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ChromaDex Corporation (NASDAQ:CDXC)
Q1 2021 Earnings Call
May 6, 2021, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Chroma dex 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 Chroma dex 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 chrome indexes website at www dot chroma dex.com. I would now like to turn the conference over to Brianna Garber, Vice President of finance and Investor Relations. Please go ahead Miss Garber.

Brianna Gerber -- Vice President-Finance and Investor Relations

Thank you. Good afternoon and welcome to Chrome idex Corporation first quarter 2021 results investor call. With us today are chromadex is Chief Executive Officer Rob freed, founder and executive chairman Frank Jack's and Chief Financial Officer Kevin bar. Today's conference may include forward looking statements, including statements related to criminal acts 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 true nyege and a new market future financial results, business opportunities future cash needs. chromadex is operating performance in the future and future investor interests that are subject to risks and uncertainties relating to chromebit X's future business prospects and opportunities as well as anticipated results of operation.

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 kermadec says actual results to differ materially from the activities and results anticipated in forward looking statements. these risk factors include those contained in crema Texas 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 with the forward looking statements, actual results or to changes in its expectation.

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 gap measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the investor relations section of our website@www.chromadex.com. With that It's now my pleasure to turn the call over to our chief executive officer Rob freed. Rob.

Rob 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 Chrome 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 row we added a talented chief marketing officer and body Quran. The man for Tru niagen continues to be strong and growing.

But we did experience some supply chain issues that delayed shipments to Watson's 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 first quarter adjusted EBITDA, which we define as EBITDA excluding legal expense was a loss of point 7,000,002 point 4 million improvement from the prior quarter. science behind nyege and 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 NIJ and we estimate represents over $75 million of investment funded by leading external research institutions not by Chroma that we will continue to support the growing scientific evidence behind nyege course. But importantly, we will also continue to fiercely protect our intellectual property again 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 the lesean health. detail. The court order signals in part what the jury will hear a trial reflects the behavior and character of our opponents. As we have said previously, chromaluxe is proud to be in business with exceptional strategic partners like Nestle health science, and we are now proud to include h&h group and ro. h&h group is a global leader in premium health.

Also human and pet nutrition as well as personal care. management will be available in 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 his 2020 annual report, exclusively formulated nyege and products will be the first nav boosters in the Swiss portfolio will expand their healthy aging category. h&h has already begun product developments in is enthusiastic about the potential for nitrogen in their portfolio. And we look forward to sharing more about this in the future. Row is a healthcare technology company that has built an impressive patient centric platform to deliver a personalized end to end healthcare experiments. Since 2017, row has facilitated more than 6 million digital healthcare visits. Nearly every county in the United States row plans to offer true nitrogen in a specially formulated product under its Roman brand.

Last quarter, we announced the true nitrogen would be available in 3000 Walmart stores in June, Walmart has since expanded the store count for our lower dose, more excessively priced skew to over 3800 stores, signaling their commitment to the launch into expanding their na D supplements category with true Niger. An important development this quarter was the hiring of a talented Chief Marketing Officer fatty Quran complements our existing team's capabilities in digital marketing, creative earned media and marketplaces. It brings deep brand building experience across traditional retail as well as e commerce platforms. Prior to joining chromadek study led the local brand portfolio for Nestle waters North America with over $3 billion in annual revenues.

We previously was in charge of the global KitKat brand also at Nestle body 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 Chrome, the demand for true nitrogen 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 Jack's for an update on scientific research. rancor.

Frank Jaksch -- Co-Founder and Executive Chairman

Thank you Rob. As I mentioned in our last call, the research on nicotinamide right beside or nr continues to extend to important areas of human health. since our last update, chromax deepened its connections with scientific experts in the field of NTD. Research and partners through its external research program with leading institutions to explore important areas of research on that are in March, we announced the new research initiative with the Citron foundation to study the effects of nr and Citron deficiency. This is a rare life threatening genetic disorder that can cause failure to thrive and children or later in life, causing a host of neurological problems hyperlipidemia and severely impaired liver function. The first study will be led by scientists at Duke 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 NA D system. We are committed to understanding the role and our supplementation can play in this understudied disorder to new clinical studies 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 hollers will be studied by Dr. Ed Murray Guzman Velez at Harvard Medical School, and Mass General Hospital. Researchers will assess how and our supplementation affects cognitive, neuroscience, gastric, 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 na D levels, and evaluate safety of supplementation in hospitalized patients with COVID-19 and acute kidney injury will include 100 participants who will be given a daily dose of 1000 milligrams of benar for 10 days. Both studies are part of our chromadex external research program, and reviewed the broader category of NPD precursors. A second clinical study on nm men was published in April in the journal Science and titled nicotinamide mononucleotide increases muscle insulin sensitivity in pre diabetic women. We believe there's a significant limitation with this study that calls into question the scientific validity of his conclusions and we will follow up when appropriate.

