ChromaDex Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 8 speakers on the call.

Operator

Hello. My name is Ayesha, and I will be your conference operator today. At this time, I would like to welcome everyone to the ChromaDex Second Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Kendall Kanesh, you may begin your conference.

Speaker 1

Thank you. Good afternoon and welcome to ChromaDex Corporation's Q2 2023 results investor 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, Doctor. Andrew Shao, who will join in the call for Q and A. Today's conference call may include forward looking statements, including statements relating 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.

Speaker 1

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 10Q Most recently filed with the SEC, including results of operations, financial condition, cash flows, as well as global market and economic conditions on our business. Please note that the company assumes no obligation to update any forward looking statements after the date of this conference call to conform with the forward looking statements, actual results or changes in its expectations. In addition, certain of the financial information Presented in this call references non GAAP financial measures.

Speaker 1

The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the company's website, present 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 .com. With that, it is now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried.

Speaker 2

Thanks, Kendall. Good afternoon, everyone, and thank you for joining us on today's investor call. We delivered another strong quarter With $20,300,000 in revenue, a 21% increase year over year, positive adjusted EBITDA of $200,000 and Positive operating cash flows of $3,000,000 For the first half of the year, revenues were up 26% And we generated $6,000,000 of cash flow from operations. We ended the 2nd quarter with $26,400,000 in cash and no debt. This marks the 3rd consecutive quarter of revenues over $20,000,000 and demonstrates our ability to deliver cash flow breakeven on a consistent basis.

Speaker 2

Our e commerce business remains our largest and most consistent source of revenue. E commerce net revenue was up year over year in the Q2 as we focused on profitable growth. Specifically, we retargeted consumers Searched our TRU NIAGEN brand during the Amazon homepage takeover last quarter, while reducing top of the funnel spend on that channel. Compared to last year, we have significantly reduced spend on search and social while revamping our creative campaigns and website landing pages. For the total company, sales and marketing expense was 29.6% of net revenues, which was down sequentially and a significant reduction from 47.9% in the prior year quarter.

Speaker 2

While we are pleased with the progress and adjustments made to date, we continue to look for ways to optimize our overall marketing investments with a focus on efficiency. Watsons remains a valued strategic partner with 2nd quarter revenues of $3,000,000 double the prior year period. They recently launched TRU NIAGEN Immune in Hong Kong with a robust marketing campaign in store and online. Early sell through is positive. Loyal TRU NIAGEN consumers are resonating with the concept of stacking, which involves combining TRU NIAGEN With TRU NIAGEN Immune and or TRU NIAGEN Beauty, especially in light of the increased awareness surrounding the importance of bolstering immune defenses during COVID-nineteen pandemic.

Speaker 2

Watsons also reported strong sell through for our core TRU NIAGEN product on the back of a new Influencer campaign featuring a well known award winning actress in Hong Kong. Rounding out the portfolio, TRU NIAGEN Beauty was awarded the best beauty anti aging Outside of Hong Kong, Watson's China has been partnering with Sinopharm to expand sales in that region through cross promotions and campaigns. China remains a strategically important market for ChromaDex beyond the existing cross border business and we are redoubling our efforts on Blue Hat approval to 15,000 stores in China and we fully recognize the importance of capturing this tremendous market opportunity. Additionally, I'd like to highlight one of our new strategic partners, iHerb, whose sales of TRU NIAGEN are off to a solid start. As the number one platform for supplements worldwide, iHerb offers the best brands in the industry and established a strong international presence with nearly 90% of sales generated outside the United States.

Speaker 2

Of note, iHerb has 10,000,000 active subscribers across more than 180 countries. By partnering with the leading e commerce retailer in the health and wellness space, including its extensive distribution network and marketing budget, we aim to complement our own e commerce business and expand our global reach. Our NIAGEN ingredient business Grew by 72% year over year in the Q2. This was driven by strong trends for our long time partner Life Extension whose Specialty retail expansion strategy has recently gained momentum. While not a large contributor to the current quarter results, H and H Has future expansion plans for NIAGEN in its portfolio and we continue to work with Nestle on their first multi ingredient NIAGEN supplement launch later this year.

