Q1 2024 Chromadex Corp Earnings Call

Participants

Ben Shamsian; IR; Lytham Partners

Robert Fried; Chief Executive Officer, Director; Chromadex Corp

Brianna Gerber; Chief Financial Officer; Chromadex Corp

Ram Selvaraju; Analyst; H.C. Wainwright & Co., LLC

Mitch Pinheiro; Analyst; Sturdivant & Co., Inc

Sean McGowan; Analyst; Roth MKM

Bill Dezellem; Analyst; Tieton Capital Management, LLC

JP Mark; Analyst; Farmhouse Equity Research, LLC

Presentation

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 Jessica, and I will be the conference operator today. At this time, all participants are in listen mode 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 first quarter of 2024. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex website at www.chromadex.com. I would now like to turn the conference call over to Ben Shamsian, Vice President of lithium partners. Please go ahead, Mr. Shafter.

Ben Shamsian

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 Friel, 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, expansion of the sale of true nitrogen in new markets, business of topline opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities as well as anticipated results of operations and 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 has 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 the forward-looking statements. Actual results or changes to its expectation.
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. A 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 Reed.

Robert Fried

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. The eCommerce sales for the first quarter 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.
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 2020. For 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 to focus on initiatives to build a robust base of subscribers to drive long-term customer value. Although 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, also 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 TRUenergy and will be available in over 400 locations and Sprouts Farmers Market as the first major grocery chain to carry to nitrogen and true nitrogen. New two nitrogen 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 teenage into 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'm proud that the teams at ChromaDex continue to expand our network of partners who all share a passion to bring solutions to consumers who wish to promote health spend.
We believe we are and have always been the gold standard of the NAD. industry with over 30 peer-reviewed published human studies in over 100 published scientific studies are ChromaDex external research program, which we called serve, continues to be key in establishing clinical studies to explore for numerous health benefits nitrogen can have on the human body since our last quarterly update, a number of preclinical trials have been completed, but 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 and our chloride given through IV injections in healthy mice and in cerebral ischemia model mice and examines its pharmacokinetics, organ distribution and therapeutic impact between the mice models. The results demonstrated potential for NR liposomes for broader clinical application neuroprotective agents beyond standard stroke therapy.
Second, preclinical study examined the impact of the combination of NR with resveratrol, the healing of diabetic ulcers caused by inflammation in a diabetic rat model results highlighted the potential of NR in reserve trial and accelerating wound healing. Another preclinical study investigated the causes of miscarriage as congenital malformations, particularly the role of NAD deficiency using a mouse model. Interestingly, researchers found that the risk of NAD deficiency is elevated during pregnancy and results suggest that a sufficient NAD suppliers required to ensure normal embryonic development cost.
Further studies in human trials 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 and our nitrogen 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 nitrogen to further develop innovative ways nitrogen can benefit longevity and healthy aging. As some of you may know, our partner develops has launched a portfolio of skin care products powered by nitrogen in South Korea and is looking into plans to launch in the United States. Additionally, we continue to work with zesty pause to further research innovative products in the pet supplement market. As mentioned last quarter, we are increasingly close to announcing a new vertical for nitrogen 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 has the global authority in a decent our mission equipment access to improve as many lives as possible. Our unwavering commitment to this mission continues to drive our innovation pipeline to develop new Navy, boosting product and delivery mechanisms. It demonstrates the way humans age. This includes products that extend beyond dietary supplements.
As I mentioned earlier, every one of us at ChromaDex believe represent the gold standard in the annuity industry. New 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 may take more time than originally anticipated. Well, 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&A and closing remarks. Brianna?

