This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Ladies and gentlemen, thank you for standing by and welcome to Chromadex Corporation's first quarter 2021 earnings conference call. My name is Stephanie and I will be your conference operator today. At this time, all participants are in a listen-only mode. 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 2021. If you have not reviewed this information, both are available within the investor relations section at Chromadex's website at www.chromadex.com. I would now like to turn the conference over to Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead, Ms. Gerber. Thank you. Good afternoon and welcome to Chromadex Corporation's first quarter 2021 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Freed, Founder and Executive Chairman, Frank Jacks, and Chief Financial Officer, Kevin Farr. Today's conference 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 TruNiagen in new markets, future financial results, business development opportunities, future cash needs, Chromadex's operating performance in the future, and future investor interests that are subject to risks and uncertainties relating to Chromadex's future 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 report on Form 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows. 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, 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.chromadex.com. With that, it's now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried. Rob?
spk06: Thank you, Brianna. Good afternoon, everyone, and thank you for joining our first quarter 2021 investor call. This has been a very exciting time strategically for Chromadex. In the past few months, we added $25 million to the balance sheet. We announced important scientific research findings. We concluded three tentpole agreements with Walmart, H&H Group, and with Rho. and we added a talented chief marketing officer in Fadi Karan. Demand for TruNiagin continues to be strong and growing, but we did experience some supply chain issues that delayed shipments to Watsons in Hong Kong. Those issues have now been remedied and the future prospects look very good. Total company net sales for the quarter were $14.7 million. E-commerce sales continued to grow and were up 17% over the pre-COVID first quarter of 2020. Our gross margins were approximately 63%. And first quarter adjusted EBITDA, which we define as EBITDA excluded legal expense, was a loss of 0.7 million, a 0.4 million improvement from the prior quarter. The science behind Niagen continues to grow, validating its importance in several areas of human health. Frank will discuss this in a moment. But we have now signed over 230 research collaboration agreements on Niagen that we estimate represents over $75 million of investment funded by leading external research institutions, not by Chromadex. We will continue to support the growing scientific evidence behind Niogen, of course. But importantly, we will also continue to fiercely protect our intellectual property against infringers who see an opportunity to build their businesses on the back of our scientific and regulatory accomplishments. We encourage you to read last week's ruling from the federal judge in the California case against Elysium Health. The detail in the court order signals in part what the jury will hear at trial and reflects the behavior and character of our opponents. As we have said previously, Chromadex is proud to be in business with exceptional strategic partners like Nestle Health Science, and we are now proud to include H&H Group and Roe. H&H Group is a global leader in premium health, also human and pet nutrition, as well as personal care. Niagen will be available in the Swiss product, which is Australia's number one wellness brand and the number one brand on China's major cross-border e-commerce platforms, according to H&H's 2020 annual report. The exclusively formulated Niagen products will be the first NAD boosters in the Swiss portfolio and will expand their healthy aging category. H&H has already begun product developments and is enthusiastic about the potential for knowledge in their portfolio. And we look forward to sharing more about this in the future. Roe is a healthcare technology company that has built an impressive patient-centric platform to deliver a personalized end-to-end healthcare experience. Since 2017, Roe has facilitated more than 6 million digital healthcare visits in nearly every county in the United States. road plans to offer TruNiagen in a specially formulated product under its Roman brand. Last quarter, we announced that TruNiagen would be available in 3,000 Walmart stores in June. Walmart has since expanded the store count for our lower-dose, more accessibly-priced SKU to over 3,800 stores, signaling their commitment to the launch and to expanding their NAD supplements category with TruNiagen. An important development this quarter was the hiring of a talented chief marketing officer, Fadi Khurram. He complements our existing team's capabilities in digital marketing, creative earned media and marketplaces. Fadi brings deep brand building experience across traditional retail as well as e-commerce platforms. Prior to joining Chromadex, Fadi led the local brand portfolio for Nestle Waters North America with over $3 billion in annual revenues. He previously was in charge of the global Kit Kat brand, also at Nestle. Scotty is already an important contributor in our next phase of development, centered on building this great global brand. I'm increasingly optimistic about the future for Chromadex. Demand for true nitrogen is strong and growing. We have an experienced leadership team in place that knows how to scale this business. We have more deals in the pipeline. And we are continuing to think globally. And with that, I will pass the call over to our chairman, Frank Jacks, for an update on scientific research.
