ChromaDex Corporation

Ladies and gentlemen, thank you for standing by and welcome to Chromadex Corporation third quarter 2022 conference call. My name is Joelle and I will be the conference operator today. At this time, all participants are in a listen-only mode. 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 third quarter of 2022. 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 Tom Shoemaker, LifeSci Advisors Agency IR Counsel for Chromadex. Please go ahead, Mr. Shoemaker.

Thank you. Good afternoon and welcome to Chromadex Corporation's third quarter 2022 results investor call. With us today are Chromadex's Chief Executive Officer, Rob Fried, Interim Chief Financial Officer, Brianna Gerber, and Senior Vice President of Scientific and Regulatory Affairs, Dr. Andrew Hsiao, 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 TruNiagen 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 report on Form 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic as well as inflationary and adverse economic conditions 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 statement's 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 gap 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.

Thanks, Tom. Good afternoon, everyone, and thank you for joining us on our investor call today. For the third quarter, we delivered a significant improvement in adjusted EBITDA, or cash EBITDA, which is a $1.2 million loss. And we remain on track to deliver positive EBITDA in the fourth quarter of this year. The solid bottom line performance was achieved with net sales of $17.1 million for the quarter. Over 65% of the period sales came from our direct-to-consumer e-commerce business, which grew 7%. Our emphasis on profitable growth was evident in the decline in total marketing expense year over year, both in absolute dollars and, most importantly, as a percentage of net sales, as we focused on the most efficient digital media investments with measurable return. Following the quarter, we raised $7.7 million of capital, net of fees. with existing strategic investors and the new investor, Nestle Health Science. We enter the fourth quarter in a strong financial position with improving P&L metrics, important partnerships in place, and a solid balance sheet. Brianna Gerber, our CFO, will cover Chromadex's financials in more detail in a moment. Also, Andrew Hsiao, our head of scientific and regulatory affairs, will join us for Q&A. Growth in the e-commerce business was driven by a nearly 20% increase in sales on Amazon, while our website sales declined year over year. We've dedicated significant resources, both people and financial, to optimizing our brand and landing page content, as well as campaign funnels on Amazon with impressive results, including a consistent number one ranking in the vitamin B3 category. Amazon represents nearly 70% of our e-commerce business, and we're now focused on applying similar strategies to our own website to improve conversion. Importantly, our cost per acquisition, or CPA, decreased by approximately 40% year over year on both Amazon and our own website. We significantly reduced spend as we are undergoing a project to revamp the website and our acquisition engine. Against this backdrop of low overall spend, we're building a stronger social media presence to drive more organic traffic to our site as well as Amazon. We're also testing new approaches to drive true nitrogen brand awareness in the fourth quarter as we continue to focus on efficient marketing spend. One example is our launch with Shop HQ. The host, Danny Sayo, is an author and television personality who has been a true nitrogen consumer for the last five years. This personal experience with our brand allowed him to speak with authenticity and conviction about its amazing benefits during the two 54-minute segments. The Danny Sayo team told us this was the most successful launch event of any supplement on the show, with the 90-count product selling out during the first airing. Outside of the e-commerce business, our new partnerships are impacted by timing, but the business is improving. Looking ahead to the fourth quarter, we see several bright spots, including Watson's, H&H, Sinopharm, and, of course, Nestle Health Science. For Watsons, we expect higher sales in the fourth quarter to align with seasonal demand following a pickup in our shipments to Watsons in the third quarter. We're beginning to see the COVID-19 headwinds abate, and we continue to find new ways to strengthen our partnership by building on True Niagen's already established brand awareness in Hong Kong. As mentioned last quarter, H&H launched their first exclusive product with Niagen, the Swiss beauty activator in Australia, and has since rolled it out in China, where Swiss is the largest brand on cross-border platforms with promising launch results. H&H has developed two additional exclusive nitrogen formulation products for its Swiss innovation portfolio, which they expect to roll out into Australia, China, and other markets. We're optimistic about the early start of this partnership and look forward to building upon this foundation in 2023. And finally, as noted earlier in the call, we wanted to highlight the signing of a long-term commercial supply agreement with Nestle Health