Earnings Call Transcript - NAGE Q1 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to ChromaDex Corporation's First Quarter 2021 Earnings Conference Call. My name is Stephanie and I will be your conference operator today. At this time all participants are in a listen-only mode. As a reminder, this conference call is being recorded. This afternoon ChromaDex issued a news release announcing the company's financial results for the first quarter of 2021. If you have not reviewed this information, both are available within the investor relations section at ChromaDex's website at www.chromadex.com. I would now like to turn the conference over to Brianna Gerber, Vice President of Finance and Investor Relations. Please go ahead, Ms. Gerber.

Brianna Gerber, Vice President, Finance & Investor Relations

Thank you. Good afternoon and welcome to ChromaDex Corporation first quarter 2021 results investor call. With us today are ChromaDex's Chief Executive Officer, Rob Fried; Founder and Executive Chairman, Frank Jaksch; and Chief Financial Officer Kevin Farr. Today's conference may include forward-looking statements, including statements related to clinical acts such as 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 into new markets, future financial results, business opportunities and future cash needs, ChromaDex's operating performance in the future and future initiatives that are subject to risks and uncertainties relating to ChromaDex's future business prospects and opportunities as well as anticipated results of operations. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause ChromaDex's actual results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in ChromaDex's quarterly reports on Form 10-Q, most recently filed with the SEC, including the effect of the COVID-19 pandemic on our business results of operations, financial condition and cash flows. Please note that the company assumes no obligation to update any forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in its expectations. In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon and are available on the company's website present reconciliation to the appropriate GAAP measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the investor relations section of our website at www.chromadex.com. With that, it's now my pleasure to turn the call over to our Chief Executive Officer Rob Fried. Rob?

Robert Fried, Chief Executive Officer

Thank you, Brianna. Good afternoon, everyone. And thank you for joining our first quarter 2021 investor call. This has been a very exciting time strategically for ChromaDex. In the past few months we added $25 million to the balance sheet. We announced important scientific research findings. We concluded three tentpole agreements with Walmart, H&H Group and with Ro. We added a talented Chief Marketing Officer, Fadi Karam. The demand for Tru Niagen continues to be strong and growing. But we did experience some supply chain issues that delayed shipments to Watsons in Hong Kong. Those issues have now been remedied, and the future prospects look very good. Total company net sales for the quarter were $14.7 million. E-commerce sales continue to grow and we're up 17% over the pre-COVID first quarter of 2020. Our gross margins were approximately 63%. In the first quarter adjusted EBITDA, which we define as EBITDA excluding legal expense, was a loss of $0.7 million, a $0.4 million improvement from the prior quarter. The science behind NR continues to grow validating its importance in several areas of human health. Frank will discuss this in a moment. But we have now signed over 230 research collaboration agreements on NR and we estimate this represents over $75 million of investment funded by leading external research institutions, not by ChromaDex, that will continue to support the growing scientific evidence behind NR. Of course, we will also continue to fiercely protect our intellectual property against infringers who see an opportunity to build their businesses on the back of our scientific and regulatory accomplishments. We encourage you to read last week's ruling from the federal judge in the California case against Elysium Health. The detail in the court order signals in part what the jury will hear at trial and reflects the behavior and character of our opponents. As we have said previously, ChromaDex is proud to be in business with exceptional strategic partners like Nestlé Health Science, and we are now proud to include H&H Group and Ro. H&H Group is a global leader in premium human and pet nutrition as well as personal care. H&H manages the Swiss product then, which is Australia's number one wellness brand, and the number one brand on China's major cross-border e-commerce platforms, according to H&H's 2020 annual report. Exclusively formulated Niagen products will be the first NAD boosters in the Swiss portfolio and will expand their healthy aging category. H&H has already begun product development and is enthusiastic about the potential for Niagen in their portfolio. We look forward to sharing more about this in the future. Ro is a healthcare technology company that has built an impressive patient-centric platform to deliver personalized end-to-end healthcare experiences. Since 2017, Ro has facilitated more than 6 million digital healthcare visits across nearly every county in the United States. Ro plans to offer Tru Niagen in a specially formulated product under its Roman brand. Last quarter, we announced that Tru Niagen would be available in 3,000 Walmart stores in June. Walmart has since expanded the store count for our lower-dose, more accessible-priced SKU to over 3,800 stores, signaling their commitment to the launch and to expanding their NAD supplements category with Tru Niagen. An important development this quarter was the hiring of a talented Chief Marketing Officer, Fadi Karam, who complements our existing team's capabilities in digital marketing, creative, earned media and marketplaces. He brings deep brand-building experience across traditional retail as well as e-commerce platforms. Prior to joining ChromaDex, Fadi led the local brand portfolio for Nestlé Waters North America with over $3 billion in annual revenues. He previously was in charge of the global KitKat brand at Nestlé. Fadi is already an important contributor in our next phase of development centered on building this great global brand. I'm increasingly optimistic about the future for ChromaDex. Demand for Tru Niagen is strong and growing. We have an experienced leadership team in place that knows how to scale this business. We have more deals in the pipeline, and we are continuing to think globally. With that I will pass the call over to our Chairman Frank Jaksch for an update on scientific research. Frank?