spk05: Frank? Thank you, Rob. As I mentioned in our last call, the research on nicotinamide riboside, or NR, continues to extend to important areas of human health. Since our last update, Chromadex deepened its connections with scientific experts in the field of NAD research and partners through its external research program with leading institutions to explore important areas of research on NR. In March, we announced the new research initiative with the Citrin Foundation to study the effects of NR in citrin deficiency. This is a rare life-threatening genetic disorder that can cause failure to thrive in children or later in life, causing a host of neurological problems, hyperlipidemia, and severely impaired liver function. The first study will be led by scientists at Duke University and the National University of Singapore. While there are no known cures, we understand that citrin deficiency impairs mitochondrial function and disrupts the NAD system. We are committed to understanding the role NR supplementation could play in this understudied disorder. Two new clinical studies registered in March, both investigating the potential impact of NR on patients with or recovering from COVID-19. First, A randomized placebo-controlled clinical study to investigate the impact of NR supplementation in 100 patients with persistent cognitive and physical symptoms at least two months after COVID-19 illness was registered. These long haulers will be studied by Dr. Edmarie Guzman-Velez at Harvard Medical School and Mass General Hospital. Researchers will assess how NR supplementation affects cognitive and neuropsychiatric, and physical function over a period of 22 weeks. We believe that it is important to deepen our understanding of the potential nutritional solutions to manage long haulers, and we look forward to the results from this new study. In addition, a clinical study was registered by the University of Texas Health Science Center at San Antonio. The study will measure the effect of NR on whole blood NAD levels and evaluate safety of supplementation in hospitalized patients with COVID-19 and acute kidney injury. It will include 100 participants who will be given a daily dose of 1,000 milligrams of NR for 10 days. Both studies are part of our Chromadex external research program. In reviewing the broader category of NAD precursors, a second clinical study on NMN was published in April in the journal Science entitled, Nicotinamide Mononucleotide Increases Muscle Insulin Sensitivity in Prediabetic Women. We believe there is a significant limitation with this study that calls into question the scientific validity of its conclusions, and we will follow up when appropriate. NMN remains inferior to NR across the board regarding published human science, regulatory approvals, and benefit to human health worldwide. I continue to believe that 2021 is shaping up to be an exciting year for Chromadex. Several clinical studies on NR have been recently completed, are in peer review, including studies examining NR's impact on muscle, cognitive, and liver function. Chromadex is committed to remaining a world leader in NAD and NR research, which has recently expanded to important areas of human health with large addressable markets. With that, I'll pass the call to Kevin Farr. Kevin?
