ChromaDex Inc. (NASDAQ:CDXC)
Q1 2016 Earnings Conference Call
May 16, 2016, 11:00 AM ET
Andrew Johnson – Director, Investor Relations
Frank Jaksch – Chief Executive Officer
Tom Varvaro – Chief Financial Officer
Anthony Golof – Private Investor
Burton Gray – Private Investor
Robert Carlson – Janney Montgomery Scott
Michael Kay – Kay Associates
Jack Grimaldi – Grimaldi Investment
Ram Selvaraju – Rodman & Renshaw
Ladies and gentlemen thank you for standing by and welcome to the ChromaDex Corporation’s First Quarter 2016 Earnings Conference Call. My name is Andrew 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.
On Thursday, ChromaDex issued a news release announcing the company’s financial results for the first quarter 2016 and filed our Form 10-Q. If you have not reviewed this information, both are available within the investor relations section of ChromaDex’s website at www.chromadex.com and the Form 10-Q is also available on the SEC’s website.
I would now like to turn the conference call over to Andrew Johnson, Director of Investor Relations. Please go ahead.
Thank you, Andrew and good morning and welcome to ChromaDex Corporation’s first quarter 2016 results conference call. With us today are ChromaDex’s Founder and Chief Executive Officer, Frank Jaksch and Chief Financial Officer Tom Varvaro.
Today’s conference call may include forward-looking statements that are subject to risk 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 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 the forward-looking statements, actual results, or changes in this expectations.
In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company’s earnings release, which was issued Thursday morning as available on the company’s website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believe such non-GAAP financial measures are useful to investors. 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 is now my pleasure to turn the call over to Frank Jaksch and Tom Varvaro.
Thank you, Andrew. Achieving profitability in our first quarter of 2016 was a significant milestone for ChromaDex's both the legacy and ingredient businesses posted record revenue as we achieved net income. We are also pleased to report that we successfully navigated our reverse split followed by our listing on NASDAQ on April 25. ChromaDex celebrated our NASDAQ listing by ringing the opening bell on Friday, May 6.
Now before you get to the highlights of Q1 2016, I’d like to turn the call over to Tom, so he can provide you the details of our first quarter 2016 financial results. Tom?
Thank you, Frank and good morning everyone. For the three months ended April 2, 2016, ChromaDex reported record net sales of $7.3 million, an increase of 39% as compared to $5.3 million for the three months ended April 4, 2015. The ingredient segment generated record net sales of $4.6 million for Q1 2016. This is an increase of 72% as compared to $2.7 million for Q1 2015. Our core standards and service segment also posted a 12% growth as it generated record net sales of $2.6 million for Q1 2016, as compared to $2.3 million for Q1 2015. The scientific and regulatory consultant segment net sales decreased 47% to $148,000 for Q1 2016 from $281,000 for Q1 2015, as this segment put a further emphasis on intercompany work supporting our ingredients segment.
Gross margins for the quarter were 47% versus 37% for Q1 2015. Net income attributable to common stockholders for Q1 2016 was $256,000 or $0.01 per share as compared to a net loss of $1,026,000 or a loss of $0.03 per share for Q1 2015. EBITDA adjusted for non-cash charge associated with share-based compensation, which is a non-GAAP measure for the quarter was $872,000 as compared to negative $113,000 for Q1 2015. Cash on hand at the end of the quarter was $2,995,000 versus $3,216,000 at the end of Q1 2015. This will provide a sufficient cash on hand to fund operations through Q2 2017.
With that I will now turn the call back over to Frank, so he can provide our Q1 2016 highlights.
Thanks Tom. I'm pleased to report that Q1 2016 new business development activity remains robust as we expect strong revenue growth in 2016. As you all know we successfully navigated the NASDAQ uplisting process a few weeks ago. ChromaDex successfully executed a one for three reverse stock split to prepare for our NASDAQ listing and on April 25, 2016 ChromaDex under our ticker CDXC began trading on NASDAQ capital market. We’re pleased to report that since the reverse split and listing on NASDAQ we have seen significant increase in average daily volume and the stock is up over 20%.