Frank Jaksch, Founder & Executive Chairman

Thank you, Rob. As I mentioned in our last call, the research on nicotinamide riboside, or NR, continues to extend to important areas of human health. Since our last update, ChromaDex deepened its connections with scientific experts in the field of NAD research and partners through its external research program with leading institutions to explore important areas of NR research. In March, we announced a new research initiative with the Citron Foundation to study the effects of NR in Citron deficiency. This is a rare, life-threatening genetic disorder that can cause failure to thrive in children or later in life cause a host of neurological problems, hyperlipidemia and severely impaired liver function. The first study will be led by scientists at Duke University and the National University of Singapore. While there are no known cures, we understand that Citron deficiency impairs mitochondrial function and disrupts the NAD system. We are committed to understanding the role NR supplementation can play in this understudied disorder. Two new clinical studies were registered in March, both investigating the potential impact of NR on patients with or recovering from COVID-19. First, a randomized, placebo-controlled clinical study to investigate the impact of NR supplementation in 100 patients with persistent cognitive and physical symptoms at least two months after COVID-19 illness was registered. These long-haulers will be studied by Dr. Edouard (Ed) Murray Guzman-Velez at Harvard Medical School and Mass General Hospital. Researchers will assess how NR supplementation affects cognitive, neurologic, gastrointestinal and physical function over a period of 22 weeks. We believe that it is important to deepen our understanding of the potential nutritional solutions to manage long-haulers and we look forward to the results from this new study. In addition, a clinical study was registered by the University of Texas Health Science Center at San Antonio. The study will measure the effect of NR on whole blood NAD levels and evaluate safety of supplementation in hospitalized patients with COVID-19 and acute kidney injury. It will include 100 participants who will be given a daily dose of 1,000 milligrams of NR for 10 days. Both studies are part of our ChromaDex external research program and review the broader category of NAD precursors. A second clinical study on nicotinamide mononucleotide (NMN) was published in April in the journal Science and titled 'Nicotinamide mononucleotide increases muscle insulin sensitivity in prediabetic women.' We believe there are significant limitations with this study that call into question the scientific validity of its conclusions and we will follow up when appropriate. NMN remains inferior to NR across the board regarding published human science, regulatory approvals, and benefit to human health worldwide. I continue to believe that 2021 is shaping up to be an exciting year for ChromaDex. Several clinical studies on NR have been recently completed or are in peer review, including studies examining NR's impact on muscle, cognitive and liver function. ChromaDex has committed to remaining a world leader in NR and NAD research, which has recently expanded to important areas of human health with large addressable markets. With that, I'll pass the call to Kevin Farr. Kevin?