Brianna Gerber

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 true Nyagan, a 5% growth in e-commerce was overshadowed by a 17% reduction in combined Watsons and other B to B sales, largely due to timing of those sales.
As a quick reminder, in mid-March of the previous year, we invested in the brand building of that 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 events in the current quarter. Instead, we remain focused on marketing efficiency while developing an influencer and social media strategy. And we expect will broaden awareness of Q Nyagan beginning later this year.
Now briefly touch on Watsons and other B2B sales. As with all partnerships, timing of sales can vary. It's worth noting that the first quarter of 2023 saw the highest sales volume for Watson last year, including shipping for their true Nyagan immune on a full-year basis last year, the growth was driven by the launch of United 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 Myogen ingredient sales. This was offset by an equal decline in sales of other ingredients. Credit margins increased by 80 basis points, 60.7% compared to 59.9% in the first quarter of 2023, primarily driven by shifts 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. Selling and 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 about last year and did not have a similar campaign this year, which drove the improvement in overall efficiency.
Okay. 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 expenses, bad debt expense, severance and restructuring expense and share-based compensation expense.
For the first quarter 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.
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 31st, 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 [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 a recent ruling in the Delaware litigation in March, the district court judge granted Elysium motion for attorney fees and costs. Congress intends to appeal that decision and is successful that 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, our 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 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 partnership, 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.

Question and Answer Session

Operator

Ram Selvaraju, H.C. Wainwright. Please go ahead.

Ram Selvaraju

Thanks so much for taking my questions and congrats on an excellent start to the year. I was wondering if you can 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 other channels start to contribute more than they have in the past.

Brianna Gerber

hi Ram. It's Brenda. So gross margins, if you have recently, we've been trending between 60% and 61% when we turned about higher when we have quarters with a higher e-commerce mix and so I think that speaks to your point.
E-commerce margins generally, we've said are in the low 70%s to the low 70%s and you know, the more B to B side and the low mid 50%s. So there is a mix impact there. That said, well, 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.

Ram Selvaraju

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

Robert Fried

Right. That initiative has been successful thus far, and we 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 before taking 1,000 milligram notice the difference sooner and it's more dramatic. 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 2000 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 skew for us. So we see us moving more in that direction in the future.

Ram Selvaraju

And then lastly, I was wondering if you could comment on two additional aspects of the Company 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 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 do you anticipate from the standpoint of clinical assessment of nicotinamide riboside 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.

Robert Fried

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 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 first quarter of next year, but it's fully recruited. It's yes, all those participants are taking a gram a day for a year. So we probably won't see the data until sometime probably the first half of next year.
But obviously, we're very, very excited about that study as well. There's also other work that we're doing in the orphan disease category. These diseases like ataxia and cocaine 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 Sino farm and 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 Sino and ChromaDex increase the cross border sales of true nitrogen 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 successful. It is possible that we will be expanding the relationship with H&H later in 2024. That will be other products and other territories nationally has now launched with two brands Pure Encapsulations or its own nitrogen exist in, I think three skews with Pure Encapsulations and also Solgar, another important high end nationally brand has released a 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. We're very conservative with our estimates with regard to nationally. So we're not expecting any major announcements, but we're hopeful that they will continue to grow and expand. And that will 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 nitrogen business with bromine.

Ram Selvaraju

Thank you very much.

Robert Fried

Sean.

Operator

Our next question comes from the line of Mitch Pinheiro with Sturdivant & Co. Please go ahead.

Mitch Pinheiro

Yes, hi. 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 a solid, roughly 23% for the last nine months. I'm curious where where we should expect that to come from? And is this something I heard Brent beyond you say that the revenues obviously ramp 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

And that's so and we are not baking in any new product revenue in second quarter, which, as you said, as implied in the outlook for 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 second quarter, we've delivered, you know, steadily. We did reiterate our full year outlook of that 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, as you heard.

Mitch Pinheiro

Okay. So So to [get to 23%], you're going to have to do some combination of 23% in the back half to reach your 16% and 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 is that what you're saying in your guidance?

Brianna Gerber

Yes. 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.

