NAGE - NASDAQ

Ladies and gentlemen, thank you for standing by and welcome to ChromaDex Corporation's First Quarter 2023 Earnings Conference Call. My name is Brianna and I'll be the conference operator today. [Operator Instructions] And as a reminder, this conference call is being recorded. This afternoon, ChromaDex issued a news release announcing the company’s financial results for the first quarter of 2023. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex’s website at www.chromadex.com. I would now like to turn the conference call over to Kendall Knysch, Director of Media Relations. Please go ahead, Ms. Knysch.

Good afternoon and welcome to ChromaDex Corporation's first quarter 2023 results investor call. With us today are ChromaDex's 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 the call for Q&A. Today's conference call may include forward-looking statements, including statements related to ChromaDex's research and development and clinical trial plans and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of Tru Niagen in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities, as well as anticipated results of operations. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any 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 ChromaDex's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in ChromaDex's quarterly reports on Form 10-Q most recently filed with the SEC, including results of operations, financial condition, cash flows, the effect of the COVID-19 pandemic as well as inflationary and adverse 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 to changes in its expectations. 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, presents 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.chromadex.com. With that, it is now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried.

Thanks, Kendall. Good afternoon, everyone, and thank you for joining us on today's investor call. I'm pleased to report that we had a strong start to 2023. We achieved $22.6 million in revenue, a 31% increase year-over-year. And we generated positive operating cash flows while remaining adjusted EBITDA breakeven. We ended the quarter with $23 million in cash and no debt. These achievements reflect our commitment to maintaining fiscal discipline and driving sustainable growth for our business. We're confident in opportunities for greater future growth, having achieved record-breaking results in these past 2 consecutive quarters. Our e-commerce business remains our largest and most consistent source of revenue. E-commerce net revenue was up 12% year-over-year, with the contribution from the large brand-building event that we mentioned on our last call. On March 13, we had prominent placement on the homepage of Amazon across the U.S. and a large-scale brand awareness campaign that Amazon refers to as its homepage takeover. 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 and a significant increase in new-to-brand purchases. We continued retargeting consumers who searched our Tru Niagen brand into the second quarter. And as a result, we expect to see some efficiencies in our e-commerce advertising moving forward through 2023, although the first quarter was impacted by this large upfront investment. We should also benefit from reorders in future quarters. As it relates to our own website, we made some changes to our internal personnel in the first quarter as well as with external agency partners more recently. We were encouraged by observed improvement in leading indicators in the first quarter and stronger growth in new customers. We believe this bodes 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. Meanwhile, we have significantly reduced spend on search and social as we revamp our campaigns and website landing pages. This quarter, we continued to strengthen existing partnerships and developed some new partnerships. We notably delivered a 245% increase in Niagen ingredient sales year-over-year, including very solid contributions from longtime partner Life Extension as well as more recent partners like H&H. I continue to be impressed by H&H product launches featuring Niagen in Australia, China, and other regions as part of their Swiss innovation portfolio. Additionally, Life Extension's recent expansion into a specialty retail distribution model is promising for growth. 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. In China, our partner, Sinopharm, is actively building the Tru Niagen cross-border business across multiple distribution channels, 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. Encouragingly, as China reopens its borders, we anticipate a benefit to both Sinopharm's cross-border business as well as Watsons' Hong Kong retail business for Tru Niagen. We had a very strong first quarter sales to Watsons 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 Watsons in Hong Kong and Macau this quarter and Singapore and are excited to build on the strong foundation they have established for Tru Niagen in those markets. We've been working even more closely with them on marketing co-investments, which includes TV and social campaigns with influencers in Hong Kong. We're also helping them to refine the brand messaging so that their loyal consumers continue to understand the benefits of combining Tru Niagen Beauty and the soon to be launched Tru Niagen Immune with our core Tru Niagen product. Overall, we believe that Tru Niagen's premium position in the marketplace as the highest quality trusted brand enables us to unlock significantly greater growth, particularly in light of the FDA's ban on sale of NMN as a supplement in the U.S. Several retailers, including Amazon, have voluntarily withdrawn these products and are no longer selling NMN. The companies still promoting NMN are doing a general disservice. Even David Sinclair, the primary promoter of NMN has acknowledged in his research that NMN breaks down into NR before being used by the body. He has also expressed concern about the presence of endotoxins in some NMN products. 