spk04: Thank you, Frank. Chromadex delivered a solid first quarter and continued to demonstrate financial discipline while making important investments to protect our intellectual property. Total net sales were 14.7 million, up 2% year over year, despite short-term supply chain disruptions that impacted shipments to Watson's. We delivered gross margins of 62.9%, a record for the company. And the underlying business is measured by adjusted EBITDA, excluding legal expense. A non-GAAP metric posted a loss of approximately 700,000, a 400,000 improvement sequentially, and down slightly year over year to increased investments in selling it and marketing to deliver on the opportunity ahead of us. We believe adjusted EBITDA excluding legal expense remains an important metric to gauge our progress towards cash flow breakeven, and we have included a reconciliation to the appropriate gap measurement in our earnings release slides. We ended the quarter with $44.7 million of cash, including the $25 million capital raised in February. With this incremental cash, we have a clear line of sight to cash flow break-even, even with potential uncertainty surrounding litigation. I'll begin my review of the sequential P&L results, and we'll then discuss the year-over-year trends. For the three months ended March 31, 2021, Chromadex reported net sales of $14.7 million, down 5% compared to $15.4 million in the fourth quarter of 2020. True diligence sales were up 1% sequentially. This growth was driven by our e-commerce business, which was up 1% compared to the prior quarter. Sales to Watson's were $1.6 million in the first quarter compared to $2.1 million in the prior quarter. We experienced short-term supply chain disruption due to the impact of COVID-19, which led to a shortfall in shipments to Watson's in the first quarter. We expect to ship the shortfall over the next two quarters in addition to the baseline demand, which was trending above $2 million per quarter in the second half of 2020. Our nitrogen ingredient sales were $1.2 million versus $2.2 million last quarter. We experienced a short-term headwind since we are no longer supplying to one of our Niagen ingredient customers. As I mentioned last quarter, we expect to replace that business with new, more strategic partners in 2021. Furthermore, we did not have any Niagen ingredient sales to Nestle in the quarter. As a result, we did not recognize any revenue related to the upfront and milestone payments which are recorded in Niagen ingredient sales. Our gross margin was up 190 basis points from 61% in the fourth quarter of 2020 to 62.9% in the first quarter of 2021. We continue to deliver on our supply chain and product cost savings initiatives and are benefiting from their overall scale. In addition, we benefited from a higher mix of e-commerce sales in the quarter, which carry a higher gross margin. Total operating expenses for the first quarter of 2021 were $16.6 million, up $1.1 million compared to the fourth quarter of 2020. Selling and marketing expense were flat sequentially at $6.3 million in the first quarter of 2021, as well as the fourth quarter of 2020. As a percentage of net sales, this expenditure was up 170 basis points in the first quarter of 2021 versus the fourth quarter of 2020 due to the slightly lower net sales. As I previously said, this ratio generally declines over time as sales ramp, but the quarterly investments may fluctuate as a result of our marketing campaigns. As reported, G&A expense was up $1.3 million to $9.5 million in the first quarter of 2021 versus $8.2 million in the fourth quarter of 2020. Mego expense was up $2.5 million compared to the fourth quarter of 2020 to $5 million in the first quarter of 2021. There were increased investments in early 2021 driven by ongoing discovery, depositions, and expert witness reports in the New York and Delaware litigations. We also incurred expenses related to the Thorne IPR as well as the California litigation. It is difficult to predict the timing and magnitude of free-to-trial litigation expenses with three cases going to trial in the second half of this year. but we expect that the first quarter will be the highest legal spend in 2021 as the activity declines going forward. Excluding legal fees, sevenths, restructuring and equity compensation expense, first quarter 2021 G&A expense was lowered by $0.5 million versus fourth quarter 2020 comparable G&A expense. For the first quarter of 2021, our operating loss was $7.4 million versus $6.1 million in the fourth quarter of 2020. The net loss attributed with common shareholders for the first quarter of 2020 was $7.4 million, or a loss of $0.12 per share, as compared to a net loss of $6.1 million, or a loss of $0.10 per share for the fourth quarter of 2020. Moving to the year-over-year financial results. Total net sales were up 2% year-over-year compared to the first quarter of 2020, with 12% growth in True Niagen and 17% growth in e-commerce being the key highlights. Overall, Watson's and other B2B net sales declined by 3% year-over-year. In addition to the supply chain disruptions in this quarter, initial ship-in for our True Niagen Beauty launched with Watson's created a challenging prior year comparison. Gross margin increased by 500 basis points to 62.9% compared to 57.9% in the first quarter of 2020. Selling and marketing expenses, the percentage in net sales increased 11.6% to 42.6%, primarily driven by increased digital marketing and brand awareness investments and strategic additions to our selling and marketing teams. As reported, general administrative expense was higher by $0.7 million, primarily due to higher legal expense of $2.5 million, partially offset