restructuring expense in the current quarter. Excluding legal fees, severance and restructuring and equity compensation expense, third quarter 2020 G&A expense was lower by $0.1 million versus the second quarter comparable G&A expense. Legal expense was up $0.1 million compared to the second quarter of 2020. No trial dates have been set in California due to the coronavirus. Our ongoing investments in the Delaware patent infringement case were in preparation for the claims construction Markman Hearing in December 2020 and trial in September of 2021. We also incurred expenses related to ongoing discovery in the New York litigation. While overall legal expense was lower than expected this quarter, we expect these to ramp up in the fourth quarter driven by the New York and Delaware litigations. For the third quarter of 2020, our operating loss was $4.2 million versus $3.7 million in the second quarter of 2020. The net loss attributable to common stockholders for the third quarter of 2020 was $4.2 million or a loss of $0.07 per share, as compared to a loss of $3.7 million or a loss of $0.06 per share for the second quarter of 2020. Moving to our year-over-year financial results. Total net sales were up 18% year-over-year compared to the third quarter of 2019, with 22% growth in Tru Niagen, 21% growth in e-commerce and 10% growth in Watsons being the key highlights. Gross margin has increased by 360 basis points to 59.6% compared to 56% in the third quarter of 2019. Marketing efficiency, measured by selling and marketing expenses as a percentage of net sales, improved by 150 basis points. General and administrative expense was lower by $1.4 million due to savings from organization realignment initiatives and lower legal expense. Finally, our operating loss improved by $2.7 million year-over-year, driven by efficiencies across all areas of the P&L. You may help investors better gauge the underlying financial performance of our business and progress towards cash flow breakeven. In the second quarter of 2019, we introduced a new non-GAAP measure, adjusted EBITDA excluding total legal expense. ChromaDex defines adjusted EBITDA excluding total legal expense as net income or loss adjusted for income tax, interest, depreciation, amortization, non-cash stock compensation expense, bad debt expense related to Elysium, severance and restructuring expenses and total legal spending. We have included a reconciliation to the appropriate GAAP measure in our earnings release slides. As I previously highlighted, adjusted EBITDA excluding total legal expense was a loss of $0.1 million in the third quarter of 2020, compared to a profit of $0.5 million in the second quarter of 2020. Total year-over-year, we delivered $1.7 million improvement in the third quarter of 2020 versus a loss of $1.9 million in the third quarter of 2019. Furthermore, this metric has improved from the average quarterly loss of approximately $4 million in 2018 and $2 million in 2019 to breakeven in 2020 year-to-date, as we put important foundational processes and systems in place. Moving to the balance sheet and cash flow, we ended the quarter with $15.5 million in cash and have not accessed our $7 million committed line of credit. In the third quarter of 2020, our net cash used in operations was $3.8 million versus $1.6 million in the second quarter of 2020. The difference quarter-to-quarter was primarily driven by higher working capital investments. To date, we have successfully navigated the business during the coronavirus pandemic managing our working capital. At this time, we do not expect any supply chain disruptions from the coronavirus and have implemented risk assessment strategies to manage this moving forward. As it relates to our 2020 full year, our outlook is unchanged from our second quarter. We expect to deliver continued top line growth, including growth in our e-commerce business. We continue to expect gross margin expansion due to a favorable mix from our growing e-commerce business, the product design changes implemented in late 2019 and additional supply chain cost savings initiatives, which we implemented beginning in the first quarter of 2020. We continue to expect an increase in selling and marketing expense of $3 million to $5 million, including investments in brand awareness and investments in new market launches, including our cross-border platforms in China. We expect continued improvement in selling and marketing expense as a percentage of net sales driven by strong sales from returning customers and scale in our business. Lastly, we continue to expect G&A, excluding severance and restructuring expense and legal expense, will be up by $1 million to $2 million year-over-year comparable to 2019 G&A expense, excluding the Elysium-related bad debt expense in 2019. Adjusted EBITDA excluding total legal expense remains a key metric; we expect a significant improvement for full year 2020 versus full year 2019, but as we said, there may be quarter-to-quarter fluctuations driven by timing of our marketing campaigns and R&D investments. We continue to believe we can achieve cash flow breakeven at $17 million to $19 million of quarterly revenues if the litigation ends and legal costs decline. Total operating expenses will likely be higher in the near-term, driven by higher litigation expense. As a result, we need to achieve sales of approximately $19 million in gross margins that is slightly better than 60% to achieve this. We believe we will deliver higher gross margins as we execute on supply chain cost saving initiatives and are on track as we exit 2020. This remains an important objective for the company; we've made significant progress and we’ll continue to manage all levers of the P&L to deliver on this commitment. Before we conclude, let me briefly touch on the economics of the Nestlé Health Science supply and license agreement. As Rob mentioned, Nestlé recently launched their Celltrient Cellular Energy product with Tru Niagen online in the U.S. We wanted to update you on the accounting for the supply of Niagen, related royalties and the upfront exclusivity fee and product launch fees. As a reminder, there were certain commercial milestone payments tied to the sale of Tru Niagen to Nestlé as they launch in new markets. The aggregate payment is up to $6 million to ChromaDex, which will be payable as the product launch milestones are achieved. We expect to collect the $1 million of cash related to the U.S. launch in the fourth quarter. The supply of Niagen and related royalties will be recognized upon the shipment of Niagen. The $4 million upfront exclusivity payment and the product launch fees provide for material rights related to this exclusivity over the term of the contract. The term is through 2036, when the last patent issued to our exclusive manufacturer related to the crystalline forms of NR chloride expires. The upfront exclusivity fee and launch fees would be deferred revenue. The deferred revenue will be recognized based on the shipments in the current quarter relative to our estimated quantities over the term of the agreement. We were required to revise our estimates on a quarterly basis and true up revenue recognized as necessary. Beyond the upfront fee and milestone payments, most revenues would be driven by ingredient sales and royalty payments from Nestlé in 2020 and beyond. But we continue to expect the contribution to be small in 2020 and 2021. There is meaningful long-term potential to create significant revenues and profits from our business partnership with Nestlé. In addition, Nestlé will raise awareness of Tru Niagen through its marketing programs and continued global expansion of distribution in the years to come. We're proud of our strategic partnership with a well-respected food science company like Nestlé. In summary, we remain committed to delivering profitable growth and achieved an important milestone of profitable adjusted EBITDA excluding total legal expense year-to-date. I'm very proud of the entire ChromaDex team's execution and financial discipline. Operator, we're now ready to take questions.

