Q3 2022 Chromadex Corp Earnings Call
Q Ww dot <unk> dot com with that it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried.
Thanks, Tom and good afternoon, everyone and thank you for joining us on our investor call today.
For the third quarter, we delivered a significant improvement in adjusted EBITDA or cash EBITDA.
Which is a $1 $2 million loss.
We remain on track to deliver positive EBITDA in the fourth quarter of this year.
The solid bottom line performance was achieved with net sales of $17 1 million for the quarter over.
Over 65% of the period sales came from our direct to consumer E Commerce business, which grew 7%.
Our emphasis on profitable growth was evident in the decline in total marketing expense year over year, both in absolute dollars.
And most importantly, as a percentage of net sales as we focused on the most efficient digital media investments with measurable return.
Following the quarter, we raised $7 $7 million of capital net of fees with.
With existing strategic investors in the new Investor Nestle Health Science.
We entered the fourth quarter in a strong financial position with improving P&L metrics important partnerships in place and solid balance sheet.
<unk>, our CFO will cover <unk> financials in more detail in a moment.
Also Andrew Shao, our head of scientific and regulatory affairs, who will join us for Q&A.
Growth in the E Commerce business was driven by a nearly 20% increase in sales on Amazon, while our website sales declined year over year.
We have dedicated significant resources, both people and financial to optimizing our brand and landing page content.
As well as campaign funnels on Amazon with impressive results, including a consistent number one ranking in the vitamin B III category Amazon represents nearly 70% of our ecommerce business and we're now focused on applying similar strategies to our own website to improve conversion.
Importantly, our cost per acquisition or CPA decreased by approximately 40% year over year on both Amazon and our own website.
We significantly reduced spend as we are undergoing a project to revamp the web site and our acquisition engine.
Against this backdrop of lower overall spend we are building a stronger social media presence to drive more organic traffic to our site as well as Amazon.
We're also testing new approaches to drive <unk> brand awareness in the fourth quarter as we continue to focus on efficient marketing spend. One example was our launch with shop HQ the host Danny Seo as an author TV personality with Ben <unk> and consumer for the last five years. This personal experience with our brands allowed us.
Speak with authenticity and conviction about its amazing benefits during the 254 minute segments with Danny Seo team told US. This was the most successful launch event that any supplement on the show with a 90 count products selling out during the first area.
Outside of the E Commerce business, our new partnerships are impacted by timing, but the business is improving.
Looking ahead to the fourth quarter, we see several bright spots, including Watson's HMH sign a farm and of course necessarily health science.
For Watson's, we expect higher sales in the fourth quarter to align with seasonal demand following a pickup in our shipments to options in the third quarter.
We are beginning to see the COVID-19 headwinds abate and we continue to find new ways to strengthen our partnership building on <unk> already established brand awareness in Hong Kong.
As mentioned last quarter HMH launched their first exclusive product with <unk> Suisse beauty activator in Australia in a sense rolled it out in China, which is the largest brand on cross border platforms with promising launch results HMH.
HMH has developed two additional exclusive Nigel formulation products were at Swiss innovation portfolio, which they expect to rollout into Australia, China and other markets. We are optimistic about the early start of this partnership and look forward to building. Upon this foundation in 2023.
And finally as noted earlier in the call. We wanted to highlight the signing of a long term commercial supply agreement with.
Nestle Health science, and an investment to chrome and edge by its parent company <unk>.
Agreement includes an approximately $2 million initial purchase of <unk>, the 2022 calendar year period.
And a $5 million private placement for $4 8 million after fees, which we collected in October .
The deal not only provides necessarily the nonexclusive rights to manufacture market distribute and sell products using <unk> under its brands worldwide.
Except where chroma that has existing exclusive agreements, but also enables us to work directly with the marketing and science departments have a world class dietary supplement includes company.
The private placement is a strong show of support from necessarily for what we are trying to accomplish in building <unk> as a worldwide healthy aging and wellness brand backed by science.
We also made significant advancements in our China strategy. This quarter. Our joint venture is now fully established to accelerate the approval of health food registration for Tonight and in mainland China also known as Blue had approval cross border sales of <unk> into China are off to a strong start with Sino foreign <unk> Shah.