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, Niagen, the ingredient in Tru Niagen is third-party tested, has extensive safety data, the proper regulatory notifications, is a more efficient precursor than NMN, and is available legally today for consumers who want to elevate NAD levels. We believe that many customers who purchased NMN did so in anticipation of future demand. And they still have a supply. Accordingly, transitioning them to Niagen may take more time. 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. Just to be clear, as I said last quarter, the FDA decision to ban NMN does not apply to our proprietary ingredient, nicotinamide riboside, NR, patented Niagen. Looking ahead, ChromaDex is in our strongest financial position to date. 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. We have made great strides and progress in our innovation pipeline. And I'm increasingly confident in the growth opportunities that lie ahead in 2023. As we continue to set the stage for ChromaDex's growth, I want to remind everyone that we are building the Niagen brand based on a strong scientific foundation while delivering the highest quality NAD product in the marketplace. We are currently preparing to reflect on the 10th anniversary of ChromaDex's External Research Program or CERP. Looking back these past 10 years, it's inspiring to see how far our science has advanced from the time CERP was in its infancy in 2013. And all studies were preclinical to today with the majority of new collaborations are for clinical studies. Importantly, research has shown that the health benefits from Niagen translate from preclinical models to clinical studies with remarkable consistency 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, and the orphan disease ataxia. There have been over 15 published preclinical and clinical studies with nearly 10 ongoing clinical studies, also heart health, including studies on heart failure and hypertension. There have been over 10 published preclinical and clinical studies along with 2 ongoing clinical studies. And also muscle health with 10 published preclinical and clinical studies as well as 2 ongoing clinical studies. We're looking forward to the next 10 years. Our primary efforts are to help validate whether and to what extent observed benefits from in vitro and in vivo preclinical studies are translatable to Phase 1, 2 and 3 clinical studies. We believe through CERP, we will see the translation of early preclinical findings for Niagen as well as our intellectual property on other emerging health areas such as sensory, including neuropathy, age-related hearing, vision and olfactory decline, reproductive health, and infant development into clinical studies. We understand that CDXC is both a consumer product company as well as the bioscience R&D Company. And we are exploring opportunities to unlock the value of our extensive IP and scientific research assets. In addition, as mentioned on our last call, we cited a series of new critical patents that we were able to obtain last year, which, in combination with existing IP and patents from W.R. Grace, we continue to expect to protect our NR IP for at least the next 10 years. With these patents secured, we continue to seek new innovations as well as innovations we have worked on for years. We are increasingly close to commercialization, including expanding our portfolio beyond supplements. While not an immediate business driver, we also have untapped potential in NAD precursors beyond NR, which are protected by a deep intellectual property portfolio. ChromaDex also possesses unique knowledge of the process and synthetic chemistry behind these NAD precursors, which leads us to believe, there may has significant prophylactic and therapeutic value in the pharmaceutical space. Beyond diet and exercise, elevating NAD levels through supplementation is one of the most important things people can do to improve the way they age. Our team at ChromaDex is passionate about bringing Tru Niagen to consumers around the world. We believe the best way to build a trusted brand is to be trustworthy. 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 because of this unwavering commitment to quality and to trust, which takes patience, but we believe is a more enduring business model. We look forward to sharing more in future updates. And I would like to now turn the call over to Brianna to discuss this quarter's results in greater detail, and then on to Q&A and closing remarks. Brianna?