And amend 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 are in peer review, including studies examining and NRS impact on muscle, cognitive and liver function. chromadex has committed to remaining a world leader in any D and nr 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 continue to demonstrate financial discipline, while making important investments to protect our intellectual property. total net sales were 14 point 7 million up 2% year over year, despite short term supply chain disruptions that impacted shipments the Watsons we delivered gross margins of 62.9%, a record for the company and the underlying business as measured by adjusted Eva excluding legal expense. A non GAAP metric posted a loss of approximately 700,000 a 400,000 improvements sequentially and down slightly year over year to increased investments in selling it 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 gap measurement. In our earnings release slides. We ended the quarter with 44 point 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 we'll then discuss the year over year trends for the three months ended March 31 2021. Growth index reported net sales of 14 point 7 million down 5% compared to 15 point 4 million in the fourth quarter of 2022. Diamond sales were up 1% sequentially.

This growth was driven by our e commerce business which was up 1% compared to the prior quarter. Sales the 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 the 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 20 2019. Ingredients sales were 1.2 million versus 2.2 million last quarter. We experienced the short term headwind since we are no longer supplying to one of our nyege and ingredion 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 nitrogen ingredients sales to Nestle in the quarter.

As a result, we did not recognize any revenue related the upfront and milestone payments, which are recorded in Nigeria ingredient sales. Gross Margin was up 190 basis points from 61% in the fourth quarter of 2020 to 62.9 percent in the first quarter of 2021. We continue to deliver on our supply chain and product cost savings initiatives and are benefiting from their 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 point 6 million, up 1.1 million compared to the fourth quarter of 2020. Selling and marketing expense were flat sequentially at 6.3 million in the first quarter of 2021, as well as the fourth quarter of 2020. As a percentage of that 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 geonet 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 2021. Legal expense was up 2.5 billion compared to the fourth quarter of 2020 to 5 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 pre trial 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 and 2021 as the activity clients going forward, excluding legal fees seventh restructuring and equity compensation expense, first quarter 2021 General expenses lower by point 5 million versus fourth quarter 2020, comparable G and A expense for the first quarter of 2021 or above 7.4 million, versus 6.1 million in the fourth quarter of 2020. The net loss attributable common shareholders for the first quarter of 2020 was 7.4 million, or a loss of 12 cents per share, as compared to a net loss of 6.1 million, or a loss of 10 cents 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 through nitrogen and 17% growth in e commerce being the key highlights. Overall, Watson's and other b2b net sales declined by 3% year over year. In addition to the supply chain disruptions in this quarter, initial ship infrared true Nigerian beauty launch with Watson's creative 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 a percentage of net sales increased 11.6% 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 administrative expense was higher by point 7 million, primarily due to higher legal expense of 2.5 million partially offset by 1 million of lower severance and restructuring expense and point 8 million of lower share based compensation expense. Finally, our operating loss increased by 1.5 million year over year is 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 point 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. 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, giving the timing of inventory purchases and an increase in receivables. In contrast, fourth quarter of 2020 benefited from $1 million dollar product launch fee from Nestle health science, for which there was no comparable amount during the current quarter. As it relates to our 2020 school year 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 in that 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 and ad market.

As a result, the year over year improvement adjusted EBITDA excluding the 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, we 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 iva, including total legal expense once the litigation is behind us. As always, we'll balance this near term objective with a long term opportunity for the business.

Very excited about the future for Chrome and x. 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 US and our new nyege and ingredient deal with health and happiness group, along with row as well as other business development deals in the pipeline. We expect these initiatives drive incremental revenues beginning in the second quarter. Operator, we are now ready to take questions.

Questions and Answers:

Operator

Your first question comes from Jeff Ben sindarin with B Riley. Hello, this is Richard Magnussen in for Jeff and sindarin. Thank you for taking our call. With the rollout of 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?