Kevin Farr, Chief Financial Officer

Thank you, Frank. ChromaDex delivered a solid first quarter and continues to demonstrate financial discipline while making important investments to protect our intellectual property. Total net sales were $14.7 million, up 2% year-over-year, despite short-term supply chain disruptions that impacted shipments to Watsons. We delivered gross margins of 62.9%, a record for the company. The underlying business, as measured by adjusted EBITDA excluding legal expense, posted a loss of approximately $700,000, a $400,000 improvement sequentially, and down slightly year-over-year due to increased investments in selling and marketing to deliver on the opportunity ahead of us. We believe adjusted EBITDA excluding legal expense remains an important metric to gauge our progress toward cash flow breakeven, and we have included a reconciliation to the appropriate GAAP measurement in our earnings release slides. We ended the quarter with $44.7 million of cash, including the $25 million capital raised in February. With this incremental cash we have a clear line of sight to cash flow breakeven, even with the potential uncertainty surrounding litigation. I'll begin my review of the sequential P&L results and then discuss the year-over-year trends for the three months ended March 31, 2021. Growth Inc reported net sales of $14.7 million, down 5% compared to $15.4 million in the fourth quarter of 2020. Consumer sales were up 1% sequentially. This growth was driven by our e-commerce business which was up 1% compared to the prior quarter. Sales to Watsons were $1.6 million in the first quarter compared to $2.1 million in the prior quarter. We experienced short-term supply chain disruptions due to the impact of COVID-19 which led to a shortfall in shipments to Watsons in the first quarter. We expect to ship the shortfall over the next two quarters in addition to the baseline demand, which was trending above $2 million per quarter in the second half of 2019. Ingredient sales were $1.2 million versus $2.2 million last quarter. We experienced a short-term headwind since we are no longer supplying to one of our Niagen ingredient customers. As I mentioned last quarter, we expect to replace that business with new, more strategic partners in 2021. Furthermore, we did not have any Niagen ingredient sales to Nestlé in the quarter. As a result, we did not recognize any revenue related to upfront and milestone payments, which are recorded in Niagen ingredient sales. Gross margin was up 190 basis points from 61% in the fourth quarter of 2020 to 62.9% in the first quarter of 2021. We continue to deliver on our supply chain and product cost savings initiatives and are benefiting from overall scale. In addition, we benefited from a higher mix of e-commerce sales in the quarter, which carry a higher gross margin. Total operating expenses for the first quarter of 2021 were $16.6 million, up $1.1 million compared to the fourth quarter of 2020. Selling and marketing expense was flat sequentially at $6.3 million in the first quarter of 2021 as well as the fourth quarter of 2020. As a percentage of net sales, this expenditure was up 170 basis points in the first quarter of 2021 versus the fourth quarter of 2020 due to the slightly lower net sales. As I previously said, this ratio generally declines over time as sales ramp, but the quarterly investments may fluctuate as a result of our marketing campaigns. As reported, general and administrative expense was up $1.3 million to $9.5 million in the first quarter of 2021 versus $8.2 million in the fourth quarter of 2020. Legal expense was up $2.5 million compared to the fourth quarter of 2020 to $5.0 million in the first quarter of 2021. There were increased investments in early 2021 driven by ongoing discovery, depositions and expert witness reports in the New York and Delaware litigations. We also incurred expenses related to the THORN IPR as well as the California litigation. It is difficult to predict the timing and magnitude of pretrial litigation expenses with three cases going to trial in the second half of this year, but we expect that the first quarter will be the highest legal spend in 2021 as the activity declines going forward. Excluding legal fees, severance and equity compensation expense, first quarter 2021 G&A expense was lower by $0.5 million versus the fourth quarter of 2020. Comparable G&A expense for the first quarter of 2021 was $7.4 million versus $6.1 million in the fourth quarter of 2020. The net loss attributable to common shareholders for the first quarter of 2021 was $7.4 million, or a loss of $0.12 per share, as compared to a net loss of $6.1 million, or a loss of $0.10 per share for the fourth quarter of 2020. Moving to the year-over-year financial results, total net sales were up 2% year-over-year compared to the first quarter of 2020, with 12% growth in Tru Niagen and 17% growth in e-commerce being key highlights. Overall, Watsons and other B2B net sales declined by 3% year-over-year. In addition to the supply chain disruptions in this quarter, the initial ship for the Tru Niagen beauty launch with Watsons created a challenging prior-year comparison. Gross margin increased by 500 basis points to 62.9% compared to 57.9% in the first quarter of 2020. Selling and marketing expenses as a percentage of net sales increased 1,160 basis points to 42.6%, primarily driven by increased digital marketing and brand awareness investments and strategic additions to our selling and marketing team. As reported, general and administrative expense was higher by $0.7 million, primarily due to higher legal expense of $2.5 million, partially offset by $1.0 million of lower severance and restructuring expense and $0.8 million of lower share-based compensation expense. Finally, our operating loss increased by $1.5 million year-over-year as higher sales and gross margins and cost savings across the organization were more than offset by higher legal spending. Moving to the balance sheet and cash flow, our balance sheet remains strong. We ended the quarter with $44.7 million in cash and have not accessed our $7 million committed line of credit. As mentioned up front, this includes a $25 million capital raise in February of the first quarter of 2021. Our net cash used in operations was $5.4 million versus $22,000 of cash provided by operations in the fourth quarter of 2020. The difference this quarter was primarily driven by changes in working capital given the timing of inventory purchases and an increase in receivables. In contrast, the fourth quarter of 2020 benefited from a $1 million product launch fee from Nestlé Health Science, for which there was no comparable amount during the current quarter. As it relates to our 2021 fiscal outlook, we provided details on the key P&L metrics in our earnings press release along with the slide presentation. We now expect selling and marketing expenses to be up slightly as a percentage of net sales. While we do not expect a significant increase in spending, we believe these incremental investments are prudent to maintain our position as the leader in the growing NAD market. As a result, the year-over-year improvement in adjusted EBITDA excluding total legal expense will not be as significant as the last two years, but this remains a key metric for the organization. As it relates to the full-year sales outlook, we continue to expect steady revenue growth and expect that our sales growth rate will accelerate beginning in the second quarter. In summary, we remain committed to delivering profitable growth as we are very close to achieving an important milestone of profitable adjusted EBITDA, excluding total legal expense, followed by positive adjusted EBITDA including total legal expense once the litigation is behind us. As always, we'll balance this near-term objective with the long-term opportunity for the business. Very excited about the future for ChromaDex. We took important strategic steps this quarter to further strengthen our internal teams and capabilities to scale for our next stage of growth. These include preparing for June retail launch with Walmart across the U.S., our new Niagen ingredient deal with Health & Happiness Group, along with Ro, as well as other business development deals in the pipeline. We expect these initiatives to drive incremental revenues beginning in the second quarter. Operator, we are now ready to take questions.