On Friday, May 6 we are honored to ring the opening bell at NASDAQ which was an important event from a celebration standpoint for both the management team and for several of our shareholders who were able to watch that event as well. This will open doors to a broader investor base. Institutions will be able to take advantage of investing in our company and brokerage houses that weren’t able to cover us before will be able to recommend the stock. And the other activity that we’re now going to be pursuing as well as analyst coverage which ChromaDex really didn't have much analyst coverage before we’re now able to pursue or more aggressively pursue analyst coverage for ChromaDex as well.
Now transitioning to science, as you guys all know I've been really beating the drum and we will continue to beat the drum about science updates regarding nicotinamide riboside because it's perhaps one of the most important things that we have to continue to build upon. Momentum continues to build for NR in the research community. In just three years now we’ve had 67 calorimeter [ph] agreements in place. Just to remind everyone that this is almost unheard of typically success would be five or six such collaboration. So having 67 such agreements right now is actually very important milestone for us. It's exciting to witness the ever-growing fervor surrounding the published research and commentary on NRs potential health benefits as in any of the precursor. Many of these collaborations are yielding success, leading to peer-reviewed publications in prestigious journals such as science or nature. It’s also important to note that many of these preclinical studies under these collaborations are now transitioning into human clinical studies.
Good examples are the Copenhagen and Colorado studies that are currently underway, human studies that are underway. And we expect three or four other studies to be underway before the end of the year. On April 28, a publication from the EPFL in Switzerland from Dr. Johan Auwerx was published in science and the title aptly named NED Repletion improves mitochondrial in stem cell function enhances lifespan in mice. This publication received some significant media attention including pickup in Newsweek.
And more recently Patrick Cox writes the transformational technology newsletter under the Mauldin Group, identified the seminal publication as a tipping point for production for ChromaDex and NR and I agree with him. Peer-reviewed published science demonstrating the effectiveness is what will drive media attention and media attention is what's going to continue to drive consumer awareness.
Driving these collaborative studies will continue to be a priority for the company moving forward. In March 2016, the company announced the initiation of a second human clinical trial for its patented NIAGEN nicotinamide riboside.
And just to cover some of the points, the first study was a single dose administration study where we demonstrated a single dose of NIAGEN or NR was enough to show a substantial increase in NAD. The second study is 140 patients study being held over an eight week period, we’re monitoring not only effects of NR on NAD, but the entire NAD metavolum [ph] as well as starting to look at several therapeutic endpoints which will result from the increase of NAD by NR.
In January 2016, the company announced an independent scientific panel of experts determined that NIAGEN ChromaDex’s patented proprietary lead ingredient is generally recognized as safe and we’re now pursuing additional markets such as the food and beverage market or also even medical or clinical nutrition based on having that that status. And we continue to also pursue other important regulatory milestones to move into other markets as well.
Regarding what we’re doing in terms of market development for NIAGEN, we've been very happy with the growth we've been showing over the past two years with NIAGEN hovers important to note that all this growth has been coming primarily from the dietary supplement market. We expect NIAGEN revenue to continue in the dietary supplement space with the addition of new products as well as the growth of existing products in the market. In April NECTAR7 launched a new product featuring our lead ingredient NIAGEN. In January 2016 we have the deal with BPI Sports, which should result in several new products containing NIAGEN to be launched at thousands of retail locations nationwide.
In January 2016 Specialty Nutrition Group announced the release of NIAGEN and GNC stores nationwide. As I've mentioned before NIAGEN as platform ingredient that you garner tremendous interest in other markets beyond the supplement market space and its important here to note that although a majority of our revenue growth has been coming from the supplement space, the business development activity that we’ve been working on is really what I want to focus on right now and sort of explaining the opportunity we have in other markets and those markets are going to be food, beverage, sports nutrition, infant nutrition, medical or clinical nutrition and skin care.
The supplement market will ultimately one channel for monetizing NIAGEN and as business development and other channels occurs, it should accelerate our revenue growth by hitting what will ultimately be much larger markets from a revenue generation standpoint than we have with just the dietary supplement market. So in reality we’re still only at the very early stages here of monetizing on nicotinamide riboside and as I outlined in my shareholder letter earlier this year, it's really only still the first inning for the monetization of this ingredient as the science continues to develop, as we continue to do clinical studies.
