ChromaDex Corporation
Q3 2015 Earnings Call Transcript

Published: 16 Nov 2015

[Operator:]

Ladies and gentlemen thank you for standing by and welcome to the ChromaDex Corporation's third quarter 2015 earnings conference call. My name is Abigail 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 new release announcing the company's financial results for the third quarter of 2015 and filed their Form 10-K. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex's website at chromadex.com, and the Form 10-Q is also available on the SEC's website. I would now like to turn the conference over to Andrew Johnson, Director of Investor Relations. Please go ahead.

[Andrew Johnson:]

Thank you, Abigail, and good morning and welcome to ChromaDex Corporation 2015 third quarter 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 risks and uncertainties relating to ChromaDex's future business prospect 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 assurances as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risk 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 Form10-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, actually results or changes in its 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 afternoon and is available on the company's website presents reconciliation to the appropriate GAAP measures and an explanation of why the company believes 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.

[Frank Jaksch:]

Thank you, Andrew. And thank you to all of you who are listening to our call today. I am pleased to report the remarkable growth in our proprietary ingredient business continues which resulted in reporting our 6th consecutive quarter of record revenue. I am also quite happy to report that we see the trend continuing as we see strong order activity from existing customers in addition to having very active business development discussions with new customers as well as entirely new distribution channels. Before I get into the business update, I am going to turn the call over to Tom so he can review our third quarter 2015 financial results. Tom?

[Tom Varvaro:]

Thank you Frank, and good morning everyone. For the three months ended October 3, 2015 which I will refer to as Q3 2015, ChromaDex reported net sales of $6,287,000, an increase of 52% as compared to $4,140,000 for the third quarter ended September 27, 2014 which I will refer to as Q3 2014. Leading the way was our ingredient segment which generated net sales of $4,147,000 for Q3 2015, an increase of 104%, as compared to $2,031,000 for Q3 2014, and a 22% sequential increase over Q2 2015. The core standards and services segment posted a 3% growth as it generated net sales of $1,875,000 for Q3 2015 compared to $1,815,000 for Q3 2014. The regulatory consulting segment net sales were down slightly from $294,000 for Q3 2014 to $265,000 for Q3 2015. Gross profit in 2015 grew 63% to $2,482,000 versus $1,523,000 for Q3 2014. We had a very small net loss of just $4000 for Q3 2015 versus a loss of $660,000 in Q3 2014, a 99% reduction as we move closer to GAAP breakeven. Adjusted EBITDA which removes expenses and charges associated with interest, income tax, depreciation, amortization and non-cash share-based compensation which is a non-GAAP measure, was $695,000 in Q3 2015 compared to negative $152,000 for Q3 2014. Cash on hand at the end of the third quarter was $4.7 million. Subsequent to the end of the quarter, the company entered into securities purchase exchange agreements with certain existing stockholders, including our largest shareholder Dr. Phil Frost under which the company raised $2 million in a registered direct offering. Proceeds of the financing will increase stockholder equity which is one component of the requirements for potential uplisting of the company's shares on a national exchange. It is worth noting that we have measures in place that allow the business to scale significantly. Since our operating infrastructure expenses are largely fixed with the exception of research and development costs, we have excellent operating and earnings leverage such that if we continue to experience further increase in sales and gross profit we should see ever improving results in both operating income and net income. With that, I'll now turn the call back to Frank so he can provide a business update.

[Frank Jaksch:]

