ChromaDex Corporation Q1 2023 Earnings Call

Speaker 1: to update any forward-looking statements after the date of this conference call to conform with the forward-looking statements actual results for the changes in its expectations.

Speaker 1: In addition, certain of the financial information presented in this call references non-financial measures.

Speaker 1: The company's earnings presentation and earnings press release, which were issued this afternoon, and are available on the company's website, present reconciliation to the appropriate GAAP measures .

Speaker 1: Finally, this conference call is being recorded via Webcast. The Webcast will be available at the Investor Relations section of our website at www.cromonux.com.

Speaker 2: With that, it is now my pleasure to turn the call over to our Chief Executive Officer Rob Three. Thanks, Kendall. Good afternoon, everyone. And thank you for joining us on today's investor call.

Speaker 2: And please to report that we had a strong start to 2023. We achieved 22.6 million in revenue.

Speaker 3: A 31% increase year over year, and we generated positive operated cash flows while remaining adjusted EBITDA break even.

Speaker 3: We ended the quarter with $23 million in cash and no debt.

Speaker 3: These achievements reflect our commitment to maintaining fiscal discipline and driving sustainable growth for our business.

Speaker 3: were confident in opportunities for greater future growth having achieved record-breaking results in these past two consecutive quarters.

Speaker 3: Our e-commerce business remains our largest and most consistent source of revenue. e-commerce net revenue is up 12% year over year, with a contribution from the large brand building event that we mentioned on our last call.

Speaker 3: At March 13th we had prominent placement on the home page of Amazon.

Speaker 3: across the US and a large-scale brand awareness campaign that Amazon refers to as its home page takeover.

Speaker 3: On the day of the event, we achieved our highest sales on Amazon in a single day, with over 130 million brand impressions according to Amazon.

Speaker 3: and a significant increase in new to brand purchases.

Speaker 3: We continued retargeting consumers who searched our true nides and brand into the second quarter, and as a result, we expect to see some efficiencies in our e-commerce advertising moving forward through 2023.

Speaker 3: Although the first quarter was impacted by this large upfront investment.

Speaker 3: You should also benefit from re-orders in future quarters.

Speaker 3: as it relates to our own website.

Speaker 3: We made some changes to our internal personnel in the first quarter, as well as with external agency partners more recently.

Speaker 3: We were encouraged by observed improvement in leading indicators in the first quarter.

Speaker 3: and stronger growth in new customers.

Speaker 3: We believe this boasts well for future quarters, but as with any transition it takes some time for the impact of changes in strategy to be reflected in net revenues.

Speaker 3: Meanwhile, we have significantly reduced spend on search and social, as we revamp our campaigns and website landing pages.

Speaker 3: This quarter we continued to strengthen existing partnerships and develop some new partnerships.

Speaker 3: We notably delivered a 245% increase in niogen ingredient sales year over year, including very solid contributions from longtime partner life extensions.

Speaker 3: as well as more recent partners like H&H.

Speaker 3: I continue to be impressed by H&H product launches featuring Niajin in Australia, China, and other regions as part of their Swiss Innovation portfolio.

Speaker 3: Additionally, Life Extension's recent expansion into a specialty retail distribution model is promising for growth.

Speaker 3: And finally, we continue to work with Nestle to support their development of new products with Niacin. We expect the first of these

Speaker 3: And finally, we continue to work with Nestle to support their development of new products with NIAGEN. We expect the first of these to launch later this year.

Speaker 3: China, our partner sign-up farm is actively building the true nitrogen cross-border business across multiple distribution channels.

Speaker 3: following the transition of our Tmall and JD.com platforms to their management at a local level late last year. This has shifted our revenues from China cross-border within e-commerce to wholesale to Sinopharm.

Speaker 3: And, encouragingly, as China reopens its borders, we anticipate a benefit to both son of forms, cross-border business, as well as Watson Hong Kong retail business for Kunei können weiter.

Speaker 3: We had a very strong first quarter sales to Watson's at $3.7 million, a portion of which was due to timing of shipments which will be lighter in the second quarter. We extended our agreement with Watson's in Hong Kong, Macau, this quarter, and Singapore, and are excited to build on the strong foundation they have established for true nitrogen in those markets.

Speaker 3: to understand the benefits of combining true nitrogen beauty.

Speaker 3: and the soon to be launched true nitrogen immune with our core true nitrogen product.

Speaker 3: Overall, we believe that True Niagen's premium position in the marketplace.

Speaker 3: As the highest quality trusted brand enables us to unlock significantly greater growth.

Speaker 3: Particularly in light of the FDA's ban on sale of NMN as a supplement in the US.