Mitch Pinheiro

Okay. And then with the new retail partners. And could you elaborate Could you sort of compare and contrast and your thoughts there, the launch at Walmart, which you know wasn't maybe wasn't exactly the right customer fit, but how you expect the launch to go, why you chose these companies and dumb it portends further retail expansion in the future, there might be further retail expansion in the future, but it won't be mass retail like Walmart in the near future.

Robert Fried

Vitamin Shoppe is interesting because the store managers at Vitamin Shoppe are very well informed. They know nitrogen very very well. They were selling in-demand extraordinarily well, but has room have removed them from their shelves since it became an illegal ingredient. And longevity in general is an important category for Vitamin Shoppe.
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 the 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'll recall, we did a television campaign and when we got it up and running and the sales were actually quite strong at Walmart. It just took too long.
And by the time we got the the ad out and running and distributed. Walmart had already made its decision to pull back and then did not justify further investment in that media in a campaign, Sprouts as well as another example of a specialty high end retail that we think is of extreme overlap with the core customer base of tonight 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 our direct directly overlap our customer base.

Mitch Pinheiro

And when it comes to our pricing of the product will be similar to them, it's purely e-commerce prices or has that margin and margins to your margins similar to your your e-commerce business?

Robert Fried

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

Mitch Pinheiro

Okay. And then I guess just the last question is from Dave. So in the early days of your, um, your investment or you got I forget the name of the firm that they'd approve your drug or your your supplement integrity on. But was that a major expense in 1Q?

Brianna Gerber

No, I'll commit assured, as I believe the one you're referring to, we also have the NSF certified for sport does 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 that increase in R&D. And as you saw, it was up about $900,000 year over year. Also sequentially from Q4, about $1 million 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 studies and other things in that number. We do expect Q2 in U.S. primarily heavy investments. We talked about first half, again set up there and moderating a bit in the second half with respect to R&D.

Mitch Pinheiro

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

Robert Fried

Expense.

Brianna Gerber

Management.

Operator

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

Sean McGowan

Good afternoon. Robin, if you Riata tissue imaging.

Robert Fried

Kind of.

Sean McGowan

Switching back to the question on the retailers. When you talked in the past about different periods of time with what's in there is occasionally a kind of a pipeline fill and a pipeline contractions. So should we be expecting kind of an abnormal load in that period for these retailers as they have stocked the product initially? Or will the load and be more gradual?

Robert Fried

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

Sean McGowan

Okay. And will they will they each have the product in all of their stores? At the same time, it deserves data, what.

Robert Fried

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

Sean McGowan

Okay. On and I think I hear you loud and clear on the cadence of R&D spending, Breanna But would you say that this 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 in this?

Brianna Gerber

Well, I think that at 60.7%, you know, that's pretty strong. It 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 that well, what you will, which is probably it's 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, we think this is a solid gross margin higher than 60.8% for the yourself comfortable.

Sean McGowan

Group issue volume. What did I hear you correctly that even despite going up against the event marketing event last year in Amazon, some of your sales through Amazon were actually up versus the prior first quarter of last year?

Robert Fried

Yes, sir.

Sean McGowan

So would you attribute that to that that effort was successful already step back and say, hum and when they really need to spend that money now, 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?

Robert Fried

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

Sean McGowan

Okay. And then the last question I have for now is some 1,000 milligrams SKU is that you expect that you may have commented on this in the past or do you expect that to be revenue accretive? I know you normally take the product. And so now instead of taking [four 300] today, I'm taking [1,012. So I mean 1,300] something you slightly more, but I'm only taking two pills. So that is that revenue accretive to you guys?

Robert Fried

It is like a revenue accretive, but it also call it more cost-effective.

Sean McGowan

Yes, but I'm just wondering if it's something that's a good deal for me. is that a bad deal for?

Robert Fried

You mentioned that a good deal for both.

Brianna Gerber

Fitness and we should not going to live, not 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, 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 scheme for the long term. Still a small piece overall of the business, but the right move to make.