Speaker 2

Importantly, our business development pipeline continues to grow, supported by ChromaDex's reputation as the global authority In NAD and TRU NIAGEN's reputation as a trusted brand. There's growing awareness of the importance of NAD in human health as we age. This began with the scientific community as evidenced by The over 100 published preclinical studies and 27 published clinical studies on nicotinamide riboside or NIAGEN As part of our ChromaDex external research program, SERC, we celebrated over a decade of award winning excellence in uncovering the full potential of NAD through NIAGEN. We value and encourage strong scientific rigor behind our products and our relationships with academic institutions help make this happen. SURF has produced over 70% of registered ongoing or completed NR trials listed on clinicaltrials dot gov using NIAGEN, which is a testament to the tremendous value of this program.

Speaker 2

Last month, an article in Science Advances Reviewed the body of published peer reviewed clinical studies on NR over the last 10 years, concluding that nicotinamide riboside may play a role in the reduction of inflammatory states and has shown potential in the treatment of severe diseases in humans. Specifically, the authors found that NR was We've shown to increase NAD and related metabolites in whole blood and occasionally in white blood cells. We agree the collection of clinical studies published to date demonstrate great consistency with respect to oral NR supplementation to boost Whole blood NAD levels and reduce inflammation, a known risk factor for many age related diseases. The NR research to date is exciting progress for a novel ingredient and follows the research path of other proven blockbuster ingredients, which Typically begin with a series of preclinical studies followed by extensive clinical safety studies. We hope this article on the state of NR Research serves as a call to action for researchers to further advance the science and we continue to support NR research through CIRP And there are over 40 additional clinical studies underway.

Speaker 2

At ChromaDex, upholding scientific integrity to the highest standards It's of paramount importance. As a testament to this commitment, over 95% of studies conducted via SERP are entirely independent, Investigator initiated and funded by 3rd parties. By adopting this approach, we foster a significant level of trust in the research In contrast to the skepticism around industry funded research in the dietary supplement industry. Of note, An independent article by Labiotec, the leading online media outlet for the biotech industry in Europe named clinical research published on NR In Parkinson's and Alzheimer's disease through SERP among the top recent scientific advances in those diseases over the past year. Additionally, an article in Alzheimer's and Dementia Weekly titled B3 Blocks Alzheimer's boosts memory and mood also mentioned NR.

Speaker 2

It's a true testament to the work SERP is doing to uncover the full potential of NIAGEN that our ingredient has been featured alongside promising therapeutics for consumers suffering The ChromaDex NAD is in our DNA. Through SERP, we support the research behind NIAGEN, The most efficient NAD precursor on the market and have developed a deep intellectual property portfolio to protect our competitive position. We knew early on that rolling out our products to global markets with the mission to improve as many lives as possible was a priority for us We wanted an IP portfolio to match that. 2 of our scientists were recently featured in longevity technology in an article titled A strong patent portfolio delivers a competitive edge in the longevity space. The article discussed ChromaDex's impressive array of over 60 owned or licensed patents Protecting NIAGEN and other related NAD precursors.

Speaker 2

These include a range of the key patents including methods of manufacturing, methods of use in Composition of matter patents, the latter among the strongest and most enforceable patents both domestically in the U. S. And internationally in markets such China, Europe, Australia and Canada. Collectively, these patents provide strong protection for NR through the next decade, Allowing ChromaDex to launch future innovations with confidence in the moat around our business. And to remain a trusted leader in the NAD space, we feel it's important to defend the inventions that we've worked so diligently to protect And take action to prevent infringement.

Speaker 2

Recently, we've seen awareness of the benefits of NAD supplementation and other delivery mechanisms IV therapy for overall healthy aging has extended to more consumers. Just last month, there were 4 articles mentioning TRU NIAGEN in the context The healthy aging supplements, including popular media outlets such as Time Business News and Harper's Bazaar UK, With almost 50 such editorial mentions in 2023 to date. 1 of these was a piece in Eat This, Not That, the world's number one nutrition website And one of the top 5 food media outlets in the U. S. Discussing how celebrities such as Kendall Jenner and Hailey Bieber look to NAD boosting to prevent aging.

