Robert Fried

Good afternoon, everyone, and thank you for joining us on today's investor call. I'm proud to announce that we delivered a strong fourth quarter with solid revenues and excellent bottom line improvements. We delivered $21.2 million in revenue and positive adjusted EBITDA of $1.2 million. Additionally, the fourth quarter marked an important milestone with the Company achieving positive net income of $0.1 million. Further, we generated net positive operating cash flows of $650,000, ending the year with $27.3 million in cash and no debt. In 2023, we had full year net revenues of $83.6 million, a 16% increase year over year and full year positive adjusted EBITDA of $1.9 million.
Breanna will soon provide detailed financials on the outlook for 2024. But as I look at the progress the business has made to date and look at the landscape of market opportunities. I'm very encouraged and optimistic about our prospects through 2024 with continued growth from existing channels and partnerships and through some new ones as well. We expect to surpass last year's 16% growth rate, while remaining financially disciplined in our investments and in our spending, our largest and most reliable revenue stream continues to be our e-commerce platform. Ecommerce sales for the fourth quarter were up 20% year over year, as our marketing team continues to execute on initiatives and campaigns to drive direct and efficient returns and growth while not a major contributor to the growth in the fourth quarter, Watsons continues to be a valuable strategic partner for ChromaDex. We're very happy with their sell through trends and we are working closely with them to develop new ways to expand the business. In November, we made the Clinical Strength dose product, the true nitrogen Pro 1,000 milligrams available on Amazon and on our website to Nyagan.com. This addition to the two nitrogen product portfolio, offers consumers a safe, more efficient and more efficacious way to improve NAD levels and cellular health. Since the launch of the true knowledge and Pro 1,000 milligram product, we have seen high consumer demand. The product is sold out twice. It is now back in stock on both Amazon and our website as we increased our purchase orders to reflect higher demand.
We also announced last quarter that our partner, zesty parts had launched the healthy aging and a D plus precursor to benefit the healthy aging for dogs. We're pleased thus far with the launch. We're seeing solid demand for the product based on their reorders of nitrogen and we are excited to continue to work with us the path to develop future innovations in the pipeline to bring healthy aging to the pet supplements space.
We also announced that Nestlé Health Science launched its Solgar cellular nutrition line of supplements, which features a multi ingredient product incorporates nitrogen to support cell energy repair and vitality. The cellular energy product launch is still in the early launch phase, but we are encouraged by the trends early on. We look forward to future product launches with other brands under the Nestlé Health Sciences portfolio, one of which is planned for later this year. And I would like to mention our new partnership with neuro hacker collective launch Kalia, NAV plus last December, Kalia NAV plus as a multi ingredients supplement that combines three NAD precursors, notably Nyagan with 11 other ingredients to support additional aspects of NAD. plus production. So far so good. And we are hopeful that there will be another successful and responsible addition to our partner base and very proud that our team partnerships with companies like H&H and zesty pause and Nestlé Health Science & Neuro happier life extension row and a few others, all of whom share a deep passion to promote expanded health span and that do so in a responsible manner.
I look forward to announcing future product launches and perhaps some new trusted partners as well.
We continue to cement our scientific foundation as the world's leading energy company by furthering research on how nitrogen can benefit longevity and healthy aging. Since the last quarter, there were a few key clinical studies completed. The first study was one that I referenced in the last earnings call. The NR safe study, which was published in November and examine the safety of high-dose NR supplementation at 3,000 milligrams per day and the impact of NAD. in clinical severity in patients with Parkinson's disease. The study concluded that high-dose NR supplementation is indeed safe and well tolerated with no related adverse events. Additionally, and our was found to improve clinical symptoms of PD patients as measured by the Movement Disorder Society, Unified Parkinson's Disease Rating Scale, suggesting that improving NAD levels may have a symptomatic MP Parkinson's effect.
