Earnings Call Transcript - NAGE Q1 2024

Operator, 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. Operator instructions were provided. As a reminder, this conference call is being recorded. This afternoon, ChromaDex issued a news release announcing the company's financial results for the First Quarter of 2024. 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 Shamsian, Vice President of Lytham Partners. Please go ahead, Mr. Shamsian.

Ben Shamsian, Vice President, Lytham Partners

Thank you. Good afternoon, and welcome to ChromaDex Corporation's First Quarter 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, Dr. Andrew Shao, who will join the call for Q&A. Today's conference call may include forward-looking statements including statements related to ChromaDex's research and development and clinical trial plans and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of TRU NIAGEN in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities as well as anticipated results of operations. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurances as to the actual future results. Because forward-looking statements relate to events 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 affecting 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 actual results or changes to its expectations. 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.

Robert Fried, Chief Executive Officer

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 $22.2 million in revenue and positive adjusted EBITDA of $0.7 million. This is the fourth consecutive quarter in which we have generated positive adjusted EBITDA, which reflects our unwavering commitment to maintaining fiscal discipline while making strategic R&D investments to support innovations launching later this year. In the first quarter, we generated net positive operating cash flow and ended the first quarter with $27.6 million 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 first quarter were up 5% year-over-year as our marketing team continues to focus on 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. In the first quarter 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 first quarter 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 first quarter, our team committed to be less focused on price promotions and 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 forward. For 2024, we're also allocating more resources to optimize influencer marketing, retention strategies, content and social media presence, which are important elements of our strategy going forward. Last month, we announced that we are partnering with two major specialty retail distributors, Sprouts Farmers Market and Vitamin Shoppe. TRU NIAGEN will be available in over 400 Sprouts Farmers Market locations as the first major grocery chain to carry TRU NIAGEN and TRU NIAGEN Immune. TRU NIAGEN will also be available on the retail shelves of over 700 Vitamin Shoppe locations. Our new partnerships with Sprouts and Vitamin Shoppe broaden and diversify access of TRU NIAGEN to a larger health- and wellness-focused consumer base. It aligns with our vision to help as many people as possible transform the way they age. I'm proud that the teams at ChromaDex continue to expand our network of partners, who all share a passion for bringing solutions to consumers who wish to promote healthspan. 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 numerous potential health benefits NIAGEN can have on the human body. In our last quarterly update, a number of preclinical trials had been completed that I want to highlight. First, a recent preclinical study was designed to assess the effectiveness of liposome-based delivery of NR for treating cerebral ischemia. 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. A second preclinical study examined the impact of the combination of NR with resveratrol on the healing of diabetic ulcers caused by inflammation in a diabetic rat model; results highlighted the potential of NR and resveratrol in accelerating wound healing. Another preclinical study investigated the causes of miscarriages and congenital malformations, particularly the role of NAD deficiency, using a mice model. Interestingly, researchers found that the risk of NAD deficiency is elevated during pregnancy. The 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 some of many that illustrate the potential positive health benefits NR and 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. As some of you may know, our partner, Juvenis, has launched a portfolio of skin care products powered by NIAGEN in South Korea and is exploring plans to launch in the United States. Additionally, we continue to work with Zesty Paws 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. As the global authority in NAD signaling, our mission at ChromaDex is to improve as many lives as possible. Our unwavering commitment to this vision 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. 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 on 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&A and closing remarks. Brianna?