Speaker 2

The article focused on NADIV therapies showcased that NADIV can be uncomfortable and take hours to inject And highlighted TRU NIAGEN for those who preferred an alternative and accessible NAD supplement. The same publication later ran an article about Celebrities who are biohacking to live longer, which featured our long time true believer, Brooke Burke, discussing the benefits of elevating NAD with TRU NIAGEN as we age. While overall awareness and sales in NAD products are growing, one NAD supplement, NMN, was banned by the in the United States. In contrast, NIAGEN, the ingredient in TRU NIAGEN stands apart With 3rd party testing, extensive safety data, compliance with proper regulatory notifications and its superior efficiency as a precursor compared to Data continue to accumulate, which reinforce what we've known for years that when NMN is supplemented, It cannot directly cross the cell membrane and must be first converted into NR. This was once again demonstrated in from the group led by the late Anthony Sabe, which demonstrated that isotopically labeled NMN administered to mice It's converted to nicotinamide riboside and nicotinamide before being utilized for NAD synthesis.

Speaker 2

This is the latest in an expanding list of studies that show definitively NMN must be converted to NR and NR is thus superior. Importantly, NR or NIAGEN is readily available today legally for consumers who want to elevate NAD levels. We are seeing some benefit on our sales from the removal of MMN on a platform like Amazon, but the shift to direct sales by MMN companies It's currently still limiting the upside potential. As we look to the future, we see several near term opportunities to extend our market. We have diligently worked on several initiatives that are expected to materialize later this year or early next year, And they represent the culmination of years of effort.

Speaker 2

Our overarching mission as the NAD company is to improve as many lives as possible. This mission extends beyond human health and nutrition through supplementation into new categories and new precursors. All of these market expansion opportunities are supported by the foundation we have built over the last 10 years As the global authority in NAD science and a trusted partner to leading researchers and regulatory authorities, We look forward to sharing more on future updates. And I would now like to turn the call over to Brianna to discuss the quarter's results in more detail And then on to Q and A and closing remarks. Brianna?

Speaker 3

Thank you, Rob. I want to extend my heartfelt appreciation to our investors, Partners and employees for your continued support. I'm excited to share our strong second quarter financial results, which reflect our strategy of balanced top and bottom line growth and overall operational discipline. We have now delivered 2 consecutive quarters of positive operating cash flow was $6,100,000 generated year to date in 2023. While working capital notably disciplined inventory management contributed to this robust performance, our adjusted EBITDA, a non GAAP metric, was also slightly positive over the period.

Speaker 3

As mentioned last quarter, our primary focus is to position the business for sustainable growth and profitability And we are very proud of our progress to date through the collective efforts of the ChromaDex team. Highlighting the key drivers of this strong second quarter performance, ChromaDex delivered total net sales of $20,300,000 up 21% year over year, gross margin of 60.8% and the reduction in overall operating expenses as we managed all areas of our cost structure while making strategic investments. As Rob said, our e commerce business remains a steady source of revenue with 8% growth year over year, even amidst a substantial decrease in media spending. There were 2 additional factors that contributed to the more efficient e commerce growth this quarter compared to the prior year period. First, We retargeted consumers who were exposed to our TRU NIAGEN brand, but did not convert during the Amazon homepage takeover last quarter, which required less top of the funnel spending this quarter.

Speaker 3

2nd, we are comparing against the heavy TV investment in the prior year period. As a result, we experienced significant improvements in marketing efficiency, which remains a key area of focus for the company. Maintaining financial discipline has been a priority for us, leading to a successful reduction in total operating expenses of $1,800,000 versus the prior year period. This achievement is particularly noteworthy considering certain expenses like severance related to executive departures were recognized in full this quarter, but will be paid over time. Additionally, we recorded a higher bad debt reserve related to our partnership with ShopHQ.

Speaker 3

Combined, these expenses accounted for a $1,200,000 increase in G and A year over year. As you may recall, Last quarter, we booked a bad debt reserve related to ShopHQ and did not anticipate the need for any further reserves based on the actions taken by their parent company, Imedia Brands, to strengthen its balance sheet. Unfortunately, despite these efforts, they ultimately sought Chapter 11 bankruptcy protection, where they further reorganize the business. SHOPHQ's TV retail model has proven to be a viable channel for TRU NIAGEN and there are a few potential buyers for EyeMedia brands. We understand that TRU NIAGEN is a top selling product on SHOPHQ and we believe we will come to reasonable financial terms that allow us to continue the relationship.