Thanks, Tom. I am very pleased with our quarterly report and would now like to provide a business update and discuss recent developments. The ingredient segment continues to be the primary driver behind our recent revenue growth and underlying that is our lead ingredient NIAGEN nicotinamide riboside which continues to be the star performer. After working with Procter & Gamble on a series of assessments for almost 2 years, about a week ago we were proud to announce a joint development agreement with Procter & Gamble for our lead ingredient NIAGEN. P&G will make an undisclosed upfront payment to ChromaDex as well as other payments based on achieving various milestones. P&G will also pay for all the development costs associated with the project. The development agreement provides P&G with exclusive rights to incorporate NIAGEN for use in very specific types of both new and existing P&G branded products, some of which are among the highest volume consumer products in the world today. There has been some confusion regarding the scope of exclusivity granted to P&G and I wanted to be clear that the exclusivity is for a very narrow consumer product application in which neither ChromaDex or any of its existing customers of NIAGEN currently offer products. So this is a new product category for us all together, one that we haven't really participated in before. This is a transformative deal both for ChromaDex and NIAGEN and it's a huge validation for both our business model and NIAGEN as a potential blockbuster ingredient. We’ve been discussing that we've had business development talks with several Fortune 500 companies with respect to a number of our proprietary and patented ingredients and P&G is the first that we’ve been able to publicly disclose given our recent agreement with them. As you may or may not know, dealing with Fortune 500 companies can be a long process but having one or several of our ingredients incorporated into a Fortune 500 company consumer products such as the product category that we’re working on with P&G could result in a very substantial long-term recurring revenue stream for the company. Although it was only about a week ago, the announcement of this agreement with P&G has resulted in tremendous visibility and validation for NIAGEN and, ChromaDex as well for that matter. Other important news in Q3. We had a large pharmacy retailer, that being CVS Health, recently introduced a new dietary supplement product featuring NIAGEN which they have branded under their new CVS Health label called NIAGEN NR Age Defense which is now available at most CVS health stores. What’s interesting about the launch is that it's not typical for large retailers such as CVS to launch it on private-label version of new and innovative technology, usually not until there's a large market that exists for the ingredient to usually see a company like CVS or Walgreens or any of those guys step in and market a product. In this case, it's great that they are actually being the innovator there. So this tells us that at an early stage the NIAGEN story is really beginning to gain a lot of attention amongst the largest companies in the industry and that's a very good sign for the ingredient, especially at such an early stage. While I am speaking about the large retailers like CVS, it's worth discussing a very important announcement that we made this morning that NIAGEN has received new dietary ingredient notice status or NDIN from the FDA. Receiving NDIN status from the FDA validates the safety dossier we have compiled for NIAGEN as well as formalizes what we already knew before, NIAGEN is both safe and legal for inclusion in dietary supplements. This is a significant milestone for the company given that the FDA has objected to probably almost just under 90, about 88% of most NDI notifications, as an example just in 2014 alone. What’s key about the announcement here about the NDI status is that it opens the door for the inclusion of NIAGEN in mainstream commercial products or dietary supplement products. The NDIN regulation is specific to dietary supplement category. The large players in the industry typically are not quick to include ingredients without NDIN status. So if you've been following all the recent activity regarding the New York Attorney General as well as the Oregon Attorney General, there has been a lot of pressure on large retailers such as GNC, Walmart, Target, Walgreens as well as some of the larger product manufacturers as well and most of that activity has pointed to the quality, safety and regulation of dietary supplement products that are in the market. The most recent action was from the Oregon Attorney General and that points to certain ingredients not being legal for inclusion in dietary supplement products and that’s gotten a lot of press over the past few weeks, actually the past month or so. This type of legal and regulatory pressure actually is very good news for ChromaDex as it will drive the larger players to scrutinize products they are selling as well as the ingredients that they are selecting to put into their