Also just a brief update on the pharmaceutical side of the development plan, we've had with nicotinamide riboside. We plan upon filing our first IND and orphan designation for NR, for caulking syndrome and we hope to be in the clinic before the end of this year. That shouldn't – once we get through that initial process, it should open the door for us to pursue additional INDs for other clinical indications and we’ll give you more updates about that in the future.
So other updates as well, ChromaDex has come a long way since we started the ingredient business in 2010. Most of that success can be attributed to a very talented team that we’ve put together over the past two years. And as you all know having talented people is very important to the growth of a company. We need to continue to build our management team and I happen to report that our successes make ChromaDex a very attractive place to work. So are now in an enviable position to have talent seeking us out.
This morning we announced the addition of Will Black as our new Vice President of Sales and Marketing. Will brings a tremendous depth of experience in our industry from past positions with DSM, Solae, DuPont Company and Ralston Purina is now going to be leading our sales and marketing team, as we start to increase our breath of business development activity and growth of sales and marketing across all of our ingredient platform.
We also recently added the Breah Ostendorf our new Director of Marketing. Breah comes to us from Aveda and Estee Lauder Company as well as having extensive previous experience with Cargill. So she has a breath of experience in the natural products space. She's going to helping with myself as well as Will Black related to marketing development programs we have for our novel ingredient platform, as well as public relations campaigns as we start to really look towards driving consumer awareness and having a strategy for pursuing ChromaDex's plan of consumer awareness through a public relations campaign.
Finally I hope you all saw the shareholders letter I wrote in January for those of you who may be new to our story, I would recommend that you read the letter as it outlines the NR NAD story as well as the magnitude of the opportunity we have with my nicotinamide riboside. I'm more convinced than ever that we have an extraordinary opportunity to create substantial shareholder value with our patented NIAGEN nicotinamide riboside, a new vitamin of this magnitude is the type of opportunity that comes along once every 25 years or so, so it's a very important asset for us.
All the important pieces of the puzzle peer-reviewed science, media attention to the NAD story and the rise of treatment of aging as a disease, are creating the perfect storm for NIAGEN to become the next $1 billion ingredient.
That concludes our Q1 2016 quarterly conference call. With that, I’ll open the floor for questions.
[Operator Instructions] Our first question comes from line of Ram Selvaraju of Rodman & Renshaw. Your line is open.
Hi, thanks very much for taking my questions. Just two questions very quickly, if I may. My record indicates that you recently reported the release of a new product NIAGEN plus Collagen, which includes the lead ingredients NIAGEN. I just wanted to know if you could provide us with some additional background regarding this NIAGEN plus Collagen brand. How it’s going to be positioned, what its target market is and what your expectations are for the performance of this product going forward? And the second question is with respect to the clinical development that you expect to initiate with nicotinamide riboside as ingredient. And if we are likely to see this year any potential IND filings on that front in particular with respect to what you previously indicated could be potential use of this in the context of caulking syndrome. Thank you.
Thanks, Ram, I’ll answer the first question. The collagen NIAGEN combination, Frank had mentioned earlier in the call that's the NECTAR7 product that’s being launched. These gentlemen, they’ve got some ex Procter & Gamble people, on the product marketing side around it. They’ve also got some pretty good science and marketing people. They strongly believe and that we believe as well that the combination of NIAGEN and collagen is going to do a lot on anti-aging front. NIAGEN standalone ingredients is very strong and that's where a lot of the buzz and indications are coming right now. And there's a lot of good research and work out there right now that talks about the benefits of collagen. So they’re kind of positioning themselves into that anti-aging space with that unique combination. We have high expectations for them as a brand as NECTAR7 takes this forwarded and we’re very confident with the management team that that company has and helping us commercialize our NIAGEN ingredient.
And so the next follow-up is this as an oral or as a optical or --?
This will be as an oral.
And the second question regarding clinical development?