Speaker 3

With that, let's turn to the Q2 financials in more detail. As I said, total net sales in the Q2 of 2023 were up 21% year over year as compared to the Q2 of 2022. With a 16% increase in TRU NIAGEN driven by 8% growth in e commerce sales and 53% growth in combined Watsons and other B2B sales with Watsons sales doubling compared to the prior year period. As mentioned upfront, the growth in our e commerce business this quarter was in part connected to the Amazon homepage takeover event that occurred in mid March. Separately, the increase in Watson sales was somewhat impacted by a challenging prior year comparison, since in 2022, There was a timing impact of shipments due to COVID-nineteen.

Speaker 3

As Rob highlighted, we continue to work closely with Watsons on marketing co investments and other To build on the strong foundation they have established in Hong Kong and Macau. Rounding out the TRINIOGEN B2B performance. As Rob mentioned, we recently entered a partnership with Iherb, which contributed to sales this quarter. We are very pleased to expand our global reach through their And encouraged by early progress of the partnership. As Rob noted, another key driver for our 2nd quarter results was NIAGEN ingredient sales, which grew 72% or $1,000,000 driven by Life Extension, one of our strongest long term ingredient partners, who successfully expanded into the specialty retail space this year.

Speaker 3

Gross margins increased by 80 basis points to 60.8% compared to 60% in the Q2 of 2022. The higher gross margin in the quarter is primarily a result of higher overall sales, which helped us better leverage our fixed supply chain costs such as labor and other overhead. Furthermore, we continue to drive cost savings across the supply chain through better economies of scale in production and optimization efforts in shipping and procurement. Selling and marketing expense as a percentage of net sales decreased to 29.6% compared to 47.9% in the Q2 of 2022. As a result of our continued focus on the most efficient distribution channels and marketing campaigns in the Q2, Our cost per customer acquisition or CPA decreased by approximately 40% year over year with decreases in both our own website and Amazon.

Speaker 3

Additionally, this quarter marked the 2nd highest count of new to brand customers surpassed only by the Amazon homepage takeover event. These accomplishments underscore our success in retargeting those customers during the quarter. Research and development due to timing of projects with external researchers. We now expect that these investments will increase during the second half of the year as we ramp up R and D projects, which we anticipate will create new commercial opportunities for ChromaDex in the near future. As reported, general and administrative expense was up $100,000 compared to the prior year period.

Speaker 3

This was primarily driven by the higher severance and bad debt expense I discussed earlier, largely offset by lower legal costs and ongoing disciplined expense management. For the Q2 of 2023, our operating loss was $2,300,000 versus a $6,400,000 loss in the Q2 of 2022. The net loss attributable to common stockholders for the Q2 of 2023 was $2,200,000 or a loss of $0.03 per share as compared to a net loss of $6,400,000 or a loss of $0.09 per share for the Q2 of 2022, showing impressive improvement to our bottom line. Moving to the balance sheet and cash flow. Our balance sheet remains strong.

Speaker 3

We ended the quarter with $26,400,000 in cash and did not borrow on our line of credit. For the first half of twenty twenty three, net cash provided by operations was $6,100,000 compared to an $11,000,000 use of cash in the first half of twenty twenty two. Consistent with last quarter, the difference year over year was primarily driven by improvements in our net loss of $10,000,000 paired with better working capital management, primarily related to inventory, which provided a cash inflow of $2,700,000 in the first half of twenty twenty three versus a cash outflow of $2,200,000 in the first half of twenty twenty two, a positive $4,900,000 impact to cash year to date. Our improved cash flow related to inventory was a result of stronger sell through of TRU NIAGEN through e commerce channels and to our key partners, Higher volume of NIAGEN ingredient sales and more efficient production management. We are also holding less safety stock outside our core U.

Speaker 3

S. E commerce business since the COVID-nineteen related disruptions that extended production lead times are largely behind us. As it relates to our 2023 full year outlook, We have provided details on the key P and 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 and A expense, which we now expect to be flat to down $1,000,000 year over year versus our previous guidance of down $1,000,000 to $2,000,000 And we've again raised our revenue outlook. The updated G and A outlook is due to the severance and bad debt expense recognized in the Q2.

Speaker 3

We continue to take a conservative approach to our top line outlook, but now expect at least 15% growth year over year, up from at least 12.5% previously and at least 10% when we first gave guidance. This growth excludes upside from opportunities in our pipeline With a slight increase from our last update based on upside realized in the Q2, we still see opportunities in the second half of the year, stemming from new business development initiatives, including new partners, channels and products. As it relates to adjusted EBITDA, We remain committed to achieving sustainable profitability, while balancing important strategic investments to drive growth. In the first half of the year, We sustained adjusted EBITDA breakeven each quarter. However, looking to the remainder of the year, we expect to experience some volatility due to important R and D initiatives, including higher spending in the second half of twenty twenty three.

