ChromaDex Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to ChromaDex Corporation's First Quarter of 2024 Earnings Conference Call. My name is Jericho, 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 Q1 of 2024.

Operator

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 Ben Shamsen, Vice President of Lytham Partners. Please go ahead, Mr. Shamsen.

Speaker 1

Thank you. Good afternoon, and welcome to ChromaDex Corporation's Q1 of 2024 results investor call. With us today are ChromaDex's Chief Executive Officer, Rob Fried Chief Financial Officer, Brianna Gerber and Senior Vice President of Scientific and Regulatory Affairs, Doctor. Andrew Shao, who will join the call for Q and A. Today's conference call may include forward looking statements, including statements related to ChromaDex's research and development and clinical trial plans and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of TRU NIAGEN in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities, as well as anticipated results of operations.

Speaker 1

Forward looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurances as to the 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 results of operations, financial condition, cash flows, as well as global market and economic conditions on our businesses. Please note that the company assumes no obligation to update any forward looking statements after the date of this conference call to conform with forward looking statements, actual results or changes to its expectations.

Speaker 1

In addition, certain 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.

Speaker 2

Thank you, Ben, and good afternoon, everyone, and thank you for joining us on today's investor call. I'm proud to announce that we delivered a solid start to 2024, delivering $22,200,000 in revenue and positive adjusted EBITDA of $700,000 This is the 4th consecutive quarter in which we have generated positive adjusted EBITDA, which reflects our unwavering commitment to maintaining fiscal discipline while making strategic R and D investments to support innovations launching later this year. In the Q1, we generated net positive operating cash flow and ended the Q1 with $27,600,000 in cash and no debt. Our e commerce business continues to be our largest and most reliable source of revenue. E commerce sales for the Q1 were up 5% year over year as our marketing team continues to focus initiatives and campaigns that drive direct and efficient returns and continues to implement strategies to build our own website as the growth engine for the business.

Speaker 2

In the Q1 of 2023, we had invested in a brand campaign through Amazon's homepage takeover, which drove a significant increase in new to brand purchases on Amazon. In the Q1 of 2024, absent such a large campaign, we continued to see growth in our Amazon business and continued signs of stabilization in our website business, providing the foundation for growth in 2024. In the Q1, our team committed to be less focused on price promotions and to focus on initiatives to build a robust base of subscribers to drive long term customer value. While it is still too early to assess consumer behavior, we believe this is the right strategy going 2024, we're also allocating more resources to optimize influencer marketing. Also retention strategies, content and social media presence, which are important elements of our strategy going forward.

Speaker 2

Last month, we announced that we are partnering with 2 major specialty retail distributors, Sprouts Farmers Market and Vitamin Shoppe. TRU NIAGEN will be available in over 400 locations in Sprouts Farmers Market as the 1st major grocery chain to carry TRU NIAGEN and TRU NIAGEN. TRU NIAGEN will also be available on the retail shelves of over 700 Vitamin Shoppe locations. Our new partnerships with Sprouts and Vitamin Shoppe broadens and diversifies the access of TRU NIAGEN to a larger health and wellness focused consumer base and aligns with our vision to help as many people as possible transform the way they age. I am proud that the teams at ChromaDex continue to expand our network of partners who all share a passion to bringing solutions to consumers who wish to promote health span.

Speaker 2

We believe we are and have always been the gold standard of the NAD industry. With over 30 peer reviewed published human studies and over 100 published scientific studies, our ChromaDex external research program, which we call SERP, continues to be key in establishing clinical studies to explore for the numerous health benefits NIAGEN can have on the human body. It's our last quarterly update. A number of preclinical trials have been completed that I want to highlight. 1st, a recent preclinical study was designed to assess the effectiveness of liposome based delivery of NR for treating cerebral ischemia.

Speaker 2

The study utilized liposome encapsulated NR chloride given through IV injections in healthy mice and in cerebral ischemia model mice and examined its pharmacokinetics, organ distribution and therapeutic impact between the mice models. The results demonstrated potential for NR liposomes for broader clinical application of neuroprotective agents beyond standard stroke therapy. The second preclinical study examined the impact of the combination of NR with resveratrol, the healing of diabetic ulcers caused by inflammation in the diabetic rat model. The results highlighted the potential of NR and resveratrol in accelerating wound healing. Another preclinical study investigated the causes of miscarriages, congenital malformations, particularly the role of NAD deficiency using a mouse model.