Brianna Gerber, Chief Financial Officer

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 first quarter performance, ChromaDex delivered total net sales of $22.2 million, solid gross margins of 60.7%, a $1.3 million reduction in overall operating expenses and a net loss of $0.5 million. Additionally, we achieved positive $0.7 million 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&D investments this quarter to support strategic initiatives and new launches planned for the second half of this year. With that, let's turn to the first quarter financials in more detail. As I said, total net sales in the first quarter of 2024 were $22.2 million, a 2% decline compared to the first quarter 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 since we did not undertake a similar brand-building event in the current quarter. 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 first quarter of 2023 saw the highest sales volume to Watsons last year, including shipping for the TRU NIAGEN Immune launch. On a full-year basis last year, Watsons' growth was 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 $0.2 million in NIAGEN ingredient sales, which was offset by an equal decline in sales of other ingredients. Gross margins increased by 80 basis points to 60.7% compared to 59.9% in the first quarter of 2023, primarily driven by a shift in our business mix. Specifically, e-commerce sales constituted 58% of our total net sales in the current quarter, up from 54% in the prior year quarter. Overall marketing expense as a percentage of net sales decreased to 30.4%, improving 450 basis points compared to 34.9% in the first quarter 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 $0.9 million year-over-year as we invest to commercialize our new vertical in 2024, along with new NAD precursor development. As reported, general and administrative expense decreased $1.1 million year-over-year, primarily due to reductions in executive and other administrative headcount expense, bad debt expense, severance and restructuring expense and share-based compensation expense. For the first quarter of 2024, our operating loss was $0.7 million versus a $2 million loss in the first quarter of 2023, an improvement of $1.2 million driven by lower total operating expenses. The net loss attributable to common stockholders for the first quarter of 2024 was $0.5 million or a loss of $0.01 per share compared to a net loss of $1.9 million and a loss of $0.03 per share in the first quarter of 2023. Moving to the balance sheet and cash flow. Our balance sheet remains strong. We ended the quarter with $27.6 million in cash and no debt for the three months ended March 31, 2024. Net cash provided by operations was $0.3 million compared to a $2.8 million 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 $1.6 million and smaller reductions in inventory and prepaid expenses and other assets of $0.7 million and $0.5 million, respectively. Finally, while it does not impact our first quarter financials based on our determination that a loss is not yet probable, I wanted to briefly comment on the recent ruling in the Delaware litigation. In March, the District Court judge granted the opposing party's motion for attorney fees and costs. ChromaDex intends to appeal this decision and if successful, nothing will be owed. However, we disclosed an estimate of the maximum liability in our 10-Q report. As it relates to our 2024 full year P&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. 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&D to prepare for new launches. Accordingly, revenues will ramp in the second half. At the same time, R&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. Our ability to maintain positive operating cash flows and a 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, Operator

Operator instructions. The first question comes from the line of Ram Selvaraju with H.C. Wainwright. Please go ahead.

Raghuram Selvaraju, Analyst, H.C. Wainwright

Congrats on an excellent start to the year. 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 an 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?

Brianna Gerber, Chief Financial Officer

Ram, it's Brianna. So gross margins, if you look recently, we've been trending between 60% and 61%. And when we trend higher, it's when we have quarters with a higher e-commerce mix. And so I think that speaks to your point: e-commerce margins generally are in the low 70s and the more B2B side is in the low to 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.

Raghuram Selvaraju, Analyst, H.C. Wainwright

Great. Secondly, you had previously talked about the intent to move those customers who already utilized TRU NIAGEN or those customers who have exhibited adherence to TRU NIAGEN to higher dosage forms of the product. 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?

Robert Fried, Chief Executive Officer

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 great demand for the 1,000 milligram. People who are taking 1,000 milligram notice the difference sooner and it's more dramatic. What has been surprising is that the 1,000 milligram launch has also worked for new-to-brand customers. Our anticipation initially was that it 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. So we see us moving more in that direction in the future.

Raghuram Selvaraju, Analyst, H.C. Wainwright

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

Robert Fried, Chief Executive Officer

I'll start with the clinical 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 it's a blinded study and we have not yet seen the data. We're excited to see that. 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 be done a little later than that, probably first quarter of next year. It's fully recruited; participants are taking a gram a day for a year, so we probably won't see the data until sometime in the first half of next year. We're very excited about that study as well. There's also other work that we're doing in the orphan disease category—diseases like ataxia and other rare conditions—that we're very excited about and think are important for later this year. With regard to the partnerships: we don't anticipate any announcements or major news with regard to Sinopharm. We are talking to them regularly about ways to increase cross-border sales into China and are also talking to some other partners to work with Sinopharm and ChromaDex to increase 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&H and they also sell cross-border into China, and they do so successfully. It is possible that we will be expanding the relationship with H&H later in 2024; that would cover other products and other territories. Nestlé has now launched with two brands, Pure Encapsulations—NIAGEN exists in, I think, three SKUs with joint encapsulations—and also Solgar, another important high-end Nestlé brand, has released the product. We haven't seen detailed data; we only know anecdotally that they're pleased with the sales in both, and we've seen advertising for both. We're very conservative with our estimates regarding Nestlé, 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 Nestlé. There are some other partners we've been talking to; 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 ChromaDex.

Operator, Operator

Our next question comes from the line of Mitch Pinheiro with Sturdivant & Company.

Mitchell Pinheiro, Analyst, Sturdivant & Company

Yes. Good afternoon. Just a couple of questions. So with the first quarter, revenue to reach 16% growth for the year, it's going to be 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—revenue is 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?

Brianna Gerber, Chief Financial Officer

We are not baking in any new product revenue in the 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 the second quarter. We've delivered steadily. We did reiterate our full-year outlook of at least 16% faster growth than last year, and that includes the combination of this new vertical we've been discussing, other new partnerships and product launches. So I'm not going to comment specifically on second quarter, but it is a second-half ramp as you've heard.