Speaker 3

In our outlook, we also continue to plan for higher legal expense to protect our IP, but this may not be incurred in 2023. In summary, I'm truly inspired by our achievements in the Q2 and proud of the ChromaDex team. We have proven our capability of delivering cash flow breakeven by driving improvement in both our top and bottom line results. The combination of solid net revenues, Stable gross margins, streamlined marketing expenses and overall reductions in operating costs, showcases our dedication to becoming a profitable business. Moreover, we've approached this year with thoughtful planning and unwavering determination.

Speaker 3

We've consistently raised the bar and continue to drive towards accelerated growth. We strive to carry this positive momentum forward, staying agile in the face of change and embracing every chance to excel to deliver on the tremendous market opportunity ahead of us. Operator, we are now ready to take questions.

Operator

Your first question comes from the line of Ram Selvaraju of H. C. Wainwright. Your line is now open.

Speaker 4

Can you hear me?

Speaker 2

Yes. Hi, Ram.

Speaker 5

Hi. Thanks so much for taking my questions and congrats on the solid performance

Speaker 4

in the quarter. Thank you. I wanted to just drill down a little bit on The gross margin and how you expect that to evolve, particularly in light of the development with respect to The e commerce channel and how achievable you expect being above that 60% level It's likely to be in the course of the coming quarter.

Speaker 3

Great. Thanks, Ram. So year to date, we're at 60.3% gross margin. So as you noted, a little bit above 60%. And that's a little bit down year over year.

Speaker 3

Mix is a factor in that the Q1 had less e commerce. So you're right about that, e commerce does drive the gross margin up. As we look at the second half of the year, I'd reiterate the full year outlook where we are increasingly confident in delivering stable gross margins. Last year, we're 59.4%. So we do think that we're tracking well at the 60.3% and sustaining that is going to be a function of business mix.

Speaker 3

But also we've got some nice scale on the business as we're hitting on above $20,000,000 in overall revenues and leveraging some of our fixed supply chain headcount and other costs. So it's very comfortable in our outlook.

Speaker 4

Okay, great. And then also with respect to the NMN situation, I know that this has been touched upon in previous calls. Can you give us a sense of whether you have any additional clarity at this time On the kinetics with which you expect TRU NIAGEN to be positioned to move into taking some of that market share That's effectively being vacated by the absence of NMN?

Speaker 2

We have seen an increase, So have some of our partners like Life Extension as a result of NMN decline, But it hasn't really surged significantly yet. We expect it to though in the next few quarters.

Speaker 6

Okay, great.

Operator

Your next question comes from the line of Jeff Van Sinderen of B. Riley, your line is open.

Speaker 5

Hi, everyone. And let me say that great to see the consistent growth in revenues in the first half and also the cash flow from operations. Can you touch on the mix of business that you're baking into your guidance for the remainder of the year? I guess, Maybe if you could help us understand kind of the components of where you see the growth coming from kind of the drivers there. And then maybe address how much of the Q2 growth, I guess, is sustainable in nature, maybe how much of it Is more episodic given some components there that were up pretty substantially year over year?

Speaker 3

Sure, Jeff. So we've talked about the two parts of our business as we characterize them, the steady recurring Business, notably that's e commerce, Watsons, our long term established partners for TRU NIAGEN, as well as some NIAGEN ingredient partners like Life That our long term partners of ours, in the first half of the year, so both the Q1 and the second quarter, we saw some upside from the NIAGEN side of our business contributing to growth. We noted 72% year over year increase in that part of the business in the second quarter. So that was a driver and it's also part of our raise in our outlook to at least 15% growth. So we're seeing some of that upside get realized in NIAGEN Ingredient.

Speaker 3

And looking ahead, we think we'll get the continued steady growth from the businesses I talked about. NIAGEN ingredient, just want to call out there is a bit of a tough comp in the Q4. Nestle purchased $2,000,000 upfront last year. So I would just factor that in to the outlook in terms of NIAGEN ingredient. I don't know, Rob, if there's anything you want to add?