The second completed study investigated the effects of NR supplementation with and without resveratrol and individuals with peripheral artery disease or PAD studies included that NR supplementation and beneficial effects on the walking performance of patients with PAD and suggested that the addition of resveratrol did not provide for further improvements in the effects of NR.
Another notable study that was recently completed examine the effects of NR supplementation and metabolic dysfunction in Warner syndrome, a rare genetic disorder that causes premature aging characterized by metabolic abnormalities. This Phase one study is the first clinical study involving NR supplementation in Warner syndrome patients, and we eagerly await publication of the results which are anticipated later this year. While the preliminary findings from the PAD. clinical study and the pending publication of the Warner syndrome clinical study will warrant further investigation in larger clinical trials. We're very excited about the potential of nitrogen to offer therapeutic benefits for individuals with different elements and orphan diseases at ChromaDex. We believe true aging continues to be the best energy booster product in the market, and we pride ourselves as a leader in an industry aiming to improve the lives of others. With over 30 peer-reviewed published human studies and over 100 published scientific studies for its numerous health benefits. We believe nitrogen has boundless potential to improve the health of all individuals at ChromaDex. We are all deeply passionate about bringing nitrogen to consumers in innovative ways to benefit their lives. As we have alluded to in the past, there are innovations that will result in new and are verticals that are close to launching over the last two years. We have invested heavily in these innovations, including proper safety and efficacy studies proper compliance with regulatory bodies and planned appropriately for commercial launch. While we know that doing things by the book takes more time and confident that these innovations will yield great long-term value to our shareholders. We look forward to sharing more details on these updates in the very near future.
Our position as the global leader in science is built on a foundation of trust and integrity. However, as I discussed in my recent up Ed published in natural products Insider, not all companies in the dietary supplement industry hold themselves to the same standard due to insufficient enforcement resources and lower barriers to entry with the explosion of the commercial Internet. There's a proliferation of companies selling supplements with false health claims mislabeled products using illegal ingredients and not conducting clinical studies necessary to properly validate safety and efficacy. Furthermore, there are limitations of the well intended to share law that restrict communication of research due to concerns over implied disease state claims. This provides a disincentive to develop novel ingredients and performed studies, proving safety and efficacy as we have done with our over 30 published clinical studies on nitrogen today. As most of you may know, since FDA's announcement at NMN. may not be sold as a supplement and demand is still prevalent in the marketplace and companies that continue to sell an amount are being disingenuous to consumers and demand continues to have a presence despite numerous studies validating and are being superior as an NAD precursor. We have seen some businesses start discontinuing in-demand products on their websites and platforms such as I heard most recently and other online businesses beginning to cease promotions on animal products, but yet and then companies prevail. Indeed, some new ones are emerging. The call to action is to form a consortium to self regulate the industry to foster trust and true innovation for the betterment of human health through supplementation.
Finally, with regard to litigation, last earnings call, I had mentioned that the US District Court of Appeals in New York affirmed that our settlement with Elysium was in force. We look forward to collecting on what is rightfully owed to the company. Additionally, our exclusive supplier WR. Grace won a jury verdict on patent infringement against Elysium and now await the judge's decision on follow up matters, including damages from the U.S. continues to be the leader in NAD science and as a trusted partner to researchers, regulatory authorities and world-class business partners to drive innovation to improve as many lives as possible. The true believer mentality extends from everyone at ChromaDex to our network of business partners, our investors and to our valuable consumer base. We are grateful to all of you to assist us in responsibly spreading the word.
I would now like to turn the call over to Brianna to discuss the quarter's results in greater detail and then on to Q&A and then closing remarks for Jana.

