Ladies and gentlemen, thank you for standing by, and welcome to the ChromaDex Corporation's Fourth Quarter 2019 Earnings Conference Call. My name is Chris and I’ll be your conference operator today. At this time, all participants are in a listen-only mode. And as a reminder, this conference call is being recorded. This afternoon, ChromaDex issued a news release announcing the Company’s financial results for the fourth quarter 2019. If you have not reviewed this information both are available with any investor relations sections at ChromaDex’s website. 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, Ms. Gerber.

Thank you. Good afternoon, and welcome to ChromaDex Corporation's fourth quarter 2019 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 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 risks factors include those contained in ChromaDex's annual report on Form 10-K, most recently filed with the SEC. 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 Relation 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 fourth quarter 2019 investor call. We had another strong quarter with total net sales of $13.1 million. Overall sales increased 9% sequentially, and 44% year-over-year. Tru Niagen net sales were $10.2 million, a 4% increase sequentially and a 57% increase year-over-year. Let me first briefly comment on the coronavirus. We do not anticipate a significant impact on net sales. However, Watsons represented 15% of net sales in the fourth quarter and we do expect a moderate impact in the first quarter. Tourism and store traffic is down in Hong Kong. We do not anticipate a supply chain impact at this time. As we have said in the past, there are three pillars to our business strategy: Number one, to build a global brand; number two, to own the science; and number three, to focus on the fundamentals. Let's start with the brand. As mentioned, global Tru Niagen saw net sales of $10.2 million in the quarter, a 4% increase sequentially and a 57% increase year-over-year. Tru Niagen represented 78% of the $13.1 million net sales in the quarter. E-commerce net sales were $7.9 million, and 11% increase sequentially and a 52% increase year-over-year. For full year 2019 Tru Niagen net sales were $36.1 million, roughly double last year's levels. I'm very proud of what we've accomplished in the three short years since we launched this brand. Tru Niagen has become truly global with approximately 25% of net sales from international markets in the fourth quarter. This includes sales to Watsons in Hong Kong and Singapore, cross border sales in China in Japan, and sales to our partners in New Zealand and Canada. We are now expanding into the UK and Australia in the first quarter of 2020. Sales…

Thank you, Rob. As Rob stated, one of our core objectives is to own the science, and we are committed to remaining a global scientific authority on NR and NAD research. It is an exciting time to be at the forefront of this growing body of research, and we are proud to partner with the world's leading scientists. There are 39 ongoing, completed and published clinical trials currently registered on clinicaltrials.gov to investigate the pharmacokinetics and therapeutic effects of NR. This is 3 more than our last update. An additional 7 clinical trials are registered to test NR in combination with other ingredients for a total of 46. We finished the quarter with more than 185 signed research collaborations, up by approximately 10 compared to last quarter. As Rob said, we believe NAD awareness is reaching a tipping point with interest growing around the world beyond the core scientific and Biohacker communities. NR is the only NAD precursor that is clinical proven to be safe, well-tolerated and efficacious in boosting NAD in humans. 6 peer reviewed clinical trials using Niagen have already been published in top tier peer reviewed scientific journals showing an increase in NAD. Another NAD precursor that has recently gained attention is nicotinamide mononucleotide or NMN. In contrast to the six clinical trials on Niagen that I previously mentioned, the first clinical study of NMN was recently published in which researchers administered 3 single doses to 10 healthy male subjects. While this established tolerability of single oral doses of NMN in humans, it did not measure the tolerability of daily oral supplementation. Furthermore, it did not measure NMN’s effect, if any on NAD levels. In addition, we have reason to believe that NMN is less efficient as an alternative to NR as demonstrated by multiple peer reviewed…