Operator, Operator

Your first question comes from Jeff Van Sinderen with B. Riley.

Richard Magnussen, Analyst (in for Jeff Van Sinderen, B. Riley)

Hello, this is Richard Magnussen in for Jeff Van Sinderen. Thank you for taking our call. With the rollout at Walmart about a month away, what more can you tell us about how that is setting up? And what are you doing in terms of advertising to let customers know that the product will be available at Walmart?

Robert Fried, Chief Executive Officer

Thank you for the question, Richard. As you know, we just added a Chief Marketing Officer, Fadi Karam, who has excellent experience with Walmart and other mass retail outlets globally. We've said in the past that our expectations are not to expect anything dramatic initially with regard to Walmart. It's going to be a slow build. We are gradually going to be increasing the amount of brand-level marketing, brand awareness marketing, as well as expansion of distribution channels beyond just conventional digital media channels, which include television, radio, and perhaps print and other areas. We have a 'True Believers' campaign which we've had for a couple of years now. We plan to expand that and add some additional 'True Believers' to that campaign. There may be more additions in the near future, and maybe even some significantly larger celebrity additions. In conjunction with that, we will begin rolling out more aggressive television-related campaigns. But, as I said, nothing in the short run; there will be a gradual, steady increase in awareness. We're also working with Walmart to try to create some Walmart-specific campaigns in-store, promotional activities, and e-mail campaigns. But once again, this is not something that we're expecting to dramatically launch right away in June.

Richard Magnussen, Analyst (in for Jeff Van Sinderen, B. Riley)

Okay, and then regarding the agreement with the Health & Happiness Group, this is a well-used global nutrition brand with presence in four continents. Will Tru Niagen ultimately be available in all four continents or is the agreement more limited than that?

Robert Fried, Chief Executive Officer

The agreement is more limited than that initially. We are excited about H&H. It's a very impressive team, not only their R&D team but their marketing team as well. They are very strong in certain countries. Initially, we will be working with them cross-border into China, as well as Australia, and Italy. We are developing with them unique formulations of Niagen in combination with other ingredients for their initial launch. They don't expect to launch a product in the market prior to the fourth quarter of this year. They're very impressive, and we're very excited to be working with them and we think the potential is there to grow something very significant.