by $1 million of lower severance and restructuring expense and $0.8 million of lower share-based compensation expense. Finally, our operating loss increased by $1.5 million year over year as higher sales and gross margins and cost savings across the organization were more than offset by higher legal spending. Moving to the balance sheet and cash flow. Our balance sheet remains strong. We ended the quarter with $44.7 million in cash and have not accessed our $7 million committed line of credit. As mentioned up front, this includes a $25 million capital raise in February. In the first quarter of 2021, our net cash use and operations was $5.4 million, versus $22,000 of cash provided by operations in the fourth quarter of 2020. The difference this quarter was primarily driven by changes in working capital, given the timing of inventory purchases and an increase in receivables. In contrast, the fourth quarter of 2020 benefited from $1 million product launch fee from Nestle Health Science, for which there was no comparable amount during the current quarter. As it relates to our 2021 full-year outlook, we provided details on the key P&L metrics in our earnings press release along with the slide presentation. We now expect selling and marketing expense to be up slightly as a percentage in net sales. While we do not expect a significant increase in spending, we believe these incremental investments are prudent to maintain our position as the leader in the growing NAD market. As a result, the year-over-year improvement adjusted EBITDA, excluding the total legal expense, will not be as significant as the last two years, but this remains a key metric for the organization. As it relates to the full-year sales outlook, we continue to expect steady revenue growth. We expect that our sales growth rate will accelerate beginning in the second quarter. In summary, we remain committed to delivering profitable growth as we are very close to achieving an important milestone of profitable adjusted EBITDA, excluding total legal expense, followed by positive adjusted EBITDA, including total legal expense, once the litigation is behind us. As always, we'll balance this near-term objective with a long-term opportunity for the business. I'm very excited about the future for Chromadex. We took important strategic steps this quarter to further strengthen our internal teams and capabilities to scale for our next stage of growth. These include preparing for our June retail launch with Walmart across the U.S. and our new nitrogen ingredient deal with Health and Happiness Group, along with Rowe, as well as other business development deals in the pipeline. We expect these initiatives to drive incremental revenues beginning in the second quarter. Operator, we are now ready to take questions.
spk08: At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that's star, then the number one on your telephone keypad to ask a question. Your first question comes from Jeff Van Sinderen with B. Reilly.
spk07: Hello, this is Richard Magnuson, in for Jeff VanCinder, and thank you for taking our call. With a rollout at Walmart about a month away, what more can you tell us about how that is setting up, and what are you doing in terms of advertising to let customers know that the product will be available at Walmart?
spk06: Thank you for the question, Richard. As you know, we just added a chief marketing officer, Fadi Karam, who has excellent experience with Walmart and other mass retail outlets globally. We've said in the past that our expectations are not to expect anything dramatic initially with regard to Walmart. So it's going to be a slow build and that we are gradually going to be increasing the amount of brand level marketing, brand awareness marketing, as well as expansion of distribution channels beyond just conventional digital media channels. to include television, radio, and perhaps print and other areas. We have a True Believers campaign, which we've had for a couple of years now. We plan to expand that and add some additional True Believers to that campaign. There may be more additions in the near future and maybe even some significantly larger celebrity additions. And in conjunction with that, we will begin rolling out more aggressive television-related campaigns. But as I said, nothing in the short run. There will be a gradual, steady increase in awareness. We're also working with Walmart to try to create some Walmart-specific campaigns, in-store things, promotion things, email campaigns. But once again, this is not something that we're expecting to dramatically launch right away in June.
spk07: Okay, and then... regarding the agreement with the Health and Happiness Group. Since we use a global nutrition brand as a presence in four continents, so will 2-9-H ultimately be available in all four continents, or is the agreement more limited than that?
spk06: The agreement is more limited than that initially. We are excited about H&H. It's a very, very impressive team, not only their R&D team, but their marketing team as well. They are very strong in certain countries. Initially, we will be working with them cross-border into China, as well as Australia, Italy. We are developing with them unique formulations of Niagen in combination with other ingredients for their initial launch. They don't expect to launch a product in the market prior to fourth quarter of this year. But they're very impressive. We're very excited to be working with them, and we think the potential is there to grow something very significant.
spk07: Okay. And then my last question, I believe you said there was no necessary revenue in the first quarter. Was this expected, or was some pushed out?