We began managing our cross border platforms in September .
<unk> relaunch began with the successful premier at the China International Natural health and Nutrition Expo.
<unk> and <unk>.
Asia's largest health and nutrition trade Expo with over 100000 distributors and retailers in attendance.
<unk> was awarded the most popular brand of the year at the conference.
Knowing how excited our partners are to assume the distribution and marketing of <unk> in China, We continue to make real headway in becoming the premier.
<unk> brand in the market.
Our global addressable market is still largely untapped.
We are committed to delivering on the promise of the enormous potential for our ingredient nitrogen supported by compelling scientific research speaks to its broad use cases extensive safety data and commitment to quality, which is rare.
Dietary supplement industry.
I'll briefly highlight two recent studies.
First we announced the results of the <unk> external research program or as we call. It study on stage C heart failure patients with reduced ejection fraction.
The results of the study demonstrated that high dose <unk> was safe and well tolerated almost doubling of whole blood NAD levels increase in white blood cell mitochondrial respiratory function.
And decreasing the expression of inflammatory markers.
This study marks a major milestone in investigating the safety and Tolerability of NR is a crucial step that will pave the way for future clinical research is also the eighth published clinical study to show that NR reduced inflammation.
Demonstrating remarkable consistency of this beneficial effect in humans.
Second our recent preclinical study demonstrated that NR extended lifespan in mice, we felt the DNA repair.
And this mass model the inability to repair DNA results in accelerated neuro degeneration, and rapid Asia Interestingly researchers found that compared to other popular longevity compounds, including that form and was virtual R&R had the greatest effect on extending lifespan in these mice.
In addition, <unk> maintains a strong and growing patent portfolio reinforcing our position as the scientific leader in the industry.
On that note the Delaware appeal in our exclusively licensed.
Patents from Dartmouth is scheduled for December six.
We believe we have a very strong arguments for the district court's decision to be overturned on appeal, but regardless of the outcome.
We're very confident in the strength of our owned and licensed portfolio for NR and other NAD precursors to provide us protection for many years to come.
I would like to now turn the call over to <unk> to discuss the quarter's results and then onto Q&A and closing remarks Rihanna.
Thank you Rob.
Pleasure to speak to our investors partners and employees, who have joined us today.
Last quarter my immediate objective as interim CFO wants to look at all areas of our cost structure with an emphasis on becoming a leaner and more focused organization beginning in the third quarter.
Sorry, we accomplished the first step in our objective reporting an adjusted EBITDA loss of only $1 2 million.
Our underlying profitability is approaching cash flow breakeven and we remain on track to achieve breakeven or better in the fourth quarter. Furthermore, this quarter's adjusted EBITDA reflected an improvement of $5 $1 million year over year, and $3 4 million versus last quarter. This.
This milestone was achieved in partnership with the entire leadership team at <unk> and <unk>.
Talked to them and their teams for their ongoing commitment to look at our business differently in order to drive operational efficiency.
We realize there is still more work to do to achieve sustainable growth and profitability, which remains a critical focus and the current economic environment heading into 2023.
I look forward to leading the company through this transition.
We also raised $7 7 million net of fees following the third quarter further strengthening our balance sheet.
Our solid cash position, coupled with improving profitability gives us a sound foundation to grow the business going forward.
With that let's turn to the third quarter financials.
<unk> reported a total net sales of $17 1 million.
Down 1% year over year, a strong gross margin of 59, 8% and a significant reduction in overall operating expenses.
<unk> our E Commerce business grew 7% year over year, despite a significant reduction in digital media spend.
Overall sales were down slightly primarily due to continued COVID-19 headwinds for apartments.
Generally these headwinds are abating for our largest strategic partner Watson.
<unk> challenging in other markets.
The company has pivoted to spend on distribution channels and marketing campaigns with the highest short term return on investment and a strong focus on conversion, which is evident in our financial results this quarter.
Consistent with this we paused our television campaign, which will affect it is a much more expensive marketing approach in the short term.
Moving to the P&L details.
Total net sales in the third quarter of 2020 were down 1% year over year compared to the third quarter of 2021.