Speaker 2

I think in general, we think the mix It's going to be consistent. Okay. That's helpful to know.

Speaker 5

And then I guess as we're thinking about this, I mean, you're kind of at As you pointed out Brianna, you're kind of at that $20,000,000 ish level of revenues. And I'm just wondering how you think about kind of the next Step up in revenues to start delivering a bit more to the EBITDA line. We've been just thinking about that on an annual basis, Kind of what that number is, while still being able to drive sales growth underpinned by marketing And just maybe if you could touch on that.

Speaker 2

Are you asking a financial question or a strategic question?

Speaker 5

Well, it's a little bit of both. It's a little bit of both. Just trying to get a sense of kind of what you think You can still drive, but realize you guys are focused a little bit more on the bottom line or maybe a lot more on the bottom line lately. Just trying to get a sense of kind of what level of revenues do you feel like You can get to or once you get to that level of revenues and be able to deliver kind of more substantial EBITDA And in getting to that, you're still using marketing, but using it in sort of a more efficient way, I guess, is what I would say.

Speaker 2

Okay. I will say, as you know, Jeff, a little over a year ago, ChromaDex made a bit of a shift It's more internal operation and focus on efficiency and focus on cash management. And that's how we've been working for the past year, focus on return on ad spend and focus on our SG and A. We're continuing to do that. We obviously have shown that we can do that and have done that.

Speaker 2

Our balance sheet is very, very Strong and our income statement is pretty good and getting better. But we also recognize that there's tremendous growth opportunity and we've continued to invest Significantly in R and D during this time. That R and D is going to pay off. Remember, we don't view ourselves as a dietary supplement company. We view ourselves as an NAD company, and we've got a Fairly significant patent portfolio, not just on nicotinamide riboside, but other precursors as well.

Speaker 2

And we recognize that Nicotinamide Riboside is an important molecule not just for dietary supplements, but there are other categories that are important as well, such as drugs and others. And we've been working on these for years and developing them for years. So we're expecting extensions to come In addition to dietary supplements that are dramatic and significant with very significant upside potential, But we don't want to put the cart before the horse. We're doing our homework. We're measuring the market.

Speaker 2

We're planning for this to happen. Within the dietary supplement space, we've shown that we can be a very tight efficient operation focusing on nicotinamide riboside, both in the e commerce space and in the ingredient space, both in the U. S. And globally. And we work with some great partners and We've been developing very selectively with other partners.

Speaker 2

So in the coming months or quarters, we expect to show Strategic ideas how we there could be dramatic and significant growth to ChromaDex in product extensions, in innovations and other things as a yield from the R and D investment that we've made. In terms of the existing business, we expect to continue to be efficient and focus very much on return on ad spend. There's still great opportunity for us to improve on our website management. As you know, Amazon has performed extremely well. We still and we have some very exciting marketing initiatives that we're going to invest in soon that we think will also advance growth just for the Straight true NIAGEN dietary supplement product.

Speaker 5

Okay. There's a lot there. Appreciate all that color. And then maybe if you could just touch on the IR partnership, seems like a really good one. And then also Maybe quickly, the Nestle multi ingredient launch later this year?

Speaker 2

We expect Nestle to launch A couple of products later this year, we don't know the exact month, but we know they're getting close. Of course, we have other partners, H and H and Life Extension, who have Performed extremely well and we have and they have expectations for more growth in the future and more product extensions. H and H is mostly an international partner. Life Extension is a U. S.-based life dietary supplement partner.

Speaker 2

Nestle has rights in the U. S. And outside the U. S. And of course, as you know, we also have Watsons as a partner, but they're mostly selling our brand

Speaker 3

IHUR, Rob?

Speaker 2

We also recently announced the deal, as Brianna has mentioned, with IHUR, which is a distribution partner. It's gotten off to an excellent start, as you know. It took a while for us to make a deal with iHerb because they had certain restrictions that We've made a deal with iHerb that now been selling for a few months. It's going extremely well so far.

Operator

Your next question comes from the line of Mitchell Panaro of Sturtevant and Company. Your line is open.

Speaker 6

Hey, good afternoon. A couple of questions.

