Q2 2023 ChromaDex Corporation Earnings Call
Hello, My name is Asia, and I'll be a conference operator.
At this time I would like to welcome everyone to the chroma deck second quarter 2023 conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If he would like to withdraw your question press the star followed by one again. Thank you tend to finish you may begin your conference.
Thank you good afternoon, and welcome to <unk> Corporation second quarter 2023 results Investor call.
With us today are chrome IDEXX as Chief Executive Officer, Rob Fried Chief Financial Officer, Brianna, Gerber and senior Vice President of scientific and regulatory Affairs, Dr. Andrew Shao, who will join in the call for Q&A.
Today's conference call May include forward looking statements, including statements relating to Cromer vaccine research and development and clinical trial plans and the timing and results of such trials the tie.
<unk> of future regulatory filings the X.
Of the sale of Qunar, igen and new markets.
Business development opportunities.
Our financial results.
<unk> operating performance.
Investor interest and.
And business prospects and opportunities as well as anticipated results of operation.
Forward looking statements represent only the company's estimates on the day.
This conference call and are not intended to give any assurance as to actual future results.
Because forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties.
Many factors could cause chromite acts as actual activities or results to differ materially from the activities and results anticipated in forward looking statements.
These risk factors include those contained in <unk> quarterly report on Form 10-Q, most recently filed with the SEC, including results of operations financial condition cash flows as well as global market and economic conditions on our business.
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 actual results or changes in its expectation.
In addition, certain of the financial information presented in this call references non-GAAP financial measures.
The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the company's website.
Present, reconciliations to the appropriate GAAP measures.
Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at Www Dot <unk> dot com with that it is now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried.
Thanks, Ken Good afternoon, everyone and thank you for joining us on today's investor call.
We delivered another strong quarter with $23 million in revenue, a 21% increase year over year positive adjusted EBITDA of 200000 in positive operating cash flows of $3 million.
For the first half of the year revenues were up 26%.
And we generated $6 million of cash flow from operations.
We ended the second quarter with $26 4 million in cash and no debt.
This marks the third consecutive quarter of revenues over $20 million and demonstrates our ability to deliver cash flow breakeven on a consistent basis.
Our ecommerce business remains our largest and most consistent source of revenue E. Commerce net revenue was up 8% year over year in the second quarter as we focus on profitable growth.
Specifically, we targeted consumers, who searched our tonight's and brand during the Amazon homepage takeover last quarter, while reducing top of the funnel spend on that channel compared to last year, we have significantly reduced spend on search and social while revamping, our creative campaigns and website landing pages.
For the total company sales and marketing expense was 29, 6% of net revenues, which was down sequentially and a significant reduction from 47, 9% in the prior year quarter.
While we are pleased with the progress and adjustments made to date, we continue to look for ways to optimize our overall marketing investments with a focus on efficiency.
Watson remains a valued strategic partner with second quarter revenues of $3 million double the prior year period.
Recently launched <unk> immune in Hong Kong with a robust marketing campaign in store and online.
Early sell through is positive.
Loyal to nitrogen consumers are resonating with the concept of stacking, which involves combining <unk> with <unk> immune <unk> beauty.
Especially in light of the increased awareness surrounding the importance of bolstering immune defenses during COVID-19 pandemic.
Watson's also reported strong sell through for our core true nitrogen product on the back of the New Influencer campaign, featuring a well known award winning actress in Hong Kong.
Rounding out the portfolio Tonight, and beauty was awarded the best Beauty NPA ageing supplement and best beauty supplement for skin Erin now by Watson set their 2023 awards ceremony.
Outside of Hong Kong Watson's, China has been partnering with Sino form to expand sales in that region through cross promotions and campaigns.
China remains a strategically important market for <unk> beyond the existing cross border business.
And we are redoubling, our efforts on blue had approval to sell <unk> in country, which is taking longer than anticipated.
<unk> farm and Watson, a combined retail footprint of nearly 15000 stores in China, and we fully recognize the importance of capturing this tremendous market opportunity. Additionally.
Additionally, I'd like to highlight one of our new strategic partners I heard who sales of <unk> and are off to a solid start.
The number one platform for supplements worldwide I heard offers the best brands in the industry and established a strong international presence with nearly 90% of sales generated outside the United States.
