Niagen Bioscience, Inc. Q4 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to ChromaDex Corporation’s Fourth Quarter 2020 Earnings Conference Call. My name is Chris, and I’ll be the conference operator today. At this time, all participants are in a listen-only mode. This afternoon, ChromaDex issued a news release announcing the company’s financial results for the fourth quarter of 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 Finance and Investor Relations. Please go ahead, Mrs. Gerber.

Thank you. Good afternoon and welcome to ChromaDex Corporation’s fourth 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 interests that are subject to risks and uncertainties related to ChromaDex’s future business prospects and opportunities as well as anticipated results of operation. 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 COVID-19 pandemic on our business, results of operation, financial condition and cash flow. 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 and good afternoon, everyone and thank you for joining our fourth quarter 2020 investor call. I’d like to begin by welcoming those of you that are joining us for the very first time. This is an exciting time at ChromaDex and we look forward to sharing our story with you. I’d also like to express appreciation to the investors, partners, employees that were supportive of ChromaDex during 2020. As for all companies, this was a challenging year and I’m proud of how this company navigated. We not only achieved record financial performance, but made a positive scientific contribution to the global crisis. We begin 2021 stronger than ever and excited for the future. ChromaDex had another strong quarter and delivered on our financial outlook for the year. Total company sales grew 9% sequentially and 18% year-over-year. E-commerce sales also grew by 9% sequentially and 20% year-over-year. Total company net sales were nearly $60 million and Tru Niagen net sales were $47 million for the year. This is a meaningful achievement considering we only launched the Tru Niagen brand as a consumer product in 2017. The fourth quarter adjusted EBITDA, which we define as EBITDA excluding legal expense, was a loss of $1.1 million. Adjusted EBITDA improved by $1 million year-over-year. In February, we raised $25 million of cash with EverFund, a new international investor, who is quite excited about the large addressable market for Niagen globally. While cash flow break-even continues to remain a key priority for the company, this incremental capital will enable us to expand the scientific research on Niagen and other NAD precursors in order to accelerate our product pipeline as well as selectively increase investment in marketing to drive growth in the Tru Niagen business. The science on Niagen remains very strong in published research, which Frank will discuss in a moment, and continues to validate its importance in several areas of human health. We now have over 225 research agreements and collaborations with leading institutions around the world. They are studying cardiovascular and neurological health, immunity, and many other areas all associated with aging. This research has led to over 100 published preclinical studies and 11 published clinical studies. 2020 was a great year for scientific research at ChromaDex. We expect more of the same in 2021. In addition to these partnerships with leading research institutions around the world, I am proud of our business partnerships with A.S. Watson Group, Nestlé Health Science, Matakana Health and W.R. Grace among many others. They see the potential in Niagen and we are grateful for their commitment to bring our science and product to the world. This week, we announced Tru Niagen will soon be available in 3,000 Walmart stores across the U.S. We believe Tru Niagen is one of the most important dietary supplements to emerge in many years and we are grateful to Walmart in assisting us in our quest to help as many people as possible age better. Walmart expands our strong and growing distribution footprint that now includes Hong Kong, Singapore, Canada, the UK, Australia, New Zealand, as well as cross-border online sales into China, Japan, and the EU. Another important accomplishment in the quarter was the hiring of talented executives in business development, creative, legal, and digital marketing. These new leaders augment our already strong existing talent across the company. We have high expectations for the future of ChromaDex. The most important resource to ensure that we realize our potential is people. I have never been more confident in the team than I am today. As I reflect on this quarter and on 2020 in general, I am very proud of our entire team’s execution and I’m quite optimistic about the future for ChromaDex. We steadily grew our e-commerce business. We secured regulatory approval and launched in two major international markets. We launched new partnerships, strengthened our foundational processes and operations and contributed to important scientific research, surpassing our 200th signed research collaboration on Niagen. We accomplished all of this while making significant changes to our organization. We have recruited a world-class team that is passionate about our brand, Tru Niagen. Our mission has never been more clear: to help solve the problem of aging. I would like to thank you, our loyal shareholders for trusting us with this mission. The addressable market for Niagen is very large. The body of scientific research behind this ingredient continues to grow and consumer awareness is steadily building. We remain focused on creating long-term value. We progress toward cash flow break-even while building a strong pipeline for future growth, all the while vigorously defending our intellectual property against infringers. And now, I will pass the call over to our Chairman, Frank Jaksch for an update on the scientific research. Frank?