Speaker 3: Several retailers, including Amazon, have voluntarily withdrawn these products and are no longer selling??-lang compliment.

Speaker 3: The company still promoting NMN are doing a general disservice.

Speaker 3: Even David Chenclerc, the primary promoter of NMN.

Speaker 3: have acknowledged in his research that NMN breaks down into NR before being used by the body.

Speaker 3: He has also expressed concern about the presence of end-out toxins in some NMN products.

Speaker 3: And our own study showed that 60% of the NMN products on Amazon prior to the FDA's ban were mislabeled or had virtually no NMN. In contrast, nitrogen, the ingredient in true nitrogen,

Speaker 3: This third party test that has extensive safety data.

Speaker 3: third party tested has extensive safety data, the proper regulatory notifications.

Speaker 3: is a more efficient precursor than NMN and is available legally today for consumers who want to elevate NAD levels.

Speaker 3: We believe that many customers who purchased and the men did so in anticipation of future demand.

Speaker 3: We believe that many customers who purchased NMN did so in anticipation of future demand, and they still have a supply.

Speaker 3: Accordingly, transitioning them to knives may take more time.

Speaker 3: While we see positive early indications of this shift in the market, it is still too early to estimate the impact on our business this year. And as such, we are not building it into our revenue outlook. But we clearly see the potential longer term to capture this business since the consumers already understand the importance of elevating NAD through supplementation.

Speaker 3: Just to be clear, as I said last quarter, the FDA decision to ban an amendment does not apply to our proprietary ingredient nicotine in my private size and our.

Speaker 4: Patented Norwegian. Okay.

Speaker 3: Looking ahead, chromadets is in our strongest financial position to date.

Speaker 3: and we are building momentum on the top and bottom line, which will enable us to invest in innovation that will unlock new commercial opportunities.

Speaker 3: We have made great strides and progress in our innovation pipeline.

Speaker 3: and I'm increasingly confident in the growth opportunities that lie ahead in 2023.

Speaker 3: As we continue to set the stage for Chromodex's growth, I want to remind everyone that we are building the NIEG and brand based on a strong, scientific foundation.

Speaker 3: while delivering the highest quality NAD product in the marketplace. We are currently preparing to reflect on the 10th anniversary of chromatex's

Speaker 3: external research program or SERP.

Speaker 3: research program or SERP. Looking back these past 10 years,

Speaker 3: It's inspiring to see how far our science has advanced from the time Sirp was in its infancy.

Speaker 3: In 2013.

Speaker 3: And all studies were preclinical to today with the majority of new collaborations for clinical studies.

Speaker 3: Importantly, research has shown that the health benefits from niogen translate from pre-clinical models.

Speaker 3: and the report and the research has shown that the health benefits from NIAG and Translate from pre-clinical models to clinical studies with remarkable consistency.

Speaker 3: in health areas such as brain, heart, and muscle health. Some of the notable conditions of study include brain health, with a focus on Parkinson's disease, Alzheimer's disease.

Speaker 3: and the awesome disease, apoxia.

Speaker 3: There have been over 15 published pre-clinical and clinical studies with nearly 10 ongoing clinical studies.

Speaker 3: published pre-clinical and clinical studies with nearly 10 ongoing clinical studies. Also heart health.

Speaker 3: including studies on heart failure and hypertension.

Speaker 3: There have been over 10 published preclinical and clinical studies along with two ongoing clinical studies.

Speaker 3: and also muscle health.

Speaker 3: with 10 published preclinical and clinical studies, as well as two ongoing clinical studies.

Speaker 3: We're looking forward to the next 10 years.

Speaker 3: Our primary efforts are to help validate weather and to what extent observe benefits from in vitro and in vivo preclinical studies are translatable to say is one, two, and three clinical studies.

Speaker 3: We believe through SERP we will see the translation of early preclinical findings for NIAGIN, as well as our intellectual property and other emerging health areas such as sensory, including neuropathy, age-related hearing, vision, and olfactory decline.

Speaker 3: reproductive health, and infant development into clinical studies.

Speaker 3: We understand that CDXC is both a consumer product company as well as a bioscience R&D company.

Speaker 3: And we are exploring opportunities to unlock the value.

Speaker 3: of our extensive IP and scientific research assets.

Speaker 3: In addition, as mentioned on our last call, we cited a series of new critical patents.

Speaker 3: that we were able to obtain last year, which in combination with existing IP and patents from WR grace.

Speaker 3: We continue to expect to protect our NRIP for at least the next ten years.