Of note I Herb has 10 million active subscribers across more than 180 countries.
By partnering with the leading e-commerce retailer in the health and wellness space, including its extensive distribution network and marketing budget, we aim to complement our own e-commerce business and expand our global reach.
Our nitrogen ingredient business grew by 72% year over year in the second quarter. This was driven by strong trends for our longtime partner life extension and specialty retail expansion strategy has recently gained momentum.
While not a large contributor to the current quarter results HMH has future expansion plans for <unk> in its portfolio and we continue to work with Nestle.
First multi ingredient nitrogen supplement launch later this year.
Yeah.
Importantly, our business development pipeline continues to grow supported by <unk> reputation as the global authority.
<unk> reputation.
As a trusted brand.
There is growing awareness of the importance of NAD and human health as we age.
Again with the scientific community as evidenced by the over 100 published preclinical studies in 2007 published clinical studies on nicotinamide Riboside or <unk>.
As part of our complex external research program to start with.
Celebrated over a decade of award winning excellence in uncovering the full potential of <unk> through <unk> <unk>.
<unk> and encourage strong scientific rigor behind our products and our relationships with academic institutions help make this happen.
Surface produced over 70% of registered ongoing or completed NR trials listed on clinical trials Dot Gov, using nitrogen, which is a testament to the tremendous value of this program.
Last month, an article in science advances reviewed the body of published peer reviewed clinical studies on NR over the last 10 years.
Including that nicotinamide Riboside may play a role in the reduction of inflammatory states and has shown potential in the treatment of severe diseases in humans.
Specifically the authors found that NR was consistently shown to increase NAV.
And related metabolites in whole blood and occasionally in white blood cells.
We agree the collection of clinical studies published to date demonstrate great consistency with respect to oral NR supplementation to boost old blood NAD levels and reduce inflammation.
A known risk factor for many age related diseases.
Our research to date is exciting progress for.
For our novel ingredient and follows the research path of other proven blockbuster ingredients, which typically begin with a series of preclinical studies followed by extensive clinical safety studies.
We hope this article on the state of NR research serves as a call to action for researchers to further advance the science and.
And we continue to support our research through Sir and there are over 40 additional clinical studies underway.
At Chrome IDEXX of holding scientific integrity to the highest standards is of Paramount importance.
As a testament to this commitment over 95% of studies conducted via our entirely independent.
Best together and initiated and funded by third parties.
By adopting this approach we foster a significant level of trust in the research in contrast to the skepticism around industry funded research in the dietary supplement industry.
Of note and independent article by Lab, you attack, the leading online media outlet for the biotech industry in Europe named clinical research published on NR in Parkinsons and Alzheimers disease to surf among the top recent scientific advances in those diseases over the past year.
Additionally, an article in all farmers in dementia weekly title B three blocks, all farmers boost memory and mood also mentioned NR.
It's a true testament to the work surface is doing to uncover the full potential of knives that are ingredient has been featured alongside promising therapeutics for consumers suffering from these diseases.
The Chromebooks NID is in our DNA.
Drew Sir we support the research behind nitrogen the most efficient NAD precursor on the market.
And have developed a deep intellectual property portfolio to protect our competitive position.
We knew early on that rolling out our products to global markets with the mission to improve as many lives as possible is a priority for us and wanted an IP portfolio to match that.
Two of our scientists were recently featured in longevity technology in an article titled a strong patent portfolio delivers a competitive edge in the longevity space.
Article discuss <unk> as impressive array of over 60 owned or licensed patents protecting <unk> and and other related NAD precursors.
These include a range of the key patents, including methods of manufacturing methods of use and composition of matter patents.
The latter among the strongest and most enforceable patents of domestically in the U S and internationally in markets, such as China, Europe , Australia and Canada.
Collectively these patents provide strong protection for the next decade, allowing <unk> to launch future innovations with confidence in the moat around our business.
And to remain a trusted leader in the space, we feel it's important to defend the inventions that we've worked so diligently to protect and take action to prevent infringement.
Recently, we've seen awareness of the benefits of supplementation and other delivery mechanisms like IV therapy for overall healthy aging is extended to more consumers.
Just last month, there were four articles mentioning <unk> in the context of healthy aging supplements, including popular media outlets such as time business news in Harper's Bazaar, UK with almost 50, such editorial mentions in 2023 to date.
