Nutrition 21, Inc. F4Q08 (Qtr. End 06/30/08) Earnings Call Transcript

| About: Nutrition 21 (NXXI)

Nutrition 21 Inc. (OTC:NXXI) F4Q08 (Qtr. End 06/30/08) Earnings Call September 9, 2008 10:00 AM ET


Joe Diaz - IR, Lytham Partners

Peter C. Mann - Member of the Board

Michael A. Zeher - CEO

Alan Kirschbaum - CFO


Pete Enderlin - Titan Capital Management

Harold Weber - Smith Barney

Steven William


At this time, I would like to welcome everyone to the Nutrition 21 fourth quarter 2008 conference call. (Operator Instructions)

I will now turn today's conference over to Mr. Joe Diaz, sir you may begin your conference.

Joe Diaz

Thank you. I thank all of you for joining us to review the financial results of Nutrition 21, for the quarter and the fiscal year ended June 30, 2008. As the conference call operator indicated, my name is Joe Diaz. I am with Lytham Partners. We are the financial relations consulting firm for Nutrition 21.

With us on the call today are Mr. Peter C. Mann, Member of the Board of Directors and a consultant to the company; Mr. Michael A. Zeher, Chief Executive Officer of Nutrition 21; and Mr. Alan Kirschbaum, Chief Financial Officer.

At the conclusion of today's prepared remarks we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it at the company's website at or numerous financial websites on the internet.

Before we begin with prepared remarks, we submit for the record the following statement: This conference call may contain certain forward-looking statements. The company invokes the protections of the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate and other similar expressions generally identify forward-looking statements. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

These forward-looking statements are based largely on the company's current expectations and are subject to a number of risks and uncertainties, including without limitation: the effect of the expiration of patents; regulatory issues; uncertainty in the outcomes of clinical trials; changes in external market factors; changes in the company's business or growth strategy or an inability to execute its strategy due to changes in its industry or the economy generally; the emergence of new or growing competitors; various other competitive factors; and other risks and uncertainties indicated from time-to-time in the company's filings with the Securities and Exchange Commission, including its Form 10-K/A for the year ended June 30, 2007.

Actual results could differ materially from the results referred to in the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results referred to in the forward-looking statements. Additionally, the company makes no commitment to disclose any revisions to the forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements.

With that said I would now like to turn the call over to Mr. Peter Mann a Member of the Board of Directors of Nutrition 21. Peter?

Peter C. Mann

Thanks Joe and good morning to all of you. We are glad you have joined us on this mornings call. As Joe said with me today in the Nutrition 21 offices are our new President and CEO Mike Zeher as well as Alan Kirschbaum the company's Chief Financial Officer.

As many of you know, this is the second earnings call since the management changed at Nutrition 21 in late March and it is the first report of financial results under that new management team and that new strategy. Those of you who are with us on prior call in early May will remember that we said two key priorities for the weeks and months ahead.

The first of those priorities was to sharply and immediately change the financial approach to how the Nutrition 21 business was being managed. We told you than that we are going to focus our efforts on achieving profitability while still maintaining top line revenue growth. Of course the other priority was to identify, recruit and then hire a top caliber Chief Executive Officer who could lead Nutrition 21 for many years to come.

As most of you know, we have already achieved that second objective about six weeks ago, when we proudly announced that Michael Zeher had assumed the responsibilities of President and Chief Executive Officer. Mike's experience in the nutritional supplement industry, his proven ability to lead and to motivate an organization, his skill in managing a public company and his well established marketing and business acumen made him an ideal choice for this all important position.

On a personal note, I have known Mike for more years than I care to admit and I know him to be an individual with strong character and of genuine leadership. Nutrition 21 is indeed fortunate to have attracted and executive of Mike's caliber. Of a few minutes, you will be hearing from Mike directly as he will be discussing both his initial views of the opportunities and risks facing the company, as well as his preliminary thoughts and how to address those issues and capitalize on those opportunities.

Turning back now to the first short-term objective that we set three, four months ago. The objective of rapidly improved profitability, our results are even better than we dared hope. You will remember that we set a very ambitious goal of achieving earnings before interest, taxes, depreciation and amortization, commonly known as EBITDA for the June quarter that would approach breakeven.