spk06: Yeah, again, H&H and Nestle, as well as Rho, the new announcement that we made, and Life Extension, the other company, we have always said that on a select basis we will supply Niagen as an ingredient to certain companies that we consider to be responsible companies, excellent companies, blue-chip companies that have an existing customer base. as opposed to using our ingredient to create a customer base. And in all cases, we endeavor to co-brand, if possible. Nestle, obviously, is the world's leading food company. They released Celtrient as a product in October. It's a very slow and gradual release. It's the way they go about doing it, a step-by-step process. It's initially simply just an online product. distribution channel. But there are other divisions within Nestle that are interesting to us as well, including Persona, which we started doing business with Persona last year. This is a personalized dietary supplement division that they own. There are other divisions at Nestle with whom we are also having conversations, and at some point we might expand the relationship to include some of these other divisions in addition to Seltri and and persona. So we're not surprised because we always anticipated that cell treatment would be a slow rollout. We expect it to grow with time, but we expect the relationship with Nestle in time to expand to go beyond simply just cell treatment.
spk07: All right. Well, thank you very much, and I'll jump back into question queue.
spk06: Thank you.
spk08: Your next question comes from Jeffrey Cohen with Ladinburg Bellman. Hi, this is actually Destiny on for Jeff. Thank you for taking my question. I'm just curious, continuing with our discussion of H&H and Rowe, what exactly will the financials be to that? Will it be similar to that of Nestle with an upfront payment and then royalties, or is it a bit different?
spk06: This deal is more of a conventional supply agreement deal. It does not include royalties.
spk04: It's more like our business with the two other knives and pliers, which is now only life extension. So they're purchasing it at a price per kilogram.
spk08: Got it. Okay. Thank you for clearing that up for me. And then specifically for Roe, is there a particular category within the Roman portfolio that they'll be targeting? And why, perhaps I should ask this a little differently, is there an intention to move into the Rory portfolio as well, or is it just going to be focused on men's health and the Roman portfolio?
spk06: Their initial launch will be with Roman. but they are interested in expanding beyond Roman, which is the Men's Health brand. The CEO of Roe had given us a call several months back and said that they were interested in creating an aging product and was very clear that they had done the research and realized that if you were going to create one, it should be with only with nicotinamide riboside, and the only legal way to buy and safe way to get nicotinamide riboside was with Chromadex. And what he clearly said is, if you guys are willing to do a deal with us, we will release a longevity healthspan-type product, and if you are not, we are not going to release one at all, which I was impressed with, and I agree. That is the right way to approach it if you care about your consumers. So it will be a formulation product. They will combine it with certain other ingredients and hope to see it released within the next quarter or two. They're working on that presently. One of the things we like about Roe, as I explained before, is that they have an existing customer base. They are not using our ingredient to create their business. They have an impressive customer base, and this would be an upsell to their existing customer base.
spk08: Okay, thank you for clearing that up. I appreciate it. And then I was just wondering if briefly you could provide any update on the HCP segment and how that is going now that restrictions have lifted or lightened in several states.
spk06: We see the HCP market as a very, very important market for this company. We do have one partner in the space. and we also sell directly to HCPs. We do use one distributor, and we also distribute ourselves. We see this as an area for expansion for the company, and we'll be investing more in this area. Not only do we see it as a growth area on a P&L basis, but we also think it's strategic because we're targeting the physicians, chiropractors, nutritionists, nurse practitioners, healthcare practitioners, it's important to educate them. The more they get educated about the value of NAD to general health and nicotinamide, riboside, or specifically niagen as a way to elevate NAD, the more they read, the more they read the science, the more they realize that the best way to manage that is with true niagen. So we think the HCP space is an important strategic one for us.
spk08: Okay, thank you. And if I may just sneak one more in, could you remind us how we should be thinking about margins throughout 2021 and perhaps 2022 as well?
spk04: Yeah, I think basically this quarter we did achieve almost a 63% margin. And I think as we've updated our financial outlook, we think we're going to be slightly better than 60% in 2021. I do think that we'll continue over the near term to improve margins each year as we sell more TrueNiagen on e-commerce, as well as at retail, and as well as we continue to gain scale, and we continue to look for cost savings opportunities in our supply chain and our design and development of product.