Rob Fried -- Chief Executive Officer

Thank you for the question, Richard. As you know, we just added a chief marketing officer Fadi Quran, 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. And so it's going to be a slow build. And that we are gradually going to be increasing the amount of brand level of marketing, brand awareness marketing, as well as expansion of distribution channels beyond just conventional digital media media channels, who 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 in the near future, and maybe even some significantly larger celebrity additions. And in conjunction with that, we will begin rolling out more aggressive television related campaigns. But as I said nothing in the short run, there'll be a gradual steady increase in awareness. We're also working with Walmart to try to create some Walmart's specific campaigns in store things, promotion things, email campaigns. But once again, this is not something that we're expecting to dramatically launch right away in June.

Frank Jaksch -- Co-Founder and Executive Chairman

Okay, and then regarding the agreement with the health and happiness group, this is we use global nutrition brand as a presence in four continents, so to nyege and ultimately be available in all four continents or is the agreement more limited than that?

Rob Fried -- Chief Executive Officer

The agreement is more limited than that initially. We are excited about h&h. It's a very, 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, Italy. We are developing with them unique formulations of nitrogen in combination with other ingredients for their initial launch. They don't expect to launch a product in the market prior to fourth quarter of this year. But they're very impressive. We're very excited to be working with them and we think the potential is there to grow something very significant.

Richard Magnussen -- B Riley -- Analyst

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

Rob Fried -- Chief Executive Officer

Yeah, again, h&h and Nestle, as well as row, the new announcement that we made and life extension, the other company. This is all we have always said that on a selective basis, we will supply nitrogen as an ingredient to certain companies that we consider to be responsible companies, excellent companies, blue chip companies that have an existing customer base, as opposed to using our ingredient to create a customer base. And in all, in all cases, we endeavor to co brand if possible. Nestle obviously is the world's leading food company. They released sell trient, as a product is over. It's a very slow and gradual release. It's the way they go about doing it.

Step by step process. It's initially simply just an online distribution channel. But there are other divisions within Nestle that are interesting to us as well, including persona, which we started doing business with persona last year. This is a personalized dietary supplement division that they own. There are other divisions at Nestle 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 celltrion and persona. So we're not surprised because we always anticipated that celltrion would be a slow rollout. It we expect it to grow with time and but we expect the relationship with Nestle in time to expand to go beyond simply just celltrion.

Richard Magnussen -- B Riley -- Analyst

Thank you very much. And I'll jump back into question to you.Thank you.

Operator

Your next question comes from Jeffrey Cohen with Lindenberg Bellman.

Jeffrey Cohen -- Lindenberg Bellman -- Analyst

Hi, this is actually destiny on for Jeff, thank you for taking my question. I'm just curious. Continuing with our or your discussion of H nation row. What exactly will the financials be to that? Will it be similar to that of Nestle with an upfront payment? And then royalties? Or is it a bit different?

Rob Fried -- Chief Executive Officer

The steel is more of a conventional supply agreement deal that does not include royalties. It's more like our business with the two other IP class, which is now wholly life extension. So it's, they're purchasing it at a price per kilogram.

Jeffrey Cohen -- Lindenberg Bellman -- Analyst

Got it? Okay, thank you for clearing that up for me. And then specifically for rho, is there a particular category within the Roman portfolio that they'll be targeting? And why? Perhaps I should ask this a little differently. Is there an intention to move into the rori portfolio as well? Or is it just going to be focused on men's health in the Roman portfolio, their initial launch will be with Roman, but they are interested in expanding beyond Roman that which is the Men's Health brand.

Rob Fried -- Chief Executive Officer

TheCEO of rho had given us a call several months back and said that they were interested in creating a an aging product, and was very clear that they had done the research and realize that if you were going to create one it should be with only with nicotine or mydrive aside and the only legal way to buy and safe way to get nicotine in my driver's side was with chromadex. And what he clearly said is, if you guys are willing to do a deal with us, we will release a longevity, health span type product and if you are not, we are not going to release one at all, which I was impressed with and I agree that is the right way to approach it if you care about your consumers. So they it will be a formulation product, they will combine it with certain other ingredients and hope to see it released within the next quarter or two. You're working on that presently. One of the things we liked about Roe as I explained before is that they have an existing customer base, they are not using our ingredient to create their business. They have an existing an impressive customer base. And they this would be an upsell to their existing customer base.