Thank you, Frank. Let's look at our financial results for the fourth quarter and full year 2019, which reflect continued progress against our key financial objectives. We delivered on our latest 2019 financial outlook across all metrics for the fourth quarter and full year including. Strong sequential top line growth in gross margins, significant improvements in advertising efficiency year-over-year, and controlled growth in G&A excluding a 2.2 million write-off of our outstanding receivables with Elysium. This reflects conservative accounting treatment and does not impact our litigation strategy, or our assessment of the potential return on investment in all three cases. The determination to write off the entire receivables made based on Elysium's recently unsealed financial statements through year end 2018. They subsequently announced a $40 million capital raise. But since we have no substantiation of the financial impact, we took the conservative accounting approach. Overall, our underlying business performance for the fourth quarter, as measured by adjusted EBITDA excluding legal expense, was the loss of $2.1 million, which reflects a substantial progress year-over-year, a decline on a sequential basis due to planned investments in marketing and R&D. Lastly, we ended the year with $18.8 million in cash, roughly equal to the third quarter and strengthened our balance sheet by securing a $7 million committed line of credit to help manage working capital investments. We did not draw on the line of credit in the quarter. For the three months ended December 31, 2019, ChromaDex reported net sales of $13.1 million, up 9% compared to $12.1 million in the third quarter of 2019. Year-over-year sales were up 44% compared to the fourth quarter of 2018, Tru Niagen net sales were up 4% sequentially and grew by 57% year-over-year with diversified growth across the U.S. e-commerce, Watsons and international cross border launches…

[Operator Instructions] Your first question is from Jeffrey Cohen from Ladenburg Thalmann.

Two questions. So, as far as the bad debt write-off on Elysium, what's the balance or is there anything behind what was written off for the fourth quarter?

The balance is zero. So, we wrote off the entire accounts receivable.

And then, secondly, can you talk about that top [ph] NIH for Friedreich's Ataxia? Can you talk about the size of the study, perhaps the end points, dosing, timeframes, et cetera?

Sorry, I was on mute. Could you repeat the question?

Yes. Could you talk about the top [ph] NIH study for Friedreich's Ataxia as far as number of patient, size of the study, endpoints, dosing, timeframe, et cetera?

The study is small, the population is small. So, you're dealing with like around 10 people in the study.

And then, lastly for me. Could you guys talk about Persona a little bit, Persona Nutrition? You talk about the Nestlé and the timeframe. And talk a little bit about, will that be the one channel they’ll be using as they come to market this year, or will there be a number of channels?

So, Persona is already launched. So, it is available. You can buy Tru Niagen through their personalized medicine nutrition offering today. They've already placed their first order to us. No, we expect that Nestlé will also offer a product for sale to consumers in a small test launch in September. That'll be an online version of a powder form of nicotinamide riboside.

And then, lastly, could you talk about any trends you're seeing as far as stickiness of the online business as far as trends and reorders through your direct channel or Amazon?

We continue to be very impressed with the stickiness. Retention rate is high and seems to be getting higher. The majority of our revenues at this point in time is from repurchases and reorders. But, we have not provided specific numbers yet to that effect.

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

I wanted to just clarify on Nestlé, I think you mentioned the technical feasibility clause. Is it fair to say that they -- that's been effectively waived at this point for the year beyond that at this point?

The clause has been waived, yes. Our efforts to achieve stability in liquid is still ongoing.

Okay, got it. So, you continue to move forward with that, albeit timing unknown. Is that how we should look at it?

Yes. There are a number of approaches being taken. There is binding to a whey protein, there's beating, the process of beading and there's a process of purling. All of these are being -- we’re experimenting with all of them and combinations thereof.

And then, just turning to the regulatory approval you have in the EU and Australia. And I think you said signed retailers in both regions. I know, you've got the beauty retailer in the EU. Can you speak more about the next steps in launching there, in those regions? And I guess, how we should anticipate product to roll out there?

So starting with the UK. We are taking the EU in general and UK specifically carefully. We are taking one step at a time. We started by selling cross border on Amazon into the UK. Then, we supported that with some earned media and PR in the UK, and we received quite a few interesting articles about Niagen and ChromaDex there. And then, we sought out and made a deal with a very good partner in the UK. And with that partner, we are doing this 200-store test launch. I don't expect it to be material in terms of the financial impact. But, we are seeding the market and growing awareness in the UK, much like we did initially in the U.S. This is our strategy across the board. We are also selling cross border into Germany and Spain and France. And we are talking to various partners in that region and also working to develop earned media press to build awareness of Niagen of NAV -- of cellular metabolism, energy metabolism in those local countries. It takes a lot of time and resources and attention to launch in these countries. You only have an opportunity to launch once. So, we are being very vigilant. We're working quickly, but we are working carefully. The same is true in Australia. We have a partner in New Zealand that did an excellent job, called Matakana. They did an excellent job distributing in New Zealand. And they have an infrastructure in Australia. We decided to extend the relationship to include Australia. So, there were some online sales initially into Australia. And we've done quite a bit of earned media and press in Australia. There is a fairly high awareness of nicotinamide riboside and NAD in Australia already. So, there's some demand already in that country. And Matakana will begin their launch later this month. It will initially be an online launch. Our expectation is that it will later evolve into retail distribution. The same is true with China by the way. We are selling cross border into China presently with Tmall. We are talking to partners about helping guide us and creating a partnership to help lead us in China. We're having those conversations even in advance of getting regulatory approval in China. This is the strategy that we have adopted for entering into new territories. It's a careful, vigilant, cost efficient, aggressive approach.