Speaker 3: With these patents secured, we continue to seek new innovations as well as innovations we have worked on for years.

Speaker 3: are increasingly close to commercialization.

Speaker 3: including expanding our portfolio beyond supplements.

Speaker 3: While not an immediate business driver, we also have untapped potential in NAD precursors beyond NR.

Speaker 3: which are protected by a deep intellectual property portfolio.

Speaker 3: Chromadx also possesses unique knowledge of the process and synthetic chemistry behind these NAD precursors. It leads us to believe there may have significant prophylactic and therapeutic value in the pharmaceutical space.

Speaker 3: Beyond diet and exercise, elevating NAD levels to supplementation is one of the most important things people can do to improve the way they age. Our team at Chroma X is passionate.

Speaker 3: about bringing true nitrogen to consumers around the world.

Speaker 3: We believe the best way to build a trusted brand is to be trustworthy.

Speaker 3: As a result, we have a loyal following of true believers, as well as world-class partners who have chosen to be on this journey with us. We expect to announce exciting new distribution channels and new product offerings soon.

Speaker 3: As a result, we have a loyal following of true believers, as well as world-class partners who have chosen to be on this journey with us. We expect to announce exciting new distribution channels and new product offerings soon. Some of these are years in the making.

Speaker 3: because of this unwavering commitment to quality and to trust, which takes patience. But we believe is a more enduring business model.

Speaker 3: We look forward to sharing more in future updates.

Speaker 3: And I would like to now turn the call over to Brianna.

Speaker 3: to discuss this quarter's results in greater detail and then onto Q&A in closing remarks.

Speaker 3: detail and then onto Q&A and closing remarks. Rihanna?

Speaker 5: Thank you Rob. It's a pleasure to speak to our investors, partners and employees who have joined us today.

Speaker 5: Chromodex delivered strong results in the first quarter, with total net sales of 22.6 million up 31% year over year, gross margin of 59.9%. And a reduction in overall operating expenses of 2.8 million year over year.

Speaker 5: in line with our objective of maintaining operational discipline. In the last reporting period, we shared our full year 2023 outlook, expecting to be close to adjusted EBITDA break even or better, following the first quarter of 2023. I am proud to announce that we exceeded expectations within adjusted EBITDA loss of only $69,000 in the first quarter.

Speaker 5: and improvement of 4.4 million year-over-year.

Speaker 5: Furthermore, we delivered positive cash flows from operations of 2.8 million, a notable improvement of approximately 10 million year over year.

Speaker 5: The strong performance this quarter was a result of continued growth in our e-commerce business, including the Amazon homepage takeover event that Rob mentioned, as well as increased sales to key partners, including Watson and Niagara and Ingredient partners.

Speaker 5: Furthermore, we continue to execute on operational efficiency initiatives across the organization, which contributed to solid bottom line performance.

Speaker 5: These achievements have not been possible without the collaborative efforts of our entire Cromodex team. As we diligently balance our investment in strategic growth initiatives, coupled with disciplined expense management.

Speaker 5: Our primary focus in 2023 is to position the business for sustainable growth and profitability and we are very encouraged by the execution this quarter.

Speaker 5: With that, let's turn to the first quarter financials in more detail.

Speaker 5: As I said, total net sales in the first quarter of 2023 were up 31% year over year, as compared to the first quarter of 2022, with an 18% increase in true nitrogen driven by 12% growth in e-commerce sales, and 36% growth in combined Watson's and other B2B sales.

Speaker 5: Watts and sails were up 1.1 million year over year, partially due to timing with modest growth from our other partners.

Speaker 5: The growth in our e-commerce business discord is partially connected to the Amazon homepage takeover event that occurred in mid-March. On the day of the event, we observe spikes in both unique visitors and shoppers on our Amazon channel, which can be attributed to the over 130 million brand impressions generated by the event.

Speaker 5: In addition, we received access to data and sales funnel analytics related to these unique visitors, which allowed us to follow up with second-chance offers and additional retargeting initiatives. Separately, we are seeing bright spots on our own website, with the majority of leading indicators up sequentially, including organic search. The sales trend has yet to inflect, but these are encouraging finds of improvement.

Speaker 5: Another important driver in our first quarter results with NIAGEN ingredient sales, which grew 245 percent or 2.8 million year over year. This was fueled by the development of a new partnership and the strengthening of existing partnerships, as their recent launches began to accelerate and they expanded into new markets. Going forward, our discussions about partnerships will focus on recurring, stable business.

Speaker 5: rather than new and less predictable business until we observe a successful ramp. As such, we look forward to sharing more about our new partnerships and future updates.