Thank you, Rob. 2021 is setting up to be an exciting year for ChromaDex. Eleven peer-reviewed published clinical studies to date have validated the safety and/or efficacy of nicotinamide riboside, or NR, as an NAD precursor. In 2020 and in early 2021, the published clinical studies extended two important areas of human health, including a pilot study indicating that NR may reduce inflammatory cytokines in the white blood cells of Stage D heart failure patients. The second clinical study focused on potential cardiovascular benefits of NR supplementation. A Phase 2 study demonstrated a nutritional protocol, including NR, reduces liver fat and improves liver function, and the double-blind placebo-controlled Phase 3 study of 309 patients in Turkey with mild-to-moderate COVID-19 symptoms found that the same nutritional protocol, including NR, reduced recovery time by 38% in that population. The Phase 2 and Phase 3 studies were led by Dr. Adil Mardinoglu in partnership with ScandiBio Therapeutics, a biotechnology company focused on metabolic cofactor supplementation for treatment of diseases associated with metabolic dysfunction. ScandiBio is evaluating the next steps of the Phase 3 COVID-19 study in Turkey. I’ll also briefly highlight two newly registered clinical studies looking at the potential impact of NR in other health areas. First, in November, a study was initiated to investigate the impact of NR supplementation on mothers’ milk production in a Neonatal Intensive Care Unit. The clinical study is being conducted at the University of California, Davis with lead investigator, Dr. Bruce German, who is a member of the ChromaDex Scientific Advisory Board. This study followed encouraging preclinical results published in Cell Reports, which showed that NR supplementation benefited both mothers and newborn rodents published by our Chief Scientific Advisor, Dr. Charles Brenner. This is a promising area of research that could benefit a high-risk population. In December, a study was registered by the Veterans Health Administration Office of Research and Development in collaboration with the University at Buffalo to investigate the impacts of NR on functional capacity and muscle physiology in older veterans. Investigators will study 144 patients in a double-blind randomized placebo-controlled trial. Nearly nine million veterans are now 65 years of age or older with impairments in functional capacity, reduced quality of life, and an increase in the use of healthcare services and associated costs. An estimated 45% to 50% of those over the age of 85 are frail, which could represent well over a million veterans. According to the researchers, frailty is increasingly seen within the aging population and is driven largely by musculoskeletal declines. This study will provide greater insight into NR supplementation as a nutritional therapeutic strategy to stave off frailty and maintain resilience during aging. The World Health Organization has characterized 2021 through 2030 as the decade of healthy aging. According to the World Health Organization, it is through the joint efforts of the United Nations, governments, civil society, and the private sector that we will be able to not only add years to life, but also life to years. This speaks to the growing global focus on health span rather than lifespan. We believe cellular health will be the next big market opportunity for healthy aging and aligns perfectly with the World Health Organization’s objective of improving health span. Last month, I participated in a conference dedicated to the topic of cellular health, featuring other industry leaders from the Council for Responsible Nutrition, Life Extension, and Nestlé Health Science. I was honored to be presenting alongside such esteemed colleagues in the industry and look forward to furthering the dialogue with industry experts, consumers and investors. ChromaDex continues to deepen its connections with scientific experts in the field of NAD research and partner through its external research program with leading institutions to explore important areas of research on NR. We recently announced that Dr. David Katz, a recognized authority on preventative medicine, has joined our Scientific Advisory Board. Among his many accomplishments, Dr. Katz serves as the president for True Health Initiative, a non-profit organization he established to discuss the science around nutrition and lifestyle in the service of adding years to lives and life to years around the globe. He has served as an on-air medical contributor for Good Morning America/ABC News, and was a finalist for the James Beard Foundation award in 2019 for health journalism pieces in New York Magazine. We look forward to working with Dr. Katz on advancing the science surrounding NAD and its precursors. In summary, we are focused on remaining the leader in NR and other NAD precursor research. We are investing in more science as well as our R&D pipeline as the NAD market continues to grow. As I’ve said before, I believe peer-reviewed published human studies will be the key for a natural transition of our consumer base from the early adopters to large mainstream consumer product companies. We are seeing momentum build with published studies that explore the benefits of NR in important areas of human health with large addressable markets, which makes me optimistic about our future. With that, I’ll pass the call to Kevin Farr. Kevin?