Thank you, Rob. It's a pleasure to speak to our investors, partners, and employees who have joined us today. ChromaDex 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, 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 breakeven or better following the first quarter of 2023. I am proud to announce that we exceeded expectations with an adjusted EBITDA loss of only $69,000 in the first quarter, an improvement of $4.4 million year-over-year. Furthermore, we delivered positive cash flows from operations of $2.8 million, a notable improvement of approximately $10 million year-over-year. 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 Watsons and Niagen ingredient partners. Furthermore, we continue to execute on operational efficiency initiatives across the organization, which contributed to solid bottom line performance. These achievements would not have been possible without the collaborative efforts of our entire ChromaDex team as we diligently balanced our investments in strategic growth initiatives, coupled with disciplined expense management. 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. With that, let's turn to the first quarter financials in more detail. 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 Tru Niagen, driven by 12% growth in e-commerce sales and 36% growth in combined Watsons and other B2B sales. Watson sales were up $1.1 million year-over-year, partially due to timing with modest growth from our other partners. The growth in our e-commerce business this quarter is partially connected to the Amazon homepage takeover event that occurred in mid-March. On the day of the event, we observed 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. 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 signs of improvement. Another important driver in our first quarter results was Niagen ingredient sales, which grew 245% 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 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. Gross margins decreased by 110 basis points to 59.9% compared to 61% in the first quarter of 2022. The lower gross margin was primarily driven by changes in our business mix as e-commerce sales accounted for only 54% of our total net sales in the current quarter 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. 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. 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. 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 severance. 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 $0.03 per share as compared to a net loss of $7.7 million or a loss of $0.11 per share for the first quarter of 2022, marking a significant improvement. 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. The difference year-over-year was primarily driven by improvements in our net loss of $5.8 million, paired with better cash flow management related to our inventory, which was an inflow of $2.8 million in the first quarter of 2023 versus a cash outflow of $1.7 million in the first quarter of 2022, a positive $4.5 million impact to cash. Our improved cash flow related to inventory was a result of stronger sell-through of Tru Niagen through our e-commerce channels and to key partners, higher volume of Niagen ingredient sales and more efficient production management, particularly in regard to newer partnerships. 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 down $1 million to $2 million versus our previous guidance of down $2 million to $3 million. And we've raised the low end of our revenue outlook. 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 NMN customers to Tru Niagen, which Rob highlighted earlier. Since it is still too early to estimate the 2023 impact of that major NAV 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. 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. As it relates to adjusted EBITDA, our focus remains on achieving sustainable profitability through strategic investments, balanced with financial discipline. We expect to be close to adjusted EBITDA breakeven each quarter. However, we may experience quarterly volatility due to the timing of sales and important R&D initiatives. 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 Niagen ingredient customers compared to the first quarter due to timing of purchases. In summary, we delivered strong performance in the first quarter and are seeing encouraging trends and opportunities in our overall business. 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. We realized there is still more work to do. But I am continuously impressed by the ChromaDex team and their dedication to position the company for long-term success. Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Jeff Van Sinderen with B. Riley.

Great to see the growth coming in strong in the top line in the quarter. And I think you mentioned some of this in your prepared comments. But can you just walk through how much Amazon; I know you did the special event with them, how much the Amazon has contributed in the quarter? Maybe you could just give a sense of that. Same for the ingredient business partnerships. I think you mentioned something around that. Just kind of 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.

Yes. It's supposed to be one question. You packed like 8 questions. Anyway, thank you for the kind words. So I'll talk a little bit about ingredients first. The ingredient business is growing and is strong and will continue to be strong, but we don't control it as much. Sometimes its timing related. Order will come in from one of our partners. And they often will not then purchase in the subsequent quarter. But there is an increasing demand for Niagen from other brands that are interested in us supplying. And as you know, we've been extremely selective about that. In the early days, ChromaDex did supply to a number of companies. Some of whom were 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 who we supply the ingredient to. And we have a really excellent group of partners presently, like H&H and Life Extension and as you mentioned, Nestle. 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 Niagen. It's all formulations. They won't be selling any single ingredient Niagen. That we reserved for ChromaDex for Tru Niagen. But they're very excited about it. And they're putting a lot of time and energy into it. But we are 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 2 in the coming months. There are quite a few that have been contacting us and calling us and interested. But again, we have very high strict standards as to the types of companies with whom we partner. 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. But there are some good companies out there with whom we're interested in partnering in the U.S. and abroad on the Niagen business. So I do think that there is growth ahead in Niagen. The Amazon homepage 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 was 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 came to the Amazon product page on that day. But we're seeing many of them returning and purchasing subsequently. So we're very encouraged with the overall performance on Amazon in general. It is a pricey deal, so it isn't the kind of deal that you can do frequently. Amazon doesn't offer that to many brands. They offer that to brands that they think are special. And that they see that there's a reliable brands that are safe in their marketing claims and their consumers rate very, very highly. And sort of we fit that bill. And so Amazon is a very supportive and good partner. We have had some headwinds on Shopify as we've discussed in previous quarters. 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.