Speaker 5: Growth margins decreased by 110 basis points to 59.9% compared to 61% in the first quarter of 2022. The lower growth margin was primarily driven by changes in our business mix. A VECommer sales accounted for only 54% of our total net sales in the current quarter.

Speaker 5: compared to 63% in the prior year quarter. In addition, we experienced modest continued inflationary pressures, which we are working to offset through our cost savings initiatives. Selling and marketing expense as a percentage of net sales decreased to 34.9% compared to 47.7% in the first quarter of 2022.

Speaker 5: As a result of our continued focus on the most efficient distribution channels and marketing campaigns in the first quarter, our cost per customer acquisition or CPA decreased by over 40% year over year, with decreases in both our own website and Amazon.

Speaker 5: The CPA calculation accounts for the full investment of the Amazon homepage takeover in March, benefits from which are expected to yield results beyond just this quarter. In addition, our CPA improved by 20% sequentially for our own website as we focused on acquiring new customers efficiently.

Speaker 5: As reported, general and administrative expense was lower by 2.5 million, mainly due to lower legal expense of 1.5 million, as well as lower executive headcount and related expenses, including share-based compensation and separate.

Speaker 5: For the first quarter of 2023, our operating loss was 2 million versus a 7.7 million loss in the first quarter of 2022. The net loss attributable to common stockholders for the first quarter of 2023 was 1.9 million or a loss of 3 cents per share. As compared to a net loss of 7.7 million, the net loss was 2 million versus a 7.7 million loss in the first quarter of 2021.

Speaker 5: or a loss of 11 cents per share for the first quarter of 2022 marking a significant improvement.

Speaker 5: Moving to the balance sheet and cash flow. Our balance sheet remains strong. We ended the quarter with $23.1 million in cash and did not borrow on our line of credit. In the first quarter of 2023, net cash provided by operations was $2.8 million versus a $7.2 million use of cash in the first quarter of 2022.

Speaker 5: $1.7 million in the first quarter of 2022, a positive $4.5 million impact to cash.

Speaker 5: Our improved cash flow related to inventory was a result of stronger sell-through of True Nyogen through our e-commerce channels and to key partners, higher volume of Nyogen ingredient sales, and more efficient production management, particularly in regard to newer partnerships.

Speaker 5: As it relates to our 2023 full year outlook, we have provided details on the QP&L metrics in our earnings press release along with the slide presentation.

Speaker 5: Overall, all key metrics remain unchanged from last quarter's outlook, with the exception of G&A expense, which we now expect to be down 1-2 million versus our previous guidance of down 2-3 million, and we've raised the low end of our revenue outlook.

Speaker 5: We continue to take a conservative approach to our top line outlook, but now expect at least 12.5% growth year over year, up from at least 10% previously. Of note, the conservative end of our outlook does not include upside from opportunities in our pipeline or the conversion of NMM customers to Trunaiagin, which Rob highlighted earlier.

Speaker 5: since it is still too early to estimate the 2023 impact of that major NAD market development. At least 12.5% projected growth is largely based on sustainable recurring revenues from our e-commerce business and existing partners with a slight increase based on upside realized from our newer partnerships in the first quarter.

Speaker 5: However, we still see many opportunities for significantly greater revenue growth this year, stemming from new business development initiatives, including new partners, channels, and products.

Speaker 5: As it relates to adjusted EBITDA, our focus remains on achieving sustainable profitability through strategic investments, balance with financial discipline. We expect to be close to adjusted EBITDA break even each quarter. However, we may experience quarterly volatility due to the timing of sales and important R&D initiatives.

Speaker 5: Notably, we anticipate heavier R&D investments in the second quarter, some of which were delayed from the first quarter, along with lower sales to Watsons and Nyogen ingredient customers compared to the first quarter due to timing of purchases.

Speaker 5: In summary, we delivered strong performance in the first quarter and are seeing encouraging trends and opportunities in our overall business.

Speaker 5: Beyond operational efficiencies, we have many reasons to be confident in our pursuit of sustainable growth based on our internal initiatives and partnerships already in the pipeline.

Speaker 5: We realize there is still more work to do, but I am continuously impressed by the Chromodex team and their dedication to position the company for long-term success. Operator, we are now ready to take questions.

Speaker 5: At this time, I would like to remind everyone in order to ask a question, please press star and send the number one on your telephone keypad. In the interest and time, we ask that you please limit yourself to one question and one follow-up.

Speaker 5: Thank you. Your first question comes from the line of Jeff VanCinderen with B.Reilly. Your line is now open.

Speaker 6: Hi everyone and great to see the growth.