Science, and an investment into Chromadex by its parent company, Nestle. The agreement includes an approximately $2 million initial purchase of Niagen for the 2022 calendar year period and a $5 million private placement, or $4.8 million after fees, which we collected in October. The deal not only provides Nestle the non-exclusive right to manufacture, market, distribute, and sell products using Niagen under its brands worldwide, except where Chromadex has existing exclusive agreements, but also enables us to work directly with the marketing and science departments of a world-class dietary supplement and foods company. The private placement is a strong show of support from Nestle for what we are trying to accomplish in building Chromadex as a worldwide healthy aging and wellness brand backed by science. We also made significant advancements in our China strategy this quarter. Our joint venture is now fully established to accelerate the approval of health food registration for TruNiagen in mainland China, also known as Blue Hat approval. Cross-border sales of TruNiagen into China are off to a strong start with Sinopharm Jingxia, who began managing our cross-border platforms in September. TruNiagen's relaunch began with a successful premiere at the China International Natural Health and Nutrition Expo, or NHNE, Asia's largest health and nutrition trade expo. with over 100,000 distributors and retailers in attendance. TrueNiogen was awarded the most popular brand of the year at the conference. Knowing how excited our partners are to assume the distribution and marketing of TrueNiogen in China, we continue to make real headway in becoming the premier NAD boosting brand in the market. Our global addressable market is still largely untapped. We are committed to delivering on the promise of the enormous potential for our ingredient, nitrogen, supported by compelling scientific research that speaks to its broad use cases, extensive safety data, and commitment to quality, which is rare in the dietary supplement industry. I'll briefly highlight two recent studies on NR. First, we announced the results of a Chromadex External Research Program, or SERP as we call it, study on stage C heart failure patients with reduced ejection fraction. The results of the study demonstrated that high-dose NR was safe and well-tolerated, almost doubling whole blood NAD levels, increasing white blood cell mitochondrial respiratory function, and decreasing the expression of inflammatory markers. The study marks a major milestone in investigating the safety and tolerability of NR and is a crucial step that will pave the way for future clinical research. There's also the eighth published clinical study to show that NR reduced inflammation, demonstrating remarkable consistency of this beneficial effect in humans. Second, a recent preclinical study demonstrated that NR extended lifespan in mice with faulty DNA repair. In this mouse model, the inability to repair DNA results in accelerated neurodegeneration and rapid aging. Interestingly, researchers found that compared to other popular longevity compounds, including metformin and resveratrol, NR had the greatest effect on extending lifespan in these mice. In addition, Chromadex maintains a strong and growing patent portfolio, reinforcing our position as the scientific leader in the NAD industry. On that note, the Delaware Appeal and our exclusively licensed NR patents from Dartmouth is scheduled for December 6th. We believe we have very strong arguments for the district court's decision to be overturned on appeal, but regardless of the outcome, we're very confident in the strength of our owned and licensed portfolio for NR and other NAD precursors to provide us protection for many years to come. I'd like to now turn the call over to Brianna to discuss the quarter's results, 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. As mentioned last quarter, my immediate objective as interim CFO was to look at all areas of our cost structure with an emphasis on becoming a leaner and more focused organization beginning in the third quarter. I'm proud to say we accomplished the first step in our objective, reporting an adjusted EBITDA loss of only $1.2 million. Our underlying profitability is approaching cash flow break-even, and we remain on track to achieve break-even or better in the fourth quarter. Furthermore, this quarter's adjusted EBITDA reflected an improvement of 5.1 million year-over-year and 3.4 million versus last quarter. This milestone was achieved in partnership with the entire leadership team at Chromadex. I'm grateful to them and their teams for their ongoing commitment to look at our business differently in order to drive operational efficiency. We realize there is still more work to do to achieve sustainable growth and profitability, which remains a critical focus in the current economic environment heading into 2023. I look forward to leading the company through this transition. We also raised 7.7 million net of fees following the third quarter, further strengthening our balance sheet. Our solid cash position, coupled with improving profitability, gives us a sound foundation to grow the business going forward. With that, let's turn to the third quarter financials. Chromadex reported total net sales of 17.1 million, down 