Our first question comes from the line of Jeffrey Cohen of Ladenburg. Please go ahead, your line is open.

Hi, thank you for taking the questions. I'm just curious, so you've mentioned additional potential partnership opportunities in the past and being in communication with some other partners. So I'm just wondering, have any of those moved a bit closer towards a firmer agreement following Nestlé’s launch of Celltrient?

Yes. We have been in discussions with several blue-chip companies and some have moved forward, but none are imminent. They're ongoing discussions.

Okay. Very good. And I guess my follow-up is more towards marketing. Do you have any insight upon Nestlé’s target consumer? And what kind of overlap is there between your head of marketing, the demographic they're working on and who Nestlé is targeting?

Well, Nestlé’s product, as you know, is a protein-based powder product, and it's a complement to their suite of products that are targeting the anti-aging market. Obviously Tru Niagen, as well as Celltrient, are anti-aging products, so there is some overlap in the target market. We think that their target audience is a bit older than ours. There is overlap of the Celltrient product with their existing Boost product; in fact it's complimentary to the Boost product. But we don't really know yet the details of their target audience or their primary consumer at this point, because it's new. We'll be calibrating with them and sharing information with them as we go along.

Okay. Thank you. I'll take the rest of my questions offline.

Thanks.

Our next question comes from the line of Brian Nagel of Oppenheimer. Please go ahead, your line is open.

Hi, good afternoon.

Thanks, Brian.

Thanks for taking my question. Congratulations on continued nice progress here. So the first question I have just with regard to sales. Kevin, you spoke a lot about the difficult comparison with last quarter, which disrupted the sales trend a bit here in the third quarter. But if I'm doing the math right, excluding that, it still seemed as though the pace of sales slowed somewhat further from Q2. So I guess the question I have is, am I right? Also, more importantly, to what extent is the COVID crisis continuing to have an impact on sales of the Tru Niagen products in the U.S. and elsewhere? And maybe any commentary on the sequentials: as COVID is starting to maybe abate in some places are you seeing sales rebound?

Yes. I think with regard to the organic growth this quarter, it is lower on a sequential basis because of the one-time purchase that we had in the second quarter. If you take that out from a total company's perspective, we grew at 3%. And if you look at it from a Tru Niagen perspective, it actually grew in the high teens for us. So there was some good organic growth in the quarter that was masked by the $1.6 million purchase that we’re comparing to in the second quarter. The COVID impact is hard to quantify. At retail, it's obvious when you look at Watsons and the rate that we're growing; they're up 2% year-to-date this year compared to much larger growth rates last year. So we know it's impacting our retail operations, and it's impacting the new markets that we’ve launched in 2020. Overall it's hard to tell, but we expect to continue to grow while the environment remains volatile. On a sequential basis, our e-commerce business remains the core growth engine. If you look at our year-to-date results, due to legacy B2B businesses, the micro-economic impact of coronavirus and the Horizon Ventures purchase, there has been some volatility quarter-to-quarter, but when you look at it year-to-date the company has grown 32% on a total company basis. Tru Niagen has grown 34%, our e-commerce business has grown 28%, and Watsons has grown 2%. So good growth in aggregate over the first nine months, but there has been volatility.