Speaker 6: coming in strong on the top line in your quarter. And I think you mentioned some of this in your prepared comments, but.

Speaker 6: And you just walk through how much Amazon I did the special event with them how much I contributed in the quarter maybe to spend that. Same for the ingredient business partnerships. I think you mentioned something around that just kind of.

Speaker 6: Maybe if you can unpack the drivers of the ingredient business and how sustainable the growth of that you think is going to be in the near term. And just maybe, I don't know, touch on Nestle and some of the other partners around that business would be helpful. Jeff, there's supposed to be one question. You packed like eight questions.

Speaker 3: but we don't control it as much. Sometimes it's timing related. An order will come in from

Speaker 3: one of our partners And they often will not then purchase in the subsequent quarter

Speaker 3: But there is an increasing demand for nitrogen.

Speaker 3: from other brands that are interested in us supplying. And as you know, we've been extremely selective about that.

Speaker 3: In the early days, Chromadex did supply to a number of companies, some of whom actually stole the ingredient from us and ended up being unreliable partners or in some cases didn't pay their bills. Now we're very careful as to whom we supply the ingredient to and we have a really excellent point.

Speaker 3: group of partners presently like H&H and life extension and as you mentioned that should meet at the clinic.

Speaker 3: We're very excited about Nestle. As you know, they haven't launched the product as of yet. We expect them to launch a product in the next, certainly, couple of quarters, maybe next quarter, probably the quarter after that. They have a number of brands in which they intend to launch a nitrogen. It's all formulations. They won't be selling any single ingredient of nitrogen. That we reserve for Chromadex, for true nitrogen.

Speaker 3: But they're very excited about it and they're putting a lot of time and energy into it, but we are, you know, being very conservative in our projections for that. In fact, as you know, we're projecting no additional purchases this year from Nestle, but we hope to be pleasantly surprised. We may add another ingredient partner or two in the coming months. There are quite a few that have been contacting us and quality us and interested.

Speaker 3: But again, we have very high strict standards as to the types of companies with whom we partner.

Speaker 3: We don't want to put a company specifically in business. They should have an existing business. They should be able to pay their bills and pay their bills. They shouldn't be making false claims in the marketing with NIAGEN. They should be consistent with our brand guidelines and with our marketing claims.

Speaker 3: But there are some good companies out there with whom we're interested in partnering in the US and abroad on the nitrogen business. So I do think that there is growth ahead in nitrogen.

Speaker 3: companies out there with whom we're interested in partnering in the US and abroad on the nitrogen business. So I do think that there is growth ahead in nitrogen. The Amazon

Speaker 3: home page deal that we did actually brought in a significant amount of revenue in that day, but we haven't disclosed the exact number, but it's quite a number. It's a sizable number, but what's more interesting is the returning revenue from that, as well as the retargeting opportunities there. So many, many people can't...

Speaker 3: many brands, they offer that to brands that they think are special and that they see that is a reliable brands that are safe in their marketing claims and their consumers rate very, very highly. And so we fit that bill and so Amazon is very supportive and good partner. We have had some headwinds on Shopify as we've discussed in previous quarters.

Speaker 3: But we're starting to see improvement there. We've made a few changes here internally in our internal structure as well as our external partners, and those changes seem to be working. And so we're hoping and expecting to see more meaningful growth on the website as well in the coming quarters. But again, we're very conservative in the projections that we give you there.

Speaker 6: Okay. Okay. Most of not all. Appreciate that. That's helpful. And then just want to follow up if I could just wondering if there's anything else you can tell us about the R&D investments you're wrapping up in here too.

Speaker 3: From a financial standpoint, I'm going to ask Rhianna to answer that.

Speaker 5: and commercial opportunities. Rob, anything to add to that?

Speaker 3: But as you can see, because I know that you look at all the press releases we put out in the studies that come out, I mean the volume is extraordinary. We're seeing NAD and R studies now almost daily.

Speaker 3: There have been several this week. And with great consistency, I mean, it's pretty clear that if you elevate your NAD levels, your body, your cells, your body, your organs are better equipped to handle the stressors.

Speaker 3: life whether it's a short-term stress or just the long-term stress of aging.

Speaker 3: And you know, we're quite convinced based on the data and our own personal experiences that the thing works. And the studies are getting our increasingly clinical studies and some of the clinicals are moving from phase one to phase two. So we have now quite a collection of data and analytics and it's...

Speaker 3: It's more than time for us to commercialize it more than just these limited claims that one can make when they're selling a dietary supplement.