One of these is a piece and it's not that the world's number one nutrition website.
One of the top five food media outlets in the U S discussing have celebrities such as Kendall Jenner and Hailey Bieber look to NAD boosting to prevent the aging.
The article focused on NAV.
Therapy showcase that can be uncomfortable and take hours to inject and highlighted tonight for those who prefer to an alternative and accessible supplement.
The same publication later ran an article about celebrities who our biohacking to live longer which featured our longtime true believer Brooke Burke discussing the benefits of elevating NAD with.
With true knowledge and as we age.
While overall awareness and sales of <unk> products are growing one NAV supplement <unk> was banned by the U S. FDA.
Reputable retailers, including Amazon and Walmart are no longer selling in and then yes.
Yet certain and then companies continue to sell on their own websites.
Consumers should carefully consider if they want to buy a supplement from a company that has knowingly selling an illegal product in the United States.
In contrast, nitrogen the ingredient <unk> stands apart with third party testing extensive safety data compliance with proper regulatory notifications and its superior efficiency as a precursor compared to M&A.
Data continue to accumulate which reinforce what we've known for years that when M&A supplemented it cannot directly across the cell membrane and must be first converted into NR.
This was once again demonstrated in our recent publication from the group led by the late Anthony Savi.
<unk> demonstrated that Isa topically labeled <unk> administered to mice is converted to nicotinamide riboside nicotinamide before being utilized for synthesis.
This is the latest in an expanding list of studies that show definitively <unk> must be converted to NR.
NR is superior.
Importantly, <unk> is readily available today legally.
Consumers, who want to elevate NAD levels.
We are seeing some benefit on our sales from the removal of that and then on a platform like Amazon, but the shift to direct sales by <unk> companies.
Currently still limiting the upside potential as.
As we look to the future we see several near term opportunities to extend our market.
We have diligently worked on several initiatives that are expected to materialize later in this year or early next year and they represent the culmination of years of effort.
Our overarching mission as the company.
As to improve as many lives as possible.
This mission extends beyond human health and nutrition through supplementation into new categories and new precursors.
All of these market expansion opportunities are supported by the foundation, we have built over the last 10 years as the global authority in science, and a trusted partner to leading researchers and regulatory authorities.
We look forward to sharing more in future updates.
I would now like to turn the call over to bring honest to discuss the quarter's results in more detail and then onto Q&A and closing remarks.
Rihanna.
Thank you Rod I want to extend my heartfelt appreciation to our investors partners and employees for your continued support.
Excited to see a strong second quarter financial results, which reflect our strategy of balanced top and bottom line growth and overall operational discipline.
We have now delivered two consecutive quarters of positive operating cash flow of $6 1 million generated year to date in 2023.
Well working capital, notably disciplined inventory management contributed to this robust performance, our adjusted EBITDA and non-GAAP metric was also slightly positive over the period.
As mentioned last quarter.
Is to position the business for sustainable growth and profitability and we are very proud of our progress to date through the collective effort of the climate X team.
Alright, and the key drivers at this John second quarter performance <unk> delivered total net sales of $20 3 million up 21% year over year gross margin of 68% and a reduction in overall operating expenses as we managed all areas of our cost structure, while making strategic investments.
As Rob said, our E Commerce business remains a steady source of revenue with 8% growth year over year, even amidst a substantial decrease in media spending.
Two additional factors that contributed to the more efficient e-commerce growth this quarter compared to the prior year period.
First we re targeted consumers who were exposed to our <unk> brand, but did not convert during the Amazon homepage takeover last quarter, which required less part of the final standing desk quite high.
Second we are comparing against Bobby TV investment in the prior year period as a result, we experienced significant improvements in marketing efficiency, which remains a key area of focus for the company.
Financial discipline has been a priority for us.
Adding to the successful reduction in total operating expenses of $1 8 million versus the prior year period. This achievement is particularly noteworthy considering certain expenses like severance related to executive departures were recognized installed this quarter, but will be paid over time.
Additionally, we recorded a higher bad debt reserve related to our partnership with shop HQ.
Combined these expenses accounted for a $1 2 million dollar increase in G&A year over year.
Yes.
As you May recall last quarter, we booked a bad debt reserve related to shop, HQ and did not anticipate the need for any further reserve based on the actions taken by their parent company <unk> media brands to strengthen its balance sheet.