Thank you, Frank. ChromaDex ended the year strong and delivered on our latest financial outlook to investors across all metrics. For full year 2020, we delivered total net sales of $59.3 million, a 28% year-over-year increase with Tru Niagen growth of 31%. Gross margins of 60%, up approximately 400 basis points year-over-year, lower selling and marketing expense as a percentage of net sales and an increase of only $2.7 million versus our outlook of $3 million to $5 million, a decrease in general administrative expense of approximately $500,000 versus our outlook of an increase of $1 million to $2 million. The underlying business as measured by adjusted EBITDA, excluding legal expense, a non-GAAP metric, posted a full-year loss of only $1 million compared to the loss of $8.8 million in full year 2019. This is a significant achievement for the company demonstrating our operational and financial discipline on the path to achieving cash flow break-even. We ended the year with $16.7 million of cash, including a $1 million milestone payment from Nestlé Health Sciences related to their North American launch of Celltrient. And we raised $25 million in capital in February, further strengthening our balance sheet. With this incremental cash, we have a clear line of sight to cash flow break-even, even with the potential uncertainty surrounding litigation. It also enables us to invest more in our R&D pipeline, which includes NR and other NAD precursors, and invest more in brand awareness campaigns to capitalize on the growing interest in NAD supplements globally. Turning to the fourth quarter of 2020, we delivered record sales of $15.4 million, up 9% sequentially and 18% year-over-year. Gross margins of 61%, higher advertising expense as a percentage of net sales sequentially and a slight increase versus the fourth quarter of 2019 and higher general administrative expense sequentially, driven by higher legal expense. 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 31, 2020, ChromaDex reported net sales of $15.4 million, up 9% compared to $14.2 million in the third quarter of 2020. Tru Niagen net sales were up 4% sequentially. Importantly, this growth was driven by our e-commerce business, which was up 9% compared to the prior quarter and an acceleration from prior quarters driven by increased marketing investments to drive new customer growth. Sales to Watsons were $2.1 million in the fourth quarter, roughly flat with the prior quarter on an underlying basis since the third quarter included a shipment of stick packs for the Watsons retail launch. Our Niagen ingredient sales more than doubled in the fourth quarter to $2.2 million versus $0.9 million last quarter. We expect a headwind in the first quarter of 2021, since we are no longer supplying one of our few remaining Niagen ingredient customers. We intend to replace this business with new more strategic partners in 2021. Our gross margin was up 140 basis points from 59.6% in the third quarter of 2020 to 61% in the fourth quarter of 2020. We continue to deliver on our supply chain and product cost savings initiatives, and are benefiting from overall scale. There’s also a small benefit from ingredient sales to Nestlé this quarter, since we recognized the portion of the $5 million of upfront and milestone payments as revenue over the term of this contract. Total operating expenses for the fourth quarter of 2020 were $15.5 million, up $2.8 million compared to the third quarter of 2020. Selling and marketing expenses were up $1.1 million to $6.3 million in the fourth quarter of 2020, compared to $5.2 million in the third quarter of 2020. This increase was consistent with our financial outlook. As a percentage of net sales, this expenditure was up 410 basis points in the fourth quarter of 2020 versus the third quarter of 2020. As Rob said, we made key hires to build out our sales, marketing and business development teams. We also continued to increase investments in digital marketing and brand building while adjusting our creative and testing new messaging. At the same time, we have been optimizing our e-commerce metrics such as customer acquisition costs. As reported, G&A expense was up $1.6 million to $8.2 million in the fourth quarter of 2020 versus $6.5 million in the third quarter of 2020. Legal expense was up $0.6 million, compared to the third quarter of 2020. As expected, there was increased investment in the Delaware patent infringement case related to claim construction and the Markman hearing in December. We also incurred expenses related to ongoing discovery in the New York litigation. While overall legal expenses were slightly lower than expected this quarter, we expect these to ramp up in early 