Jeffrey Cohen -- Lindenberg Bellman -- Analyst

Okay, thank you for clearing that up. I appreciate it. And then I was just 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 -- Co-Founder and Executive Chairman

We see the ACP market as a very, very important market for this company. We do have One partner in the space. And we also sell directly to hcps. We do 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, healthcare practitioners, it's important to educate them, the more they get educated about the value of an ad to general health and nicotinamide Dr. Aside are specifically nitrogen as a way to elevate and add, the more they read, the more they read the science, the more they realize that the best way to manage that is with true nitrogen. So we think the ACP space is an important strategic one for us.

Jeffrey Cohen -- Lindenberg Bellman -- Analyst

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?

Rob Fried -- Chief Executive Officer

Yeah, I think basically, this quarter, we did achieve almost a 63% margin. And I think as we've updated our financial outlook, we think we're going to be slightly better than 60% in 2021. I do think that will continue over the near term, to improve margins each year as we sell more true knowledge and on e commerce, as well as at retail, and as well as we continue to gain scale. And we continue to look for cost savings opportunities in our supply chain in our design and development of product.

Jeffrey Cohen -- Lindenberg Bellman -- Analyst

Got it? Thank you for the reminder, I'll have back and cue.

Operator

Your next question is from the line of Ron on celebra. Raj you with hc Wainwright.

Ron -- hc Wainwright. -- Analyst

For the upgrade, this is Marzano platform offered by row is really interesting for you to have access to the nav plus diagnostics, they may do oxygenation prescribing data. It's interesting to you.

Frank Jaksch -- Co-Founder and Executive Chairman

I'm sorry, the connection wasn't great. I think you're asking if we would have access to their na D diagnostic test. For Right, yeah. Would this data be interesting to you? Yes, we are very interested in and many, there are many companies that are proposing NHD diagnostic tests, we've done some work on it ourselves. At this point, we haven't found what the ones that we feel comfortable meets are the scientific criteria that we require. But there are several that are interesting. The reliable and ad diagnostic tests that exists right now require a great deal of blood. And it's an implant that needs to be frozen immediately to create reliable data. But 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. And we also think that access to customer data from customers like row or h&h or Nestle, or life extension, in addition to our large customer base would be important.

Rob Fried -- Chief Executive Officer

Frank, I don't know if you have anything you'd like to add to that? Yeah, the only other thing I'll add to it is that, you know,

Frank Jaksch -- Co-Founder and Executive Chairman

Although Rob mentioned that there are a few out there that are that are sort of promoting an ad test. I'm not we're not entirely convinced that the the tests that are currently being offered are are reliable for for reporting and ad status and any usable or meaningful way. So we are on top of it and looking at developing, you know, our own solution on that front. As you know, we've been testing reliably testing nav as part of our clinical trial program for many years now. So nobody knows more about testing an ad and other nav metabolome than than we do at this point. So and I wasn't aware that row even had an ad test Idid you were you just thinking about it in context of them as a part of the regular program, or how did you come to that, that they had that? Well, I don't know that they have specific nav paths, you know, it's just part of the implant system where they, you know, have a diagnostic platform, generally speaking.

Rob Fried -- Chief Executive Officer

Got it. Okay. Well, that makes more sense. Okay. So I mean, an ad is not a central feature of standard testing, and And blood labs right now. So it's it's one that we hope to make it, you know, push forward at some point, but you know, one step at a time and obtaining reliable tests to be suitable for that. So. Okay, great. Very interesting. Just switching gears to Nestle, how have they shown any change in demeanor or level of interest in Chroma Dec, since the announcement of the acquisition of bountiful company brands, they have expressed a great deal of interest in, in not only in our but all of our molecules that 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 talking to other divisions of Nestle about ways to do business.

Frank Jaksch -- Co-Founder and Executive Chairman

Okay, great. I'm just finally regarding the COVID-19 trials. Do you know if remdesivir, and dexamethasone will be benchmarked against in these trials? Right. At this point, the trials that we've completed, there's no additional trials that are under way at this time. In the trials that we have completed, don't look at REM REM disappear. So right now, there are no plans to look beyond what we've already recorded.

Ron -- hc Wainwright. -- Analyst

Okay, thanks for the call. And thanks for taking our questions.

Frank Jaksch -- Co-Founder and Executive Chairman

Thank you.

Operator

Your next question comes from the line of JP mark with farmhouse equity research.