spk08: Got it. Thank you for the reminder. I'll hop back. Thank you. Your next question is from the line of Ram Silivaraju with HC Wainwright.
spk01: Thanks for the update. This is for Ram. So the end-to-end platform offered by Roe is really interesting. You have access to the NAD-plus diagnostics they may do and prescribing data. It's interesting to use.
spk06: I'm sorry, the connection wasn't great. I think you're asking if we would have access to their NAD diagnostic test?
spk01: That's right, yeah. Would this data be interesting to you?
spk06: Yes, we are very interested in many. There are many companies that are proposing NAD diagnostic tests. We've done some work on it ourselves. At this point, we haven't found one that we feel comfortable meets the scientific criteria that we require, but there are several that are interesting. The reliable NAD diagnostic tests that exist right now require a great deal of blood, and it needs to be frozen immediately to create reliable data, but there are several companies that that claim to have developed other systems, and we are examining those systems and are in discussions with several. We do think in the long term that's an important area, and we also think that access to customer data from customers like Rho or H&H or Nestle or Life Extension, in addition to our large customer base, would be important. Frank, I don't know if you have anything you'd like to add to that.
spk05: Yeah, the only other thing I'll add to it is that, you know, although Rob mentioned that there are a few out there that are sort of promoting an NAD test, We're not entirely convinced that the tests that are currently being offered are reliable for reporting NAD status in any usable or meaningful way. So we are on top of it and looking at developing our own solution on that front. As you know, we've been testing, reliably testing NAD as part of our clinical trial program for many years now. So, nobody knows more about testing NAD and other NAD metabolome than we do at this point. I wasn't aware that Roe even had an NAD test. Were you just thinking about it in context of them as a part of the regular program or how did you come to that, that they had that?
spk01: Well, I don't know that they have a specific NAD test. It's just part of the end-to-end system where they have a diagnostic platform, generally speaking.
spk05: Got it. Okay. Well, that makes more sense. Okay. So, I mean, NAD is not a central feature of standard testing and in blood labs right now. So it's one that we hope to make it, you know, push forward at some point. But, you know, one step at a time in obtaining a reliable test to be suitable for that, so.
spk01: Okay, great, Tyler. Very interesting. Just switching gears to Nestle Health, have they shown any change in demeanor or level of interest in Chromadex since the announcement of the acquisition of Bounce Bill company brands?
spk06: They have expressed a great deal of interest in not only NR, but all of our molecules that we have in development and are interested in our successes as an e-commerce company. We speak to them frequently. The relationship is strong, which is why we're talking to other divisions of Nestle about ways to do business.
spk01: Okay, great. And just finally regarding the COVID-19 trials, do you know if remdesivir and dexamethasone will be benchmarked against in these trials?
spk05: Frank? At this point, no. The trials that we've completed, there's no additional trials that are underway at this time. And the trials that we have completed don't look at remdesivir. So right now there are no plans to look beyond what we've already reported.
spk01: Okay. Thanks for the call and thanks for taking our questions. Thank you.
spk08: Your next question comes from the line of JP Mark with Farmhouse Equity Research.
spk02: Hi, good afternoon. Thanks for taking my call. A couple of quick questions here. I wanted to know more about the supply chain disruption and the magnitude, if you can talk a little bit about sort of what happened and if it's likely to occur again and how you might mitigate the possibility.
spk06: You know, supply chain disruptions are not all that uncommon during this year of COVID, and we experienced that. We generally don't operate the business quarter to quarter. It doesn't reflect a reduction in demand for TruNiagen. Demand is very strong and continuing to grow. seven million people in Hong Kong, and we last year did seven-plus million dollars of sales directly to Watsons in Hong Kong, which they then mark up and sell at retail. So the penetration rate in Hong Kong is rather extraordinary. Part of that has to do with tourists that come from mainland China into Hong Kong. And during the COVID year, there have been some restrictions, quarantine requirements and others about travel into Hong Kong. We've seen that gradually get lifted and we've seen sell through improve. But there is still these headwinds related to COVID in the in the operation. So they have sufficient inventory there. It wasn't crucial that we rush to solve this problem for them, but we are solving the problem, and they will make up the lost sales in the upcoming quarters. Let me hand to Kevin.