For those of you who have already seen our earnings release, which went out early this morning. You know that we surpassed that ambitious objective and actually surpassed it by a considerable measure. For those of you who have not yet seen the release, it is available on our website at

In just a few minutes, I will review those results in some detail and we will try to give you some considerable additional color commentary to help you better understand what is behind those numbers. But, before I begin that financial review, I want to take a few minutes to thank the two executives who have served as interim co-CEOs until the arrival of Mike Zeher.

As most of you know, Gerry Butler and Mike Fink assume their role at very late March, and the impact that they have had on the company in a very short period of time has been truly remarkable. They arrived on the scene and immediately rebuild company morale and enthusiasm. They initiated a series of cost improvement programs, which are already bearing considerable fruit. They created a new fiscally responsible operating strategy for the company, which will serve as the model for the months and years ahead. They rejuvenated our new product development program with the first tangible result of that effort now being launched into the marketplace.

In short, they recreated the company into a more efficient business with meaningfully better long-term prospects for growth and sustained profitability. The excellent results of this past quarter are clear evidence of their remarkable accomplishment. The company was indeed fortunate to have Mike and Gerry at the helm during this critical period of transition and we extend our heartfelt thanks to both of them.

Just as important it has been the wonderful effort by the rest of the Nutrition 21 management team. Every member of the senior team has contributed to the improved results, we are announcing today. The heads of our three business units, Dean DiMaria in Consumer and Retail, Bill Levi in Ingredients and Mark Stenberg in Direct Response have all led their businesses to stronger financial results.

Jim Komorowski, who is our Chief Scientific Officer, is largely behind all of the new items you see coming to the market. Last but far, far from least, Alan Kirschbaum; our Chief Financial Officer is the driving force behind many of the cost improvements you see reflected in today's reported results.

Okay. Let's now turn to the results of the quarter. After that I will turn the call over to Mike Zeher to give him the opportunity to both introduce himself and to give you his initial thoughts and how he sees Nutrition 21 and where he intends to drive the business in the future. Then I will come back for a few minutes to summarize and to give an updated view of how we see the business performing in the new fiscal year, which began on July 1st.

Okay, first let’s recap the key numbers for the quarter. Total revenues for the fourth fiscal quarter and fiscal 2008 were $11.0 million, which is up 2% from the prior quarter, but 5% below the prior year’s quarter. When we break this total revenue down within Nutrition 21, we see that are Iceland Health, direct response unit generated revenues of $6.5 million in the fourth quarter, which represents the 5% increase over the prior quarter, but was down considerably from the comparable year ago period. However, revenues in the year ago quarter were driven by unusually high A&P spending, while spending this year has returned to more normal and importantly more profitable levels.

The ingredients business recorded revenues of $2 million in the fourth quarter, which was up 4% versus the year ago quarter and essentially flat compared to the prior quarter. Finally our retail consumer health business posted revenues of $2.4 million in the fourth quarter on an 11% decline from the prior quarter. However, in the same quarter last year, the retail consumer health business had revenues of only 0.2, $200,000 because they were adversely impacted by a significant return from a major customer.

As most of you know, it is not Nutrition 21’s policy to report detailed profitability by business. However, we do believe it is important for you to have good general visibility into profitability by unit. So, for the fourth quarter all three business units, Direct Response, Ingredients and Retail Consumer Health, all were profitable at the brand contribution level.

For the sake of clarity, I will remind you that we define brand contribution as earnings before corporate overheads, before depreciation, before amortization and interest expense. The most dramatic change in the quarter in profitability occurred in the retail consumer health business, where the company had recorded large losses for a number of preceding quarters. In this most recent period, the retail consumer health business posted a strong positive level of brand contribution.

In sum, when you add the three businesses together, they delivered approximately 21% brand contribution, which compares to large losses at the same level in each of the preceding four quarters.

Total company earnings before interest, depreciation and amortization, EBITDA, not only as we have promised approach breakeven, but actually surge significantly into positive ground, specifically EBITDA for the quarter was $800,000, which Alan tells me is the first positive EBITDA in 10 quarters.

Net loss for the quarter was $900,000, which is sharply better than preceding period. Its also worth reminding you that the vast majority of the expense item that occur between EBITDA and net loss are non-cash items representing thick dividends on our various classes of preferred stock, accretion on the value of that preferred stock and the amortization of the company's various patent positions.