Speaker 5

So

Speaker 6

using just a very basic sort of marketing efficiency Equation, it was the best marketing efficiency that I've seen going back into Several years. And you sort of described you benefited from the Amazon Homepage Day and Going back and revisiting the customers that didn't buy, so that was an easier An easier top of the funnel conversion, but I'm just curious whether we can see whether you expect to see That type of efficiency, I know you've talked about it on the call here, but whether this is like The level that we're going to see going forward or is there anything in the coming quarters that might offset might Take it back a little bit.

Speaker 2

Yes. We think the efficiency will be comparable. I mean, it's not just the retargeting off of the Amazon deal that we did. It's just in general, more focused on performance marketing and ROAS measurement. But we do expect to be making some investments.

Speaker 2

As you know, the balance sheet is very strong right now. Business is performing in a very stable, consistent way. We know there's great growth potential. So we will again take some shots in marketing. And when we take a shot that might impact the short term Return marketing as a percentage of overall revenue, but we're going to do it.

Speaker 6

When it comes to recurring customer, I was curious if any changes There in purchasing habits and because that recurring customers require very Low acquisition costs and if you're building those recurring customers that just sets the table for Even further efficiencies?

Speaker 2

Yes, we agree. We have very strong retention rates And marketing is much higher to new customer acquisitions. That's part of the reason why more efficiencies.

Speaker 6

Are you seeing recurring customer, The same type of percentage as in the past?

Speaker 2

It's actually slightly lower than the last year, but in the same ballpark.

Speaker 6

Okay. And then you've done a nice job generating Operating cash flow so far in the first half and I'm curious whether there's Anything to call out that might change that in the second half?

Speaker 2

Only that some of that Cash flow is working capital related, inventory related, accounts receivables, accounts payable. If we buy more inventory, even if we have consistent positive adjusted EBITDA, there might be

Speaker 6

a dip

Speaker 2

In cash balance, but we're basically operating at a cash flow breakeven right now.

Speaker 7

Okay.

Speaker 6

And then I guess last question was just any update on What you're doing with the healthcare professional market and whether you're seeing any progress?

Speaker 2

The HCP market for us is a great opportunity, not just as a revenue source, but also as an influencer marketing channel. It's been relatively flat for us for the last year and a half, but we did recently bring on some excellent new internal Janelle, that we're very excited about. So I'm very hopeful that we're going to start seeing growth in that channel soon.

Speaker 6

Okay. All right. That's all I have. Thank you.

Speaker 2

Thanks, Mitch.

Operator

Your next question comes from the line of Sean McGowan of ROTH MKM, your line is open.

Speaker 7

Thank you. Good afternoon. I wanted to start by focusing back on your comments on working capital. Are you in fact expecting That working capital will require net uses of capital in the second half or Should we expect continued tight management as we've seen so far this year?

Speaker 2

I think we expect a slight dip.

Speaker 7

You mean a slight investment?

Speaker 2

Slight dip in cash balance due to inventory purchases that are coming up.

Speaker 7

Okay. Thank you for that. When you talked about, I think maybe Brianna mentioned possible legal spending To protect the IP, which is always that's been consistent, but it did something specific change a new target emerge or The Life Extension, if you could just talk a little bit more about that. To what degree are the Is the growth in revenue with Life Extension really incremental to the total or is it a positive surprise relative to your I'd just like a little bit more color on that, please.

Speaker 2

Well, Life Extension is a retail player and they have many Hundreds of SKUs and it is an excellent traditional dietary supplement company. They benefited from NMN being removed on the shelves Many retailers and then they started selling their NIAGEN products in those retailers. So do I expect it to continue? Yes. But they did have a particularly good quarter because of that.

Speaker 7

Okay. So it's really that the marketplace got a little bit clearer for them. And in fact, what's driving that sale is you're like you're selling product to them that they're turning around and reselling or are they modifying in some way?

Speaker 2

Yes, there we sell them the ingredients and they it's their own brand. They call it NIAGEN, but it's the own life extension brand. They're one of the few companies to whom we supply ingredients, including Nestle and H and H and a couple of

Speaker 3

others. Okay.

Speaker 5

Thanks, Mitch.

Operator

There are no further questions at this time. Brianna Gerber, I turn the call back over to you.

Speaker 1

Thank you, Ayesha. There will be

Speaker 3

a replay of this call beginning at 4:30 pm Pacific Time today. The replay number is 1-eight hundred-seven seventy-two thousand and thirty and the conference ID is 4126

Operator

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

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Earnings Conference Call
ChromaDex Q2 2023
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