1% year-over-year, a strong gross margin of 59.8%, and a significant reduction in overall operating expenses. Importantly, our e-commerce business grew 7% year-over-year despite a significant reduction in digital media spend. Overall sales were down slightly, primarily due to continued COVID-19 headwinds for our partners. Encouragingly, these headwinds are abating for our largest strategic partner, Watson, but remain challenging in other markets. The company has pivoted to spend on distribution channels and marketing campaigns with the highest short-term return on investment and a strong focus on conversion, which is evident in our financial results this quarter. Consistent with this, we paused our television campaign, which, while effective, is a much more expensive marketing approach in the short term. Moving to the P&L details. As I said, total net sales in the third quarter of 2022 were down 1% year over year compared to the third quarter of 2021. with a 1% decrease in true nitrogen, driven by a 23% decline in combined Watsons and other B2B sales. Watson sales were roughly flat year over year, but other partners remain impacted by COVID-19, and new partnerships have been slower to ramp. This was largely offset by 7% growth in e-commerce. Gross margins decreased by 130 basis points to 59.8%, compared to 61.1% in the third quarter of 2021. The decline was primarily driven by increases in supply chain headcount, including higher wages and other inflationary pressures, partially offset by business mix. We commend our supply chain team for achieving a consistent, strong growth margin of approximately 60% in a challenging inflationary environment, which puts us on track to achieve our full-year growth margin outlook. Selling and marketing expense as a percentage of net sales decreased to 34.4%, compared to 41.7% in the third quarter of 2021. We focused on the most efficient channels and investments within those channels, which resulted in an approximately 40% decline in customer acquisition costs, or CPA. Beginning in the fourth quarter, we are testing tools to become even more sophisticated in targeting those consumers we're most likely to convert. As reported, general and administrative expense was lower by $5 million, primarily due to lower legal expense of $4.4 million, as well as lower executive headcount and related expenses, including share-based compensation. While we will incur expense related to the Delaware appeal in the fourth quarter, we continue to expect full-year 2022 legal expense to be under $7 million. For the third quarter of 2022, our operating loss was $3.1 million versus $8.8 million loss in the third quarter of 2021. The net loss attributable to common stockholders for the third quarter of 2022 was $1 million, or a loss of $0.01 per share, as compared to a net loss of $8.9 million, or a loss of $0.13 per share for the third quarter of 2021. Finally, our adjusted EBITDA, including legal expense, was a loss of $1.2 million, compared to a loss of $6.3 million in the prior year. We recognized $2.1 million of other income this quarter related to the employee retention tax credit, which improved our reported net income but is adjusted out of EBITDA to provide a better picture of the underlying business. Moving to the balance sheet and cash flow. Our balance sheet remains strong. We ended the quarter with $13.3 million in cash and did not borrow on our line of credit. Following the quarter end, we raised $7.7 million net of offering costs with a new investor, Nestle Health Science, and existing strategic investors in two separate transactions. In the third quarter of 2022, our net cash used in operations was $3.7 million, versus a 5.9 million use of cash in the third quarter of 2021. The difference year-over-year was primarily driven by a lower net loss, slightly offset by higher working capital investments. These included higher trade receivables due to timing of payments from customers, as well as the timing of payments to our vendors impacting accounts payable. As it relates to our 2022 full-year outlook, all key metrics remain unchanged from last quarter's outlook, with the exception of G&A expense, which we now expect to be down $6 to $8 million, an improvement from our previous guidance of down $6 to $7 million. And as mentioned up front, we are on track to achieve cash flow breakeven or better in the fourth quarter. We've provided details on the key P&L metrics in our earnings press release along with the slide presentation. In summary, we've made meaningful progress in the last three months and expect to continue to make strides towards our goal of sustainable cash flow breakeven. Beyond improving our operational discipline, we are engaging more frequently with our partners to share consumer insights and important scientific research, including educational sessions with our scientific affairs team. In addition, we made important strategic progress. We relaunched Trinitogen with Sinopharm in China, signed our joint venture to pursue blue hat registration in this market, and entered into a long-term expanded supply agreement with one of the world's leading health and wellness companies, Nestle Health Science. I remain humbled and grateful to the entire Chromadex team as well as our partners for their support.