Richard Magnussen, Analyst (in for Jeff Van Sinderen, B. Riley)

Okay. And then my last question, I believe you said there was no Nestlé revenue in the first quarter. Was this expected or was some revenue pushed out?

Robert Fried, Chief Executive Officer

Yes. Again, H&H and Nestlé, as well as Ro, the new announcement that we made, and Life Extension, the other company—we have always said that on a selective basis, we will supply Niagen as an ingredient to certain companies that we consider to be responsible, excellent, blue-chip companies that have an existing customer base, as opposed to using our ingredient to create a customer base. In all cases, we endeavor to co-brand if possible. Nestlé obviously is the world's leading food company. They released 'Celltrient' as a product in a slow and gradual way. It's initially simply an online distribution channel, and they take a step-by-step approach. But there are other divisions within Nestlé that are interesting to us as well, including Persona, which we started doing business with last year. Persona is a personalized dietary supplement division that they own. There are other divisions at Nestlé with whom we are also having conversations and at some point we might expand the relationship to include some of these other divisions in addition to Celltrient and Persona. So, we're not surprised because we always anticipated that Celltrient would be a slow rollout. We expect it to grow with time and we expect the relationship with Nestlé in time to expand beyond simply just Celltrient.

Richard Magnussen, Analyst (in for Jeff Van Sinderen, B. Riley)

Thank you very much. I'll jump back in the queue.

Operator, Operator

Your next question comes from Jeffrey Cohen with Lindenberg Bellman.

Destiny, Analyst (on for Jeffrey Cohen, Lindenberg Bellman)

Hi, this is actually Destiny on for Jeffrey. Thank you for taking my question. I'm just curious, continuing with our discussion of H&H and Ro: what exactly will the financials be to that? Will it be similar to that of Nestlé with an upfront payment and then royalties, or is it a bit different?

Robert Fried, Chief Executive Officer

The deal is more of a conventional supply agreement that does not include royalties. It's more like our business with other ingredient customers, where they're purchasing it at a price per kilogram.

Destiny, Analyst (on for Jeffrey Cohen, Lindenberg Bellman)

Got it, thank you. Specifically for Ro, is there a particular category within the Roman portfolio that they'll be targeting? Will it be focused on men's health, or is there an intention to expand beyond Roman?

Robert Fried, Chief Executive Officer

Ro's CEO reached out several months back and said they were interested in creating an aging product and had done the research and realized that if you were going to create one it should be with nicotinamide riboside and that the only legal and safe way to get nicotinamide riboside was with ChromaDex. He was very clear: if we were willing to do a deal with them, they would release a longevity/health-span type product and if not, they would not release one at all. I was impressed with that approach and agree that's the right way to approach it if you care about your consumers. It will be a formulation product combined with certain other ingredients and we hope to see it released within the next quarter or two. One of the things we liked about Ro is that they have an existing customer base; they are not using our ingredient to create their business. This would be an upsell to their existing customer base.

Destiny, Analyst (on for Jeffrey Cohen, Lindenberg Bellman)

Okay, thank you. I appreciate it. I was wondering, if briefly you could provide any update on the HCP segment and how that is going now that restrictions have lifted or lightened in several states.

Frank Jaksch, Founder & Executive Chairman

We see the HCP (healthcare practitioner) market as a very important market for this company. We do have one partner in the space and we also sell directly to HCPs. We use one distributor and we also distribute ourselves. We see this as an area for expansion for the company and we'll be investing more in this area. Not only do we see it as a growth area on a P&L basis, but we also think it's strategic because we're targeting the influence of physicians, chiropractors, nutritionists, nurse practitioners and other healthcare practitioners. It's important to educate them—the more they get educated about the value of NAD to general health and nicotinamide riboside specifically, the more they read the science the more they realize that the best way to manage NAD is with Tru Niagen. So, we think the HCP space is an important strategic area for us.

Destiny, Analyst (on for Jeffrey Cohen, Lindenberg Bellman)

Okay, thank you. And if I may just sneak one more in, could you remind us how we should be thinking about margin throughout 2021 and perhaps 2022 as well?