And Brian, I would add that the nucleus of the operation at this point is our direct-to-consumer Tru Niagen business. If you compare first quarter to second quarter and second to third, you can see that the actual rate of growth is increasing.

Thank you. That's perfect. And then for my follow-up, the Phase 2 study in Turkey was exciting — we spent a lot of time talking about that. As investors, what should we be thinking about the timing of where this goes with the Phase 3 and when we'll get further communication on what this could potentially mean for ChromaDex and Tru Niagen?

The Phase 2 trial actually went relatively quickly and the Phase 3 trial is already moving relatively quickly. So I don't think from a study timing standpoint that there will be long dosing periods; it's really about enrollment and how fast they can enroll the 300 patients. With everything going on in the world related to coronavirus, it's unfortunately accelerating in the wrong direction right now. Coronavirus will be around for a while and having additional data will give us another opportunity. Having a Phase 3 trial beyond the first one, confirming — hopefully, knock on wood, confirming — the result we got in the first study is going to go a long way.

If I could ask one more: Kevin, I know there are a lot of unknowns here. If this goes well, how should we think about the financial benefit to ChromaDex? How would that flow into the model?

Well, I think hopefully it's going to increase sales and the rate of sales growth. From a financial perspective, as we've proven the model, as we get more scale we should be profitable quicker. That's the bottom line.

What we could specifically do with this information when it gets published is market directly to the healthcare practitioner market: the medical community in general, hospitals, pharmacies and physicians. It ought to be part of standard-of-care for people who are symptomatic COVID-positive, and that should help increase overall sales.

Got it. Thank you very much.

Our next question comes from the line of Jeff Van Sinderen of B. Riley FBR. Please go ahead, your line is open.

Great. Thanks for taking my question. First let me say congratulations on the progress on all fronts.

Thanks.

Can you speak more about how you're thinking about evolving marketing for immunity versus anti-aging as COVID spikes again? I know there has been some shifting around on that.

It's a very good question. Managing messaging and marketing as a health company during COVID is like shifting from zone defense to man-to-man because the market moves as the news moves. We had positioned ourselves as an anti-aging and fitness product principally, and then we added immunity once we started releasing these COVID studies, which was effective in Q2 and continued in Q3. During Q3 we observed some COVID fatigue and certain messages related to cell defense were not converting as well. So we pivoted again and have begun to add back some of the anti-aging and fitness messaging that was successful prior to COVID; we see that converting well. It's challenging, but we are equipped to manage it. The more studies we release showing the power and efficacy of Tru Niagen, the wider the market potential.

Okay. Great. And then can we shift to international for a moment? I'm wondering about near-term expectations for the UK and Australia Tru Niagen Beauty and anything else on the horizon for international going forward.

As you know, we are in 200 Superdrug stores in the UK, we sell cross-border into the EU, China and Japan, we sell online in New Zealand and Australia and are starting to appear in certain retail outlets in Australia. We sell in certain retail outlets in Canada and online in Canada as well. We see opportunity for growth in virtually all of these areas, particularly as the research continues to roll out. But COVID has impacted retail, particularly outside the U.S.; foot traffic in the UK has been very impacted and the timing of our release with Superdrug coincided with COVID-related store closures. The online business is looking strong and growing, but the retail business is waiting for consumers to come back. As long as COVID continues and lockdowns are implemented in parts of the EU including the UK, our emphasis will be much more on online marketing and online sales. Fortunately, we're equipped to do that.

Okay, great. Thanks for taking my questions and best of luck for the rest of the quarter.

Thanks, Jeff.

And our next question comes from the line of Ram Selvaraju of H.C. Wainwright. Please go ahead, your line is open.

Thanks so much for taking my questions. Firstly, I wanted to ask about how you expect gross margins to trend going forward. Do you think there is sizable improvement potential in the coming quarters, and if so, when could we approach potential steady-state? Is that likely to be in the low-60s, mid-60s, or maybe even higher?

We continue to work on supply chain improvements and mix has been helping us. The product design changes we did last year that were effective in the fourth quarter, moving from three bottles for a 90-day supply to one bottle in smaller packaging with lower shipping costs, are an opportunity. We've implemented initiatives that we expect to deliver a $2 million run rate next year. You should see sequential improvements in our gross margins. We think we can get to the low-60s; I can see the line of sight to that and we'll continue to work on it. Scale as we grow will also help.

In that context, can you comment on as Nestlé continues to scale with Celltrient, what kind of impact that is likely to have on gross margin?

It should help, but from a 2020 and 2021 perspective we don't see it as being a big number for us. It's more meaningful in 2022 and beyond. Also, we receive a royalty from Nestlé which ranges from low single-digits at launch to high single-digits as the business gets bigger.