Operator, we are now ready to take questions.

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 a moment to compile the Q&A roster. Your first question comes from Jeff Cohen with Lattenburg-Ballman. Your line is open.

Hi, Rob, Brianna, and Andrew. How are you? Hey, Jeff. Firstly, for you, Brianna, this employee retention tax credit, that was federal, and is there any follow-on to that expected in the future?

No follow-on. Other income in the quarter, we booked it that way. because we believe it's one time and we wanted to exclude it from our underlying operations rather than booking it as payroll tax offset within SG&A. So there's no follow-on expected. The cash is not yet collected, but would be expected sometime in 2023. Got it.

Okay. And when you talk about the decrease in marketing spend for the quarter, as far as the channels out there, could you maybe call out for us some of the channels that were bolstered and some of them that were muted. I imagine that television was one of the muted channels.

That's correct. We spent less on television. Actually, we spent less across the board. There's much more of a focus on performance marketing and a little bit less focus on brand marketing and top of the funnel marketing. That would include television. But also it's a philosophical switch, more towards conversions and less towards awareness. So we actually spent less across the board.

Okay, perfect. And then, Rob, I want to talk about Nestle a little bit. The $2 million purchase order, did that come through in October? Was that added in the third quarter, or that will be fourth quarter? Fourth quarter. Fourth quarter. Okay, got it. And then maybe talk to us a little bit more about Nestle. We're trying to get a better understanding of the multi-ingredient market. what maybe you're thinking or what maybe they're thinking as far as, you know, snacks, bars, powders, yogurts, et cetera.

At this point, we're just thinking dietary supplements. As you know, there was some discussion with them about making it a hero ingredient in Boost, but we still haven't solved the stability in liquid scientific problem, at least for long enough for it to be included in Boost. And as you know, they are always interested in including it in dietary supplements. And we've mentioned in the past that this is something we were in discussions with Nestle about. We did agree to make this deal with Nestle. We know that it's a great ingredient. We are very careful about the companies to whom we supply nitrogen to, making sure that they're companies that are science-based not out to take advantage of us or infringe on our patents or try to even steal from us or our patents. We consider Nestle to be at the top end of science-based dietary supplement companies. They're the largest dietary supplement company in the world today. We're excited about supplying Niagen to Nestle and help us expand the awareness of this ingredient around the world. And we're very hopeful that they're going to do well.

super okay thanks for that and uh one last point over your question congratulations on uh sounds like breaking through on cash and and certainly even uh for the fourth quarter your next question comes from sean mcgowan with roth capital your line is open

All right, thank you.

A couple of questions. I'm not sure who wants to take them, but I'll fire them out. So the decline in sales on the website, do you think that's a function of Amazon's growth or the pullback of marketing?

Can you just talk about that a little bit? Is that a source of concern for you guys? It's not a source of concern. We don't believe that it's cannibalization from Amazon. And we do not believe that it's a function of a reduced spend. We think it's just simply a function of giving it a little bit more love and attention. We think it'll come around and we'll start seeing growth there soon. Okay. And is this one of the things you refer to when you say, you know, kind of focus more on performance marketing and conversion rather than brand building? It is. Okay. Great. Thank you. On Nestle, You know, just kind of taking a step back, the sales in the quarter were, you know, I know you don't guide on a quarterly basis necessarily, but it was a little bit lower than I thought it would be. But the guidance for the year is still the same.

So would you characterize the Nestle order as kind of incremental to what you thought you would get earlier in the year? Or is it, you know, kind of part of the whole plan and there really hasn't been a change in your overall sales outlook?

Our outlook is largely the same for the year. so nestle is accretive but there are some things that we anticipated that are either getting deferred or are lower in some of our b2b partners overall we're retaining the same full year outlook including nestle okay thank you and uh last thing i know these are tight numbers but i'm just wondering if there's something going on the ingredients gross margins seem to be you know, to take a pretty significant step backwards. Is there anything going on there that's unusual?

Nothing unusual. You know, that's a function largely of any pricing to our consumers. Certain, excuse me, customers get scale. You know, they may get a lower price. But it's still a very good gross margin business for us. The other thing, if you look historically, is from time to time there's Nestle revenue recognition in those numbers. It gets booked in ingredient sales. that gets recognized purchases in the quarter relative to their overall forecast, so it causes some lumpiness in those numbers.

Okay, so when it gets recognized, is that unusually high or unusually low gross margins?

It's accretive to the gross margins when you look at the deferred rather than getting recognized in there.

Okay, thank you very much.

Thanks, Sean.

Thanks, Sean.

Your next question comes from Jeff Van Sinderen with B. Riley. Your line is open.