JP mark -- farmhouse equity research -- Analyst

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

Frank Jaksch -- Co-Founder and Executive Chairman

Sure, you know, the supply chain disruptions are not all that uncommon during this year of COVID. And, and we experienced that and we generally don't operate the business quarter to quarter, it doesn't reflect a reduction in demand. For true nitrogen demand is very strong, and continuing to grow. In Hong Kong, in particular, you have to understand that there's only 7 million people in Hong Kong. And we last year did seven plus million dollars of sales directly to Watson's in Hong Kong, and which they then mark up and sell at retail. So the penetration rate in Hong Kong is rather extraordinary. Part of that has to do with with, with tourists that come from Mainland China into Hong Kong.

And during the COVID year, there have been some restrictions, quarantine requirements and others about travel into Hong Kong, we've seen that gradually get lifted. And we've seen sell through improve. But there is still these headwinds related to COVID in the in the operation. So 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 loss sales in the in the upcoming quarters. Let me hand to Kevin Yeah, let me just 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 also from CMOS with regard to product that was supposed to be made in the first quarter, and it pushed up the second quarter. These have been addressed in the second quarter, or 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.

JP mark -- farmhouse equity research -- Analyst

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

Rob Fried -- Chief Executive Officer

Well, thank you for that. I appreciate your saying that. I love to talk about true nitrogen and nicotine and mydrive aside because my own personal experience and the experience of my family and my friends, and my co workers has been fairly dramatic and remarkable. And I genuinely believe as do pretty much everybody who works at chromadex that when you Take two nights and you improve your ability to deal with physiological stress. And incidentally, incidentally, I take a certain amount of it every day, it's more than the recommended dose. But when I'm feeling some sort of physiological stress, I increase my dose and it seems to work as a way for to manage it. We have an excellent marketing department in earned media department.

And 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 do it and enjoy doing it. So yes, I believe that I will be out there more. That'd be great. If you could cover size, or I was going to interject with regard to the supply chain disruption, do the impact to COVID-19. You know that relative to about a million dollar shortfall in shipments, the Watsons in the first quarter. And looking at historical trends, we expect to see baseline demand of about 2.1 million, we expect the first quarter shortfall to ship over the next two quarters in addition to the baseline demand.

JP mark -- farmhouse equity research -- Analyst

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

Operator

Your next question comes from Michel Pinero. With sturdevant.

Michel Pinero -- sturdevant -- Analyst

Hey, good afternoon. I'd like to look at the commerce business. So you know, it was up sequentially. But you know, what, on a year over year basis, the growth rates been slowing there.

Rob Fried -- Chief Executive Officer

And just curious, like is this? Was there any, any anything in particular in the quarter

That would, you know, have a little bit of a slowdown in e commerce. And if you could also talk about, you know, whether, you know, new customer growth versus existing customer. Know, e commerce e-commerce looks really strong. new customer acquisition is also increasing. And retention has been steady. So a couple of things about what you said is that it was up quarter to quarter, and it was up 17%, I believe year over year. First, let me comment on that, yes, it was up 17% year over year, really should be doing better than 17%.

My expectation is that in the future quarters that will do better than 17%. But you do have to remember that the first quarter of last year was pre COVID. And, you know, it is at the end of March, particularly in April, we saw real real slowdown in e commerce sales, and then it gradually started picking up again. So where you're comparing it to the period right before that economic downfall and the issues that happened right away with with COVID. But when I look at the conversion numbers and the retention numbers, they're very, very strong and improving. So e commerce e commerce business looks healthy. With regard to the quarter of the sequential growth.

We look at the daily numbers. And the daily numbers are quite strong, especially compared to the last quarter. But certain things existed in the fourth quarter that didn't exist in the first quarter that that that made maybe cumulatively look like it was less gross than it actually was. One thing is, we include the cross border into China. And there's a significant promotion cross border into China on 1111, and then even another on 1212, November 11, and December 12. And those represent a huge percentage of the entire year sales. So those trend China cross border sales, we've been we had the benefit of that in the fourth quarter and not the first quarter. And similarly, there's Amazon Prime Day, right after Thanksgiving, which is also a very, very big day.

So when you compare first quarter, the fourth quarter, you're excluding all those significant days. Second, there are literally two less days in the first quarter than the fourth quarter and that is significant when you're talking about a nine or $10 million business you know that could be two percentage points right there. And then finally, we think that at Amazon in the first quarter, there was a slight delay in the in supply chain and and that that so the accumulation of orders to shift has increased slightly in the first quarter from the previous quarter. So in actual fact, the first quarter versus the fourth quarter the way we see it when we look at daily actual sales was much stronger. And when we compare first quarter to last quarter we also see it as strong and then so we the e-commerce business is healthy and looking Very good. And we expect greater year over year growth in the coming quarters.