Robert Fried, Chief Executive Officer

Yes. This quarter we did achieve almost a 63% gross margin, and we think we'll be slightly better than 60% for 2021 overall. I do think that will continue over the near term to improve each year as we sell more Tru Niagen on e-commerce as well as at retail, and as we continue to gain scale. We continue to look for cost savings opportunities in our supply chain and in product design and development.

Operator, Operator

Your next question is from the line of Ron with H.C. Wainwright.

Ron, Analyst (H.C. Wainwright)

The platform offered by Ro is really interesting for you to have access to the NAD diagnostics and patient prescribing data. Would access to that data be interesting to you?

Frank Jaksch, Founder & Executive Chairman

Yes, we are very interested in that. Many companies are proposing NAD diagnostic tests; we've done some work on this ourselves. At this point, we haven't found tests that we feel comfortably meet the scientific criteria we require. Reliable NAD diagnostic tests that exist right now require a great deal of blood and the sample needs to be frozen immediately to create reliable data. There are several companies that claim to have developed other systems and we are examining those systems and are in discussions with several. We do think in the long term that's an important area. We also think that access to customer data from partners like Ro, H&H, Nestlé, Life Extension, in addition to our large customer base would be important.

Robert Fried, Chief Executive Officer

The only other thing I'll add is that we're not entirely convinced that the tests currently being offered are reliable for reporting NAD status in any usable or meaningful way. We are on top of it and looking at developing our own solution on that front. As you know, we've been reliably testing NAD as part of our clinical trial program for many years now. So, nobody knows more about testing NAD and the NAD metabolome than we do at this point.

Frank Jaksch, Founder & Executive Chairman

I wasn't aware that Ro had a specific NAD test; were you thinking about their diagnostic platform in the context of general lab testing as part of their program?

Ron, Analyst (H.C. Wainwright)

I don't know that they have a specific NAD path; it's part of the larger diagnostic platform where they have a diagnostic system generally speaking.

Robert Fried, Chief Executive Officer

Got it, okay. So NAD is not a central feature of standard testing in blood labs right now. It's something we'd like to push forward at some point but we need reliable tests. One step at a time in obtaining reliable, scalable tests to be suitable for that is our approach.

Ron, Analyst (H.C. Wainwright)

Okay, great. Just switching gears to Nestlé, have they shown any change in demeanor or level of interest in ChromaDex since the announcement of the acquisition of Bountiful Brands?

Robert Fried, Chief Executive Officer

They have expressed a great deal of interest in not only Niagen but other molecules we have in development and are interested in our successes as an e-commerce company. We speak to them frequently; the relationship is strong, which is why we're having conversations with other divisions of Nestlé about ways to do business.

Ron, Analyst (H.C. Wainwright)

Finally, regarding the COVID-19 trials, do you know if remdesivir or dexamethasone will be benchmarked against in these trials?

Frank Jaksch, Founder & Executive Chairman

At this point, the trials that we've completed do not look at remdesivir. Right now, there are no plans to look beyond what we've already recorded in the completed trials.

Operator, Operator

Your next question comes from J. P. Mark with FarmHouse Research.

J. P. Mark, Analyst (FarmHouse Equity Research)

Hi, good afternoon. Thanks for taking my call. A couple quick questions: I wanted to know more about the supply chain disruption and the magnitude if you can talk a little bit about what happened and whether it's likely to occur again and how you might mitigate the possibility.

Frank Jaksch, Founder & Executive Chairman

Sure. The supply chain disruptions are not uncommon during this year of COVID and we experienced that. It generally does not reflect a reduction in demand. For Tru Niagen demand is very strong and continuing to grow. In Hong Kong in particular, you have to understand there are only 7 million people in Hong Kong and last year we did over $7 million of sales directly to Watsons in Hong Kong, which they then sell at retail. So the penetration rate in Hong Kong is rather extraordinary. Part of that has to do with tourists that come from Mainland China into Hong Kong. During the COVID year there have been restrictions and quarantine requirements which impacted travel into Hong Kong. We've seen that gradually get lifted and sell-through has improved. There are still headwinds related to COVID in that operation. They have sufficient inventory there; it wasn't crucial that we rushed to solve this problem for them, but we are solving the problem and they will make up the lost sales in upcoming quarters.