Speaker 2

Interestingly, researchers found that the risk of NAD deficiency is elevated during pregnancy. And results suggest that a sufficient NAD supply is required to ensure normal embryonic development. Of course, further studies in human trials are needed to validate these observations, but the few preclinical study results I just highlighted are just some of many that illustrate the boundless potential positive health benefits NR NIAGEN can provide. I do not know of another dietary supplement company that has an innovation pipeline of NAD precursors that may have such profound therapeutic or prophylactic value in the pharmaceutical space as does ChromaDex. We continue to invest in our science to further our understanding of the potential for NIAGEN and to further develop innovative ways NIAGEN can benefit longevity and healthy aging.

Speaker 2

As aging. As some of you may know, our partner, Juventis, has launched a portfolio of skincare products powered by NIAGEN in South Korea and is looking into plans to launch in the United States. Additionally, we continue to work with Zestipaws to further research innovative products in the pet supplement market. As mentioned last quarter, we are increasingly close to announcing a new vertical for NIAGEN that will illustrate ChromaDex's unique position in the industry. While I acknowledge the development process has been long, I am proud of the teams at ChromaDex for being diligent and thorough in the proper studies on safety and efficacy, compliance with regulatory bodies and establishment of our supply chain infrastructure.

Speaker 2

As the global authority in NAD signage, our mission at ChromaDex is to improve as many lives as possible. Our unwavering commitment to this mission continues to drive our innovation pipeline to develop new NAD boosting products and delivery mechanisms that benefit the way humans age. This includes products that extend beyond dietary supplements. As I mentioned earlier, every one of us at ChromaDex believes we represent the gold standard in the NAD industry. We will continue to represent the highest level of scientific integrity and use our position in the industry as a trusted partner to researchers, regulatory authorities and world class business partners to drive innovation.

Speaker 2

We recognize that research and development to support innovation takes some time. It may take more time than originally anticipated. While we are not yet ready to make any announcements, we look forward to sharing more details in our next update. And I would like to now 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.

Speaker 2

Brianna?

Speaker 3

Thank you, Rob. It's a pleasure to speak to our investors, partners and team members who have joined us today. As it relates to the key highlights of our Q1 performance, ChromaDex delivered total net sales of $22,200,000 solid gross margins of 60.7 percent, a $1,300,000 reduction in overall operating expenses and a net loss of $500,000 Additionally, we achieved positive $700,000 of adjusted EBITDA, a non GAAP metric, and we yet again generated positive operating cash flows. Our performance this quarter demonstrates our strong financial management across the organization, which has enabled us to increase investments in growth. Specifically, and as anticipated, we ramped R and D investments this quarter to support strategic initiatives and new launches planned for the second half of this year.

Speaker 3

With that, let's turn to the Q1 financials in more detail. As I said, total net sales in the Q1 of 2024 were $22,200,000 a 2% decline compared to the Q1 of 2023. This was primarily driven by a 2% decrease in TRU NIAGEN, a 5% growth in e commerce was overshadowed by a 17% reduction in combined Watsons and other B2B sales, largely due to timing of those sales. As a quick reminder, in mid March of the previous year, we invested in a brand building event with the Amazon Homepage Takeover, which helped boost sales during that period. This event created a more challenging year over year comparison, especially it was we did not undertake a similar brand building event in the current quarter.

Speaker 3

Instead, we remain focused on marketing efficiency, while developing an influencer and social media strategy that we expect will broaden awareness of TRU NIAGEN beginning later this year. Now I'll briefly touch on Watsons and other B2B sales. As with all partnerships, timing of sales can vary, and it's worth noting that the Q1 of 2023 saw the highest sales volume to Watsons last year, including shipping for their TRU NIAGEN IMMUNE launch. On a full year basis, last year, Watsons growth driven by the launch of TRU NIAGEN Immune with the base business being steady. In addition, while total ingredient sales were flat year over year, we had moderate growth of $200,000 in NIAGEN ingredient sales, which was offset by an equal decline in sales of other ingredients.