products. Most of our customers who have launched products with NIAGEN as the featured ingredient are smaller entrepreneurial companies that are the early adopters that are more willing to take risk, so that they can be innovative. With the current legal and regulatory environment in the supplement market having an NDI or NDIN status with the FDA is a watershed event for the company that should drive the larger supplement companies to seek out ingredient such as NIAGEN. And we view NIAGEN now with the NDI as being probably one of the marquee new ingredients or innovative ingredients out there that should get a lot of traction in the space. On the regulatory front, we've also been working on GRAS, so we’re on track to have self-affirmation for GRAS by the end of the year. When we gain GRAS, we have the opportunity to move into additional markets, and primary markets there being the food and beverage markets and potentially into medical food or medical nutrition type products. Other news regarding NIAGEN as well, we are gearing up for the launch of our second human study on NIAGEN. Our first study of NIAGEN was extremely successful as it demonstrated a single dose of NIAGEN effectively and safely increased the coenzyme NAD. This was the first human clinical trial involving nicotinamide riboside. The second study of NIAGEN will have a larger patient population and will study the effects of NIAGEN over a longer period of dosing. We’ll also be monitoring the effects not only of NR on NAD as well as the entire NAD metabolism and we will also start looking at several therapeutic endpoints which may benefit from NIAGEN supplementation. We’ve also been talking about the pharmaceutical opportunities over the past few months regarding nicotinamide riboside. And going back to the NDIN, the NDIN was our first crucial step in preparing for an IND filing for Cockayne Syndrome. We've been discussing Cockayne Syndrome which is a rare pediatric orphan disease which is a genetic abnormality that causes accelerated aging in these kids. They essentially die of old aging. Typically the average age of a Cockayne child is 12 years old and we’ve been working for about two years now with NIH on this therapeutic application of NIAGEN and we continue to move down that track in partnering with NIH to get into the clinic and again the NDIN was a critical first stage in that. We launched our fifth branded ingredient IMMULINA which is an immune function ingredient based on proprietary extract of spirulina. We licensed the technology from the University of Mississippi. We've established our first customer, a German supplement company and we are now working to streamline our supply chain so we can target additional customers. We’ve not formally launched our Suntava Purple Corn anthocyanin extract yet which will be the sixth ingredient that will be added to our branded ingredient portfolio. However we have harvested our first crops of Purple Corn and we are now currently manufacturing our first batch of ingredient. We are currently on track to formally launch the Suntava ingredient in the first quarter of 2016. For those of you who may be new to the story and haven't seen some of the previous announcement regarding Suntava. We licensed the technology regarding a hybrid of purple corn and that hybrid of purple corn expresses very large quantities of a set of compounds called anthocyanins and we’re a very big believer in the anthocyanin story and this technology, actually the purple corn is a game changer, and the biggest thing that's kept anthocyanins from what I will call a mass commercialization has been cost. Anthocyanins typically come from pigmented fruits like blueberries or strawberries or grapes or other types of pigmented fruits and those biomasses are extraordinarily expensive and it’s very difficult to highly concentrate anthocyanins and make them cost effective to, what I will call, the mainstream commercial markets. This purple corn technology that we licensed from Suntava essentially will allow us to dramatically reduce the cost of a highly concentrated anthocyanin extract and then bring that extract essentially to market. We believe the anthocyanin market could potentially be as large as the choroid [ph] market assuming we’re able to get cost efficiency in developing supply-chain utilizing this hybrid of purple corn. The last item we will discuss today is our new technology licensing pipeline. We’ve had a tremendous about a new ingredient technology shown to us over the past 3 to 6 months that licensing business model is working very well. We’re currently evaluating the market potential of those new licensing opportunities and we’re currently working on several new licensing deals regarding new ingredient technologies that we've already evaluated and are now in the process of formalizing some form of a licensing deal with either a university or research institute. With that, I will conclude our discussion and I am more than happy to take a few questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Dennis Holman, a private investor.