Brianna Gerber

Thank you, Rob is a pleasure to speak to our investors, partners and employees who have joined us today, Combidex delivered on our full year 2023 financial outlook to investors across all metrics and exceeded our targets for gross margin and G&A expense for the full year, we delivered total net sales of $83.6 million, a 16% year-over-year increase gross margins of 60.8%. Selling and marketing expense down approximately 770 basis points as a percentage of net sales, a modest increase in R&D investment of $0.1 million and a decrease in general and administrative expense of $3.3 million year over year, better than our outlook of flat to down $1 million. We also delivered positive operating cash flow of $7.1 million.
Our underlying business as measured by adjusted EBITDA, a non-GAAP metric delivered approximately breakeven or positive adjusted EBITDA each quarter throughout 2023 and in the full year with a positive $1.9 million, an improvement of $11.9 million compared to the prior year. We have provided a reconciliation to the appropriate GAAP measure in our earnings release materials. We achieved the strong financial result while investing in important strategic initiatives that will extend our business beyond dietary supplement, we expect to launch at least one of these initiatives soon and believe they will yield a larger lasting impact in 2025 and beyond.
Financial and strategic achievements in 2023 underscores our commitment to balanced growth and profitability. It also speaks volumes about the dedication of our amazing ChromaDex team. We continuously drive improvement and approach the business with innovation and adaptability.
With that, let's turn to the fourth quarter of 2023 financials, highlighting the key metrics of our fourth quarter performance. Chromadex delivered total net sales of $21.2 million, a strong gross margin of 61% slightly positive net income of $0.1 million and maintained positive operating cash flow for the fourth consecutive quarter, driven by improvements in working capital. The underlying business as measured by adjusted EBITDA and non-GAAP metric was a positive $1.2 million in the fourth quarter, an improvement of $0.9 million from the prior year quarter.
Moving to the P&L details. As I said, total net sales were $21.2 million, up 1% year over year compared to the fourth quarter of 2022 a 9% increase in nitrogen, driven by 20% growth in e-commerce, partially offset by a 14% decrease in combined Watsons and other B2B sales. Watsons sales were lower due to a challenging comparison in the prior year, which benefited from a catch-up in shipments from earlier quarters as the business gradually recovered post COVID. Other B2B sales were also down modestly due to the timing of partner sales, which are less predictable as expected. Myogen ingredient net sales were down 30% year over year, largely due to the absence of the upfront minimum purchase of $2 million from Nestlé Health Science in the prior year. Excluding this one-time Nestlé driver from the prior year quarter, nitrogen ingredient sales were up 42%, largely aligned with growth. For the full year, gross margins improved by 380 basis points to 61% compared to 57.2% in the fourth quarter of 2022, largely attributable to shifts in business and customer mix as well as benefits from economies of scale, selling and marketing expense as a percentage of net sales increased 130 basis points to 30.8% compared to 29.5% in the fourth quarter of 2022.
As we began to scale our spend from the low levels. Last year, I had a higher mix of true nitrogen sales, which requires more marketing investments than nitrogen partner sales as reported general and administrative expense decreased by $0.6 million, driven by lower legal and royalties. Finally, our operating loss improved by $1.3 million year over year as higher sales and initiatives to optimize our spending across the organization were slightly offset by higher marketing investments.
Moving to the balance sheet and cash flow, our balance sheet remains strong. We ended the quarter with $27.3 million in cash and no debt for full year 2023, our net cash provided by operations was $7.1 million versus a use of cash of $15.1 million in the prior year. The difference this year was driven by improvements in our net loss and positive impacts from changes in working capital. The changes in working capital were driven by reductions in trade receivables, inventories and prepaid and other assets paired with increases in accrued expenses and accounts payable. While we continue to optimize the key drivers of working capital such as inventory. We do not anticipate a similar benefit in 2024 as we invest to scale the business.
Lastly, we have provided details on key P&L metrics for our 2024 full year outlook in our earnings press release, along with the slide presentation.
As it relates to our full year 2024 net sales, we expect a higher rate of revenue growth compared to the 16% growth seen in 2023. This outlook assumes continued growth through our e-commerce business and established partnerships It also assumes upside through opportunities with new partners, new channels and new product launches. Over the last year, the Company has invested in R&D initiatives that are close to commercialization as such we are including estimated revenue from new launches in our outlook. There are still some uncertainty around launch timing and ramp-up, but we are confident in the long-term revenue potential as we enter new market verticals. We anticipate that our gross margin will improve slightly year over year as we build on supply chain optimization efforts and cost savings that were put in place during 2023 and benefit from overall scale. Further, we expect that selling and marketing expense will increase year over year in absolute dollars, but will remain stable as a percentage of net sales. We continue to pursue focused customer acquisition strategies and further optimize our digital marketing investments. At the same time, we plan to invest in resources to execute on our e-commerce growth plans and new market launches, including investing more in influencer marketing and building our internal team. We expect that R&D will be up year over year as we continue to invest in new innovations that are close to launch, along with new NAD precursor development, which we believe hold the potential for applications in new market categories and other future uses we expect that this increase will be more meaningful than in recent years.
Finally, we expect reported G&A to be up $1.5 million to $2.5 million year over year driven by investments in infrastructure to support our current growth trajectory and anticipated new market launches. As always, we will remain disciplined in our approach when we ramp investments in these areas we are confident in our full year 2024 financial outlook for a stronger top and bottom line since the third quarter of 2022, we have consistently been managing the business to approximately cash flow breakeven, and we expect to continue to operate with this discipline while scaling our revenues. We do 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. Furthermore, we recorded our highest quarterly revenue in the first quarter of 2023 and do not expect the first quarter of 2024 to be the highest of this year. While we are actively cultivating new partnerships and have recently secured promising deals. The full impact of these endeavors will take time to scale.
In summary, as I reflect on the past 18 months as CFO, and incredibly proud of the significant strides we have made in reshaping our company into a leaner, more efficient and focused organization while also driving accelerated revenue growth. We successfully delivered on our immediate business and financial objectives, positioning ourselves for a promising 2024, certain new launches experienced delays. We are increasingly optimistic about our ongoing initiatives and partnerships. I'm consistently impressed by the unwavering passion and dedication shown by the ChromaDex team.
Looking ahead, we are excited for investors to see meaningful new innovation from ChromaDex, further solidifying our position as the gold standard and a deep company this year.
Operator, we are now ready to take questions.