And then, just turning to, I think one of the studies that you talked about in your prepared comments, touched on immune system function. And I'm just wondering, given the potential for improved immune system function for those taking Tru Niagen, how are you thinking about consumer awareness around that given the backdrop of COVID-19?

We understand that Tru Niagen elevates NAD levels. We understand further that when a cell is under physiological stress that it uses that NAD to combat that stress, not only through energy metabolism, but elevating the repair enzymes within the cell. We understand the importance of this and other viruses. We understand the importance of this particular trend and we are working on it with important researchers around the world. And we are committing resources to studying and investigating the impact of Tru Niagen on this and other similar viruses presently.

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

Couple of questions. First, sort of on the retail strategy in the international markets. By the way, have you announced the partner, its name in the UK?

We have not. They have asked us to not yet announce the partner until the day of the launch.

Okay. And does this retailer have more than 200 stores or is that just the test number?

Can both be true. Yes, they have more and yes, this is a test number.

Okay. So, you use retail in Canada with Whole Foods, this unknown partner here in the UK. But how -- what does -- clearly you give up margin if you did that in United States. But wouldn't visibility -- wouldn't there be an offset and have you considered at all looking at a retail strategy in the United States?

We also have retail partners in Hong Kong and in Macau and in Singapore. And there is some level of retail here in the United States already. We're in Bristol Farms here in Los Angeles and we sell to healthcare practitioners on a wholesale basis here in the United States. We sell stick packs to a company here in LA called pressed Juicery. We have very, very carefully and slowly dipped our toe in the water. But there are people here at this Company that have a great deal of experience dealing with large retail chains. And we are waiting till it's the right time and the right opportunity and there's the right level of brand awareness so that we are not taking too big of risk when we go -- and that we are preserving the unique brand identity at such time as we might enter into retail. The opportunities are there however.

Are you getting calls from retailers?

We do get calls from retailers.

Okay. Second question regarding Nestlé. So, the clause is waived, you still have ongoing efforts to solve the problem. Is it just -- is it a matter of if? I mean, how confident are you in Nestlé in achieving the solution to the issue?

First, let me say that we're not sure that the deal would be bigger, if it was in liquid form. We're actually quite interested in the powder format. We think the tip in powder format like the stick packs that would be added to a beverage or even as an independent product is actually an interesting opportunity. So, we're very curious on how this test goes and how this rollout product goes. But, yes, we -- it is -- look, nicotinamide riboside is found in trace amounts in milk. So, nature has already solved the problem in trace amounts. And beading has -- encapsulation has worked in the past in other encapsulation stability issues. So, we have confidence that eventually the problem -- that particular problem will get solved, but it has not been solved yet. And of course, there's no guarantee that it will be solved.

In the fitness market, they are using that in stick format, is that -- putting in smoothies and shakes and things like that, is that how that's been taken, or do you think the fitness market is in capsule form?

Yes. We think that -- well, I think, the fitness market will be both. I mean, it is already both. But, many people use it in powder format and add it to their smoothie.

Any update -- or you talked about in your remarks, your prepared remarks about the fitness market, the healthcare professionals, anything tangible you can talk about in that sector besides the launch of Pro 500?

In the healthcare practitioner market or in the fitness market?

Yes. Well, you sort of -- either way.

These are 2 different markets. These are two separate markets.

[Multiple Speakers]

We see the fitness market is more of a demographic. And we see the healthcare practitioner market more as a wholesale customer base. And no, we have not provided any specific metrics yet in either. I can only tell you that both are growing.

Okay. Last question, just -- Kevin, the breakeven payments and you think you can get the cash flow breakeven in the $17 million to $19 million revenue range. You mentioned that sort of like if litigation doesn't end, breakeven could still happen at the higher end of that range. Did I hear that correctly?