Turning now to the balance sheet and cash flow for the quarter, you will see that the sharp improvement in brand contribution had a similar positive impact on cash flows. Cash and cash equivalents at the end of the quarter were $4.8 million, as compared to $1.6 million at the end of the March quarter, about $3 million of this improvement is due to a low interest loan, the company secured using its auction rate securities as collateral.

Cash flow from operations for the quarter was positive, about $600,000. Again, the first positive cash flow in quite some time. So, that is the overall financial result for the quarter, a sharp improvement from the past two years, both in terms of EBITDA and in terms of cash flow. In fact the improvement in operating results even exceeded our internal optimistic expectation and has set the stage for further improvement just down the road.

A bit more about that in just a few minutes, but now taking a half step back, I would like to spend a few minutes with you updating you on the overall marketing sales and product development strategies, which are guiding the company's future activities.

During our last earnings call, we outlined these strategies and the story today is largely the same, as these initiatives are performing just as we hope the way. Of course the largest change in direction for the company has occurred in our retail business unit. At the end of March, we have made two key decisions. The first was to stop spending A&P resources beyond our ability to self fund that spending, and the second was to rebrand most of our retail items under the well-known and widely respected Iceland Health Trade Day.

The impact of that first decision is pretty obvious even at this early stage. While sales grew modestly quarter-to-quarter, profitability improved by a huge amount. We believe that this formula of controlled A&P spending behind our unique proprietary item will continue to deliver reasonable revenue increases combined with increasing levels of profitability.

The second key move in the retail business, the rebranding under the Iceland Health umbrella, we are also seeing good progress. Our retail customers have embraced the change and the evolution is now well underway.

In our Direct Response business unit, the changes in strategy are less dramatic, but are still having a positive impact. No longer are we incurring media expenses in excess of revenues, no longer are we trying to support a variety of brand names within this overall effort and no longer are we making major offensive efforts without full and complete testing before hand.

As a result, our key direct response efforts are more disciplined more focused, more profitable and more assured of success than ever before. For us most important all of our direct response activities are supporting the Iceland Health brand name, the very same brand name that is now on shelves of virtually every meaningful retailer in the country.

Next, in our Ingredient business, while smaller than either retail or direct response it is very much the underpinning of what makes Nutrition 21 so special. This business delivers profits that are far above the corporate average and has almost limitless number of new products which can and will be sold both to new and to existing customers.

Lastly, a word about product development, it is not exactly a business unit unto itself, but in many ways it is the life blood of all three operating units. Nutrition 21 is blessed with two not so common assets, which come together to make our product development efforts both unique and highly productive.

First is our existing science. We own more than 75 patent and patent applications and those patent positions enable us to launch new items with competitive differentiation and competitive insulation. The second equally important asset is our science staff. This small group has remarkable skill in taking our existing technology and our existing patent positions and then using those to develop extensions and new applications of that technology leading to entirely new and different items for our retail and direct response units to sell.

With all of that said, I would like to turn the call now over to Mike Zeher our new President and Chief Executive Officer. Mike will give you a brief recap of his extensive experience and will then share with you his initial views on the company and will talk briefly about the specifics of what is happening in each of our three business units. Mike?

Michael A. Zeher

Good morning everyone and thank you Peter for your very positive remarks and the encouraging business update. I am surely excited about the opportunities on the immediate horizon here at Nutrition 21. I want to thank all of you for joining the call today and giving me the opportunity to share the reasons for my enthusiasm.

Since I am new to the company, I would like to first give you a brief background of my experiences and why I believe that I can help guide Nutrition 21 to realizing its full potential. Before I do, I too want to express my appreciation to Mike Fink and Gerry Butler, who have done an excellent job in leading the company through an aggressive reorganization and cost reduction plan in such a short period of time.

I also thank them for setting the stage for what we anticipate will be a good first quarter and a pivotal year to the upside in both sales and profits in fiscal year '09. Because of these gentlemen and the management teams dedicated extra efforts; I am joining the company in very positive circumstances. We have a strong win building in our sales for sustainable improvement in both top-line and bottom-line growth.

I was first introduced to Nutrition 21 by Peter Mann. As Peter mentioned earlier, we have known each other for many years through our various roles in the consumer packaged goods and OTC industries. Most recently being fellow Board members at the Consumer Healthcare Product Association.