Speaker 3

Gross margins increased by 80 basis points to 60.7% compared to 59.9% in the Q1 of 2023, primarily driven by shifts in our business mix. Specifically, e commerce sales constituted 58 percent of our total net sales in the current quarter, up from 54% in the prior year quarter. Selling and marketing expense as a percentage of sales decreased to 30.4 percent, improving 450 basis points compared to 34.9% in the Q1 of 2023. As discussed earlier, we invested in a large brand building event last year and did not have a similar campaign this year, which drove the improvement in overall efficiency. As anticipated, research and development expenses increased $900,000 year over year as we invest to commercialize our new vertical in 2024 along with new NAD precursor development.

Speaker 3

As reported, general and administrative expense decreased $1,100,000 year over year, primarily due to reductions in executive and other administrative headcount expenses, bad debt expense, severance and restructuring expense and share based compensation expense. For the Q1 of 2024, our operating loss was $700,000 versus a $2,000,000 loss in the Q1 of 2023, an improvement of $1,200,000 driven by lower total operating expenses. The net loss attributable to common stockholders for the Q1 of 2024 was $500,000 or a loss of $0.01 per share compared to a net loss of $1,900,000 and a loss of $0.03 per share in the Q1 of 2023. Moving to the balance sheet and cash flow. Our balance sheet remains strong.

Speaker 3

We ended the quarter with $27,600,000 in cash and no debt. For the 3 months ended March 31, 2024, net cash provided by operations was $300,000 compared to a $2,800,000 cash inflow in the same period last year. The difference year over year was largely driven by changes in working capital related to relatively greater reductions in accounts payable of $1,600,000 and smaller reductions in inventory and prepaid expenses and other assets of $700,000 $500,000 respectively. Finally, while it does not impact our Q1 financials based on our determination that a loss is not yet probable, I wanted to briefly comment on a recent ruling in the Delaware litigation. In March, the District Court judge granted Elysium's motion for attorney fees and costs.

Speaker 3

Promenex intends to appeal this decision and, if successful, nothing will be owed. However, we disclose an estimate of the maximum liability in our 10 Q report. As it relates to our 2024 full year P and L outlook, detailed information on key financial metrics can be found in our earnings press release and accompanying slide presentation. In short, all key metrics remain consistent with last quarter's outlook. As a reminder, our top line outlook includes revenues from new product launches, partnerships and other opportunities that are in our pipeline.

Speaker 3

Of note, the launch of the new vertical we discussed last quarter is taking longer than initially anticipated, but it continues to be part of our growth plan for 2024 and beyond. Furthermore, we continue to anticipate that the first half of the year will include heavier investments, particularly in R and D to prepare for new launches. Accordingly, revenues will ramp in the second half. At the same time, R and D investments will moderate. In summary, we made important strides this quarter to advance our strategic roadmap for 2024 while delivering solid bottom line results.

Speaker 3

Our ability to maintain positive operating cash flows and robust balance sheet is evidence of the strong financial foundation we have created while continuing to invest in growth initiatives. We also strengthened our market position with new partnerships, which Rob mentioned, allowing us to expand our customer reach in new retail and grocery store locations. I'm excited about the momentum we built and the new revenue opportunities that we expect to unlock later this year. Operator, we are now ready to take questions.

Operator

The floor is now open for your The first question comes from the line of Ram Selvaraju with H. C. Wainwright. Please go ahead.

Speaker 4

Thanks so much for taking my I was wondering if you could talk a little bit about gross margin evolution and how you see that being driven by the overall product channel mix, in particular with respect to the role that e commerce is likely to play in the future revenue base. And if increasing percentage of the revenue coming from e commerce is necessary to maintain gross margin improvement or if you can achieve gross margin improvements even if other channels start to contribute more than they have in the past?

Speaker 5

Hi, Ram. It's Brianna. So gross margins, if you look recently, we've been trending between 60% 61%. When we trend about higher is when we have quarters with a higher e commerce mix. And so I think that speaks to your point.