[Unidentified Analyst:]

Hi Frank, first congratulations on all the accomplishments in the third quarter, that’s great. Thanks.

[Operator:]

I do apologize. Our question comes from the line of [Jack Ronaldy with Ronaldy Investment].

[Unidentified Analyst:]

Want to start with easy question. Can you give me an idea where we are in the human study that you’re doing with Dr. Seals in University of Colorado?

[Frank Jaksch:]

Well, they basically I think have their last patient in and they are in the process of wrapping up that study but we don't have any data yet for that. But they are on the final stages of essentially finishing up that study. We have received some updates, nothing I can share publicly but we have received some updates from them as to how the course of the study has been going and maybe some preliminary data. But it looks like that's going to be something where we will have some more visibility on and hopefully will lead to some form of publication in early 2016.

[Unidentified Analyst:]

Okay. On the P&G agreement, congratulations, that’s a huge deal for ChromaDex. I don't know much about the science part of the business but can you tell me more about the stable NR, what is the problem, how easy will it be to fix or solve this problem?

[Frank Jaksch:]

Well we think that is a very solvable problem, it’s just a matter of being able to work through it. So by stable NR they have to take the ingredient that we have and essentially find a way to put it into the type of product that they’re going to be introducing it into and every different type of product whether it would be – I can’t get specific about what type product, if it was a food or beverage or supplement, or even a cosmetic and skincare product, the challenges of any ingredient whether it be vitamin C or nicotinamide riboside are that you have to find a way to formulate and keep the stuff stable over the shelf life of the product. And the good news is that’s the type of discussion that we’re having with them right now is that we’re at formulation specific type discussions and stabilization or making a stable material so that the nicotinamide riboside in this case will be stable over the course of the product. And then after that there are other technical milestones we have to go through but right now stability is the main thing in the product formulation.

[Unidentified Analyst:]

And I was going to ask about some of the milestones, are you able to say what some of it might be?

[Frank Jaksch:]

I can’t give examples, I can’t say anything specifically but stability obviously is one of those milestones as you can probably guess. It’s actually one of the primary first milestones .Other milestones are going to be more clinical in orientation. They are going to take the materials once they get a stable formulation and then start doing clinical studies to support whatever claims that they are going to make about the product. So that's also good news is that – and you probably guessed from our pronouncement we have been working with P&G on this for a while already and so it isn't just new out of the blue. I mean we have been actually working closely with them for the past almost 2 years now on various studies but this is the point at which we’re moving it towards commercialization. That still does include further clinical work on the actual product formulations.

[Unidentified Analyst:]

Okay and one more and I will go back in the queue. Before pterostilbene can be used for UV protection on people, is there anything that you need to do or verify?

[Frank Jaksch:]

Yes, there are specific FDA related monographs for studies that you have to do just to be able to support those types of claims and we are in the process of going through a lot of the skincare and topical related work basically to move in that direction. We’re also a part of it, that's the driver on that is that we’re working with a couple clients right now that we’re in negotiation with on licensing deals related to pterostilbene in that particular application and those guys are also helping by doing some or bearing some of the lifting regarding the type of studies that we need to get so that it's safe for inclusion in those types of products.

[Unidentified Analyst:]

And kind of timeline and how long this would take?

[Frank Jaksch:]

Well, it's hard for me to talk specifically because some of those negotiations are actually moving right now, so I can't necessarily get into the details about it but we are working on a licensing deal in real-time right now.

[Unidentified Analyst:]

Are we talking quarters, are we talking multiple years, anything more specific –

[Frank Jaksch:]

No, it's a good question but I've given up trying to sort of gauge my expectations on how long it’s going to take to get a deal done with a large company. And I wish I was a 100% in control of it but I'm not. I mean if we had it our way we would move as quickly we possibly could but in reality I have to work with the framework of how things go within larger companies and you can see that we can obviously navigate that with what we got them with P&G and we’re going to get that done with several other companies as well.

[Operator:]

Our next question comes from the line of Michael Kay with Kay Associates.

[Michael Kay:]

Thank you. I got cut off of the Q&A, so if any of these are repetitive I apologize. Is there any reason -- first of all congratulations on the great progress the company is making. Also I think that since the Procter & Gamble is a world-renowned company, don't you think this could open doors for other types of companies like their size to contact and make deals with your company since they kind of -- with the first one, and also, is there a reason the metrics can’t be given in terms of how much money the company received upfront from Procter & Gamble and the other numbers associated with the deal?

[Frank Jaksch:]

So I will answer the last part - the last question first but Procter & Gamble is very particular about mainly for competitive reasons and it should be no surprise that they don't want anybody to know exactly what was done and we’re essentially respecting that. I wish we could give more granularity about the nature of the deal, the types of milestones and stuff like that but I can tell you right now the main -- our main focus with P&G is to try to drive towards commercialization as quickly as we can. And because that's how the company is going to make money and the milestones and the upfront payments and all that stuff are great. Small things along the way and the fact that they are paying for the development costs is obviously valuable as well but in reality what ChromaDex wants is we want to see the stuff in a commercial product setting because that’s what’s going to drive revenue. To answer the first part of your question, I think was gauge -- the first part was more – can you sort of clarify –

[Michael Kay:]

Yes, will that open up the doors, do think that since Procter & Gamble given their fame and worldwide renown do you think then this could -- this has put ChromaDex a relatively tiny company compared the P&G on the map and I think it’s terrific and just out of curiosity, how did they know about ChromaDex – did you – who made the initial overture, did you contact them or did they contact you?