When I saw a press release regarding management changes at Nutrition 21, and now as that Peter was on the Board, I connected with him to chat about the possibilities. I updated Peter on what I have been doing over the last two years. I have been CEO of a privately held nutraceuticals contract manufacturing company, Nutritional Laboratories International in Montana, which had recently been sold. We had built and upgraded the company from being a US only, dietary supplement manufacture to a global marketer and manufacturer of nutraceuticals.

We used a business model very similar to Nutrition 21s current new model that is developing, marketing, and launching high margin brands, initially via direct-to-consumer, infomercials and other media and then extending to launching into the mass retail markets. As I explained the Nutritional Labs business model to Peter, we both agreed that my experience and background would be an excellent fit with Nutrition 21, especially considering the company's strategic intent to grow via new products and a direct response in retail brands divisions.

We also agreed that my experience and relationships in our industry would be a big plus in developing Nutrition 21s full growth potentials in all three of the company's business units. My 20 year sales and marketing management career at J&J coupled with my CEO experience with other manufacturing and marketing companies in the healthcare product space have prepared me well for the challenges and fast paced dynamics facing Nutrition 21s future growth.

After speaking to Peter and other members of the Nutrition 21 Board, I immediately saw and confirmed the huge potentials resident at Nutrition 21. I also saw the very ripe potentials to synergize and to focus the resources. I decided to accept the position of CEO for four fundamental reasons.

First, Nutrition 21 has an outstanding company heritage and trade reputation, complemented by strong science and intellectual properties. Our business units are supported by over 70 patents and another seven pending, this includes 25 foreign patents.

Two, the extraordinary opportunities in the dynamic nutraceuticals and consumer healthcare markets. Nutrition 21 is definitely a company in the right place at the right time. It is in an optimal position to leverage it is strengths in the global marketplace.

Third and most important are Nutrition 21s people. I interviewed each member of the management team before I accepted the position and found each of them to be highly skilled, dedicated and focused on producing results. As you just heard, they have already begun to do so as evidenced by the fourth quarter results.

Fourth, a unique timely, relatively early stage business plan that synergizes and leverages Nutrition 21’s three business divisions, in ways that will grow and sustain revenues and profits as well as add substantial shareholder value. I mentioned synergy; I am actually referring to the assets and increasing momentum of Nutrition 21’s three business units working together, each invigorated by the whole.

First, our Ingredients division with its unique proprietary ingredients and formulations, second, our direct response division, with our growing and profitable Iceland Health brand utilizing our strong direct response marketing model, and third our consumer health brands unit, which compliments the direct response division and generates our most comprehensive opportunities for long-term growth. I became even more enthused after I matched my experienced skill sets and background and the industry relationships to Nutrition 21’s needs in stabilizing the company financially and completing and executing the new strategic plans.

After about six weeks on the job, my enthusiasm is even higher. During my first week I focused internally understanding the Nutrition 21 people and their strengths and potentials. The financial challenges and flow, especially in cash, and were almost immediate opportunities for profitable growth reside. More recently, I have been visiting the customer suppliers and others in the field. I am even more encouraged by these visits. These meetings have validated that our plans and especially our new strategic growth model and the operating discipline supporting them are very viable and timely.

Currently, I am working very closely with the management team to fine tune and priorities our immediate goals and objectives. Our intense focus is to continue to further reduce and control costs, while growing revenues, in a conservative, sustainable and of course profitable manner.

Regarding our strategic plans, although much has already been done, there is still a work in progress. I envision it as the proverbial three-legged strategic stool. The base of our stool is comprised of our unique proprietary and patent ingredients supported by Nutrition 21 strong science. Each leg of the stool represents the company's three business units; Ingredients, Direct Response and Consumer Health brands or the retail unit.

The key to creating and maximizing shareholder value is in harnessing the natural synergy among these three business units and executing our plans flawlessly. In addition what Peter said earlier, I would like to give you a very brief summary of each of the three business units, the three legs of our strategic stool, I will also share with you our general plans for growth in each of these units.