Speaker 5

E commerce margins generally we've said are in the low 70s excuse me, low 70s and the more B2B side in the low mid 50s. So there is a mix impact there. That said, while mix is a contributor, we do have ongoing cost savings initiatives. We have targets every year. We executed many of these last year that will continue into this year and some things set up for the second half that should contribute to the overall slight improvement we expect on a full year basis versus the 60.8% gross margin last year.

Speaker 4

Great. Secondly, you had previously talked about the intent to move those customers who already utilize TRU NIAGEN or those customers who have exhibited adherence to TRU NIAGEN to higher dosage forms of the product. And I was just wondering if you could comment on how that initiative is going and to what extent you expect it to contribute to revenue growth in the future?

Speaker 2

Right. That initiative has been successful thus far. I mean, we've had some supply chain issues, which we have mostly resolved at this point. But we see that there is a great demand for the 1,000 milligram. People who are taking 1,000 milligram notice the difference sooner, and it's more dramatic.

Speaker 2

And what has been surprising is that the 1,000 milligram launch has also worked for new to brand customers. Our anticipation initially was that was just going to be existing customers migrating over to 1,000 milligrams. But in fact, it's been very effective for new to brand customers as well. It's a profitable SKU for us. It's an effective SKU for us.

Speaker 2

So we see us moving more in that direction in the future.

Speaker 4

And then lastly, I was wondering if you could comment on 2 additional aspects of the company's story for the remainder of 2024. One pertains to what you anticipate may be value inflection points coming from the existing partnerships that you have, for example, with Nestle Health Sciences and Sinopharm? Do you anticipate any meaningful announcements or developments on either of those fronts over the course of this year? And also if you could talk a little bit about what you anticipate from the standpoint of clinical assessment of nicotinamide ribosides in 2024 and which in particular clinical indications you may be more most excited about as we look ahead to the remainder of 2024? Thank you.

Speaker 2

I'll start with the second question. We are very much looking forward to seeing the data on the long COVID study that Harvard has been doing. We know that they have completed the actual study, but we haven't it's a blinded study. We have not yet seen the data. We're excited to see that.

Speaker 2

We're also excited about the Parkinson's study, which should be concluded. We thought it would be done in December. It's obviously going to get done a little later than that, probably Q1 of next year, but it's fully recruited. It's just all of those participants are taking a gram a day for a year. So, we probably won't see the data till sometime probably the first half of next year, but obviously we're very, very excited about that study as well.

Speaker 2

There's also other work that we're doing in the orphan disease category, these diseases like ataxia and cut canes that we're very excited about and we think are important for us for later in this year. With regard to the first question, we don't anticipate any announcements or exciting news with regard to Sinopharm. We are talking to them regularly about ways to increase the cross border sales into China and are also talking to some other partners to work with Cyno and ChromaDex to increase the cross border sales of TRU NIAGEN into China. But we don't expect any major announcements. As you know, we have a partner there called H and H and they also sell cross border into China and they do so extremely successfully.

Speaker 2

It is possible that we will be expanding the relationship with H and H later in 2024. That will be other products and other territories. Nestle has now launched with 2 brands, Pure Encapsulations, so NIAGEN exists in, I think, 3 SKUs with Pure Encapsulations and also Solgar, another important high end Nestle brand has released the product. We haven't seen the actual data. We only know anecdotally that they're very happy with the sales in both and we've seen ads for both.

Speaker 2

We're very conservative with our estimates with regard to Nestle, so we're not expecting any major announcements. But we're hopeful that they will continue to grow and expand and that we'll see more ingredient purchases from Nestle. There are some other partners that we have been talking about. It's possible in the balance of 2024 that you will read about or hear about other partnerships that would expand the NIAGEN business with Promodex.

Operator

Our next question comes from the line of Mitch Nara with Strydogan and Company.

Speaker 6

Please go ahead. Yes. Hi, good afternoon. Hi. Just a couple of questions.

Speaker 6

So with the Q1 revenue to reach 16% growth for the year, it's going to be a solid roughly 23% for the last 9 months. I'm curious where we should expect that to come from? And is this something I heard Brianna say that revenues obviously ramped with a new product in the second half, but I'm curious whether the second quarter is going to see any acceleration from Q1 levels?