Frank Jaksch -- Co-Founder and Executive Chairman

You know, because I'd like to let me take this opportunity, Mitch, also to comment on something else that you may be asking, about to ask about. Because I know you like to ask mark, generally marketing questions. But we view the addition of our new chief marketing officer as an important event at the company. Because we have a very strong immerse engine in this company and a very strong digital marketing operation at this company. But digital marketing and e commerce is largely a performance marketing business, where it's constantly optimized, it's almost like a trading room, where you, you test, you test an ad, and then you opt if it if that ad is converting, you press it more.

And if it's not, you hit the brakes on it. And it's an optimization engine. But it is slightly separate from the engine of actual consumer brand, and separately separate from the engine that creates overall awareness. Fabi is a very, very interesting town, because he has outstanding experience and intellectual understanding of brand building consumer brand building on a global level, but also an interesting understanding of data analytics, and e commerce in general, when we see this is important for us as a company, not only for continued growth on the already fairly strong e commerce engine, but also building overall consumer awareness and brand awareness for true nitrogen.

Michel Pinero -- sturdevant -- Analyst

Okay, that was very helpful. Thank you. I guess one more question. Well, as you were saying, on e commerce, when we look getting, you know, we're five weeks into, we're five weeks into the second quarter,Okay, that was very helpful. Thank you. I guess one more question. Well, as you were saying, on e commerce, when we look getting, you know, we're five weeks into, we're five weeks into the second quarter,

Frank Jaksch -- Co-Founder and Executive Chairman

But it's not the way we think the way we think is brick by brick, step by step day by day. And we look at the conversion metrics and the retention metrics. You know, sure, if, if, if suddenly a major celebrity, if there are so many major celebrities, politicians, athletes, actors that we know, take to Niger, and if one of them chose to go public on their own, and talk about how it's impacted their performance, it might have a dramatic impact. But the way we're doing it is gradual increases in our marketing, spend gradual increases in our true believer campaign, gradual extensions in the channels of distribution, gradual expansion in territories, and gradual improvement. And that's generally been reflected in the performance. If there is an inflection point that we hit, it won't be because we forced it to happen.

Rob Fried -- Chief Executive Officer

Thank you.Well, one last question. Maybe, Frank, back to the nav cache. How confident are you that this is achievable to your, you know, baby, you know, to your standards? And and how fast does that happen? This is something that's going to take several years to pan out. Are we talking six months? I don't really understand what the how difficult work or not this is. So you have to look at it. Technically, I mean, I'm comfortable that we have testing already that is, is good, it's accurate. It's just not scalable, we need something a little bit more scalable, and the more usable form Robin mentioned in his comment that you need a lot of blood to be able to accurately test that. So if Chroma if we wanted to offer a an at home test, for instance, you're not going to be able to do that by sending them a survey a needle so that they can stick themselves to draw to the blood. So So we know that we have that but really it's translating what we know and what we have Today into something that's going to be an easier to use format. And that's what we're working on.

And, you know, I'm happy with the progress that we've made. And I've seen some data that looks really compelling that things are going in the right direction for that. So I don't want to I don't think it's years away. But, you know, I would, I wouldn't necessarily give you a firm commitment in terms of exactly how long it's going to take, because I don't think we really know exactly how long it's going to take. But we're we've made great progress on that front. And I think we're going in the right direction with it right now.

Michel Pinero -- sturdevant -- Analyst

Okay, thank you so much for your time. Thank you.

Operator

At this time, there looks to be no further questions. I'd like to turn it back over to Brianna Garber for closing remarks.

Brianna Gerber -- Vice President-Finance and Investor Relations

Thank you, Stephanie. There will be a replay of this call beginning at 4:30pm. 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 Closing Remarks].

Duration: 51 minutes

Call participants:

Brianna Gerber -- Vice President-Finance and Investor Relations

Rob Fried -- Chief Executive Officer

Frank Jaksch -- Co-Founder and Executive Chairman

Kevin Farr -- Chief Financial Officer

Richard Magnussen -- B Riley -- Analyst

Jeffrey Cohen -- Lindenberg Bellman -- Analyst

Ron -- hc Wainwright. -- Analyst

JP mark -- farmhouse equity research -- Analyst

Michel Pinero -- sturdevant -- Analyst

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