First the Ingredients unit, this is our core and most profitable business unit. The company scientific platforms based on our ability to continue to create and extent patentable new products across they have enhanced availability and produce safe and clinically efficacious results. As you may already know, chromium picolinate is our largest volume ingredient. We sell it to nutritional supplement companies and to the food, beverage and drug industries, including such well know companies as Pepsi, Abbott Labs, and GlaxoSmithKline.

Our immediate and long-term focus is to generate new business. We are escalating our efforts to do this, including meetings with significant potential new customers in the pharmaceutical food and neutraciticals industries.

In the retail consumer health brands unit, Nutrition 21 has invested heavily to enter the mass retail markets in the US. It took us a while, but we are now beginning to see positive results. Earlier this year, we began transitioning the business from three brands to one under the powerful Iceland Health brand name. We are creating a singular flagship brand under the Iceland Health umbrella logo.

As we expand the line consumer awareness will steadily increase. The increasing brand awareness will establish an open conduit to the markets for future new products. All current and new products under the Iceland Health brand will also benefit from the ongoing multi-million dollar annual advertising plan in our Direct Response division. This marketing model provides greater trade effectiveness, consumer marketing efficiencies and the advantage of a large, loyal and growing consumer database.

Recently we have successfully launched the new Iceland Health Cholesterol Health product and Iceland Health Joint Relief plus SLEEP Support products. These new products are already in over 20,000 retail stores nationally. Nutrition 21’s total business in retail sales is up 20% versus the prior period as measured by IRI, a data service that measures of self product movement in retailers.

Already this year I am pleased to report that Iceland Health Joint Relief is in the top 20 selling branded products in the joint relief category. Iceland Health Omega-3 is in the top 20 selling branded products in the Omega-3 category and Chromax continues to be the number one selling branded product in the chromium category.

As you may know Walgreen is one of the largest retailers in the United States. They have over 6,300 stores in 49 states. Last month, we announced a very significant agreement with Walgreen to supply three new chromium picolinate products for the Finest Natural retail brand and one product for the Walgreens Gold Seal Private Label program. These products are currently shipping to Walgreens and they anticipated to be available in the stores within the next six weeks.

Our expectation is that this Walgreen zone branding opportunity will steadily grow into a significant long-term business, as consumers visit Walgreen stores to repeatedly buy these products on an everyday basis. This agreement is a major milestone in our move to expand our retail branded business by working with the leading retailers in innovative ways, to meet the growing needs of health conscious consumers. It also reflects the growing interest and appreciation by retailers of Nutirtion 21's continuing commitment to develop and market proprietary and clinically substantiated nutraceuticals.

In our Direct Response unit our business growth miles charged with proprietary ingredients and combinations that are uniquely formulated. The new products are then introduced the Nutrition 21's direct response marketing model. This model helps us to quickly get into insights into consumer usage and attitude, while at the same time generating revenue.

Another unique advantage of our model is that, we can determine winners and losers in real-time and at low cost. When a product becomes successful on our direct response division, we will then begin to launch in to the mass retail channels via our consumer health brands division. This works to maximize our long-term sales and brand equities by minimizing risks.

Our direct response unit recently introduced the National Advertised Television Campaign for Advanced Memory Formula a new Iceland Health branded product. Advanced Memory is an Omega-3 formulation with chromium picolinate and other ingredients in soft gel form designed to improve memory, concentration and focus.

The market of brain health products among ageing baby boomer is a large and growing opportunity. The campaign thus far as and have a good success and we plan to continue growing this exciting new product with targeted television, radio and newspaper print ads. It is offer through the Iceland Health website at

In addition, we are in the process of developing several new product campaigns to promote our premium Omega-3 formulations in conditions specific products for skin, joint and heart health. As you increasingly see in the near future, is our plan to build our three-legged strategic stool on a foundation of positive cash flow, optimal profitability and consistently growing sustainable revenues, while significantly increasing the value of Nutritional 21's intellectual properties and brand equities.

In other words, our plans and efforts are focused on maximizing shareholder value in both the short and the long-term. We have the exceptional number of growth opportunities, although we also recognized that we have some challenges too. Among the challenges includes sustaining a continuous new product development pipeline. New products are critically important, Peter mentioned this earlier. They are the light line of any growth company. I plan to absorb every effort to ensure continuous and profitable new products flow.