Okay. And then on the COVID-19 program, Frank, could you comment on what standard of care currently persists in Turkey and what the control is supposed to be in this Phase 3 program? Also, when you talk about the potential utility of the treatment in symptomatic COVID-19, what specifically do you mean? How sick do patients have to be to qualify, and would you consider this potentially as an outpatient therapy or only in hospitals?

Let me take the last part first. We're only looking at mild patients: those who have tested positive but are only exhibiting mild symptoms, people who are not going to enter the hospital or require hospitalization. That's the main bulk of patients we're looking to enroll. In the first Phase 2 study we looked at the same population. Regarding standard of care and controls, standard of care in Turkey is hydroxychloroquine. We'd love to design the study without that requirement, but we must follow the local standard of care in Turkey. So both arms in the Phase 3 study will receive standard of care, which is hydroxychloroquine, and then the active arm will receive the nutritional cocktail including NR while the control arm will receive placebo plus standard of care. The first study was open-label, but the Phase 3 will be double-blinded and placebo-controlled. We don't believe hydroxychloroquine plays a role in the differential outcome we observed. You asked about other medications such as steroids like dexamethasone: I don't recall specific exclusions in the study design — it's possible some other treatments could be administered depending on the site location. Regarding remdesivir, I don't think there is a lot of remdesivir in Turkey, so that's unlikely to be a major factor due to supply limitations.

Okay. Very helpful. Thank you.

Thanks Ram.

And our next question comes from the line of Mitchell Pinheiro of Sturdivant & Company. Please go ahead. Your line is open.

Hi, good afternoon.

Hey Mitch.

Just a question on the e-commerce business: can you talk about a breakdown this quarter, whether sequentially or year-over-year, how new customers comprised total recurring revenue and how new customer growth performed in the last quarter?

The bulk of our revenue is from returning customers. The retention rate, which we haven't yet provided, is very strong. We are confident in the base: when people start to take Tru Niagen, particularly after a month or two, very few stop taking it. The growth of new customers has slowed and the number of new customers added versus a year ago has declined, so that's an opportunity for us to grow further.

And when you look at customer acquisition costs, how do they compare to a year ago or sequentially, and how does the mix of branded awareness versus direct response affect CAC?

When we invested more in non-performance marketing in the third quarter — things like satellite media tours, PR and interviews — that was not directly conversion-related, so customer acquisition costs were higher in the third quarter. Additionally, we experimented with new messaging. It's a fluid situation with COVID and we saw dramatic month-to-month changes in audience response. At the beginning of the year we appointed a new Head of Marketing who built a team. We implemented robust cohort data analytics, gaining a deeper understanding of customers and how they behave across website and Amazon channels. We also recoded and relaunched the website to better track visitor behavior. So we now have much stronger capabilities to understand our customers. Early in the pandemic we were forced to be reactive, but we're restoring fundamental programs. My expectation is that the e-commerce business will become more efficient and grow significantly in the coming quarters.

Okay. And as you look at sub-segments — healthcare practitioners, sports, fitness — can you provide color on how they performed in the quarter?

There are many more athletes and sports teams regularly purchasing Tru Niagen from ChromaDex, and we have a much larger base of healthcare practitioners purchasing from us. One complication is some practitioners shut down their offices during COVID, so they weren't carrying inventory in the same way, which was a headwind. But interest and interaction from the healthcare and sports communities have increased. We are investing in stronger infrastructure and adding experienced personnel to focus on both areas because we see high growth potential and will increase our focus in the coming quarters.

Okay. Helpful, thank you for your time.

Thanks Mitch.

And our last question comes from the line of JP Mark of Farmhouse Equity. Please go ahead. Your line is open.

Hi, good afternoon. Thanks for taking my call.

Sure.

A couple of quick questions about the website redesign. First, are you doing different versions for different countries or just one global site?

We intend to do different versions for different countries, but we haven't yet implemented those localized versions.

Okay. When do you think you might roll that out? Any idea — next year sometime?

Yes. Next year — definitely next year, not this quarter.

And second question: the website lists podcasts that you've done; it has only four listed. Is that a complete list or are there others not listed?

Lately I've been doing quite a few, so I'm not sure if the website list is complete. If you email Brianna she can update you.

Okay. I only saw four. I would encourage more podcasts — I think it's fantastic marketing for the company. Thanks for taking my questions. I wish you continued success.

Anytime. Thank you for the questions.

At this time, we do not have any further time for questions. I'll turn the call back over to Brianna Gerber for closing remarks.

Thank you, Jody. There will be a replay of this call beginning at 4:30 PM Pacific Time today. The replay number is 1(800) 585-8367. And the conference ID is 4699759. Thank you everyone for joining us today and for your continued support of ChromaDex.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.