Speaker 3

Hi, Mitch. So we are not baking in any

Speaker 5

new product revenue in second quarter, which as you said is implied in the outlook, the ramp will be in the second half. We've been very consistent with that. There's nothing that I'd point to in terms of a clear catalyst in terms of the Q2. We've delivered steadily. We did reiterate our full year outlook of that at least 16% faster growth than last year.

Speaker 5

And that includes the combination of this new vertical we've been discussing, other new partnerships and product launches. So not going to comment specifically on Q2, but it is a second half as you heard.

Speaker 6

Okay. So to get to 23%, you're going to have to do some combination of 23% in the back half to reach your 16% kind of growth guidance. So you're I guess you're comfortable that you're going to see a strong enough back half to accomplish that. Is that what you're saying in your guidance?

Speaker 3

Yes. It is, yes.

Speaker 5

And then recall last year from an absolute dollar basis, Q1 was the highest revenue quarter, so we have the toughest comp there. And then the other quarters were lower than that. So there's also easier comparisons as we move throughout the year.

Speaker 6

Okay. And then, with the new retail partners, could you Rob, could you sort of compare and contrast your thoughts there with the launch at Walmart, which wasn't maybe wasn't exactly the right customer fit, but how you expect the launch to go? Why you chose these companies? And if it pretends further retail expansion in the future?

Speaker 2

There might be further retail expansion in the future, but it won't be mass retail like Walmart in the near future. Vitamin Shoppe is interesting because the store managers at Vitamin Shoppe are very well informed. They know NIAGEN very, very well. They were selling NMN extraordinarily well, but have removed NMN from their shelves since became an illegal ingredient. And longevity in general is an important category for Vitamin Shoppe.

Speaker 2

So there was not a lot of education that needed to be done at Vitamin Shoppe. Marketing initiatives with Vitamin Shoppe will be further direct enhancement with store managers. We won't have to do a mass television campaign to create awareness to support it, which was the case with Walmart. And as you recall, we did a television campaign and when we got it up and running, the sales were actually quite strong at Walmart. It just took too long.

Speaker 2

And by the time we got the ad out and running and distributed, Walmart had already made its decision to pull back and did not justify further investment in that media campaign. Sprouts as well is another example of specialty high end retail that we think is extreme overlap with the poor customer base of TRU NIAGEN and will not require significant investment of advertising dollars to support. And you might see more deals like that, specialty retailers that are well informed and are directly overlap our customer base.

Speaker 6

And when it comes to pricing of the product, will it be similar your e commerce prices or and margins similar to your are margins similar to your e commerce business?

Speaker 2

No, the margins are lower in retail than they are in e commerce. And yes, the pricing will be comparable.

Speaker 6

Okay. Okay. And then, I guess, just the last question is, so in the R and D, so your investment or you got I forget the name of the firm that approved your supplement integrity. But was that a major expense

Speaker 7

in Q1?

Speaker 5

No. Alkermes Assured is, I believe, the one you're referring to. We also have NSF certified support. Those actually get picked up in our cost of goods sold related to making and certifying the product. So it was not a driver of R and D.

Speaker 5

That increase in R and D and as you saw it was up about $900,000 year over year also sequentially from Q4 about $1,000,000 was related in large part to this new vertical that we've been talking about getting that ready for launch. Also new NAD precursor development that we've been working on as well as there's always some ongoing SERP studies and other things in that number. We do expect Q2 similarly heavy investments. We talked about first half again set up there and moderating a bit in the second half with respect to R and D.

Speaker 6

Okay. All right. Thank you for taking the questions. I'll get back in the queue.

Speaker 1

Thanks, Mitch. Thanks, Mitch.

Operator

Our next question comes from the line of Sean McDowell with Roth Capital Partners. Please go ahead.

Speaker 8

Good afternoon, Rob. Good afternoon, Brianna. Hi, Sean. Switching back to the question on the retailers. When you've talked in the past about different periods of time with Watson, there's occasionally a pipeline fill and a pipeline contraction.

Speaker 8

So should we be expecting an abnormal load in period for these retailers as they stock the product initially or will the load in be more gradual?