Robert Fried

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

Sean McGowan

But just from a from a consumer standpoint, it is easier to take fewer pills, but it is just easier to pack for a trip and allow you to get your take on that. But anyway, I'll pass it on. Thanks a lot, guys.

Brianna Gerber

Thanks, John.

Robert Fried

Thanks, John.

Operator

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

Bill Dezellem

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

Robert Fried

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

Bill Dezellem

And Rob, is it your sense that that the consumer is staying on because they 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. It's a different mindset.

Robert Fried

We've just 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.

Bill Dezellem

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

Robert Fried

They're going to 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 if we recognize that revenue in the first quarter?

Brianna Gerber

Yes.

Robert Fried

In the first quarter. We can.

Bill Dezellem

And into the ongoing.
I guess my direct question would be what is what is your expectation or speculation at what the ongoing revenue Vitamin Shoppe and Sprouts combined could be on an annual basis?

Brianna Gerber

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.

Bill Dezellem

Do you have a number to that you're willing to share there? Breon and.

Brianna Gerber

No, not at this time, though.

Bill Dezellem

Okay, no problem.
Then shifting to G&A, the G&A was up nicely in the this quarter. And I think you said or I read that you will I mean, backup, I think you said that G&A is going to be increasing by $1.5 million to $2 million, somewhere in that neighborhood. And that increase is going to be used to grow the business. What additional details do you have around that in terms of what that practically means that you're going to be spending money on?

Brianna Gerber

Sure. And I think, Bill, you were calling out that in the current quarter year over year, our G&A was actually down about $1 million. And so our outlook implies some ramp-up in spend. They are investing in the infrastructure around these new verticals as we get into new areas, no we just anticipate increasingly of legal expense at the margin, the regulatory sophisticated 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. Those are the key areas that I follow.

Bill Dezellem

Thank you, both if you.

Brianna Gerber

Think about.

Operator

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

JP Mark

I rather than Breon, thanks for taking my call. I'm sure since you tend you are taking my call, you already know the question that I ask participants to ask because of that the pro-market and talking and selling through channels of physicians and clinics. Can you talk a little bit about how that going and how much of the mean resources you're allocating for that specifically, that market isn't yet growing for us?

Robert Fried

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.

JP Mark

Okay. In the sales and marketing budget, can you talk about whether it's us whether it's consistently been the same amount of spend for that or have you increased it decreased it has it right? I mean, sort of as a percent, you have to get the number, but roughly speaking is it is stable or how do you how do you look at it.

Brianna Gerber

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

JP Mark

For it? Yes, that's it. Yes, sure.

Brianna Gerber

I'd say we have a we have a small sales force that drives that business and 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 our investment there, perhaps ahead of as Rob talked about, this new vertical will be looking to that.

JP Mark

Sector. I'll hold off until next quarter. Hopefully we'll be somewhere in that I can. Thank you very much. Appreciate it.

Brianna Gerber

Thank you, JP.

Operator

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

Sean McGowan

Thanks for the opportunity to follow up on this relates to the comment you made earlier and beyond about the liability that you have that your potential liability for those therapies. Will that dispute add meaningfully to the legal spending that you've already gotten? I mean, you kind of there's always a certain amount of legal spending was just going to ramp that up in any meaningful way.

Brianna Gerber

It's not a meaningful way. We think it's covered in our original G&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 that's covered in our current outlook. So nothing meaningful there in 2024.

Sean McGowan

Okay. Thank you.

Brianna Gerber

Thank you, John.

Operator

There are no further questions at this time. So I'll hand over the call, Mr. Sharma.

Ben Shamsian

Thank you, operator. There will be a replay of this call beginning at 7.30 p.m. Eastern Time today. The replay number is 1807 702030 and a replay ID is eight five eight four two four two. Thank you, everyone, for joining us today and for your continued support of ChromaDex.

Operator

This concludes today's conference call.