Speaker 3: So we're expecting extensions in other areas and even potentially the pharmaceutical area in the future to take advantage of this great data and the intellectual property we have, not only for NR chloride but all the other NAD and NR analogs that we have in our control.

Speaker 6: Okay, great. Thanks for taking my questions. I'll take the rest offline.

Speaker 5: Thanks, Jeff. Your next question comes from Ram Silveradu with H.C. Wing. Your line is open.

Speaker 2: Can you hear me? Yes, Ram. So firstly, with respect to gross margin evolution, I was wondering if you could comment on that, give us a little bit more granularity in the context of the inflationary environment, the possibility of taking some price increases and the degree to which you see how the efficient

Speaker 5: demand in elasticity. Sure, I'll take that one. We thought we had a pretty good growth margin and the quarter is almost 60%. It was down year over year. That was more about business mix than it was inflationary pressures. We are navigating those inflationary pressures fairly well and the year-over-year impact is also subsiding.

Speaker 5: So the quarter decline was more about the business mix, partially offset by scale with the higher sales that we had. As it relates to pricing, we're looking at more indirect levers in the current consumer environment. We do think that a large group of our consumers are fairly priced in elastic, but we're mindful of the macro backdrop. And at this point.

Speaker 5: We're not considering direct price increases, but there may be some indirect levers, for example, charging for shipping, changing shipping speeds, things like that. I think that answered your question. Rob, anything you'd like to add to it? Yeah, it took it into, but in addition to that one thing that we know, and you probably know as well, Ron, is that...

Speaker 3: People who take a higher dose, particularly a gram a day, notice the benefits of true nitrogen much more than people who take 300 milligrams or less.

Speaker 3: But it gets to be pricey. So we understand that the bulk of our consumer base are highly, highly educated and affluent consumers, and they are relatively pricey and elastic.

Speaker 3: However, there's a large consumer base that is sensitive to price and if they view it as a dietary supplement, it can be a quite expensive dietary supplement, particularly if you're taking 600 milligrams or a gram. So we understand there's a bit of a bifurcation in the market there. There's a large opportunity at the lower price end.

Speaker 2: consumers, but it's a challenge because it is expensive to make. That's very helpful. And then the second question relates to your planned R&D activities. And in particular, when we think about neurodegenerative neurological conditions, clearly there's a lot of focus these days being placed on all time.

Speaker 3: something like that. Yes, we do. Yes, I agree. Alzheimer's is an extremely hot topic these days and we've received numerous calls.

Speaker 3: from many researchers and companies interested in working with us on Alzheimer's, both as a drug and as a combination dietary supplement.

Speaker 3: Many of the trends in Alzheimer's research right now involve this neuroinflammation, not just Alzheimer's, but all these neurological disorders. And it's quite clear that when you take sufficient amounts of true nitrogen, it reduces inflammation and does cross the blood-brain barrier, and you see that there's a reduction in neuroinflammation. So true nitrogen has an excellent…

Speaker 3: either as a drug or as a supplement is of great interest to us and we are putting a fair amount of time and energy into it in coordination with our Scientific Advisory Board member, Rudy Tanzi, who is considered one of, if not the, leading expert in the field.

Speaker 7: Thank you. Thank you. Your next question. I'm from Mitch Panero with Third Event. Your line will be. Yeah. Hey, good afternoon.

Speaker 7: Thank you. Thanks, Ron. Your next question comes from Mitch Pinero with Sturt Events. Your line is open. Yes. Hey, good afternoon. Good afternoon. Good afternoon. Good afternoon.

Speaker 8: Hey, I know you don't you don't give sort of quarterly guidance, but I do want to make sure I understand The second quarters sort of revenue Proposition so You had it. You had a good Amazon You know day. I I guess some of that can you

Speaker 8: the Amazon homepage day.

Speaker 5: So, Mitch, I'd say yes to your question on, there will be some reorders anticipated and also Rob mentioned retargeting consumers who maybe didn't convert on the day of, but we continue those retargeting efforts. We're not going to get specific on sequential...

Speaker 5: growth in e-commerce. It's been steady and growing without that event, but that event was clearly a great single day for us. So that's what I'd say about that sequentially. I'm happy to comment on the others outside of e-commerce, but Rob, anything else on e-commerce? No. Okay, and then, and so, and Watson's had, there was some timing, so Watson's will be...

Speaker 8: sequential comp, correct?

Watson's, yes, there's some seasonality to their business as a retailer. So if you look to last year, you saw a step down from Q1 to Q2 as they time their purchases more around the key promotional period later in the year. You can look to that just as a directional guide. Again, we're not going to get too specific.