Unfortunately, despite these efforts they ultimately sought chapter 11 bankruptcy protection with a further reorganize the business.
Sure. Thanks Heath.
Retail model has proven to be a viable channel for Tonight.
There are a few potential buyer for our media brands, we understand that <unk> is a top selling product in shop, HQ and we believe we will come to reasonable financial terms that allow us to continue the relationship with that let's turn to the second quarter financials in more detail.
As I said total net sales in the second quarter as 2023, we're at 21% year over year as compared to the second quarter of 2022.
That's a 16% increase in Shanghai.
Driven by 8% growth in ecommerce sales and 53% growth in combined Watkins and other BW sales with Watson sales gasoline compared to the prior year period.
As mentioned upfront the growth in our E Commerce business. This quarter was in part connected to the Amazon homepage takeover event that occurred in mid March separately. The increase in Watson South was somewhat impacted by a challenging prior year comparison since in 2022, there was a timing impact of shipments due to COVID-19.
As Rob highlighted we continue to work closely with Watson, our marketing co investments and other initiatives to build on the strong foundation. They have established in Hong Kong and Macau.
Rounding out the <unk> performance as Rob mentioned, we recently entered a partnership with IHOP, which contributed to sales this quarter.
Very pleased to expand our global reach to their platform and encouraged by early progress at the partnership.
As Rob noted another key driver for our second quarter results with NIAID and ingredient sales, which grew 72% or $1 million driven by life extension one of our strongest long term ingredient partners to successfully expanded into the specialty retail basis here.
Gross margins increased by 80 basis points to 68% compared to 60% in the second quarter of 2020, the higher gross margin in the quarter is primarily a result of higher overall sales, which helped us better leverage our fixed supply chain costs, such as labor and other overhead. Furthermore, we continue to drive cost savings across the supply chain.
To better economies of scale in production and optimization effort and shipping and procurement.
Selling and marketing expense as a percentage of net sales decreased to 29, 6% compared to 47, 9% in the second quarter of 2022.
As a result of our continued focus on the most efficient distribution channels and marketing campaigns in the second quarter, our cost per customer acquisition or CPA decreased by approximately 40% year over year with decreases in both our own website and Amazon.
Additionally, this quarter marked the second highest count of new to brand customers surpassed only by the Amazon homepage takeover event.
These accomplishments underscore our success in re targeting those customers during the quarter.
Research and development expense was higher by $1 million as we continue to invest in innovation.
It's worth noting that the quarterly R&D spend can be volatile due to the timing of project with external researchers.
We now expect that these investments will increase during the second half of the year as we ramp up R&D projects, which we anticipate will create new commercial opportunities for <unk> in the near future.
As reported general and administrative expense was up <unk> 1 million compared to the prior year period. This was primarily driven by the higher severance and bad debt expense I discussed earlier, largely offset by lower legal costs and ongoing disciplined expense management.
For the second quarter of 2023, our operating loss of $2 3 million versus a $6 4 million loss in the second quarter of 2020.
The net loss attributable to common stockholders for the second quarter of 2023, with $2 2 million or a loss of <unk> <unk> per share as compared to a net loss of $6 4 million or a loss of nine cents per share for the second quarter of 2022, showing impressive improvement to our bottom line.
Moving to the balance sheet and cash flow our balance sheet remains strong we ended the quarter with $26 4 million in cash and did not borrow on our line of credit.
For the first half of 2023 net cash provided by operations was $6 1 million compared to an $11 million use of cash in the first half of 2020.
Consistent with last quarter the difference year over year was primarily driven by improvements in our net loss of $10 million.
Better working capital management, primarily related to inventory, which provided a cash inflow of $2 7 million in the first half of 2023 versus the cash outflow of $2 2 million in the first half of 2020 to a positive $4 9 million impacted cash year to date.
Improved cash flow related to inventory was the result of stronger sell through <unk> through e-commerce channels and to our key partners.
Their volume of Neogen ingredient sales and more efficient production management there.
We're also putting less safety stock outside our core U S E Commerce business since the COVID-19 related disruption that extended production lead times are largely behind us.
As it relates to our 2023 full year outlook. We have provided details on the key P&L metrics in our earnings press release, along with the slide presentation.