Hi, everyone. Just wanted to touch on Walmart for a second. I know there was some transitional, or there were some transitional elements there. Just wondering kind of what you're seeing at Walmart and the outlook there.

Well, as you know, we've reduced the number of stores from 3,000 to 2,000, and we've reduced the number of SKUs from two to one. Notwithstanding that, the sales are pretty strong per store in Walmart, and Walmart is very high on Chromadex. But as you know, we pulled back on the TV spend. We expect that in 2023, we're going to kick in that TV again and start driving more traffic to Walmart. So our expectation is sometime during the year next year, we'll start that up again, and the sales will pick up. But Walmart remains very bullish on TruNiagin.

Okay. And then along those lines, I mean, I realize it's, you know, you're dealing with floor sets and such, but has there been any discussion of potentially, you know, adding it back to more stores if they're bullish on it, if they, you know, if you start to see better results next year? Yeah. There is. Okay. Yeah. Okay. And then wanted to shift over to Nestle for a moment, if we could. Just any color you can give us. I realize there's going to be about $2 million in Q4, but any color you can give us on sort of what expectation you have for the quarterly contribution from Nestle, sort of the progression for next year, what that might look like from Nestle overall sales.

We don't know yet. We know that they made this $2 million purchase, and we know that they have some pretty aggressive marketing plans to distribute this, not just in the US, but globally, especially globally. But we don't know what their purchasing projections are until they launch the product.

Okay. And they're launching, do they have a date in mind for launch?

I expect it to be launched within the next few months. Okay. And again, it's going to be launched across several Nestle brands.

Okay, great. And then just kind of factoring in everything that you can see today and realize it's early, but what sort of overall revenue growth rate are you contemplating to be feasible for the company for next year as you're kind of looking at everything? Do you think it's mid-single digit, high single digit, double digit, anything you can, any color you can give us there, maybe a range, just some idea?

There are a lot of things going on right now that we are developing and are excited about. I certainly expect us to grow more next year than this year. But we're not yet in a position to give you that forecast.

Okay.

Fair enough.

We expect to give that in March. On our March call next year.

Okay.

We expect to give you that outlook next March.

Got it. Thanks very much. And best of luck in the rest of the quarter. Thanks.

Thanks, Jeff. Your next question comes from Mitch Pinero with Sturdivant and Company. Your line is open. Thanks.

Hi, good afternoon. Staying on the Nestle theme for a second, I'm curious, why did Nestle take a stake in Chromadex as part of an ingredient, you know, deal? Nestle has done a great deal of diligence about Chromadex on the true nitrogen brand, on our intellectual property, on the quality of our science. They like the company.

Okay.

I mean, you are a small company, you know, and here's this, you know, this, you know, $100 billion, you know, consumer behemoth, you know, and they take a, you know, a modest, you know, rounding error kind of state, but it was just something that I thought was, is there... So is there any – are there any – I didn't see this, but are there any lockup or anything where they are permitted to – or not permitted to purchase more than a certain amount?

I believe there's a one-year lockup. Okay. And can they – is there any limit to how much they could buy? No.

A percentage of Kermadec? No, there is not. Okay. And then is Nestle, is part of this, is Nestle using at all, will true Niagen be branded or will be their brand? It will be Niagen branded as an ingredient, but it will be their consumer brand.

Okay.

Moving on, as far as, you know, so the cross-border sales in China have been off to a strong start. I mean, how... Strong start. How meaningful is it? Does it get to a million dollars a quarter? I mean, just some sense of size. I don't even know how really the cross-border works. If you could talk about that just a little bit. You know, Sino is very methodical. As you know, we've been talking to them for a very long time. It took a long time to close that deal. And we've seen their marketing plans and their marketing plans are impressive to us. We know that the addressable market is enormous there. But they do have a cadence to the way they work. So we don't know when it's really going to kick in. Our expectations is the numbers will eventually be significantly more than a million dollars a quarter. I just don't know when. Are there things, sort of claims and things that Sinopharm can have in China that we can't have in the United States?

No. Okay.

Now, that doesn't stop a lot of people who are selling other products from making false claims, and the CFDA has been cracking down on them, but we would never make a claim outside of what's allowed. Okay. And then just getting back to your e-commerce business here.

So Amazon, you generally, you remain sort of neutral or indifferent as to which channel, Amazon or your own site, that sales are generated, correct?