We also plan to increase the leveraging of our biotechnology heritage. We plan to absorb extra efforts to use our intellectual properties and technology, pharmaceutical research and strategic marketing and distribution partnerships to build and strengthen our position in the consumer healthcare markets. First, in the US and eventually in the international markets, these factors and the increasing consumer market dynamics will offer many opportunities and challenges to our businesses.

These dynamics are keen to keeping the seat of our three-legged stool horizontal, while sitting on uneven shifting ground. To keep the seat level the legs must be adjusted. The adjustments required are determined by how quickly we adapt to change as well as seizing and capitalizing on the appropriate opportunities in the market as they develop. We must stay nimble and entrepreneurial, while operating the best practice business disciplines.

In summary, the dramatic improvements in the bottom line results for the quarter reflect a considerable traction that we are already achieving in the execution of our new business plan. We have begun a new direction in this company and we are beginning to benefit from the more fiscally responsible business model, by rebranding our products under the respective Iceland Health brand. We gain significant media efficiencies across the line, building awareness and broad product support. I am particularly excited about the developing new partnerships with our key retailer customers. They are the bellwether for our innovative approach to growing our businesses.

As we continue to develop new products in the most cost effective manner possible, we expect to be able to leverage the benefits of lower expense as we drive revenues, and work our way toward consistent profitability. This opportunity demonstrates our three-legged stool and operations in the real world from the development of unique combinations of our ingredients to the shelves of the largest mass retailers in the world.

I have talk about the strategy quite a bit, but I want to emphasize that execution is really the key to the company's short and long term success. We want to be sure that the company and our people are aligned and continue to stay focused on cost reductions and controls, while working very hard to deliver the fiscal '09 revenues and plans, and beyond.

I am very excited that during the first half of fiscal year '09 there are many projects underway that could stimulate the company to exceed its revenue goals. However, we will execute our growth plans very carefully. We will not allow our aggressive goals to get ahead of our immediate focus to stabilize the company's profits and cash flow.

Additionally, I see opportunities for gross margins and cash flow improving as we meet with key suppliers and service providers to help develop better win-win working relationships in strategic alliances. However, our plan is that the prime long-term driver of profit and cash flow improvement will be the gaining of profitable and sustainable new business from each of our three business units.

I am pleased to be working with such a highly motivated management team and professional staff. I also appreciate the unwavering commitment of the Board of Directors in moving this company forward to becoming one of the emerging leaders in the branded nutritional supplements industry, and I also genuinely appreciate the supportive view of our shareholders.

Nutrition 21 has a history of combining high quality science and ground breaking technology to develop superior products, and we plan to do that aggressively, efficiently and profitably. I am very excited about the many growth opportunities ahead. Nutrition 21 is truly a good company in the process of becoming great.

Thank you, and now back to Peter.

Peter C. Mann

Thanks Mike. That was a really good overview of the company, where it is today, and far more important, where it is headed in the future.

Now, as we did on the last earnings call, I do want to talk a little about how we see the future shaping up financially, both in the next quarter, meaning the quarter that we are now two-thirds of the way through and for the balance of the current fiscal year.

As you know, it is the company’s policy do not provides specific forward-looking financial guidance, but at the same time, the Board and management believe that it is very important for current shareholder and potential investors to have a good general sense of what to expect in terms of financial performance in the months ahead.

I hope from what you have heard in this call, that you have a better understanding of the company’s current position and where the Board and management intend to take the company in the future.

To recap that, first, we will continue to utilize the key assets of the company which are the corner stones of Nutrition 21. These assets are unique, patented ingredients and formula, a powerful brand name in Iceland Health, a proprietary and highly successful direct response marketing operating model, a solid and profitable business-to-business segments and a growing retail consumer business.

We will continue to focus on improving profitability first while still maintaining good top line revenue growth. Importantly, we will continue to utilize and to build our unique scientific underpinnings by expanding our patent positions, and then using those patents as the foundation for a steady stream of unique new items targeted at specific consumer needs.

Okay, so that is the general plan and outlook for the future, but what about the September quarter, and what about the full fiscal year 2009? All of you know that changing a company’s focus and a company’s operating strategy does not happen overnight. We are making very good progress and here’s what we see looking forward.