2021, driven by trial preparation for New York and Delaware litigations. Excluding legal fees, severance, restructuring, and equity compensation expense, fourth quarter 2020 G&A expense was higher by $0.9 million versus the third quarter of 2020, comparable to G&A expense. We have a higher incentive accrual to reflect the actual financial results for the year relative to our financial objectives. There were also higher accounting fees in the fourth quarter and recruiting fees as we strengthen our sales and marketing team. For the fourth quarter of 2020, our operating loss was $6.1 million versus $4.2 million in the third quarter of 2020. The net loss attributable to common stockholders for the fourth quarter 2020 was $6.1 million or a loss of $0.10 per share as compared to a net loss of $4.2 million or a loss of $0.07 per share for the third quarter of 2020. Moving to year-over-year financial results, total net sales were up 18% year-over-year compared to the fourth quarter of 2019 with 21% growth in Tru Niagen, 20% growth in e-commerce and 27% combined growth in Watsons and new B2B business partnerships being the key highlights. Gross margins increased by 400 basis points to 61% compared to 57% in the fourth quarter of 2019. Marketing efficiency as measured by selling and marketing expenses as a percentage of net sales decreased by 190 basis points, primarily driven by increased digital marketing and brand awareness investments. As reported, general administrative expenses were lower by $1.9 million, primarily due to the absence of the $2.2 million of Elysium-related bad debt expense, which we wrote off in the fourth quarter of 2019. Finally, our operating loss improved by $2.8 million year-over-year as our organizational realignment and supply chain cost savings initiatives are enabling investments in the business, coupled with the absence of the bad debt expense this year. To help investors better gauge the underlying financial performance of our business and progress towards cash flow break-even, in the second quarter of 2019, we introduced a new non-GAAP measure, adjusted EBITDA, excluding total legal expense. We have included reconciliation to the appropriate GAAP measures in our earnings release slides. As I previously highlighted, adjusted EBITDA, excluding total legal expense was a loss of $1.1 million in the fourth quarter of 2020, compared to a loss of $0.1 million in the third quarter of 2020. Year-over-year, we delivered $1 million improvement in the fourth quarter of 2020 versus a loss of $2.1 million in the fourth quarter of 2019. Furthermore, this metric has improved from an average quarterly loss of $4 million in 2018, $2 million in 2019 to essentially break-even in 2020, as we put important foundational processes and systems in place. We will be making strategic investments in the near-term; this remains a key objective for the company. Moving to the balance sheet and cash flow, we ended this quarter with $16.7 million in cash and have not accessed our $7 million committed line of credit. As mentioned upfront, this included a $1 million launch milestone payment from Nestlé. In the fourth quarter of 2020, our net cash provided by operations was $22,000 versus a negative $3.8 million used in the third quarter of 2020. The difference this quarter was primarily driven by lower working capital investments, given the timing of inventory purchases and other expenses. As it relates to our 2021 full-year outlook, we’ve provided details of key P&L metrics in our earnings press release along with the slide presentation. A key objective this year is to deliver positive adjusted EBITDA, excluding total legal expense, but we do plan to invest more in marketing and R&D. So, the year-over-year improvement will not be as significant as the last two years. As a result, cash flow break-even will be above $19 million of quarterly sales. While we do not expect a significant increase in spending, we believe these incremental investments are prudent to maintain our position as the leader in the growing NAD market. In summary, we remain committed to delivering profitable growth as we’re very close to achieving an important milestone of a profitable adjusted EBITDA, excluding total legal expense, followed by positive adjusted EBITDA including total legal expense once the litigation is behind us. As always, we will balance these near-term objectives with the long-term opportunity for the business. It’s an exciting time to be a part of ChromaDex. I’d like to thank the entire ChromaDex team for their discipline and commitment that has brought us this far and for their passion, which will bring us to the next stage of growth. Operator, we’re now ready to take questions.