No, I think we prefer to be on our site. You have to pay Amazon a fairly significant fee, 15%. And there's much of the customer data is not shared by Amazon.

Okay.

And so then to talk – so it sounded like you're okay in the quarter. You were okay with Amazon being up and your own site being down. Can you explain why you're okay with that then or what the strategy is? Sorry to interrupt. No, we're not okay with that. We have every expectation that we're going to start seeing growth on our own website. It's just that Amazon themselves have been very proactive with Chromadex. They like the way we're managing it. They like the way we've optimized the site and the content we put there. and the way we've managed our marketing spend with Amazon. And obviously, we've continued to grow in our Amazon sales within our category and within larger categories. And the relationship with Amazon is very strong, and it's improving. But we'd like to see our website grow, and we expect that it will.

Okay.

And then as far as... You'd mentioned related to this, you're testing new tools for the fourth quarter. That's new tools for your own website, correct?

Mish, I think you were referring to the tools to test targeting and customer cohorts on our own website.

Yes. So that's. Yes.

So we are. We are testing those. That's more about our own website and targeting tools. And we're doing that in the fourth quarter.

Okay, that's it for me. Thank you very much. Thank you.

Your next question comes from Brian Nagel with Oppenheimer. Your line is open.

Hi, good afternoon.

Hi, Brian. My first question is just with regard to the fourth quarter. sorry for being so near to unfocused here, but you look at the trajectory of sales through Q3, and the guidance that you reiterate in your press release, it seems to me that you have to have a pretty significant uptick in sales growth in Q4 in order to hit that guidance. So I guess the question I have, maybe so often, is there, I hope it's just with the building blocks, are there certain pieces of sales that are coming in the fourth quarter that are new, and on the other side of that, what's What's basically the assumption for the underlying growth in the business, the trajectory of the growth of the business as we're going from Q3 to Q4 to get that guidance? So remember, we really have two large segments. There's the direct-to-consumer segment and there's the B2B segment. And as you know, we can't really control the timing of some of these B2B orders, like Watson's in particular, but some of the other ingredient partners. So Your question is, it looks like the fourth quarter is going to be pretty big. The answer is yes. And a lot of that has to do with the fact that certain orders that we know are coming in or are confident are coming in that might have come in in the third quarter are coming in in the fourth quarter on the B2B side. The second part of your question, I think, had to do with how do we look at growth in general. Am I getting that right? Well, I guess, Rob, I was just focused on Q4. So you have these B2B orders coming in that are bolstering growth in Q4.

So excluding that, if we were to get back to just the normal business, if you will, the core business, if you will, how is that growth also expected to improve here in Q4 versus what we saw in Q3, Q2?

Yes. And one thing that we're also seeing is the COVID impact is starting to lighten up. Remember, we have partners around the world who are retail-based, and they were impacted by COVID, and we're seeing a change there. So we are seeing growth across the board. That looks pretty good. But, yeah, there's timing issues, and we have a lot of partners at this point. Some of those partners are up. Some of them are down. But in general, yes, it looks good.

And just one call-out on that, Brian. Watson's, we've said, is more aligned with the fourth quarter. So that's a bigger number in the fourth quarter. And then plus we have Nestle now. So those are two call-outs.

Got it. The second question I have is a follow-up to one of the prior questions. Someone asked you just about growth beyond 22. And, Rob, again, you haven't put guidance out there yet, and you haven't really talked about that. But just the way I would ask the question is, I think you said you expect growth in 23 to be better than 22. There's a lot of focus here in Q3 on expense controls. Congratulations, Victoria. Break even. As you look at that intermediate-term growth trajectory, long-term growth trajectory, how should we think about the expenses in the model? Are you going to be able to accelerate their growth while keeping expenses lean, or will there have to be a reinvestment phase? No. Our plan is to get to profitability and stay in profitability, and we still expect there to be growth. but it will be profitable growth. And we're looking at many opportunities that we see as growth opportunities. Sino is one Nestle is one optimization of our website is a third additional partners like H and H we think is a growth opportunity, potentially some expansion into new markets we think is a good growth opportunity. Uh, and we're already showing basic fundamental growth in Amazon at some point We think we will reinvest in awareness and television and expand the Walmart relationship and maybe other retailers sometime in 2023. But also remember Chromadex has a core differential advantage in that we're very, very strong in R and D. So we have been investing in many molecules, that are NAD precursors and other technologies. And so we have an expectation that you will see growth through innovation fairly soon. So does that, since that was one follow-up, does that imply that you say new products, you know, new products in addition to the two nitrogen products we've been talking about for a while? Yes, it could be new products. It could be new channels. It could be new technologies.