Yeah, so the second question regarding clinical development, obviously we have our second human clinical trial going on right now for NIAGEN that’s an eight week study. We hope to have the end results of that by the end of this year, if not into early 2017. As we’ve talked previously as the company is moving towards working with NIA/NIH on the caulking syndrome the company fully plans to move forward and achieve orphan drug status, through orphan drug application and we do expect that sometime in 2016 we will have filed the IND for that syndrome. Just to remind everyone caulking is a rare pediatric orphan disease where the children suffer all the hallmarks of old age at a very accelerated rate; hearing loss, muscle wasting, neurological diseases and they have a very short life span because of that.
Okay. And then just two very quick financially related housekeeping items if I may. Do you anticipate over the course of this year, at a thumb point [ph] providing more formalized financial guidance given that the company is now effectively entering profitability and provide us with the frame of reference regarding to what extent profitability might be maintained going forward. Then secondly if you could give a sense of what stock-based compensation looks like this quarter and what I’d anticipate the trend to be going forward on that item. Please, thank you.
So the first one, as far as providing guidance right now, we do not have a plan to do so, given our rapid growth and where we’re going and how things play out over the next couple of all quarters. We’ll continue to reevaluate that. Companies in rapid growth becomes very difficult to project, as far out as we’d like to. We're constantly updating our models on a quarterly basis and as we move forward and with a few more of successful quarters, we’re definitely reevaluating, providing guidance going forward. As far as the share-based stock-based compensation, Q1 is typically a slower quarter for us. We did not have a lot of options granted in Q1. Typically the company grants annual options to its employees after the annual meeting. So there is a grant typically on all employees across the entire company after the annual meeting so that will be reflected in our Q2 reporting.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Robert Carlson from Janney Montgomery Scott. Your line is open.
First congratulations on the quarter. Could you talk about a little about the involvement of Dr. Frost in OPKO.
Well, Dr. Frost is obviously our largest shareholders. He holds all of his shares in his trust and OPKO is also one of our shareholders. Dr. Frost is a big fan of the technology in our business model, mostly the involvement right now has just been as a very supportive shareholder. We’ve had some conversations with OPKO obviously, people familiar with OPKOs business model, they’re focusing on the Latin Americas. But we view them right now just a long-term strategic investor.
Thank you. Our next question comes from the line of Michael Kay from Kay Associates. Your line is open.
Yes, congratulations on the profitability of the company. Two questions have there been any studies regarding whether there’d be a synergistic effect between ribosome and the collagen. Any studies on humans and when would that product be available to the consumer and which company at the retail level will be making it available?
The NECTAR7 folks are in the process of putting together those combination studies. Based on individual studies in the method of activation of both collagen and the nicotinamide riboside separately. There’s a very strong consensus that they will have a synergistic effect and NECTAR7 is going to go forward and prove that. NECTAR7 model is going to be more the U.S. at least a direct response online selling model. NECTAR7 has long-term plans in the ages with some other different market channel models. We don't expect to see the NECTAR7 in retail in short period of time. They do have some long-term plans to put it into retail, but we don’t have visibility on those right now.
Do you think it’s relatively expensive the ribosome, especially since one needs to take at least 500 milligrams for it to be effective, any great extent, do you envision that there will be a time when the price will go down, which then would result in greater public acceptance?
I think I envision the time, when we have that greater public acceptance; the company is going continuing work to improve our margins on the product. There will be opportunities in the future to lower the cost of the consumer, but given the adoption right now and the level of adoption at least in the dietary supplements front, where the price point is we’re happy with it. Obviously as we move into some of these other markets for wide scale adoption, you talk about food, you talk about medical food in that nutrition, the beverage areas. The price points start to change kind of dramatically. Also I think you mentioned that you need to take 500 milligrams a day to be effective. Our initial human clinical study showed that NAD was increased on a much lower dose and that was just on a one daily dosing. So once we have the full results of our eight week study, we’re going to get a much better idea of the dosing, on what needs to be done on a daily basis.
Thank you very much for continued success.
Thank you. Our next question comes from the line of Jack Grimaldi from Grimaldi Investment. Your line is open.
Thanks for taking my call. Congrats on a great quarter and margin expansion. I got a question, do you have any update on the NR stability progress of P&G?