spk04: Yeah, and let me just tell you about what the supply chain issue was. In the first quarter, we experienced delays due to global packaging shortages for our consumer products across our supply chain. We had some delays also from CMOs with regard to product that was supposed to be made in the first quarter and it pushed out to the second quarter. These have been addressed in the second quarter and we're maintaining adequate safety stock of both component parts and packaging as well as finished goods so that we don't have this issue again in the future.
spk02: Okay. That's super helpful. And one other question for you, Rob. I believe you are by far the best spokesman for your product and the company. And I was wondering if you're going to be doing more podcasts in the future and if you have those lined up at this point.
spk06: Well, thank you for that. I appreciate your saying that. I love to talk about truniogen and nicotinamide riboside because my own personal experience and the experience of my family and my friends and my coworkers has been fairly dramatic and remarkable. And I genuinely believe, as do pretty much everybody who works at Chromadex, that when you take truniogen, you improve your ability to deal with physiological stress. And incidentally, I take a certain amount of it every day. It's more than the recommended dose. But when I'm feeling some sort of physiological stress, I increase my dose. And it seems to work as a way to manage it. We have an excellent marketing department and earned media department, and whenever they book an interview or a podcast, I am willing to do it. I think they have several upcoming, and I look forward to doing it and enjoy doing it. So, yes, I believe that I will be out there more.
spk02: That would be great. And if you could just publicize this. Okay, sure.
spk04: I was just going to interject with regard to the supply chain disruption due to the impact of COVID-19. You know, that led to about a million-dollar shortfall in shipments to Watsons in the first quarter. And looking at historical trends, we expect to see baseline demand of about 2.1 million, and we expect the first quarter shortfall to ship over the next two quarters in addition to the baseline demand.
spk02: All right. That's great. Thank you very much. Appreciate it. Thank you.
spk08: Your next question comes from Mitchell Panero with Sturdivant.
spk03: Hey. Good afternoon. I'd like to look at the e-commerce business. So, you know, it was up sequentially. But, you know, on a year-over-year basis, the growth rate's been slowing there. And just curious, like, is this – is there anything in particular in the quarter that would, you know, have a little bit of a slowdown in e-commerce? And if you could also talk about, you know, new customer growth versus existing customers.
spk06: No, e-commerce looks really strong. New customer acquisition is also increasing, and retention has been steady. So a couple of things about what you said about it was up quarter to quarter, and it was up 17%, I believe, year over year. First, let me comment on that. Yes, it was up 17% year over year. really should be doing better than 17%. My expectation is that in the future quarters, it will do better than 17%. But you do have to remember that the first quarter of last year was pre-COVID. And, you know, at the end of March, particularly in April, we saw real, real slowdown in e-commerce sales, and then it gradually started picking up again. So you're comparing it to the period right before that economic downfall and the issues that happened right away with COVID. But when I look at the conversion numbers and the retention numbers, they're very, very strong and improving. So e-commerce business looks healthy. With regard to the quarter of sequential growth, we look at the daily numbers, and the daily numbers are quite strong. especially compared to the last quarter. But certain things existed in the fourth quarter that didn't exist in the first quarter that maybe cumulatively look like it was less growth than it actually was. One thing is we include the cross-border into China, and there's a significant promotion cross-border into China on 11-11 and then even another on 12-12, November 11th and December 12th. And those represent a huge percentage of the entire year sales. So those China cross-border sales, we had the benefit of that in the fourth quarter and not the first quarter. And similarly, there's Amazon Prime Day right after Thanksgiving, which is also a very, very big day. So when you compare first quarter to fourth quarter, you're excluding all those significant days. Second, there are literally two less days in the first quarter than the fourth quarter. And that is significant when you're talking about a $9 or $10 million business. You know, that could be two percentage points right there. And then finally, we think that at Amazon in the first quarter, there was a slight delay in supply chain. And so the accumulation of orders to ship to has increased slightly in the first quarter from the previous quarter. So in actual fact, the first quarter versus the fourth quarter, the