Kevin Farr, Chief Financial Officer

Let me tell you about what the supply chain issue was. In the first quarter, we experienced delays due to global packaging shortages for our consumer products across our supply chain. We had some delays from contract manufacturers with regard to product that was supposed to be made in the first quarter and it pushed into the second quarter. These have been addressed in the second quarter. We're maintaining adequate safety stock of both component parts and packaging, as well as finished goods so that we don't have this issue again in the future.

J. P. Mark, Analyst (FarmHouse Equity Research)

Okay, that's super helpful. One other question for you, Rob. I believe you are by far the best spokesman for your product in the company. Are you going to be doing more podcasts in the future? Do you have those lined up at this point?

Robert Fried, Chief Executive Officer

Well, thank you for that. I appreciate it. I love to talk about Tru Niagen and nicotinamide riboside because my own personal experience and the experience of my family, friends and coworkers has been fairly dramatic and remarkable. I genuinely believe—and so does pretty much everybody who works at ChromaDex—that when you take NR it improves your ability to deal with physiological stress. Incidentally, I take a certain amount every day, more than the recommended dose, and when I'm feeling physiological stress I increase my dose and it seems to help manage it. We have an excellent marketing and earned media department. Whenever they book an interview or a podcast, I am willing to do it. I think they have several upcoming and I look forward to doing them and enjoy doing them. So yes, I believe I will be out there more.

Kevin Farr, Chief Financial Officer

To clarify regarding the supply chain disruption, it related to approximately a $1 million shortfall in shipments to Watsons in the first quarter. Looking at historical trends we expect baseline demand of about $2.1 million per quarter and we expect the first quarter shortfall to ship over the next two quarters in addition to the baseline demand.

J. P. Mark, Analyst (FarmHouse Equity Research)

Alright, that's great. Thank you very much.

Operator, Operator

Your next question comes from Michel Pinero with Sturdevant.

Michel Pinero, Analyst (Sturdevant)

Hey, good afternoon. I'd like to look at the e-commerce business. It was up sequentially, but what on a year-over-year basis—has the growth rate been slowing there?

Robert Fried, Chief Executive Officer

E-commerce looks really strong. New customer acquisition is increasing and retention has been steady. Yes, it was up quarter-to-quarter and it was up 17% year-over-year. It should be doing better than 17% and my expectation is that in future quarters we will do better than 17%. But remember that the first quarter of last year was pre-COVID and at the end of March, particularly in April, we saw a slowdown in e-commerce sales and then it gradually started picking up. So when you're comparing to that period there are distortions. When I look at conversion numbers and retention metrics they are very strong and improving. Regarding the sequential quarter comparison, several factors affect that: cross-border China promotions such as 11/11 and 12/12 in the fourth quarter represent a huge percentage of annual sales and you don't have those in Q1, and there are literally two fewer days in Q1 than Q4, which is material when you're a $9–$10 million business. Also, there was a slight delay at Amazon in Q1 related to supply chain. When we look at daily numbers the business is quite strong. So, the e-commerce business is healthy and looking very good and we expect greater year-over-year growth in coming quarters.

Frank Jaksch, Founder & Executive Chairman

I'd like to add that the addition of our new Chief Marketing Officer is important. We have a very strong performance marketing operation for e-commerce, which is an optimization engine—test ads, scale what works. But building overall brand awareness is a separate engine. Fadi has outstanding experience in global consumer brand building combined with data analytics and e-commerce expertise. This is important for continued growth of our e-commerce engine and for building overall consumer and brand awareness for Tru Niagen.

Michel Pinero, Analyst (Sturdevant)

Okay, that was helpful. Thank you.

Operator, Operator

At this time there appear to be no further questions. I would like to turn the call back over to Brianna Gerber for closing remarks.

Brianna Gerber, Vice President, Finance & Investor Relations

Thank you, Stephanie. There will be a replay of this call beginning at 4:30 PM Pacific Time today. The replay number is 1-800-585-8367 and the conference ID is 8991456. Thank you, everyone for joining us today and for your continued support of ChromaDex.

Operator, Operator

Thank you. This concludes today's conference. You may now disconnect.