Speaker 2

There is obviously an initial purchase, but it's not quite as dramatic.

Speaker 8

Okay. And will they each have the product in all of their stores at the same time to start out with?

Speaker 2

They don't yet, but they're building toward that.

Speaker 8

Okay. And I think I hear you loud and clear on the cadence of R and D spending, Brianna. But would you say that this quarter, is this the low point of the year for gross margin as a percentage of sales or might we expect to see a lower quarter than this?

Speaker 3

Well, I'd say that 60.7%, that's

Speaker 5

pretty strong. It's certainly just slightly below our 60.8% full year number and we said we expect to be slightly up. So I think you can imply in that what you will, which is probably is one of the lower, but there is some mix aspect to that. And so when you get closer to the 61 and above, it has stronger e commerce mix in those numbers.

Speaker 3

We think this is

Speaker 5

a solid gross margin higher than 60.8% for the year feels comfortable.

Speaker 8

Right. Thank you. Rob, did I hear you correctly that despite going up against the event, the marketing event last year on Amazon, your sales through Amazon were actually up versus the Q1 of last year?

Speaker 2

Yes, sir.

Speaker 8

So would you attribute that to the is that a sign that that effort was successful? Or do you step back and say, maybe we didn't need to spend that money? I mean, I look at it as the awareness was raised and you got that additional follow through. How are you guys looking at it?

Speaker 2

I think it was a good program that was too expensive. Okay.

Speaker 8

Okay. And then the last question I have for now is the 1,000 milligram skew, is that do you expect that and you may have commented on this in the past, but do you expect that to be revenue accretive? I know that I take the product. And so now instead of taking 4, 300s a day, I'm taking 1,012. So I mean, 1,000 and a 300.

Speaker 8

So I'm taking slightly more, but I'm only taking 2 pills. So is that revenue accretive to you guys?

Speaker 2

It is slightly revenue accretive, but also more cost effective.

Speaker 8

Yes. But I'm just wondering if something that's a good deal for me, is that a bad deal for you? You know what I mean?

Speaker 2

It's a good deal for both.

Speaker 5

Just underscoring Rob's earlier point on new to brand, the fact that it was more new to brand than we expected, it's very early. And as Rob noted, we've been in and out of stock. We are chasing demand. We've now caught up. So it will be better to see a clear picture.

Speaker 5

But we're not seeing that there's a large percentage kind of doing what you're doing. There may be some, but overall we're getting people to trade up to the higher dose. There's good retention, good lifetime value projections. So we're feeling confident in that SKU for the long term.

Speaker 3

Still a

Speaker 5

small piece overall of the business, but it's the right move to make.

Speaker 2

But also Brianna brings up a good point. Retention is key and still early in the game to see how the retention numbers compare.

Speaker 8

Yes. I just from a consumer standpoint, it's just easier to take fewer pills, right? It is. Just easier to pack for a trip and get your day going. Anyway, I'll pass it on.

Speaker 8

Thanks a lot, guys.

Speaker 3

Thanks, Sean.

Speaker 2

Thanks, Sean.

Operator

Our next question comes from the line of Bill Dezellem with Tieton Capital. Please go ahead.

Speaker 9

Thank you. I'm going to pick up on your last comment about retention with 1,000 milligram and I know it's early, but what are the early indications about retention?

Speaker 2

The early indications is retention is higher with 1,000 milligrams and other SKUs, in fact, all other SKUs. But again, it's only a few months.

Speaker 9

And Rob, is it your sense that the consumer is staying on because they notice more of a difference than consumers who are on a lower dosage? Or do you believe it's a different socioeconomic group that just has a different mindset?

Speaker 2

We've done some surveys and we have the surveys coming in. So it's only very preliminary. So I can't really give you a definitive answer. But I think it's more the former than the latter.

Speaker 9

Great. Thank you. And then relative to Vitamin Shoppe and Sprouts, what is the size of that distribution or those distribution channels as you estimate them going forward? And did revenues begin in Q1 or when is the start point for those?

Speaker 2

We're going to be in 700 Vitamin Shoppe stores. I don't think we're close to that yet. But I think they'll be in 700 stores within the next couple of months. I think we recognize that revenue in the Q1.