In the September quarter, we should see revenues growing rapidly, driven in part by the new distribution of Walgreen’s in combination with steady growth for our other two business unit. On the EBITDA lines, we also should see continued improvement driven by the expected revenue growth as well as the increased impact from our cost improvement effort. For the full fiscal 2009 that positive story will continue to unfold. While we expect that revenues will be in the same general range as fiscal 2008, but we currently expect that every quarter in fiscal 2009 will show a positive EBITDA.

So, in short, the outlook for Nutrition 21 is brighter, is far brighter than we would have dared hope just four short months ago. Mike Zeher still definitely has his work cutout for him. There are many obstacles to be overcome, and there are many opportunities to be seized. The path to sustained growth and profitability is now clearly set, and with Mike at the helm, I and the rest of the Board are highly optimistic that our company's future is bright indeed.

With that, we would be happy to open up the call for your questions.

Question-and-Answer Session


Thank you. (Operator Instruction) Your first question comes from the line of Pete Enderlin of Titan Capital Management.

Pete Enderlin - Titan Capital Management

Thank you. Good morning.

Peter C. Mann

Good morning.

Pete Enderlin - Titan Capital Management

Chromium picolinate is one of your key products, and your competencies are very strong there. Can you just give us a general overview of big that market is and how fast it may grow? Also, is there some a potential for a general mandate through the healthcare system to increase the use of such products in light of the epidemic of diabetes that seems to be occurring in the country? Then, you can take the same approach to Omega-3, is there some a general government push or health system push that would really, strongly encourage the use of those two products?

Michael A. Zeher

This is Mike Zeher. In the chromium segment there is or has been, you go and look at the company's history, we have positioned chromium picolinate especially in the diabetes category. We continue to review and analyze that, and there are moves across the board, not only in the US but globally to get the word out.

We have starts and we have had some in the past, if you look at our history, some stalls in all of that. There is a general, to your point of question I think, indication towards consumers taking a greater involvement and responsibility in their own health, and we see that as an opportunity. We will continue to research the study the market to make sure that we are approaching the consumer and the healthcare professionals that are serving those consumers in a way that is appropriate.

Now, Omega-3 is the same thing. That has been linked to heart health and other therapeutic advantages and we will continue, through our research and our growth to build on that foundation of growth, both in the consumer markets and with healthcare professionals.

Pete Enderlin - Titan Capital Management

Can you give us some sense on how big each of those markets is?

Michael A. Zeher

I do not have those numbers in front of me. They are growing, we can…

Peter C. Mann

Pete, this is Peter Mann, the chromium picolinate market as a stand alone market, people taking chromium picolinate by itself is not a large market today, but it is growing. The important peace to keep in mind is that, chromium picolinate is the underpinning of many of the company’s patents, and those patents not only cover chromium picolinate by itself, but they cover chromium picolinate in combination with other ingredients.

So, it would be a mistake to conclude that our marketing efforts of chromium picolinate only compete in a small market place, the stand alone business, because of the fact that it is in combination with many other ingredients, both, products that we sell and in products where we sell the ingredients to others who formulate.

Conversely, Omega-3 is much larger. I do not have the market size in front of me, but it is a much larger category and, again, and you will see this in a number of our both current and future new product offering, Omega-3 provides the underpinning to which other ingredients are then added enabling us to use Omega-3 as the vehicle to compete in a number of different categories and market places.

Pete Enderlin - Titan Capital Management

So do you think there is great potential to develop products jointly with other companies that would use your ingredients in combination with others based on your technology?

Peter C. Mann

That is the very essence of our ingredient division that we work with other companies a lot of them very large, who recognize particular chromium picolinate recognize the unique characteristics and attributes of chromium picolinate recognize that we have chromium picolinate well, well (Inaudible) did and they need to use our chromium picolinate and we are working hard to expand the uses without it. We think it is a very major opportunity for the company.

Michael A. Zeher

This is Mike Zeher, again, what Peter to say that line, some of my conversations and feel there is with potential incurring customers, the combination of chromium picolinate as Peter mentioned with other active ingredients and current formulations to enhance absorbability and efficacy, but there is some science behind that is very attractive. I liberal to give you details, but it’s a huge opportunity for us.

Pete Enderlin - Titan Capital Management

In general qualitative do you think that those product categories chromium and Omega-3 have similar growth potential or would one be likely as grow faster than the other?