Question and Answer Session

Operator

(Operator Instructions) Jeffrey Cohen with Ladenburg Thalmann.

Jeffrey Cohen

Hey, Rob and Brian.

Robert Fried

Hey.

Brianna Gerber

Hey, Jeff.

Jeffrey Cohen

So I guess, firstly for us, can you dig into to Origin Crow a little bit and perhaps walk us through on the margin profile and what you're seeing from customers out there new customers and existing customers and conversions from existing customers and new customers grew a little further for the landscape, please?

Robert Fried

Well, as you know, most of the studies that have been conducted have been at a 1,000 gram dosage, 1,000 milligram dosage dosage. So we had many requests over the years from consumers who wanted us to sell at that comparable dose level. So we decided to create this formulation and we put it out in the marketplace, I believe in November and it sold out and in two weeks' time now what took us by surprise is that many of those customers new customers were actually new-to-brand customers. We expected it to be an upgrade from existing customers getting to the dosage that was comparable to the studies we raced and getting new supply. And we got that out. I think in of January was there in December about

Brianna Gerber

A couple of weeks ago? Yeah.

Robert Fried

That was the third one. We had the first one in November that we had a second one, I think in December January that sold out also in three weeks. And now two weeks ago, we came out with our third, but we see it right now in the last couple of weeks, it's been our number one SKU. So it appears that our consumers are seeing the benefits of the higher dose, which, as you know, we've shown to be not only more efficacious but also safe.

Jeffrey Cohen

Got it.

Robert Fried

On the margin question.