And then, just one follow-up, if I could. Just wondering if there's anything else you can tell us about the R&D investments you're ramping up in Q2.

From a financial standpoint, I'm going to ask Brianna to answer that.

So Jeff, those really are focused on our innovation pipeline. So at this point, there's not as much as we could say about what those are going towards, but they are definitely future innovation and commercial opportunities. Rob, anything to add to that?

No. 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 in our studies now almost daily. There’s 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 or organs are better equipped to handle the stressors of life, whether it’s a short-term stress or just the long-term stress of aging. And we’re quite convinced based on the data and our own personal experience is that the thing works. And the studies are getting – are increasingly clinical studies. And some of the clinical are moving from Phase 1 to Phase 2. So we’re – we have now quite a collection of data and analytics. And 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. 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.

Your next question comes from Ram Selvaraju with H.C. Wainwright.

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 demand in elasticity.

Ram, I'll take that one. We thought we had a pretty good gross margin in the quarter, it was 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. 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, 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?

Yes. It's a good answer. But in addition to that, one thing that we know and you probably know as well, Ram, is that people who take a higher dose, particularly a gram a day, noticed the benefits of Tru Niagen much more than people who take 300 milligrams or less. But it gets to be pricy. So we understand that the bulk of our consumer bases are highly, highly educated and affluent consumers and they are relatively pricing elastic. 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. But at the lower price when you're talking only 100, 200 milligrams per day, they are significantly less likely to experience a benefit. So we have to and we are working on ways to offer higher quantities of NR at a lower price for those consumers. But it's a challenge because it is expensive to make.

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 Alzheimer's disease, in particular. I wanted to see if you had any thoughts regarding the exploration of combining NR with, for example, new tropic drugs to potentially develop something that would specifically be tailored to addressing neurodegenerative disease. And if you have any specific ideas around clinical development plans with respect to something like that?

Yes, we do. Yes, I agree Alzheimer’s is an extremely hot topic these days. And we’ve received numerous calls from many researchers and companies interested in working with us on Alzheimer’s, both as a drug and as a combination dietary supplement. 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 Tru Niagen, it reduces inflammation and does cross the blood-brain barrier and you see that there’s a reduction in neuroinflammation. So Tru Niagen as an excellent reductive agent in inflammation in the brain in combination with something else that might reduce plaques or tangles 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’s considered one of, if not the leading expert in the field.

Your next question comes from Mitch Pinheiro with Sturdivant.

I know you don't give sort of quarterly guidance. But I do want to make sure I understand the second quarter's sort of revenue composition. So you had a good Amazon day. I guess some of that can -- the recurring revenues can start to hit due to e-commerce line? Should we expect a lift in e-commerce as a result of the Amazon homepage day?

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 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.

And so Watsons had some timing. So Watsons will be all things being equal in the Watson and B2B line, that probably -- that would be a tough sequential comp, correct?

Watsons, 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 timed 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.

And then, in the quarter, sort of just staying on the 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 customers. 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 customers. And it's been healthy, our new customer acquisition.

And the conversion to recurring, I mean, is that -- any pace of change delta there?

It's been pretty flat.

The normal conversion rates?

Correct. You mean retention rates. Yes.

And then I guess just last question, just a very minor question, but as it relates to just the macro backdrop from consumer pressure, et cetera. I noticed that bad debt expense was up 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 remained 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. That's related to one of our newer partners who has been very transparent about a debt reduction initiative that impacted some payments to vendors. So we conservatively took that reserve on those receivables. But what I'd say is we've resumed business as usual with that partner. So we think we get that one back on track, but wanted to be conservative there.

Your next question comes from Sean McGowan with ROTH MKM.