That's correct, Mitch. I think what we're working on is to continue to make progress on our supply chain, as well as SG&A expense. And we think over time that we can basically get the cash flow breakeven, including legal expense. But, the one variable is really what is litigation expense in terms of predicting it, in terms of timing and magnitude. So, that could impact our cash flow outlook. But, at this point in time, we are working very hard with respect to cost savings programs to be able to be cash flow breakeven, even with legal expense continuing at that $2 million to $3 million per quarter.

Your next question is from Brian Nagel with Oppenheimer.

Hi. This is Andrew Chason [ph] on from Brian’s team. I just had one question. If we could just dive a little bit deeper into the marketing. I know you guys talked a little bit about the international expansion. But just thinking domestically, are there any specific commentary that you can add to marketing strategies? Is there going to be a shift in strategy or maybe just an expansion of dollars?

Well, we had a change in leadership in the marketing department over the last several months. The overall strategy continues to be heavily performance-driven, Facebook, online, digital marketing, some amount of television. We established a group of influencers that we call true believers. And that is the crux of the creative. It's very, very science based. But what you're going to see now is greater emphasis on the brand and on the messaging and more consistency across all touch points.

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

So, just to start with regarding the health benefits of NR. I was wondering if at this juncture, since there have been a number of studies that have been done, if there is a clearer picture emerging on what appears to be the swiftest route to potentially obtaining specific health claims for NR? And if you have a sense of how that might play out and in what specific area that could potentially occur?

Well, if you look at -- I'll answer and then Frank, I’ll defer to you to also support the answer. But if you look at studies that are happening right now, and some of the results that have been published thus far, it does look like liver, kidney, cardiovascular, and some cognition related. We're starting to see a level of consistency. And we are also seeing studies come to completion, many of which are still unblinded but some of which we have some insight into the data that are consistent with this. We have high expectations and hopes for studies that will get published in the coming year. Frank, anything you want to contribute to that?

Yes. Obviously, we're just waiting for peer review to come out on data that we're excited to hopefully share with everybody on that front. But, I agree with Rob. The only other one I'll add to would be, broadly, which ties into the aging story, and it also ties into the others is inflammation broadly, and there's challenges in terms of messaging that as a claim. However, there are ways of doing it appropriately, as long as we have data to support it, which we still have to check into. But, I think that's an exciting area for us broadly.

Further to this point, is it possible to envision conduction of a proof of concept study specifically in Cockayne syndrome patients that focuses on whether or not NR might be to attenuate hearing loss, specifically in that group?

Yes. We could do it collaboratively, work on that. That's one potential way of doing it. Doing it under the guise of a formal IND related clinical trial is different, but the way that you stage is a proof of concept would be one good way to potentially look at it. It is -- hearing and vision are the two ways of sort of quantifying an effect. By raising NAD, will we see something measurable and the two things you can really look at are hearing loss, which is measurable in vision.

And it would be possible to do this in Cockayne syndrome patients, like before their hearing is irrevocably damaged, right? That's possible.

That's a difficult one to answer, because the question is when does the damage start, and when you -- when would you start enrolling somebody in a proof of concept trial. And so, it's hard to answer because these kids in particular, these kids, even in an early age are so challenged across all areas of health that it's difficult to assess what level of damage and whether or not that's recoverable.

Okay, understood. I wanted to ask about your kind of projections for 2020, and what those assume about the length of time that there might be impact from the coronavirus, minor though it might be. Could you could you perhaps comment on that?

Yes. I think we're right now at this point in time -- I think there's an impact in the first quarter, but full year, it's really difficult to predict. So, at this point, our forecasts are that it isn’t going to impact the full year, but that could change over time.

We also candidly don't know if it in the long run has an impact positively or negatively.

Okay. That’s interesting. Do you anticipate any further near-term restructuring initiatives? And if so, what might these look like, and what would be the expenses associated with those, or at this juncture, is that not on the cards?

Well, I think we're looking at end to end at the supply chain and looking for other opportunities to invest to get a return. So, we're currently working with CMOs that blend and encapsulate and label our bottles. And we're also looking across the supply chain with regard to our distribution partners 3PLs. And we continue to look at the product. We made a major change in 2019 that was launched in the fourth quarter going from three bottles for a 90-day supply to one bottle. So we're not spending on three bottles; now, we're spending at one bottle. The packaging then becomes smaller, and then the distribution expenses become smaller because the package is similar. So, I think as we look across our Company, we're looking for other opportunities to scale our costs and reduce costs. And that'll be ongoing this year. And if we're making an investment restructuring, we expect a good return on that and a quick payback.