Brianna Gerber

Sir, gross margins are similar. The idea behind it is a slightly lower price for on a dosage equivalent basis, but the idea is to upgrade consumers to take more nitrogen. So it's still a good profit profile for us. And I'd say very similar, maybe slightly lower gross margin as we increase trade up.

Jeffrey Cohen

Okay. Got it. That's helpful. And then as a follow-up with regard to a couple of your partners. Any comments on home blockchains and perhaps talk about some of the sell through trends that you're seeing? And also on necessity perhaps talk about some of their or their areas of interest. Thank you.

Robert Fried

Sure. As you know, Watsons has been an excellent partner front for us for many years now. It continues to be one of the most, if not the most important single SKUs in the Watsons chain in Hong Kong. It's also in Macau and Singapore, and they are extremely interested in expanding the relationship. We have added a couple of other skews. There's a true nitrogen beauty products, and they're beginning to sell our true nitrogen immune product. But also of late, we've been having meetings with Watsons about expanding into other verticals with them. So it's been a steady and consistent partner and important partner partner, really, truly a tent pole in the business of Combidex, but we have expectations that in the even within 2024, certainly by 2025, we'll have some interesting expansion opportunities with Watsons as a partner.

Operator

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

Mitch Pinheiro

Yes, good afternoon. I guess that's my first question is around guidance and sales guidance. So on in the yes, the greater than 16% guidance.
You've said you've assumed some new products or maybe new partners, I guess, when you include it in the ag guidance and obviously, you have decent visibility to be able to say that. I'm curious, Ivy, should we expect this to be mostly in your own products like new precursors, that type of thing or is these are these partners going to be in, you know, either other B to B or ingredient, it's the new ingredient.

Robert Fried

Well, thank you, Mitch. No know ChromaDex's in really an interesting position, as you know, because we've developed our own consumer brand and our own and a good robust international distribution platform for that consumer brand. But at the same time, we have a well-developed B2B wholesale business where we supply our ingredient to other brands and other partners. And in addition, as you mentioned to nicotinamide riboside chloride, we have a significant portfolio of other precursors. We have different attributes to nicotinamide riboside, but all are precursors to MAD. and it is a deep and vast portfolio as you also probably know, we've endeavored to get into certain verticals with nicotinamide riboside, but have experienced some difficulties because of it stability when exposed to liquid. What we know about nicotinamide riboside is when it's exposed to water for any aqueous solution for a long period of time. The nicotinamide riboside tends to separate. It's not on it's not harmful in any way, but it's less efficacious. Certain of our other precursors have less sensitivity to water and therefore might be more conducive to some of those other verticals.
But if we were to pursue a different vertical some of them require testing safety testing, efficacy testing for claims, but also regulatory approvals, not just in the US but other countries as well and from and this is ChromaDex's area of expertise. Now I understand that it takes a long time to do things, right? But that's the way it is in the health care business. We recognize that there are a lot of companies in the dietary supplement space that just raise products to market with no testing and no regulatory approvals or indeed even miss label or make false claims. Chromadex doesn't do any of that. So if we are going to get into a new vertical, it's going to take time and it does take time and we've worked on several over the past few years. But the reason why Brianna and I have alluded to one in particular of late is because we believe it's very close. We believe it's very close.
But there are obviously some details that still need to be taken care of. Some of those details are not within our control. We have partners or regulatory agencies that we need to hear from and interact with. I believe it's close close enough for us to talk about, but it's not quite yet there. Yes, we did bake it into the cake of our projections for this year, we were conservative in those projections.
Yes, but they're still in there and something would happen that would delay this launch even further, that would impact the projections that we'll make.

Mitch Pinheiro

Okay.

Robert Fried

I don't really want to get into further detail about what it is, though, if that's okay.

Mitch Pinheiro

Okay. That's fine as to. And then sort of a follow-up to that. So on with the margins on the business, this new business should be similar and would you be spending more in sales and marketing to support a launch that could impact margins negatively.
And then related to e-commerce sort of an aside, but I mean, your e-commerce marketing efficiency continues to improve. Is that something that and we should expect and model of course for 2024.