Speaker 1

In the Q1. Yes, in

Speaker 2

the Q1.

Speaker 9

And so the ongoing just my direct question would be, what is your expectation or speculation at what the ongoing revenue of Vitamin Shoppe and Sprouts combined could be on an annual basis?

Speaker 5

In our plans, it's not a meaningful contributor to our full year outlook. We've conservatively planned for the ramp up. But of course, over time, we think it's a good fit for our brand and we hope it will be much larger.

Speaker 9

And do you have a number that you're willing to share there, Brianna?

Speaker 5

No, not at this time, Bill.

Speaker 9

Okay. No problem. And so then shifting to G and A, the G and A was up nicely in this quarter. And I think you said or pardon me, that you will let me back up. I think you said that G and A is going to be increasing by $1,500,000 to $2,000,000 somewhere in that neighborhood and that increase is going to be used to grow the business.

Speaker 9

What additional details do you have around that in terms of what that practically means that you're going to be spending money on?

Speaker 5

Sure. And I think, Bill, you were calling out that in the current quarter year over year, our G and A was actually down about $1,000,000 and so our outlook implies some ramp up in spend. We are investing in the infrastructure around these new verticals as we get into new areas. We just anticipate increased legal expense at the margin, regulatory, just basically IT infrastructure as well for many of the initiatives we have ongoing. And so we're conservatively planning for that at this time of the year.

Speaker 5

Those are the key areas that I'd call out.

Speaker 9

Thank you, Bill.

Speaker 5

Thank you, Bill.

Operator

Our next question comes from the line of JP Mark with Farmhouse Equity Research. Please go ahead.

Speaker 7

Hi, Rob and Brianna. Thanks for taking my call. Since you are taking my call, you already know the question I'm going to ask, which is the one I usually ask is about the pro market and talking and selling through channels of physicians and clinics. Can you talk a little bit about how that's going and how much resources you're allocating for that specifically?

Speaker 2

That market isn't yet growing for us. It's been pretty stable for us. We have a dedicated team that is focusing on that market. But we think that the new verticals that we have been investing in over the last really years and that we are close to announcing will be very relevant to that particular market.

Speaker 10

Okay.

Speaker 7

In the sales and marketing budget, can you talk about whether it's consistently been the same amount of spend for that or have you increased it, decreased it? Has it been sort of as a percent, you don't have to get the number, but roughly speaking, is it stable or how do you look at it?

Speaker 5

That's a comment specifically on selling and marketing for the healthcare practitioner, that professional channel?

Speaker 10

Correct. Yes, that's it. Yes, that's the question.

Speaker 5

I'd say we have a small sales force that drives that business, some leadership around that business and business development there. I'd say it's overall been fairly steady, maybe a little bit of variability, but not a meaningful ramp or investment there. Perhaps ahead of, as Rob talked about, this new vertical, we'll be looking to that.

Speaker 7

Okay. All right. I'll hold off until next quarter. Hopefully, there will be some more on that. Okay.

Speaker 10

Thank you very much. I appreciate it.

Speaker 3

Thank you, JP.

Operator

And our next question comes from the line of Sean Gela with Roth Capital Partners. Please go ahead.

Speaker 8

Thanks for the opportunity for a follow-up. This relates to the comment you made early on, Brianna, about the liability that your potential liability for those attorney fees, will that dispute add meaningfully to the legal spending that you've already got? You kind of there's always a certain amount of legal spending, but is this going to ramp that up in any meaningful way?

Speaker 5

Not a meaningful way. We think it's covered in our original G and A outlook and planning conservatively on some of the areas legal. This was not in our numbers. We did not expect this, but we think it's covered in our current outlook. So nothing meaningful there in 2024.

Speaker 8

Okay. Thank you.

Speaker 3

Thank you, Sean.

Operator

There are no further questions at this time. So I'll hand over the call back to Mr. Shamsher.

Speaker 1

Thank you, operator. There will be a replay of this call beginning at 7:30 pm Eastern Time today. The replay number is 1-eight hundred 7702030 and the replay ID is 8,58, 4,242.

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Earnings Conference Call
ChromaDex Q1 2024
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