And the last question is with respect to the May 12th trial. Just wanted to understand what the outlook is in the wake of that trial proceeding being concluded. In other words, what is your expectation regarding the timing with which a decision might be rendered? And what avenues if any would Elysium have for appeal at that juncture? Also, if you could perhaps comment on any indication you're seeing that the way things have been going so far, might be making them more inclined to settle, if that's possible to comment on.

We don't know, if they're more inclined to settle. And obviously any settlement would have to be one that's satisfactory to us on behalf of our shareholders. We've invested a lot in this. Their behavior has been consistently unconscionable. Of course, the more experience I have, the less surprised I get by people in general. The facts have come out, many of them are public and can be read. It's hard to imagine that as these facts come out, their confidence would be boosted. But again, nothing surprises me specifically when it comes to Elysium. Yes, they will have an opportunity to appeal, whatever that jury decides on May 12th. It would not surprise me if they tried to delay it further by doing that. I mean, that has been their primary tactic. And we expect that the trial will last approximately two weeks.

And our last question is from J.P. Mark with Farmhouse Equity Research.

Just a couple of quick questions here. You mentioned about a liquid form. And I was curious to know how hard is it to actually create that liquid form, and how important would it you could -- how important it would be to the long-term growth of the Company? Is this a new opportunity that's much bigger than the current form, or is it an additive to what you've already got?

So, the initial thinking in the relationship with Nestlé is that it would be part of the formulation of a product they have called Boost, which is mostly a liquid-based protein meal replacement beverage. But, in order to do that, we'd have to achieve stability in liquid, meaning nicotinamide riboside when exposed to liquid, begins to break down over time, the nicotinamide and the ribose separate. So, it's not harmful, but it's not as efficacious if you're taking let's say half a dose of NR and the other half is nicotinamide. So, Nestlé was interested in us trying to solve that problem. We are interested in solving that problem because there are other beverages out there that are interesting besides Boost. Again, they only have the right to protein-based meal replacement products. But, there are many beverages out there that do not -- are not protein based. So, we see it as an enormous opportunity, once the problem is solved. However, with the passage of time, what we've observed from Nestlé is maybe putting it in Boost is not the big idea, maybe just as a separate powder based product that could be added to Boost or other beverages is a bigger idea. So, we're not sure that we lose that much. But, we are continuing to pursue the science here, pursue this stability, because there are potential business opportunities to pursue.

So, you're not trying to create necessarily a liquid form at this point, is that right? Or you're still pursuing it, but it's less important than if you have a powder that works well in a liquid? Am I getting that right?

Right. We have established that the powder is stable. And Nestlé is proceeding forward with the powder product.

Okay. And then, second question I had was about pricing. I'm curious to know about how you price online. I guess, your two major ways of selling online are through Amazon or direct on your website. And there's differences in pricing, and I was curious to know what your strategy was there?

Well, of course, it's important that there's consistency in pricing across the Board and we do supply to some companies, and there's map pricing across the board there. And we -- it's important that there is not an advantage versus buying on Amazon versus buying on the website. Secondly, nicotinamide riboside is not inexpensive to make. There is a lot of complex organic chemistry in that process. So, therefore, we do achieve as you see close to 60% gross margins as a Company. In order to do that we do have to price around that level, on a retail level. But, we are constantly working on reducing our cost of goods. And there are -- that has been a very major initiative at the Company the last few months and will continue to be. And if we continue to bring the price down on the cost of goods, we will experiment with some price testing at a retail level.

It looked to me online that if you go to the web -- your website, you actually do get a significant discount versus buying it on Amazon. Even if you subscribe on Amazon, you don't get the same discount as you would, if you're going direct to you? Is that -- did I get that wrong? You said it should be the same.

It’s not -- I am sorry. Go ahead. Right. It's not a one to one identical product in the cases that you're looking at. In some cases, it's a 3-month supply -- I'm sorry, go ahead.

No, I'm sorry. There's a delay and the lag in the audio here for some reason.

Okay. No. Because the products, the shipping costs and the discounts available by Amazon are limited, their subscribe and save is limited, it ends up being an imperfect match, but we try to match it as precisely as possible.

Ladies and gentlemen, that concludes our allotted time for Q&A. I’ll now turn things back over to Brianna Gerber for any closing remarks.

Thank you, Chris. There'll 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 7665464. 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 your phone lines. And we do appreciate your participation. Thank you.