Mitchell Pinheiro, Analyst, Sturdivant & Company

Okay. So to get to 23, you're going to have to do some combination of growth in the back half to reach your 16% growth guidance. 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?

Brianna Gerber, Chief Financial Officer

It is. Yes. And then recall last year from an absolute dollar basis, Q1 was the highest revenue quarter, so we have the toughest comp there. Other quarters were lower than that, so there are also easier comparisons as we move throughout the year.

Mitchell Pinheiro, Analyst, Sturdivant & Company

Okay. With the new retail partners, could you—Rob, could you just sort of compare for us your thoughts there with the launch at Walmart, which maybe wasn't exactly the right customer fit, and how do you expect the launch to go; why you chose these companies; and if it portends further retail expansion in the future?

Robert Fried, Chief Executive Officer

There might be further retail expansion in the future, but it won't be mass retail like Walmart in the near term. Vitamin Shoppe is interesting because the store managers at Vitamin Shoppe are very well informed. They know NIAGEN very well. They were selling NMN very successfully but have removed NMN from their shelves since it became an illegal ingredient. Longevity in general is an important category for Vitamin Shoppe. So there was not a lot of education needed at Vitamin Shoppe. Marketing initiatives with Vitamin Shoppe will be further direct engagement 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 for the Walmart launch. When we got it up and running, the sales were actually quite strong at Walmart; it just took too long. By the time we got the advertising out and the distribution running, Walmart had already made its decision to pull back and they did not justify further investment in that media campaign. Sprouts as well is another example of a specialty high-end retailer that we think has extreme overlap with the TRU NIAGEN customer base and will not require significant investment of advertising dollars to support. You might see more deals like that—specialty retailers that are well informed and directly overlap our customer base.

Mitchell Pinheiro, Analyst, Sturdivant & Company

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

Robert Fried, Chief Executive Officer

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

Mitchell Pinheiro, Analyst, Sturdivant & Company

Okay. And then I guess, just the last question—is the R&D investment for the supplement integrity certification a major expense in Q1?

Brianna Gerber, Chief Financial Officer

No. I’ll just assure you, the one you're referring to—we also have NSF certification for our port. Those costs 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&D. That increase in R&D—up about $900,000 year-over-year and also up sequentially from the fourth quarter about $1 million—was related in large part to this new vertical we've been talking about and getting that ready for launch, new NAD precursor development that we've been working on, and ongoing SERP studies and other items. We do expect Q2 to be similarly heavy on investments. We talked about the first half being set up there and moderating a bit in the second half with respect to R&D.

Mitchell Pinheiro, Analyst, Sturdivant & Company

Okay. All right. I'll get back in the queue.

Operator, Operator

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

Sean McGowan, Analyst, ROTH Capital Partners

Switching back to the question on the retailers. When you've talked in the past about different periods of time with Watsons, there was occasionally a pipeline fill and then a pipeline contraction. 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?

Robert Fried, Chief Executive Officer

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

Sean McGowan, Analyst, ROTH Capital Partners

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

Robert Fried, Chief Executive Officer

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

Sean McGowan, Analyst, ROTH Capital Partners

I think I hear you loud and clear on the cadence of R&D spending, Brianna, but would you say that this quarter is the low point of the year for gross margin as a percentage of sales? Or do you expect to see a lower quarter than this?

Brianna Gerber, Chief Financial Officer

Well, I'd say about 60.7% is pretty strong. It's slightly below our 60.8% full-year number, and we said we expect to be slightly up. So I think you can imply what you will, which is that this is probably one of the lower quarters. There's some mix aspect to that, so when you get closer to 61% and above, it typically has a stronger e-commerce mix. We think this is a solid gross margin and being higher than 60.8% for the year feels comfortable.

Sean McGowan, Analyst, ROTH Capital Partners

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

Robert Fried, Chief Executive Officer

Yes, sir.

Sean McGowan, Analyst, ROTH Capital Partners

So would you attribute that to the fact the event was successful? Or do you step back and say maybe we didn't need to spend that money? Was it a worthwhile investment overall?

Robert Fried, Chief Executive Officer

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

Sean McGowan, Analyst, ROTH Capital Partners

And then the last question I have for now is about the 1,000 milligram SKU. Do you expect that to be revenue accretive? I know I take the product, and instead of taking 300 or 400 milligrams a day, I'm taking 1,000 milligrams. So is that revenue accretive to you guys?

Robert Fried, Chief Executive Officer

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

Sean McGowan, Analyst, ROTH Capital Partners

But I'm just wondering if something that's a good deal for me is that a bad deal for you?

Robert Fried, Chief Executive Officer

It's a good deal for both.