Michael A. Zeher

That is hard to say at this time. I think a point that you made very earlier in your question is very important and well taken, which is that both of these ingredients chromium picolinate and Omega-3 have a strong win at their back that the increasing levels of type 2 diabetes and the increasing ageing of the population all work from in a micro sense very well for the above the average grow the products containing these ingredients.

Pete Enderlin - Titan Capital Management


Michael A. Zeher

I would want to say once going to grow faster than the other, because I think they both have considerable upside potential and while very important business is today to Nutrition 21, they are still relatively we will occupy a relative small share of the marketplace and the marketplace potential for the (inaudible). So, for Nutrition 21, the growth potential is enormous.

Pete Enderlin - Titan Capital Management

Great, thank you very much.

Michael A. Zeher

You are welcome.


(Operator Instructions) Your next question comes from the line of [Harold Weber] of Smith Barney.

Harold Weber - Smith Barney

Hi, could you talk a little bit about, you have a mix in regards to product that you sell on the home brand and then you will supply your ingredients whatever it is chromium by itself or mixed with as you said with other complexes, whatever the margins are clearly a lot different in regard to your own branded stuff versus contracting stuff out. How do you see those numbers developing and you have an idea of a mix of what you are trying to -- how the entire revenues are going to be or you targeting to be split up 30% this, 40% that. You have any views on that?

Michael A. Zeher

We can not give you the actual specific numbers.

Harold Weber - Smith Barney

I am not asking specific, a goal oriented here.

Michael A. Zeher


Harold Weber - Smith Barney

What mix you would like to have?

Michael A. Zeher

That is why in using my three-legged stool analogy, there are synergies among the three business units. Our ingredients, our retail brands and of course direct response. As far as the percentage of sales each of those represent we see the pie, which is still growing in each of those three units. I did mention in my opening remarks that the ingredients is our most profitable comparatively, but I can not tell you it is not our biggest at this particular point in time. There are huge opportunities in each of those. We are as we develop our business plans and begin to execute, the dynamics of the markets will cause those things to change, but we see significant growth in each of those three areas.

Harold Weber - Smith Barney

Okay. Thank you.


Your next question comes from the line of Steven Williams.

Steven William

Yes, good morning. How you doing?

Peter C. Mann

Good morning.

Michael A. Zeher

Good morning.

Steven William

Good, good. Mike, you had mentioned that the retail was going to go from three down to one brand the Iceland Health?

Michael A. Zeher


Steven William

Which leaves the 800 pound gorilla, the Diabetes Essentials? The second part of that question is, yes I know maybe you touched on the previous conference calls, what the shutting down of the Metformin Diachrome trials. In future, your (Inaudible) that was done and what future possible there are considering any combination of that is sort?

Michael A. Zeher

Yes, regarding Diabetes Essentials, we are keeping it in the market place and we are watching it very closely. Our support will be behind the Iceland Health branding as we mentioned earlier, but we have not made any final decisions on Diabetes Essentials at this time. Now the other part of your question, could you repeat that again please?

Steven William

Well, it mostly had to do with the Diachrome teaming up with some a pharmaceutical product and the shutting down of the Metformin Diachrome trials last year that I wish were completed?

Michael A. Zeher

Yes, we are continuing to do that.

Steven William

Okay, so they are back on?

Michael A. Zeher

I am not quite sure I understand by back-on? I do not think that we were ever completely off, were we at Alan?

Alan Kirschbaum


Michael A. Zeher


Steven William

Okay. It was my understanding that the trials were canceled, that they were stopped midway through.

Alan Kirschbaum

Hi, this is Alan Kirschbaum. We are still looking into the opportunity, what the benefit would be for our Diabetes Essentials and Metformin. The idea has not been shelved.

Steven William

Are the trials still ongoing?

Alan Kirschbaum

We got to check, I have to check for you. I am not sure.

Steven William

Okay. That is a pretty big one out there. You would think you would want to check on, yes?

Alan Kirschbaum

Okay. We will defiantly do that.

Steven William

Thank you very much.

Peter C. Mann

Thank you.


(Operator Instructions) There are no further questions at this time. Gentlemen, do you have any closing remarks?

Peter C. Mann

With that, we thank you for joining us today. We look forward to talking to you in now about two months as we report the results of our September quarter, and we look forward to telling you about more good results of that time. Thank you very much.


This does conclude today's conference call, you may now disconnect.

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