I was having problems with this very same phone yesterday, so that's why I asked. First question is regarding inventories and payables, somewhat related there, both of them quite a bit lower than I thought and in both cases at the lowest absolute levels since kind of mid or late 2020. So 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 Niagen ingredient purchases. We got the inventory in, for example, from W.R. Grace, our 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 managing our inventory. We're still holding a safety stock for our largest e-commerce business. We always want to make sure we're prepared to meet demand there. And we do have enough -- inventory. We feel comfortable. When we look at less predictable in the spirit of what's a sustainable business versus the less predictable businesses, we're managing that a bit more tightly, more of a made-to-order coming out of the COVID tight supply chains and disruptions, that's allowed us to do that and managed it a bit more tightly. But yes, overall, I'd say the team is 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 kind of lower than they have been in relationship to sales because we don't need to have as much safety stock?

Correct. Yes, COVID really extended supply chains from the time we placed the purchase order until we got it, so maybe 5, 6 months. And if we can work that back to 3, 4 that certainly help us manage our inventory as well.

And then 2 other points if you can clarify on expenses. You mentioned $1.5 million 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.

And then I'm a little confused, the Amazon expenses, like the expense for this marketing, that would have been taken in the first quarter because the sales and marketing expense is actually down in dollars. So where is that showing up?

Well, we 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.

Your next question comes from JP Mark with Farmhouse Equity Research.

Good quarter. Just one question. Just 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.

You're talking about the health care 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 expect it to grow? Or why would it grow there?

We are. We’re adding salespeople to the category and we are adding resources to the category.

Your next question comes from Jeff Cohen with Ladenburg Thalmann.

So a couple from here. So firstly, it looks like a nice throughput on the 24% from lawsuits and other B&B. Could you talk to us a little bit further about locations? I heard Hong Kong, Macau, Singapore. Could you give us an idea of stores, which are currently servicing and any insight into other B&B?

Jeff, do you mean where are we selling with Watsons today?

Yes. Yes.

Well, we still continue to sell to Watsons in -- primarily in Hong Kong, Macau, and Singapore and we do a bit in the U.K. in Superdrug as well. The bulk of their sales are in Hong Kong. I could point out that their sell-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 seemed to be lifting and it seems to be well back on track.

And you said, I guess, that was $3.7 million and that the second quarter would be probably a bit lighter than the first quarter.

Correct. But still some nice growth for the year given the underpinnings of growth that Rob mentioned.

On the margin front, Brianna, I know the company continues to work on and there's perhaps some continued headwinds. And any puts and takes there worth talking about or how do you feel about that 59% or 60% range for the full year '23?

Yes. So we’re still – 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 notably – even though e-commerce grew, there was a larger contribution from both Watsons and Niagen ingredient. So our e-commerce as a percentage of total – was maybe 10% less of mix year-over-year and that’s our highest margin business. So we feel comfortable.

We have time for one final question. Your next question comes from Matt Dhane with Tieton Capital Management.

That's Tieton Capital. I did want to ask a little bit more about the Amazon homepage takeover. It sounds like that the results were beyond what you expected. Just curious, what did you find out that you weren't expecting from the homepage takeover? 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, 6 months from now? Or how does that work?

Well, first of all, it did not exceed our expectations. It was very close to what we projected in terms of the sales on that day. But the evaluation of it as an investment doesn't happen on that one day. You have to take into consideration the retargeting and the renewals. 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 Tru Niagen. 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. But it was overall quite consistent with our expectations on the day.

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

Andrew, it's all yours.

Yes, I'll 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 of NR, NAD, and neurodegeneration. Clearly, we've known for many years based on preclinical studies that NAD is critical for the health and normal function of neurons in the brain. And now, as Rob alluded, we're seeing those preclinical 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 1 now into Phase 2 and 3 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.

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 NO PARK. And that one is over a year long. So it will probably finish up sometime in 2024-2025 and then be published months after that. So these Phase 2 and 3 trials tend to be much longer term.

There was an interim study by the same group of researchers on safety for a much higher dose of Niagen. And as part of that study, they included some secondary endpoints, which might be interesting as well.

That’s correct, Rob. That study has completed, but is undergoing peer review publication at the moment. So we eagerly await the publication of those results.

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 1800-770-2030 and the conference ID is 4126168. Thank you, everyone, for joining us today and for your continued support of ChromaDex.