Overall, all key metrics remain unchanged from last quarter's outlook with the exception of G&A expense, which we now expect to be flat to down $1 million year over year versus our previous guidance of down $1 million to $2 million and we have again raised our revenue outlook.
The updated G&A outlook is due to the severance and bad debt expense recognized in the second quarter.
We continue to take a conservative approach to our top line outlook, but now expect at least 15% growth year over year up from at least 12, 5% previously and at least 10%. When we first gave guidance this growth excludes upside from opportunities in our pipeline with a slight increase from our last update based on upside realized in the.
Quarter, we still see opportunities in the second half of the year stemming from new business development initiatives, including new partners channels and products.
As it relates to adjusted EBITDA, we remain committed to achieving sustainable profitability, while balancing important strategic investments to drive growth.
In the first half of the year, we sustained adjusted EBITDA breakeven each quarter.
Looking to the remainder of the year, we expect to experience some volatility due to important R&D initiatives, including higher spending in the second half of 2023.
In our outlook. We also continue to plan for higher legal expense to protect our IP, but this may not be incurred in 2023.
In summary, I'm truly inspired by our achievements in the second quarter and proud of the <unk> team.
Proven our capability of delivering cash flow breakeven by driving improvement in both our top and bottom line results. The combination of solid net revenues stable gross margins streamline marketing expenses and overall reductions in operating costs showcases our dedication to becoming a profitable business.
Over we've approached this year with thoughtful planning and unwavering determination, we've consistently raised the bar and continue to drive towards accelerated craft.
We strive to carry this positive momentum forward and agile in the face of change and embracing every chance to deliver on the tremendous market opportunity ahead of us.
Operator, we are 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, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Ram <unk>.
<unk> you.
Of H C Wainwright your.
Your line is now open.
Can you hear me.
Yes, Hi, Rob.
Hi, Thanks, so much for taking my question and congrats on the solid performance of the quarter.
I wanted to just drill down a little bit on the gross margin and how you expect that to evolve, particularly in light of the developments with respect to the E Commerce channel.
And how achievable you expect staying above that 60% level.
It is likely to be in the course of the coming quarters.
Great. Thanks, Ron so year to date, we're at 63% gross margin. So as you noted a little bit above 60%.
And that's a little bit down year over year mix is a factor in that the first quarter had less ecommerce. So youre right about that E. Commerce does drive the gross margin up as we look at the second half of the year I would reiterate the full year outlook, where we are increasingly confident in delivering stable gross margins last year were 59, 4%.
So we do think that we're tracking well at the 63 and sustaining that is going to be a function of business mix, but also we've got some nice scale on the business as we're hitting on about $20 million in overall revenues and leveraging some of our fixed supply chain head count and other costs. So it's very comfortable on our outlook.
Okay.
Okay, Great and then also with respect to the NMM situation I know that this has been touched upon in previous calls can you give us a sense of whether you have any additional clarity at this time on the kinetics with which you expect <unk> to be positioned to move into taking some.
Of that market share, that's effectively being vacated by the absence of an amen.
We have seen an increase so we'll have some of our partners like life extension as a result of.
And then decline.
But it hasnt really surged significantly yet we expect it to go in the next few quarters.
Okay great.
Your next question comes from the line of Jeff Van <unk> of B Riley. Your line is open.
Hi, everyone and let me say great to see that consistent growth.
And revenues in the first half and also the cash flow from operations.
Can you touch on the mix of business that you're baking into your guidance for the remainder of the year I guess, maybe if you could help us understand kind of the components of where you see the growth coming from kind of the drivers there and then maybe address how much of the Q2 growth.
I guess is sustainable in nature, and maybe how much of it is more episodic given some.
Volumes were up pretty substantially year over year.
Hey, Jeff So we've talked about the <unk>.
Two parts of our business as we characterize them the steady recurring business, notably about E. Commerce Watson's long term established partners for <unk> as well as some night and ingredient partners like life extension that are long term partners of ours in the first half of the year. So both the first quarter and the second quarter, we saw some upside from.
<unk> ingredient side of our business contributing to growth, we noted 72% year over year increase in that part of the business in the second quarter. So that was a driver and it's also part of our raise in our outlook to at least 15% growth. So we're seeing some of that upside get realized <unk> ingredient and looking ahead.