way we see it, when we look at daily actual sales, was much stronger. And when we compare first quarter to last quarter, we also see it as strong. So the e-commerce business is healthy and looking very good, and we expect greater year-over-year growth in the coming quarters. You know, let me take this opportunity, Mitch, also to comment on something else that you may be about to ask about, because I know you like to ask generally marketing questions. But we view the addition of our new chief marketing officer as an important event at the company. Because we have a very strong e-commerce engine in this company and a very strong digital marketing operation at this company. But digital marketing in e-commerce is largely a performance marketing business where it's constantly optimized. It's almost like a trading room where you test an ad, and then if that ad is converting, you press it more, and if it's not, you hit the brakes on it. And it's an optimization engine. but it is slightly separate from the engine of building an actual consumer brand and separate from the engine that creates overall awareness. Fabi is a very, very interesting talent because he has outstanding experience and intellectual understanding of brand building, consumer brand building on a global level, but also an interesting understanding of data analytics and e-commerce in general. We see this as important for us as a company, not only for continued growth on the already fairly strong e-commerce engine, but also building overall consumer awareness and brand awareness for TrueNiagent.
spk03: That was very helpful. Thank you. I guess one more question. As you were saying on e-commerce, we're five weeks into the second quarter. You mentioned that e-commerce remains strong. Are we looking at any Do you see any acceleration in sales? Is this going to be a steady climb this year? Do you have any plans for anything new on the marketing side that could change either the growth rate or the cadence?
spk06: I know many people who own shares in Chromadex want to see these events that create these huge growth accelerators that happen suddenly. And if they happen, they happen. You know, that COVID study that came out of Turkey got a fair amount of attention in the investment community, as you know. But it's not the way we think. The way we think is brick by brick, step by step, day by day. And we look at the conversion metrics and the retention metrics You know, sure, if suddenly a major celebrity, if there are so many major celebrities, politicians, athletes, actors that we know take TruNige, and if one of them chose to go public on their own and talk about how it's impacted their performance, it might have a dramatic impact. But the way we're doing it is gradual increases in our marketing spend, gradual increases in our True Believer campaign, gradual extensions in the channels of distribution, gradual expansion in territories, and gradual improvement. And that's generally been reflected in the performance. If there is an inflection point that we hit, it won't be because we forced it to happen.
spk03: Thank you. One last question, maybe after Frank. Back to the NAD test. How confident are you that this is achievable to your standards, and how fast does that happen? Is this something that's going to take several years to pan out, or are we talking six months? I don't really understand how difficult or not this is.
spk05: so you have to look at it technically i mean i'm comfortable that we have uh testing already that is is good it's accurate it's just just not scalable we need something a little bit more scalable in a more usable form rob had mentioned in his comment that you need a lot of blood to be able to accurately test that so If we wanted to offer an at-home test, for instance, you're not going to be able to do that by sending them a needle so that they could stick themselves to draw a tube of blood. So we know that we have that, but really it's translating what we know and what we have today into something that's going to be an easier-to-use format. And that's what we're working on. And, you know, I'm happy with the progress that we've made, and I've seen some data that looks really compelling that things are going in the right direction for that. So I don't think it's years away, but, you know, I wouldn't necessarily give you a firm commitment in terms of exactly how long it's going to take because I don't think we really know exactly how long it's going to take. But we've made great progress on that front, and I think we're going in the right direction with it right now.
spk03: Okay. Thank you so much for your time.
spk06: Thank you.
spk08: At this time, there looks to be no further questions. I'd like to turn it back over to Brianna Gerber for closing remarks. Thank you, Stephanie. There will be a replay of this call beginning at 4.30 p.m. Pacific time today. The replay number is 1-800-585-8367. and the conference ID is 8991456. Thank you, everyone, for joining us today and for your continued support of CREMEDEX. Thank you. This concludes today's conference. You may now disconnect.
Disclaimer