Okay and then in the quarter sort of just staying on that e-commerce so what was the mix like in the first quarter new customer versus recurring customer?

Well, obviously it was extraordinarily successful in the first quarter for new customer in part because of the Amazon takeover.

I mean that was

almost all new customer. So that was a fairly dramatic day, but also it's true in Shopify as well. I mean on our website, we're seeing an increase in new customer. It's been healthy, our new customer acquisition.

And the conversion to recurring, how, I mean, is that any pace of change?

and the conversion to recurring house, I mean, is that any pace of change? Delta there.

It's been pretty flat. Normal conversion rates? Right. You mean retention rates, yes. Retention rates. Okay.

And then I guess this last question, just a very minor question, but as it relates to just the macro backdrop from consumer pressure, etc., I noticed that bad debt expense was a touch in the quarter more than normal and I was wondering if that's indicative of anything we need to be...

concerned about? No, not indicative of anything to be concerned about. If we look at our receivables overall, they remain with large established partners and on balance, we think a lot of AR growth is due to timing. As you said, there was a bad debt reserve in the quarter.

But what I'd say is we've resumed business as usual with that partner. So we think we got that one back on track but wanted to be conservative there. Okay, all right, well, I'll get back in the queue. I'm done with my two questions.

But what I'd say is we've resumed business as usual with that partner. So we think we got that one back on track but wanted to be conservative there. Okay. All right. Well, I'll get back in the queue. I'm done with my two questions. Thank you, Mitch.

Great, I was having problems with this very same phone yesterday, so that's why I asked. First question is regarding inventories and payables, you know, somewhat related there, both of them quite a bit lower than I thought, and in both cases at the lowest absolute levels.

since you know kind of mid or late 2020. So you know look for some guidance there. Do we have enough inventory and do we want payables to be this low?

kind of mid or late 2020. So you know look for some guidance there. Do we have enough inventory and do we want payables to be this low?

You're right, Sean. There is some relation between those. Both in our nitrogen ingredient purchases. We get the inventory in, for example, from WR Grace or CMOs, we create a payable. So there is some relation there. Obviously other things go into payables as well. But what I'd say is our inventory, the team is doing a nice job.

But yes, overall, I'd say the team's managing it very well. We're comfortable with our inventory levels and proud of the efforts to manage our working capital there. Thank you.

Yes, overall I say the teams managing it very well. We're comfortable with our inventory levels and proud of the efforts to manage our working capital there. So maybe expect to see them.

managing it very well. We're comfortable with our inventory levels and you know proud of the efforts to manage our working capital there.

been in relationship to sales because we don't need to have as much safety start. Correct, yeah the COVID really extended supply chains from the time we placed the purchase order till we got it. So you know maybe five, six months and if we can work that back to three, four that certainly helps us manage our inventory as well. Very helpful and then two other points if you can clarify on expenses.

You mentioned a million and a half in legal. Did you mean that that was the legal spending in the quarter or that was the magnitude of the reduction?

the magnitude of the reduction. Right okay and then I'm a little confused that the Amazon expenses like the expense for this marketing that would have been taken in the first quarter because the sales and marketing expenses actually down in dollars so where's that showing up?

Well.

It might have been a little aggressive in previous quarters and we're finding efficiencies in this quarter, so we were able to absorb this particular...

investment by just operating the department overall in a more efficient manner.

investment By just operating the department overall in a more efficient manner. Alright, makes sense. Okay. Alright. Thank you very much. Talk to you later guys.

Thanks, Sean.

Hey, JP. Hey, JP. Hey, good quarter. Just one question. It's about the pro market, which I know we've talked about in previous quarters as an opportunity. I wondered if it's something that you're focusing on and if there's progress in that area. There we go.

Hey, good quarter. Just one question. It's about the pro market, which I know we've talked about in previous quarters as an opportunity. I wondered if it's something that you're focusing on and if there's progress in that area.

This is the you're talking about the HCP the healthcare practitioner market, correct? That's right Yes, we consider this a very high priority It as a category in the P&L did not grow in this quarter, but we expect it to in future quarters Are you adding salespeople to that effort or how do you how do you expect it to grow or why would it grow?

We are. We're adding salespeople to the category and we are adding resources to the category. Okay, I think it's a great opportunity.

That's why I keep asking. Okay, thank you very much. Yeah, you are right. Your next question comes from Jeff Cohen with Ladenburg-Hellman. Your line is open. Hi, Robin, Brandon, how are you?