[Frank Jaksch:]

That’s a good question. So the first part is yes, we've already seen a lot of, call it, a rub-off effect from doing the deal with P&G because when you get one big company some of them -- we've had a lot of guys that have been circling the wagons around NR over the past couple of years. But having one validate the ingredient is a huge driver for us and it’s already been a fairly significant change in visibility that we’ve gotten just the past couple weeks since we announced it. And then on the second part -- how did -- how do we find it, that's a great question. It started about two years ago and if you go back and look at or listen to any of the material that I had recorded over the past couple years, there was a conference that happened right after we launched nicotinamide riboside that goes back to July of 2013 and it was an NAD biology conference and there was a lot of companies including P&G and various other large pharmaceutical companies that were attending this NAD related conference back then. And that’s how we met them. We were just out – we’d just launched NIAGEN a couple months before. We were out there with the first company who had really launched an NAD precursor in form of nicotinamide riboside and we got a lot of attention at that conference and that was how we first were introduced to or met Procter & Gamble and that's largely when the whole thing really started.

[Michael Kay:]

Yes, that's wonderful, kudos to you. And IMMULINA, I like the name of that -- I like the name, it rolls off the tongue nicely. Have there been studies indicating its efficacy regarding strengthening of the immune system and how it may be more efficacious in that regard compared to some other nutraceuticals that strengthen the immune system?

[Frank Jaksch:]

Well the answer is yes. We have studies, that's one of the reasons why we licensed the technology is that they actually had three all human studies already performed on the ingredient. So we didn't have to wait, we had enough of clinical evidence basically to hit the ground running. So that was a huge advantage with this and the big thing for us right now is actually just focusing on scale up development and being able to meet the demand of the growing market for an ingredient that has that sort of clinical evidence.

[Michael Kay:]

It would seem this could be nearly excellent in terms of the company's fortunes as NIAGEN because that’s a big thing strengthening the immune system instead of using drugs and antibiotics to kill germs and everything, so this I think could be really a big winner once -- so the main thing is to be able to scale up production to meet anticipated demand, is that the main issue now?

[Frank Jaksch:]

Now right that’s the race exactly and -- obviously that's what we know how to do really well. We’re very good on the supply chain development side of things, have been, that’s what we’ve been doing for lot of our customers actually for many years. So I'm confident that we'll be able to do that. It's just a matter of working through it as we scale it up.

[Operator:]

Thank you. Our next question comes from the line of Dennis Holman, a private investor.

[Unidentified Analyst:]

First question, have you gotten any feedback from CVS as to how well the product’s been received on their shelves?

[Frank Jaksch:]

Well we don't – CVS is a little black box-ish for us. They are responsible, it’s their products under their own label, we’re essentially an ingredient supplier for the product for them. But so no they haven't necessarily overly communicated which is not that that's fairly typical by the way and we’re not expecting we’re going to get a huge amount of it but it's still very early stage in terms of the launch of that product at CVS although it may be several months now since they first rolled it out. It was a slow rollout, it took several weeks if not over a month for the product to even appear on their website and we know that it’s appearing on more and more store shelves as well. So and then once that's completed I would guess that we’re waiting for them to hit it with some sort of an advertising campaign to drive visibility of the product as well. Bu a lot of that is really under their control since it's their product and we will give guidance as needed but in reality it's in their hands.

[Unidentified Analyst:]

What can you say about the uplist timeframe, how do you see this progressing?

[Frank Jaksch:]

Well I don't know exactly on the timeline. I mean I think we're getting closer and closer to that, it's taken a little bit longer than we thought to get through that process. But that shouldn't be a big surprise, we’ve heard others going through the process right now the same thing. But you can tell -- you can probably tell with the financing that we announced just very recently as well that we’re at the tail end of that process, the 2 million that we raised is the amount of money that we needed to meet the minimum equity requirements under the rules for NASDAQ. So I can't comment specifically when it's going to lead to -- that will have the uplisting but you can probably tell from that in particular that we’re getting closer to that.

[Unidentified Analyst:]

One other question, in terms of the next human study, what kind of -- what can you say about the timeframe of that, how do you see that playing out? Do you think you will be into that before the end of the year, shortly after that?