Brianna Gerber, Chief Financial Officer

To underscore Rob's earlier point on new-to-brand, the fact that it was more new-to-brand than we expected is encouraging. It's very early and as Rob noted we've been in and out of stock. We are chasing demand and we've now caught up, so it will be better to see a clear picture. We're not seeing that there's a large percentage doing what you are doing, although there may be some. Overall, we're getting people to trade up to the higher dose. There's good retention and good lifetime value projections. So we're feeling confident that it's the right SKU for the long term. It's still a small piece of the overall business, but the move is the right one.

Robert Fried, Chief Executive Officer

Retention is key and it's still early in the game to see how the retention numbers compare.

Sean McGowan, Analyst, ROTH Capital Partners

It's just easier for consumers to take fewer pills—easier to pack for a trip and get your day going. Anyway, I'll pass it on. Thanks a lot, guys.

Brianna Gerber, Chief Financial Officer

Thank you, Sean.

Operator, Operator

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

William Dezellem, Analyst, Tieton Capital

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

Robert Fried, Chief Executive Officer

The early indication is retention is higher with 1,000 milligrams than with other SKUs. Again, it's only been a few months.

William Dezellem, Analyst, Tieton Capital

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

Robert Fried, Chief Executive Officer

We've done some surveys, and we have the survey data coming in, so it's very preliminary and I can't give a definitive answer. But I think it's more the former—people noticing a difference—than the latter.

William Dezellem, Analyst, Tieton Capital

Great. 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?

Robert Fried, Chief Executive Officer

We're going to be in around 700 Vitamin Shoppe stores. I don't think we're at that number just yet, but I think they'll be in 700 stores within the next couple of months. We recognized some revenue in the first quarter related to these partnerships.

William Dezellem, Analyst, Tieton Capital

So my direct question is: what is your expectation or speculation on the ongoing annual revenue from Vitamin Shoppe and Sprouts combined?

Brianna Gerber, Chief Financial Officer

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.

William Dezellem, Analyst, Tieton Capital

Do you have a number you're willing to share there, Brianna?

Brianna Gerber, Chief Financial Officer

No, not at this time, Bill.

William Dezellem, Analyst, Tieton Capital

Okay. No problem. And shifting to G&A: I think you said G&A is going to increase by $1.5 million to $2 million; that increase is going to be used to grow the business. What additional details can you share about what you'll be spending money on practically?

Brianna Gerber, Chief Financial Officer

Sure. In the current quarter year-over-year, our G&A was actually down about $1 million, 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 anticipate increased legal expense at the margin, regulatory costs, and specifically IT infrastructure for many of the initiatives we have ongoing. We're conservatively planning for that at this stage. Those are the key areas I'd call out.

William Dezellem, Analyst, Tieton Capital

Thank you, both.

Operator, Operator

Our next question comes from JP Martin. Please go ahead.

Unknown Analyst, Analyst

Since you are taking my call, you already know the question I'm going to ask, though I usually ask about the professional market and selling through channels like physicians and clinics. Can you talk a little bit about how that's going and how many resources you're allocating for that specifically?

Robert Fried, Chief Executive Officer

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

Unknown Analyst, Analyst

In the sales and marketing budget for the healthcare practitioner/professional channel, has it been consistently the same amount of spend? Have you increased it, decreased it, or has it been fairly stable as a percent?

Brianna Gerber, Chief Financial Officer

If you mean selling and marketing specifically for the healthcare practitioner or professional channel, I'd say we have a small sales force that drives that business, some leadership around that business and business development. Overall it's been fairly steady with some variability, but not a meaningful ramp in investment—perhaps some modest increases ahead of the new vertical we discussed.

Unknown Analyst, Analyst

Okay. All right. I'll hold off until next quarter.

Operator, Operator

And our next question is from the line of Sean McGowan with ROTH Capital.

Sean McGowan, Analyst, ROTH Capital Partners

This relates to the comment you made earlier about the liability for attorney fees. Will that dispute add meaningfully to the legal spending that you've already budgeted? There's a certain amount of legal spending, but is this going to ramp that up in any meaningful way?

Brianna Gerber, Chief Financial Officer

Not in a meaningful way. We think it's covered in our original G&A outlook and we planned conservatively for legal. This ruling was not expected, but we think it's covered in our current outlook. So nothing meaningful in 2024.

Operator, Operator

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

Ben Shamsian, Vice President, Lytham Partners

Thank you, operator. There will be a replay of this call beginning at 7:30 p.m. Eastern Time today. The replay number is 1-800-770-2030, and the replay ID is not provided. Thank you, everyone, for joining us today and for your continued support of ChromaDex.

Operator, Operator

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