Okay, thank you very much. You are right. Your next question comes from Jeff Cohen with Ladenburg-Hellman. Your line is open. Hello, Ladenburg-Hellman. How are you? Hi. Hi, Jeff.

through Provena, 24% from Watson's and other BNB. Could you talk to us a little bit further about locations? I heard Hong Kong, the Cal Singapore. Could you give us an idea?

stores which are currently servicing and any of, and turned into other B&B.

Jeff, do you mean where are we selling with Watsons today? Yes. Iris T tableau and'mat H

Well, we still continue to sell to Watsons in primarily in Hong Kong, Macau and Singapore and we do a bit in the UK in Superdrug as well. The bulk of their sales are in Hong Kong.

I could point out that their cell through in the first quarter was very strong. Coming off of COVID and even prior to COVID they had those protests there.

So it's been a long period of headwinds with Hong Kong watsons, but they seem to be lifting and it seems to be well back on track.

You said that was $3.7 million and that the second quarter would be probably a bit lighter than the first quarter. Rodriguez.

but it continues to work on it. And there's perhaps some continued headloin journey. Any of you have puts and takes there or worth talking about, or how do you feel about that 59 or 60% range for the full year, 20, really?

Yeah, so we reiterated the outlook. We still feel comfortable with the stable gross margin. It was 59.4% on full year 2022, and we did 59.9 in the quarter. And that was even with some business mix, which we called out. That's notable, even though e-commerce grew, there was a larger contribution from.

Thanks, Josh.

We have time for one final question. Your next question comes from Matt Dane with Teton Capital Management. Your line is now open. That's tight in capital. I want to ask a little bit more about the Amazon homepage takeover. It sounds like the results were beyond what you expected. I have to just curious.

What did you find out that you weren't expecting from the homepage turnover? And what longer-term conclusions have you been able to draw from that? And then finally, you said that it's not something you can consistently do, but I was curious, is this something where you sort of get in the queue to hopefully allow Amazon allow you to do this again here, say, six months from now? Or how does that work?

And it will take a while for us to assess the overall return on that investment.

And the reason why it's difficult to do frequently is because it's expensive. And it's not just the cost of that, it's the opportunity cost of not pursuing other brand awareness opportunities.

In terms of what we learned, in terms of what we learned,

Not much. I mean we already know that people like TrueNigest. We already have a pretty good sense of how many times we have to hit people online with advertising and the types of advertising to get them to convert and we have a pretty good sense of what those conversion rates are and it was reasonably consistent, certainly consistent with our expectations.

Whenever you're going on a mass scale like that, it's reasonable to assume that your conversion rates are going to be reduced somewhat because it's more broadly based and not targeted.

So, but it was overall quite consistent with our expectations on the debt.

Okay, no, that's helpful, Rob. I did want to also ask, I think you mentioned Andrew is on the call as well. What recent research developments really have Andrew most enthusiastic here currently that you folks have seen come out?

I will go ahead and take that. Thank you, Rob. I think Rob alluded to it earlier. Perhaps the most exciting area of development is in the areas NR, NAD, and neurodegeneration. Thank you for wanting to chat.

Clearly, we've known for many years based on preclinical studies that NAE is critical for the health and normal function of neurons in the brain. And now, as Rob alluded.

We're seeing those pre-clinical results translate into clinical studies. And probably the most advanced area for clinical studies is in Parkinson's disease where studies have evolved from phase one, now into phase two and three.

that are ongoing right now as we speak in Norway. So I think that's the most exciting area, but there are many, many others as well, but that's probably the most, I think, advanced area of research.

Okay, and those studies that you're referencing Andrew that are taking place in Norway currently when is the readouts expected from those? Probably They're more than a year away. These are large trials one is over 400 patients that's going on right now

It's registered and goes by the acronym of NOPARC. And that one is over a year long. So it'll probably finish up sometime in 2024, 2025 and then be published months after that. So these phase two and three trials tend to be much longer term.

Okay, now that's helpful. But there was an interim study by the same group of researchers on safety for a much higher dose of nitrogen. And as part of that study, they included some secondary endpoints, which might be interesting as well. In Mutant

That is correct, Rob. That study has completed but is undergoing peer review publication at the moment. So we eagerly await the publication of those results. Great. Well, I appreciate the time.

Thanks, Matt. Thanks, Matt. Thanks, Andrew. Thanks, Matt. Thanks, everyone.

There are no further questions at this time. I would now like to turn the call back over to Brianna Gerber.

Thank you, Brianna. There will be a replay of this call beginning at 4.30 p.m. Pacific time today. The replay number is 1-800-770-2030, and the conference ID is 412-61-68. Thank you everyone for joining us today and for your continued support of Chromedex.

This concludes today's conference call. You may now disconnect.