We do not have any update on this time, we’re continuing to work with them and come up with a solution that works within their matrix and product families.
Have you achieved any of the milestones in the JDA?
The next milestone in the JDA is stability, so.
Okay. Can you give us any background on the supplement business on reorder rates for new products and how NR compares to industry average?
Well, the only information I can give you comes from one of our customers – one of our larger customers Alexion and they are seeing repeat order rates on an order of magnitude greater than what you typically see with these type of new product launches. I know that one of their core – amongst last year they told me that they were seeing reorder rates of 30% to 40% from new customers, which is exceptional based on some of the other products we’ve seen within this industry in the past.
Great. And one last question how many customers do you have currently now for NR?
How many customers, we have more than 10. I couldn’t give you the exact number at the top of my head, but we have a variety of them in all the different market segments right now and we've got more customers continuing to coming online in 2016.
Thank you. I’ll get back in the queue.
Thank you. Our next question comes from line of Burton Gray [ph], a private investor. Your line is open.
Hello, I just had a real quick question regarding the product that’s being sold in GNC right now. And if there was a change in GNC's operations moving forward how or if that could affect your sales?
Well, the product in GNC, I think you’re referring to the first product that was launched in the GNC - by one of GNCs previous executives. He really believed in the product, that product was just recently launched in the GNC. So we’re just starting to see the volume and the uptake there. GNC as a retail channel for dietary supplements is one of the smaller channels believe it or not. The largest retailers for dietary supplements are Wal-Mart and Costco. GNC is a very specialty area and niche within the dietary supplement markets especially on sports nutrition. So while it's important to have a brand in GNC, so that we’re represented across all the channels. It's not any one channel that would affect us long-term.
Understood. Thank you very much.
Thank you. Our next question comes from Anthony Golof [ph], a private investor. Your line is open.
Thank you for taking my question. Congratulations on a wonderful quarter. My question has to do with Procter & Gamble. Do we have a limit in terms of the amount of time they have to develop a product and presently are we precluded from doing our own work to develop a product for cosmetic application? Thank you.
There is a time frame on the joint development agreement, that timeframe can be extended at Procter & Gamble’s option and you can see that, if you go and look at the filing of agreement. It does preclude us right now from going into a whole host of areas, as far as selling the product into other people at this point. The company made the conscious decision to work with P&G given that they have the number one product brand in the world in the areas that we’re looking to develop.
It would seem that there should be some kind of a limit and we should have some kind of result at an appropriate time. It almost feels like we’re kind of missing out on that part of the application market.
Well, I mean, there is a limit and while we cannot sell and do other stuff, so we definitely are aware of other opportunities in that market. And when that timeframe comes, I mean, the Procter & Gamble is a binary thing, we’re either going to achieve the milestones within a time limit or not and if we could not with them then we’ll be free to move forward on our own.
I just have one more question, thank you. With reference to the marketing like BPI and GNC, do you we check to see if the product is actually being sold in the various stores that where BPI is involved in and also GNC? Do we do test marketing to see if our product is actually in the stores?
In the case in GNC, we do not. We rely on the F1RST brand and their management team to do so given their long-term relationship and their history with GNC, we’re very comfortable on allowing them to do that. BPI if anyone’s familiar with BPI has a very large presence already in the retail chains that they're going to launch our products and once they're out we will do that. The one thing we do do with our customers is we as a company are always purchasing our customers products off the shelf. We’re going to purchase them at retail or purchase them online and we’re always doing our own internal validation of the quality of our customer’s products.
Thank you so much.
[Operator Instructions] And I don't see any additional questioners in the queue at this time. So I’d like to turn the call back over to management for closing remarks.
I’d like to thank everyone for listening in today on our Q1 2016 earnings call and for all the other questions that were asked were very thoughtful. I hope everyone has benefited from listening into the call. The call will be available on our website, along with our stuff in our investor relations sections going forward. I like to thank everyone once again. Bye.
Ladies and gentlemen, thank you again for your participation in today’s conference call. This now concludes the program. And you may all disconnect the telephone lines at this time. Everyone have a great day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!