A 1% decrease in <unk>, driven by a 23% decline in combined license and other VW sales Watson sales were roughly flat year over year, but other partners remain impacted by COVID-19, and new partnerships have been slower to ramp.
This was largely offset by 7% growth in e-commerce.
Gross margins decreased by 130 basis points to 59, 8% compared to 51, 1% in the third quarter of 2021.
The decline was primarily driven by increases in supply chain head count, including higher wages and other inflationary pressures.
Offset by business mix.
We commend our supply chain team for achieving a consistent strong gross margin of approximately 50% and a challenging inflationary environment, which puts us on track to achieve our full year gross margin outlook.
Selling and marketing expense as a percentage of net sales decreased to 34, 4% compared to 41, 7% in the third quarter of 2021.
We focus on the most efficient channels and investments within those channels, which resulted in an approximately 40% decline in customer acquisition costs or CPA.
Beginning in the fourth quarter, we are testing tools to become even more sophisticated and targeting those consumers are most likely to convert.
As reported general and administrative expense was lower by $5 million, primarily due to lower legal expense of $4 4 million as well as lower executive head count and related expenses, including share based compensation.
While we will incur expense related to the Delaware appeal in the fourth quarter. We continue to expect full year 2022 legal expense to be under $7 million.
For the third quarter of 2022, our operating loss was $8 1 million versus $8 8 million loss in the third quarter of 2021.
The net loss attributable to common stockholders for the third quarter of 2020, Q was $1 million or a loss of <unk> <unk> per share as compared to a net loss of $8 9 million loss of <unk> 13 per share for the third quarter of 2021.
Finally, our adjusted EBITDA, including legal expense was a loss of $1 2 million compared to a loss of $6 3 million in the prior year.
We recognized $2 1 million of other income this quarter related to the employee retention tax credit, which improved our reported net income but is adjusted out of EBITDA to provide a better picture of the underlying business.
Moving to the balance sheet and cash flow our balance sheet remains strong we ended the quarter with $13 3 million in cash and did not borrow on our line of credit.
During the quarter and we raised $7 7 million net of offering costs with a new investor Nestle health science and existing strategic investors in two separate transactions.
And the third quarter of 2022, our net cash used in operations was $3 7 million versus a $5 9 million use of cash in the third quarter of 2021.
I think year over year, it was primarily driven by a lower net loss.
Lately offset by higher working capital investments.
These included higher trade receivables due to timing of payments from customers as well as the timing of payments to our vendors impacting account payable.
As it relates to our 2020 Q4 your outlook all key metrics remains unchanged from last quarter's outlook with the exception of G&A expense, which we now expect to be down $6 million to $8 million, an improvement from our previous guidance of down 6% to $7 million.
And as mentioned upfront we are on track to achieve cash flow breakeven or better in the fourth quarter.
We provided details on the key P&L metrics in our earnings press release, along with the slide presentation.
In summary, we've made meaningful progress in the last three months and expect to continue to make strides towards our goal of sustainable cash flow breakeven.
Beyond improving our operational discipline, we are engaging more frequently with our partners to share consumer insights and important scientific research, including educational session with our scientific affairs team.
In addition, we made important strategic progress, we relaunched <unk> agent with Sino pharma in China, <unk> joint venture to pursue Blue hat registration in this market and entered into a long term expanded supply agreement with one of the world's leading health and wellness companies Nestle Health Science, R&D humbled and grateful to the entire <unk> team as well.
As our partners for their support.
Operator, we're now ready to take questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad will pause for a moment to compile the Q&A roster.
Your first question comes from Jeff Cohen with Ladenburg Thalmann. Your line is open.
Oh, Hi, Rob Breanna and Andrew how are you.
Hey, Jeff Hey, Jeff.
Hi.
Firstly for you Brandon or this employee retention tax credit that was federal and is there any formal launch of the unexpected in the future.
No follow on other income in the quarter, we booked it that way because we believe that one time and we wanted to exit it from our underlying operations rather than booking it as payroll tax offset within SG&A. So theres no follow on expected the cash is not yet collected but would it be X.
<unk> sometime in 2023.
Got it okay, and when you talk about the decrease in marketing spend for the quarter.