Appreciate it. Thank you. Sure. Thank you.

Your next question comes from Sean McGowan with Roth Capital. Your line is open.

Hi, Megan. Is all of the revenue going forward from Nestle going to be booked in the ingredients segment?

So since it was a fourth quarter event, we're still going through the accounting, but my expectation at this point is yes, that it would be similar to the previous agreement and book there. And again, those milestone payments would be recognized as deferred revenue over time and ingredient sales in NIAID.

Okay.

And would you characterize the expected gross margin from that revenue as it gets recognized to be in line with the ingredient segment or in line with the overall company average?

I'd say overall, when you think about the ingredient purchase price, which is the biggest piece of it, and then there's tiered royalties, it would still blend to be a bit lower, but still a healthy gross margin. And then there's obviously the milestone payments as well. Right, lower than... So foodie milestone payments, call it lower than niogen ingredients on a blended basis.

Okay. All right. Thank you very much. Thanks.

Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from Bill Desolam with Titan. Your line is open.

Thank you. A group of questions. First of all, how big of a deal is it winning the most popular brand of the year award at the Chinese health show?

Well, there were many entrants into that, so in terms of the numbers, it's a very big deal. We don't know how that translates into money, though.

Is Sino given any indication that... Do they have much familiarity with winning that award and what has historically happened?

I don't think they've ever won the award before. I think this is the first time that they've had a product that they've won the award. Look, there's a great deal of enthusiasm at Sino. They're putting a lot of time and attention and resources into this. The only thing is they're very methodical. So we have high expectations. Remember, also, we have a partner, H&H, which owns Swiss Brands, which is also selling cross-border into China. And Watson's is selling a bit cross-border into China. So between those three and potentially some others, we expect sales cross-border into China to be very significant. We just don't yet know when.

That's helpful, Rob. And due to my lack of familiarity with that show, Will H&H and others be able to benefit from that most popular brand award, or does that somehow really stick specifically with Cyno?

Well, Watson's benefits, because Watson's is also selling the True Niagen brand, but H&H is selling the Niagen ingredient brand, not True Niagen consumer brand per se. But, you know, there were 130,000 people who went to that convention. is a very well-attended convention. So clearly awareness of Trinidad is growing there.

That's helpful. Thank you. And then you had referenced that the cross-border sales were off to a strong start once SINO has taken over. What metrics do you have that you can share with us that help us recognize that strong start?

Yeah, sure. Hey, Bill. It's Brianna. So first, just a quick point. You'll see the revenue from Sinopharm no longer in e-commerce. Beginning next quarter, it'll be in Treenage and other B2B. So just a quick note on that as a shift. So we've posted a show, had some orders from Sinopharm. And again, as Rob said, we expect that to be large over time. It's a matter of timing and hard to predict when. But just have orders from Sinopharm. They've taken over the cross-border platform. which was a big step, and we're excited about that business going forward.

Thank you. And then did we hear correctly that you reduced customer acquisition costs by 40%, 4-0% this quarter? And if we did hear that correctly, would you provide a few more details around that success?

Sure. So yes, you did 4-0% on a blended basis. but also is achieved on amazon as well as shopify so there are some efficiencies in social and search you know rob's touched on the website there and how we're looking to optimize that spend better and on amazon you know we also saw improvement as we continued to optimize that i don't know if rob you want to add anything or like anything else there no it's like what i said before it's more of a focus on performance marketing versus brand marketing top of the level

and continued optimization of not only our Amazon presence, but also our website presence. I expect to see more of that in the near future.

Thank you both for the time. Thank you. There are no further questions at this time. Mr. Schumacher, I turn the call back over to you. Tom?

Thank you, Joel. Thank you, Rob. There will be a replay of this call beginning at 4.30 Pacific time today. The replay number is 1-800-700-2030, and the conference ID is 412-6168. Thank you, everyone, for joining us today and for your continued support of Chromadex. Thank you, everyone.

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