Our first question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon.

Hi, Brian.

Hi, Brian.

Nice quarter. Congratulations.

Thank you.

So, why don’t you basically start with my questions on the announcement today with Walmart? And so I’m just going to kind of put a few questions together, but I think it’s an extraordinarily exciting step here, congratulations on that. In the release, you mentioned some type of special pricing and packaging, so maybe some more details on that with regard to Walmart. And is there any initial thought on what is the stocking in Walmart from a ChromaDex standpoint; is there any financial commitment to get the SKU stocked by June? And then stepping back, this is obviously not your first retail partnership, but how does what you’re doing with Walmart compare with what you’ve done with Watsons overseas? Thanks.

Sure. We plan to have a SKU with a lower dose and lower price point for Walmart. We think there is some overlap between the Walmart customer base and our existing customer base, but not a lot. So, we are offering a new SKU that we haven’t offered before that we think might appeal to that customer base and we did so with the advice and consultation of Walmart. Yes, we do have very successful experience in Hong Kong with Watsons and retail. This is different for a number of reasons. One is it’s mass retail in the United States. There are small specialty retail partners that we have in the U.S., but just a handful of stores, nothing significant. This is 3,000 stores. So, this is a much more important effort and requires a different type of marketing campaign. In Hong Kong, the nature of the relationship is a bit different with Watsons, as they bear the brunt of the advertising responsibility. In this particular case, the onus will be on us to create the awareness. With regard to supply chain?

Yes. I think with regard to 2021, we think this is going to be a small contributor to overall sales and growth in 2021. We are loading into 3,000 stores, but it’s a couple of facings. So, with regard to that load-in, it’s not going to be a huge amount of revenues, but obviously, as we ship it in, it will be filling shelf space and we’ll be filling their distribution centers to support what I think are conservative numbers for 2021 as we launch it and also want to make sure that we’re getting the right velocity and sell-through for Walmart in 2021.

Got it. I appreciate the color. I’ll let someone else ask the question. Thank you.

Thanks, Brian.

Our next question is from Ram Selvaraju with H.C. Wainwright. Your line is open.

Hi, Rob, Frank and Kevin, this is Thomas speaking on behalf of Ram. We were very interested in your COVID-19 trial in Turkey. I’ll group some of our COVID questions together. We were interested in investor interest over the past several weeks; did you notice investor interest catalyzed by the potential of Tru Niagen in COVID-19? And then in terms of the total study, how applicable is the standard of care in Turkey versus the U.S., and then in terms of trials, what’s the development plan for COVID-19 in the U.S., and what other characteristics are in consideration as well for COVID-19? Thank you.

I’ll talk about the overall strategy and Frank can get into any scientific details. We’ve seen a number of studies that have been announced, or that are in discussion in the United States relating to COVID-19. There was an NIH preclinical study that we announced had commenced and is not yet complete. There is another clinical study that is underway and another clinical study that is in discussion right now. So, there is quite a bit of work being done on nicotinamide riboside in COVID-19. The studies that we made public last year indicate what we had expected, which is when the virus attaches to a cell, NAD levels dramatically go down right away and this is intuitive because the cell is fighting off the invader. And what we’ve also shown is that when nicotinamide riboside is added to the solution that is used preclinically, it shows a protective benefit. So, we weren’t surprised by the Phase 2 or Phase 3 results that came out of Turkey. Of course, that study was done in conjunction with a cocktail that included Tru Niagen plus three other dietary supplements. So, we can’t say that it was Tru Niagen per se that caused such a dramatic result. But the result is consistent with the preclinical studies that we’ve seen thus far. The standard of care in Turkey in the Phase 2 was hydroxychloroquine and in the Phase 3 it was hydroxychloroquine plus another agent, the name of which neither of us recall at the moment.

I can’t remember the other drug, but yes, the standard of care is different.

I don’t think there is a single standard of care across the U.S. at this point.

Okay. And then in terms of clinical plans in the U.S., are you exploring another trial territory as well?