Or is the channels out there could you maybe call out for us some of the channels that were bolstered and some of them that were muted I imagine that.
Television was one of the major challenge.
That's correct, we spent less on TV spend actually we spent less across the board.
It was much more of a focus on performance marketing and a little bit less focus on brand marketing and top of the funnel marketing that would include television.
But also it's a philosophical switch more towards conversions and less towards awareness. So we actually spent less across the board.
Okay, Perfect and then Rob I wanted to talk about nursing a little bit.
The $2 million purchase orders that come through in October we showed it in the third quarter, there will be fourth quarter.
Fourth quarter.
Fourth quarter, Okay got it and then maybe talk to us a little bit more about nationally, which I'm trying to get a better understanding of the.
The multi ingredient market.
Maybe youre thinking or what maybe they were thinking as far as.
Snacks bars powders yogurts et cetera.
At this point, we're just thinking dietary supplements.
Okay.
As you know there was some discussion with them about making it a hero ingredient and Bruce.
But we still havent solve the stability in liquid scientific problem at least for long enough for it to be included in boost.
And as you know they always interested in including in dietary supplements.
And we mentioned in the past that this is something we were in discussions with Nestle about.
Did agree to make this deal with Nestle.
We know that it's a great ingredient.
We are very careful about the companies to whom we supply <unk>.
<unk> to Nicky.
Making sure that they are companies that are science based.
Not out to take advantage of us are infringe on our patents or tried to even steel from us or our patents, we consider necessarily to be at the top end of science based dietary supplement companies are the largest dietary supplement company in the world to date.
We're excited about supplying nitrogen to nestle and help us expand the awareness of this ingredient around the world.
And we're very hopeful that theyre going to do it.
Super Okay. Thanks for that and then one last point over the question congratulations on it sounds like breaking through.
Cash and certainly EBITDA for the fourth quarter.
Thanks, Josh.
Okay.
Your next question comes from Sean Mcgowan with Roth Capital. Your line is open.
Alright, thank you.
Questions I'm not sure once you take number of borrowing amount so the decline in the.
Sales on the website is.
Do you think thats, a function of amazons growth or the pullback of marketing and could you just talk about that a little bit.
A source of concern for you guys.
Okay.
It's not a source of concern.
Don't believe that its cannibalization of Amazon and we do not believe that it is a function of the reduced spend.
We think it's just simply a function of giving it a little bit more love and attention. We think it will come around and we will start seeing growth there soon.
Okay and is this one of the things you referred to when you say <unk>.
Focus more on performance marketing and conversion rather than brand building.
It is.
Okay great.
Great. Thank you.
Unless we.
Just kind of taking a step back.
Sales in the quarter I know you don't guide on a quarterly basis necessarily but it was a little bit lower than I thought it would be but the guidance for the year is still.
Same so would you would you characterize necessarily.
Order as kind of incremental to what you thought you would get earlier in the year or is that kind of part of the whole plan there really hasn't been a change in.
As your overall sales outlook.
Alright outlook is largely the same for the year.
So nestle is accretive but there are some things that we anticipated that are either getting deferred or lower.
Some of our <unk> partners overall, we're maintaining the same full year outlook.
Including Nestle.
Okay. Thank you.
Last thing I know you had tightened numbers, but I'm just wondering if there's something going on the ingredients gross margins seem to be.
If you could take a pretty significant step backwards is there anything going on there thats unusual.
Nothing unusual that's a function largely of any pricing to our consumers.
Excuse me customers got scale, they may get a lower price, but it felt very good gross margin business for us. The other thing if you look historically from time to time, there necessarily revenue recognition and those numbers. It gets booked in ingredient sales that gets recognized purchases in the quarter rally.
As Keith our overall forecast so it causes some lumpiness in those numbers.
Yeah.
Okay. So when it gets recognized is that unusually high or unusually low gross margins.
It's accretive to the gross margins when you look at the deferred revenue getting recognized in there.
Yeah.
Okay. Thank you very much.
Thanks, Sean.
Your next question comes from Jeff Van <unk> with B Riley Your line is open.
Hi, everyone just wanted to touch on Walmart for a second I know there was there was some transitional.
There were some transitional elements there.
Wondering kind of what youre seeing at Walmart and the outlook there.