Had we think we'll get the continued steady growth from the business as I talked about <unk> ingredient just wanted to call out there is a bit of a tough comp in the fourth quarter Nestle purchased $2 million upfront last year. So I would just factor that in to the outlook in terms of nitrogen ingredient on a Rob if theres anything you want to add.
I think in general we think the mix is going to be consistent.
Okay.
So up to now.
And then I guess as we're thinking about this from Youre talking about.
As you pointed out.
$20 million ish level of revenues.
And I'm just wondering how you think about kind of that next step up in revenues to start delivering a bit more to the EBITDA line just thinking about that on an annual basis kind of what that number is while still being able to drive sales growth underpinned by marketing.
And just maybe if you could touch on that.
Are you asking a financial question or a strategic question.
Well, it's a little bit.
It's a little bit a little bit about just trying to get a sense of kind of what do you think you can still drive realized you guys just focus a little bit more on the bottom line or maybe a lot more on the bottom line by the way.
Tom.
Just trying to get a sense of.
Just kind of what level of revenues that you feel like.
You can get to or once you get to that level of revenue.
Deliver kind of a more substantial EBITDA and getting to that Youre still.
Youre still using marketing, but using it in sort of a more efficient way I guess is what I would say.
Okay I will.
So as you know Jeff.
Little over a year ago, <unk> made a bit of a shift.
Well, it's more internal operation and focus on efficiency and focus on cash management.
And that's how we've been working for the past year.
Focus on return on AD spend and focus on our SG&A.
We're continuing to do that we obviously have shown that we can do that and have done that.
Our balance sheet is very very strong in our income statement is pretty good and getting better.
But we also recognize that there is tremendous growth opportunity and we've continued to invest significantly in R&D. During this time.
That R&D is going to pay off.
Remember, we don't view ourselves as the dietary supplement companies.
We view ourselves as in any company.
And we've got a fairly significant patent portfolio not just on nicotinamide riboside, but other precursors as well and.
And we recognize that nicotinamide riboside as an important molecule not just for dietary supplements, but there are other categories that are important as well such as drugs and others and we've been working on these for years and developing them for years. So we're expecting extensions to come in addition to dietary.
Supplements that are dramatic and significant.
Very significant upside potential but.
But we don't want to put the cart before the horse we're doing our homework measuring the market put we're planning for this to happen.
But within the dietary supplement space, we've shown that we can be a very tight efficient operation focusing on nicotinamide riboside.
Both in the e-commerce space and in the ingredient space both in the U S and globally.
And we work with some great partners than developing very selectively with other partners.
So in the coming <unk>.
Monster quarters, we expect to show strategic ideas, how there could be dramatic and significant growth.
<unk> and.
And product extensions and innovations and other things.
Yields from the R&D investment that we've made.
In terms of the existing business, we expect to continue to be efficient and focused very much on return on AD spend there's still great opportunity for us to improve on our website management.
As you know Amazon has performed extremely well.
And we have some very exciting marketing initiatives that we're going to invest in.
Soon.
That we think will also advance growth just for the straight Tonight and dietary supplement products.
Okay. There's a lot there I appreciate all that color.
And maybe if you could just touch on the IR partners.
Good one.
And then also maybe quickly than necessarily multi ingredient launch later this year.
We expect necessarily to launch a couple of products. Later this year, we don't know the exact month, but we know we're getting they're getting close.
Of course, we have other partners HMH and life extension work performed extremely well and we have and they have expectations for more growth in the future and more product extensions.
HMH is mostly an international partner life extension is U S based life.
Dietary supplement partner Nestle has rights in the U S and outside the U S.
And of course as you know, we also have watson's as a partner, but they're mostly selling our brands.
And I heard Bob.
We also recently announced the deal is Briana mentioned with I heard which is a distribution partner Scott and off to an excellent start as you know.
It took a while for us to make a deal with I heard because they had certain restrictions that they've lifted now we've made a deal with IHOP I heard they've now been selling for a few months.
It's going extremely well so far.
Your next question comes from the line of Mitchell Pinheiro of Sturtevant and company. Your line is open.
Hey, good afternoon.
Hey, Mitch.
A couple of questions.
So.
Using just a very basic sort of marketing efficiency.
Equation. It was the best marketing efficiency that I've seen going back into <unk>.