The one I can talk about is the one that posted with Harvard, which is basically looking at long-haulers. That’s not necessarily looking at COVID itself, but it’s looking at the potential of nicotinamide riboside to repair NAD function related to people who are having long-haul side effects post-COVID. So that’s one area and we are exploring a couple other trials, but we’re not prepared to discuss those yet.

Okay. That’s really helpful color. I’ll ask one follow-up if I may, then I’ll jump back in the queue. We were curious about what other contexts might prove beneficial for combining Tru Niagen with other supplements or related minerals, for example.

The ScandiBio collaboration goes beyond COVID. They started studies of that cocktail in liver disease, and we reported results earlier this year, and they’ve also been looking at neurodegenerative disorders with the same cocktail. Their plan is to continue follow-on clinical studies to further develop those indications. We’re still working with them on the Turkey COVID results, but have nothing definitive to report yet. Generally, the potential of nicotinamide riboside working as part of a cocktail with other agents is interesting. It’s also important for us to understand what nicotinamide riboside does on its own so we clearly understand where it would fit. There were liver studies performed with nicotinamide riboside by itself before it was evaluated in a cocktail. We know nicotinamide riboside is important. Alzheimer’s and mild cognitive impairment have also been evaluated with nicotinamide riboside by itself before evaluating it in cocktails. So, it’s important to understand both.

Very helpful and fascinating. Thanks and I’ll jump back in the queue.

Thanks very much.

Our next question is from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.

Hi, this is Destiny on for Jeff. I hope you are all well, and thank you for taking the questions. I’ll make mine brief. I’m wondering if you could provide additional color into the changes in your marketing strategy and investment through 2021, especially given your previous commentary about the minimal overlap between your messaging for Walmart and your messaging for your current customer base. I’m curious to know how the messaging is different, and if you’re going to continue to use influencers as heavily as you have in the past.

We will continue to use influencers as we have in the past. It’s a growing group of influencers, including celebrity and non-celebrity social media influencers. We use both. We expect to continue to use both and to grow the group of true believers. It’s not necessarily a change in message; it’s a change in cohorts. ChromaDex has developed a fairly sophisticated understanding of the various cohort groups that purchase our product. Some people buy Tru Niagen specifically for aging, some for fitness, some for energy metabolism, and some believe it is therapeutic for a specific condition they are managing. There are variations in demographics. We endeavor to target those different cohort groups with slightly different channels of distribution and slightly different ad creative materials. If we go to mass retail at Walmart, there is a slight variation in the demographics and cohort interest levels of that customer base versus the existing customer base. That will mean a variation in channels. For example, that might be a slight increase in television or radio versus digital marketing spend. We don’t yet know exactly what the Walmart customer is looking for when they purchase Tru Niagen; the likelihood is aging and energy metabolism, but we will test that hypothesis and find out. If that’s where we find success, we will press that narrative more to that cohort group.

Okay. I got it. So, less about the messaging and more about the channels. I’ll ask one follow-up: you referred to your product pipeline and investment in R&D. Could this include new formulations or improvements to the existing product, or complementary products?

Both. ChromaDex has a deep understanding of NAD and a developed patent portfolio on precursors besides NR. We are investing in R&D to develop next-generation precursors that we think are complementary to NR, that perhaps in combination with NR or perhaps even better than NR. In addition, we are investigating combination products of NR with other agents to create more therapeutic benefit or to support health claims if there is significant efficacy. We are also looking at alternative ways of delivering NR beyond capsules. These are product extensions we’re exploring. As you know, we do have a powder form of NR presently and we’re looking at other delivery mechanisms as well.

Yes. Thank you.

Our next question is from Mitch Pinheiro with Sturdivant & Co. Your line is open.

Hi, good afternoon. Hey, just to follow up on Walmart, I’m curious about two things: one, how did that relationship start? Did you approach them or did they approach you? And two, when you’re dealing with Walmart, product has to fit on the shelf. Are you planning in-store support in addition to advertising? Will there be special Walmart circular deals? How much do you think you’re going to have to spend as part of the launch? Will you be talking significant amounts to get it going, or can you talk a little bit to those questions?

Walmart approached us.