Well as you know we've reduced the number of stores from 3000 in 2000, and we've reduced the number of Skus and two to one.
Notwithstanding that the sales are pretty strong per store and Walmart and Walmart is very high on <unk>, but as you know we pulled back on the TV spend.
We expect that in 2023, we're going to kick in that TV again.
And start driving more traffic to Walmart. So our expectation is some time during the year next year, we'll start that up again and the sales will pick up but Walmart remains very bullish on <unk>.
Okay, and then along those lines I mean, I realize youre dealing with floor sets and such but.
Has there been any discussion of potentially.
<unk>.
Adding it back to more stores if they are bullish on it if you start to see better results next year, yes.
Okay, Yes.
Okay.
And then wanted.
To shift over to nationally for a moment if we could.
Just any color you can give us realize this is going to be about 2 million in Q4, but any color you can give us on sort of what expectation you have.
For the quarterly contribution.
From nationally sort of the progression.
For next year, and what that might look like from nationally overall sales.
We don't know yet we know that they made this $2 million purchase and we know that they have some pretty aggressive marketing plans to distribute this not just in the U S, but globally, especially globally.
Yeah.
But we all know what they're purchasing projections are until they launch the product.
Okay, and they're launching what do they have a date in mind for lunch.
I expect it to be launched within the next few months.
Okay.
And again, it's going to be launched across several nestle brands.
Okay.
Okay great.
And then just kind of factoring in everything that you can see today.
And I realize it's early but.
What sort of overall revenue growth rate.
Are you contemplating.
To be feasible for the company for next year as you're kind of looking at everything do you think it's mid single digit high single digit double digit anything you can any color you can give us there may be a range just some idea.
There are a lot of things going on right now that we are developing and are excited about I certainly expect us to grow more next year than this year.
But we were not yet in a position to give you that forecast.
Okay.
Okay. Thank you Scott.
On our margin next year.
Okay, I expect to hear about that outlook next March.
Got it thanks, very much and best of luck in the rest of the quarter.
Thanks, Jeff.
Your next question comes from Mitch Pinheiro with.
Stuart event and company your line is open.
Hi, good afternoon.
Okay.
Staying on domestic theme for a second I am curious why why why didn't actually take a stake in <unk>.
As part of an ingredient.
Deal.
Next we have done a great deal of diligence about chrome at X on the <unk> brand on our intellectual property on the quality of our science they.
They like the company.
Okay.
I mean, you are a small company and here's this.
Yeah.
This.
Yes.
$100 billion.
Consumer behemoth.
And they take a.
A modest rally.
A rounding error.
But it was just something that I thought was is there.
So is there any are there any.
But are there any.
Locked up or anything that where are they.
They are permitted to not permitted to purchase more than a certain amount.
I believe there is a one year lockup.
Okay, and Kelly can they is there any limit to how much they could buy.
No.
Why is that.
<unk>.
No there is not.
Okay.
And then as necessary as part of this is Leslie using at all with true nitrogen be branded or will be their brand.
It will be <unk> branded as an ingredient, but it will be their consumer brands.
Okay.
Moving on.
As far as.
So the cross border sales in China have been off to a strong start.
Strong start how meaningful is it is it is it.
Does it get to a $1 million a quarter.
Some sense of size I don't even know how really the cross border works.
If you could talk about that just a little bit.
No.
Sign up.
Is very methodical.
As you know we've been talking to them for a very long and took a long time to close that deal.
And we've seen their marketing plans and their marketing plans are impressive to us.
We know that the addressable market is enormous there.
But they do have a cadence to the way. They work. So we don't know when it's really going to kick in.
Our expectations is the numbers will eventually be significantly more than a $1 million a quarter.
Just don't know when.
Okay.
Are there things sort of claim and things that.
Barb can have in China that we can't have in the United States.
No.
Okay.
Payments stopped a lot of people who are selling other products from making false claims.
And the FDA has been cracking down on them, but we would never make a claim outside of what's allowed.
Okay.
Then just getting back to.
Your e-commerce business here.
So Amazon.
Generally you remain sort of neutral or indifferent as to which.
Channel Amazon or your own site.
Sales are generated correct.