Several several years and.
And you sort of described you benefited from the Amazon homepage day in going back and revisiting the customers that didn't didn't.
So that was an easier and easier top of the funnel.
<unk>, but.
I'm just curious whether we can see whether you expect to see.
That type of.
Efficiency I know you've talked about it on the call here, but whether this is like the <unk>.
Level that we're going to see going forward or is there anything in the coming quarters that.
Right.
That might.
Take it back a little bit.
Yes, we think the efficiency will be comparable.
I mean, it's not just the re targeting off of the Amazon deal that we did that just in general more focus on performance marketing and rollout measurement.
But we do expect to be making some investments as you know the balance sheet is very strong right now business is performing in a very stable consistent way.
We know there's great growth potential. So we will again take some shops in marketing and when we take the shot that might impact the short term.
Return marketing as a percentage of overall revenue, but we're going to do it.
When it comes to recurring customer.
I'm curious if any changes there in.
In purchasing habits and.
Does that recurring customers require very low acquisition costs and if you are building those recurring customers that just.
Sets the table for for.
Even further efficiencies.
Yes, we agree we have very strong retention rates.
Marketing.
As much higher to new customer acquisitions.
That's part of the reason why more efficiencies.
Are you seeing.
Recurring customer.
Yes.
At the same type of percentage.
As in the past.
It's actually slightly lower than last year, but but but in the same ballpark.
Okay.
And then.
Your.
You've done a nice job generating operating cash flow.
So far in the first half and I am curious, whether there is any anything to call out that might change that in the second half.
Only that some of that cash flow is working capital related inventory related accounts receivables accounts payables. So.
If we buy more inventory, even if we have consistent positive adjusted EBIT there might be a dip.
In cash balance, but we're basically operating at a cash flow breakeven.
Right now.
Okay, and then I guess last last question was just.
Any update on.
What youre doing with the health care professional market and whether youre seeing any progress.
Yes.
The HCP market for us as a great opportunity not just as a revenue source, but also as an influencer marketing channel.
It's been relatively flat for us for the last year and a half.
But we did recently, bringing on some excellent new internal personnel that were very excited about it. So I'm very hopeful that we're going to start seeing growth in that channel soon.
Okay.
Alright, Thats all I have thank you.
Thanks Mitch.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Your next question comes from the line of Sean Mcgowan of Roth <unk>. Your line is open.
Thank you good afternoon.
I wanted to start by focusing back on the on your comments on working capital are you in fact inspect expecting.
Working capital will require net.
Net uses of capital in the second half or.
Should we expect continued tight management as we've seen so far this year.
I think we expect a slight dip.
I mean, a slight investment.
A slight dip in cash balance due to inventory purchases that are coming up.
Okay.
Thank you for that.
When you talked about.
I think maybe briana mentioned possible legal spending too.
Protected.
The IP, which has always been consistent but it's something specific change a new target emerge or something like that or is that just a general comment.
General comment.
Okay.
Okay.
The.
Life extension.
You could just talk a little bit more about that and to what degree are the is the growth in revenue with life extension.
Really incremental to the total ore.
Is it a positive surprise relative to your expectations and just like a little bit more color on that please.
Well life extension is a retail player and they have many hundreds of skus and it is a excellent traditional dietary supplement companies.
They benefited from <unk> being removed on the shelves in many retailers and then they started selling.
Their nitrogen products in those retailers.
So do I expect it to continue yes, but they did have a particularly good quarter because of that.
Okay. So it's it's.
It's really that the marketplace has got a little bit clearer for them.
And in fact, what's what's driving that sale is youre.
Youre selling products to them that they're turning around and reselling or they modify and so yes.
We sell them the ingredient.
Their own brands they call it <unk>, but its the on life extension brands. They are one of the few companies to whom we supply ingredients.
Including Nestle.
And a couple of others.
Okay.
Thanks, Matt.
Hi, there.
There are no further questions at this time Brianna Gerber I turn the call back over to you.
Thank you Alicia there will be a replay of this call beginning at 430 PM Pacific time today. The replay number is one 870 702030 and the conference I'd is <unk>.
One <unk> 6168, thank you everyone for joining us today and for your continued support of <unk>.
This concludes today's conference call you may now disconnect.
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Thank you.
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