Kevin suggested this will be a brick-by-brick, one-step-at-a-time approach. We’re not going to do anything very major or dramatic at launch. We’re going to place it in the stores, do some advertising in conjunction, measure the data, and then make decisions after that.

Walmart was very persuasive. They spent a fair amount of time trying to persuade us to offer the product in Walmart. As you know, it wasn’t part of our core U.S. distribution strategy, but they understood the product extremely well, had spent a great deal of time researching it and were consumers of it. They made a convincing case for why it would succeed there. But as Kevin said, we don’t expect very high short-term expectations. We’re going to take it one step at a time so that we are successful with this launch.

Will there be any channel shift from Amazon or direct-to-consumer to Walmart? Is there any tie-in longer term between the channels or how do you approach that?

We don’t have a plan for that. It is our hope that it is extremely successful at Walmart for ChromaDex and for Walmart.

One more question: you had nice sequential growth entering the quarter. Can you comment on new customer versus existing customer growth rates? Any color would be helpful.

We’re not disclosing the exact growth rates, but what we can tell you is that the new customer increase was substantial in the fourth quarter, which is encouraging because we had seen that flattening out during 2020.

Okay. Thank you for your time.

Thank you.

Thanks, Mitch.

Our next question is from Jeff Van Sinderen with B. Riley. Your line is open.

First, congratulations on Walmart; that’s terrific. How are you thinking about adding other retailers in the future? Would it make sense to go into the drugstore channel or perhaps other retailers? How are you thinking about that at this point?

We get frequent calls from potential partners and retail has not been part of our core strategy. But Walmart made a persuasive case. Ultimately, we believe everyone deserves to age better and benefit from nicotinamide riboside, not just people who can afford an expensive product online. It is conceivable that at some point we will expand to other retail partners, but we don’t have plans for that right now. We’d like to succeed with Walmart and then take it one step at a time.

Any update you can share on Nestlé, any metrics to speak about, and the outlook around working with Nestlé and potential new partners for similar product inclusion in the future?

We receive many inbound partner inquiries, but we are careful and selective. We are in business with great companies: Nestlé is one, Walmart is one, Watsons is one, and we value our partnership with W.R. Grace. It is possible you could see another deal like the Nestlé deal with another partner, but it must fit strategically and make sense for shareholders. Regarding Nestlé, the relationship is excellent. We speak frequently and they launched their brand Celltrient. There is a great deal of interest at Nestlé in NR and many of the things ChromaDex is doing. We did a deal with Persona, a division of Nestlé, where we supply Tru Niagen as finished capsules. There are other discussions within the Nestlé family, but nothing imminent to announce.

Okay. Thanks for taking my questions. I’ll take the rest offline.

Sure.

Okay. Thanks, Jeff.

Our next question is from Bill Dezellem with Tieton Capital Management. Your line is open.

Thank you. I’ll ask one Walmart question and then a couple of numbers questions. Relative to Walmart, will you be selling under the Tru Niagen name and will the bottle look the same, have the same color scheme, etc.?

Yes to both.

Thank you. And then G&A jumped up a fair amount in the fourth quarter versus the third quarter. What was driving that?

The big driver was a higher incentive accrual to reflect that we exceeded expectations for the full year, which resulted in a larger incentive expense. There were also higher accounting fees and recruiting fees in the fourth quarter.

Great. And then last one: you did mention that you expect legal expense to increase in the first half of this year. What magnitude should we anticipate?

In 2020 legal expense was a bit lower because we didn’t go to trial. Next year we think it will be higher. Previously we have guided that legal expense could be in the range of $2 million to $3 million a quarter as cases progress. The Delaware and California cases have trial activity in September, and the New York judge said to be ready in August. So, it’s more likely we will be in the high end of that range as trial-related expenses ramp up.

Great. Thank you both.

Thank you.

And ladies and gentlemen, this is all the time we have for today. I’ll now turn the call back over to Ms. Gerber for any closing remarks.

Thank you, Chris. There will be a replay of this call beginning at 4:30 p.m. Pacific Time today. The replay number is 1-800-585-8367 and the conference ID is 8433848. Thank you, everyone for joining us today and for your continued support of ChromaDex.

Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.