No I think we prefer to be on our site.
You have to pay Amazon us.
Fairly significant fee 15%.
And there's much much of the customer data.
Is not shared by Amazon.
Okay, and so then to talk what.
No.
But it sounded like you're okay, and then the <unk>.
Quarter, you're okay with.
Amazon being up and your own site.
Dale.
Could you explain why you're okay with that then or.
No.
Sorry to interrupt.
No we're not okay with that.
We have every expectation that we're going to start seeing growth on our own website. It's just that Amazon themselves have been very proactive with chroma decks. They like the way we're managing it the way they like the way, we optimize the site and the content, we put there and the way we've managed our marketing spend with Amazon.
And obviously with <unk>.
Continued to grow in our Amazon sales within our category and within larger categories and the relationship with Amazon is very strong and it's improving.
We'd like to see our website growth and we expect that it will.
Okay.
And then as far as.
You had mentioned in related to this you are testing new choices for the fourth quarter, that's new tools for your own website correct.
Mitch I think you were referring to the tool to test targeting customer cohorts on our own website.
Yes.
Yes, we are.
Our.
We are testing that that's more about our own website and targeting tool and we're doing that in the fourth quarter.
Okay.
Okay. That's it for me. Thank you very much thanks, Nick thank.
Thank you.
Your next question comes from Brian Nagel with Oppenheimer. Your line is open.
Hi, good afternoon.
Hey, Brian .
So my first question is just with regard to the fourth quarter.
Sorry for being so near term focus here because if you look at the kind of trajectory in sales through Q3.
The guidance that you reiterated your press release it seems to me that you have to have them.
Significant.
Uptake in sales growth in Q4 in order to hit that guidance.
So I guess the question I have maybe software is there to help assist with the building blocks are there are there certain pieces of sales that are coming in the fourth quarter that are new.
Other side of that.
What's the basically the.
Assumption for the underlying growth in that business with trajectory the growth of the business.
Going from Q3 to Q4 to hit that guidance.
So remember we really have two large segments. There is the direct to consumer segment and there is the <unk> segment.
And as you know, we can't really control the timing of some of these <unk> orders like Watson's in particular.
But some of the other ingredient partners.
So the answer to your question is it looks like the fourth quarter is going to be pretty big.
Answer is yes, and a lot of that has to do with the fact that certain orders that we know are coming in are confident are coming in that might have come in in the third quarter are coming in in the fourth quarter.
On the <unk> side.
The second part of your question I think had to do with how do we look at growth in general.
Am I getting that right.
Well I guess, Rob I was just looking at the other.
Could you focus on Q4. So you have these <unk> orders coming in that are bolstered growth in Q4, so it <unk> matter.
If we were to get back to what you said.
That's a normal business.
The core business. If you will how is that growth is also expected to improve here in Q4 versus what we saw Q3 Q2.
Yes, and one thing that we're also seeing is the COVID-19 impact starting to lighten up.
Remember, we have partners around the world, who are who are retail base.
And they were impacted by Covid and we are seeing a change there. So we're seeing we are seeing growth across the board that looks pretty good.
But yes, there is timing issues and we have a lot of partners at this point some of those partners are up some of them down but in general yes. It looks good.
And just one callout on that Bryan Watson, we've side is more in line with the fourth quarter. So that's a bigger number in the fourth quarter and then possibly have necessarily now.
Sure.
Got it.
Second question I have.
Follow up to one of the prior questions someone ask you just about the growth beyond 2000, Q&A Rob again.
The guidance out there yet.
Mike talked about that but just to put the way I would ask the question is I think you said that you expect growth in 'twenty three to be better than <unk>.
There was a lot of focus here in Q3, I expect results congratulations looking toward breakeven.
You look at value.
Intermediate term growth trajectory longer term growth trajectory, how should we think about the expenses in my model, you're going to be able to accelerate that growth whilst keeping expenses mean, all you have to be a.
Our reinvestment placement.
No we are.
So our plan is to get to profitability and stay in profitability and we are and we still expect there to be growth, but it will be profitable growth and we're looking at many opportunities that we see as growth opportunities. China was one nestle is one optimization of our website.
Third.