[Frank Jaksch:]

We should be in the clinic before the end of the year but how long it's going to take to do the study is it's difficult to say largely because we have 140 people that we need to enroll in the study. So the speed of the study is going to be largely sort of controlled by how many -- how long it takes to get the full population in the study into the study. I mean it could take three months, it could take six months and that’s going to take whatever amount of time after that to pull in the samples, do the testing of those samples and then do statistical analysis. So it’s going to take a little while.

[Unidentified Analyst:]

And that’s anticipated to be a 12 week study or is that not sure yet?

[Frank Jaksch:]

No, it's going to be closer to an eight-week study at this point .

[Operator:]

Thank you. Our next question comes from the line of Brent Nelson with PGS & Associates [ph].

[Unidentified Analyst:]

I am sorry, Frank. My question was asked by the prior caller. But once again congratulations and I think the group is doing a fantastic job. You’re changing lives, it’s very exciting for what the company is doing. I will say that – I have not been fortunate to buy at the lower prices, so I have been struggling the support. But everything I see has just been fantastic. So I wish you continued success and hoping that we see the stock react accordingly.

[Operator:]

We have a follow up question from the line of [Jack Ronaldy with Ronaldy Investment].

[Unidentified Analyst:]

Does anybody represent more than 10% of your sales?

[Frank Jaksch:]

Not really, we’re pretty well-balanced actually, we have been for a long time which is I would say an advantage that we have is that -- the diversity of the business itself leaves us with not top-heavy like a lot of our other competitors, 80% of their revenue in some cases actually comes from one client and the good news as -- that's going to change a little bit as NIAGEN starts to take off, we’re probably going to see some customers start to jump into the 10% plus category. But the good news right now is that we have a pretty good balance in terms of the type of revenue that we have across the platform of ingredients as well as other products and services we offer. So that would put that as a strength right now for us.

[Unidentified Analyst:]

When you look at your company as a whole, all your margins on a trailing 12 month basis quarter over quarter are going in the right direction and improving nicely, you guys are doing a great job here. Just trying to get a little bit of more of a handle on your leverage for your infrastructure, especially on general administrative expenses, as there has been a little bit more volatile and those running around 2 million a quarter, how do you see this growing relative to your sales growth especially the ingredient side?

[Frank Jaksch:]

We don't need to add a lot of G&A basically as we grow the business. The ingredient business is where majority of the revenue growth is coming and we don't need to add a lot of infrastructure to basically support the growth of that particular business. We are going to add as needed as we start to shape the business model but you shouldn't -- we shouldn't have to dramatically increase the cost basically to support the growth of the business. R&D is going to be the biggest -- R&D rather than general administration is really where we are going to have most of the flux I would guess, as we need to spend money or make investments in various clinical programs regarding the development of our ingredients but those are all being put on the program as a budget.

[Unidentified Analyst:]

Looking at R&D do you have a goal of certain percentage of revenue then?

[Frank Jaksch:]

Not at this point, it's still little too early to do it that way. We look at a more on a project by project basis on how much are we going have to spend versus what return we think that we’re going to be able to get by baking the R&D spend primarily in the form of clinical studies. Clinical studies are the biggest expense that we’re going to have on that front.

[Unidentified Analyst:]

And just trying to get a better understanding about your core standards and contract services business, the last nine months year over year your gross margins are down 340 basis, operating income down about 500 basis as revenue went up 20%. I don’t know if you can explain a little bit that would happen and what we should expect?

[Frank Jaksch:]

So we are making – we’re in the process of making a few changes to that business where we’re changing the mix of the business, we've added additional new equipment capabilities and we’re actually working on streamlining that business to get it back on the sales growth track. And so that's going to impact the business at least for a little while in the near-term as we start to change the mix and add additional services that that should create some value especially with all the turmoil going on right now in the regulatory space, that’s kind of what we’re gearing up for. End of Q&A

[Operator:]

Thank you. I am showing no further questions. I’d like to turn the call back to management for closing remarks.

[Frank Jaksch:]

Again, I’d like to thank everybody for participating in the call today and I look forward to closing out the year here in 2015 end we’re already starting our planning for 2016 and you should see continue much of the same trend that we've had and we look forward to showing you that in future quarters as well. Thanks everyone.

[Operator:]

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.