Additional partners like Hh, we think is a growth opportunity potentially some expansion into new markets. We think is a good growth opportunity.
And we're already showing basic fundamental growth in Amazon at some point, we think we will reinvest in awareness in TV and expand.
Walmart relationship and maybe other retailers some time in 2023.
But also remember chrome at X.
Has a core differential advantage in that we're very very strong in R&D.
So we have been investing in many molecules.
That our NAD precursors and other technologies and so we have an expectation that you will see growth through innovation.
Fairly soon.
Yeah.
So you said that.
That was one follow up on that.
When you say new products or new products. In addition to the <unk>.
Obviously, we've been talking about for a while.
Yes, it could be new products it could be new channels.
It could be new technologies.
Got it.
Yes.
I appreciate it thank you.
Sure. Thank you Brian .
Your next question comes from Sean Mcgowan with Roth Capital. Your line is open.
Alright.
Kind of a housekeeping.
All of the revenue.
Going forward from that <unk> going to be booking the ingredients segment.
So I think there was a fourth quarter event, we're still going through the accounting, but my expectation at this point is yes that it would be similar to the previous agreement and book there and again those milestone payments will be recognized as deferred revenue overtime.
An ingredient balance analyzer.
Okay.
Would you characterize your expected gross margins from that revenue as it gets.
Ignite is to be in line with the ingredients segment are in line with the overall.
The average.
I'd say overall, when you think about the ingredient purchase price, which is the biggest piece of it and then there are tiered royalties and its still blend to be a bit lower but still a healthy gross margin.
And then there's obviously the milestone payments as well.
Robert.
Lower funding milestone payments call it lower than Biogen ingredients on a blended basis okay.
Okay.
Got it.
Thank you very much.
Yes.
<unk>.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from Bill <unk> with Titan Your line is open.
Thank you our group of questions first of all.
How big of a deal is it winning the most popular brand of the year award at the.
Chinese health show.
Essentially some others, we expect sales cross border into China to be very significant we just don't yet know when.
That's helpful Robin and.
Due to my lack of familiarity with that show will HMH and others be able to benefit from from that most popular brand award or does that somehow really stick specifically with Sino.
While watching benefits because Watson is also selling the <unk> brand, but HMH is selling the nitrogen ingredient brand not true Nigel consumer brand per se.
Okay.
But there were 130000 people who went to that convention.
It was very well attended convention and so clearly awareness of Tonight is growing there.
That's helpful. Thank you and then you had referenced that the cross border.
Sales were off to a strong start once Sino has taken over what metrics do you have any you can share with us that.
Help us recognize that.
That strong start.
Yeah.
Yeah, sure Hey, Bill it's Brian .
So first just a quick point youll see that revenues from Sino farm no longer an e-commerce, beginning next quarter it'll be <unk>. So just a quick note on that at the shack. So.
<unk>.
Plus the Shadow had some orders from sign up arm and again as Rob said, we expect that to be a large over time, it's a matter of timing and hard to predict when but just have orders from final farm they've taken over the cross border platform, which was a big step and we're excited about that business going forward.
Yeah.
Thank you and then did we hear correctly that you.
Reduced customer acquisition cost by 40% four zero percent this quarter and if we did hear that correctly would you provide a few more details around that to success.
Sure. So yes, you did four zero percent Unimplanted basis, and that also has achieved on Amazon as well as shopify. So there are some efficiencies and social and search Ross touched on the website there and how we are looking to optimize that spend better and on Amazon. We also saw improved.
As we continue to optimize that.
Rob you want to add anything or.
No. It's like what I've said before it's more of a focus on performance marketing versus brand marketing top of the funnel.
And continued optimization of not only our Amazon presence, but also our website presence and expect to see more of that in the near future.
Thank you both for the time.
Thank you Bill.
There are no further questions at this time, Mr. Schumacher I turn the call back over to you.
Tom.
Okay.
Okay.
Thank you joelle. Thank you Rob there'll be a replay of this call beginning at 430 Pacific time today. The replay number is one 807 002030 again the conference I'd just for 126168. Thank you everyone for joining us today and for your continued support of products.
Thank you everyone.
This concludes today's conference call you may now disconnect.
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Yes.
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