Robert Fried

I do expect that in the first quarter of 2024, you're going to see an increase in some R&D expenses and marketing expenses as we prepare for this launch, but overall for the year. But overall for the year, I do not expect it to have a meaningful impact on margins or even bottom line for the entire company, including marketing efficiency.

Mitch Pinheiro

Okay. So you're comfortable we should expect we should expect marketing efficiency to continue at the current rate or better in the coming year.

Robert Fried

But not necessarily for the first quarter.

Brianna Gerber

We've seen fairly consistent marketing efficiency on the e-commerce business since we dramatically reduced in the third quarter of 2022.
So we've seen that play out fairly consistently since then, aside from the Amazon homepage takeover last year in the first quarter and then the overall business to Rob's point, there are some investments. But for the full year, our outlook is that as a percentage of sales, selling and marketing overall, including e-commerce and these other investments will be stable.

Mitch Pinheiro

Okay. Well, thank you for the questions. I'll get back in the queue.

Robert Fried

Thanks very much.

Brianna Gerber

Thank you .

Operator

Our next question comes from the line of Sean McGowan with Roth MKM. Please go ahead.

Sean McGowan

Guys. It looks like based on my expectations and with the revenue and gross margin upside in the quarter seems to be more ingredients than in consumer. Am I correct in deducing that and what can we draw from that, too, for our expectations going forward.

Brianna Gerber

And what I say is quarter to quarter, there's always some lumpiness in that. But if you step back on a full year, basis, the consumer products is in the mid 60%s. The ingredient is in the mid 50%s. And so we blend to a little better than 60% gross margin as a business which we think as we said in our outlook, we'll see slight improvement on a full year basis this year. The mix will sometimes skew it a bit. We do get some nice leverage on the business for Myogen ingredient. If you think about leveraging our fixed supply chain costs, including the teams that are here, whereas e-commerce, there's a little bit more investment in shipping and some other things that are variable. I think your take is right on the quarter, but I think about it on the full year, more of the same continuation

Sean McGowan

So we are not -- without regard to the fourth quarter and record gross profit and ingredients is almost 61% and an anomaly like we shouldn't expect a sort of a permanent step up in that in the gross margin in that segment?

Brianna Gerber

I look at you have because the timing of ingredient sales, imagine ingredient sales are to partners that can be lumpy quarter to quarter. So I think about it on a full year basis and look at it that way.

Sean McGowan

Okay. On I'm interested to know what to talk about this at all. There's a wide range of possible outcomes. When you say above 16% of the homes, are we talking about potentially meaningfully no closer to 20% or like Word or is it just you should that should that be the starting point and maybe to be a little bit better? I'm just trying to bracket that a bit.

Robert Fried

So part of that has to do with this new product launch that we're talking about. Obviously, it's very difficult to make projections on something that's not in the market yet, but we think we've been conservative in our projections. So we don't yet know. We know that if it does very poorly, we still think that we will beat 2023.

Sean McGowan

You mean beat it in total sales or beat it in growth rate?

Robert Fried

Beat the growth rate.

Sean McGowan

Okay. That's helpful. Right. Thank you.

Operator

Matt Dhane, Tieton Capital Management.

Matt Dhane

Thank you. I did want to ask about the true navient.com website. I know you folks have been going through an optimization process. There has been a number of underperforming over the last year or so. Just curious where you're at in that journey of optimizing and improving the website and what you're starting to see from it?

Robert Fried

We have improved the return on ad spend, but it's still below what we'd like it to be. A retention is always pretty strong with the true knowledge and particularly after the first reorder cycle. So the long-term value is still very good for our website orders, but we still have some work to do to improve the new-to-brand return on advertising dollars.

Matt Dhane

Okay. Is that something you expect to add to have dialed in here in the next quarter or two, Rob, or is it going to take longer than that?

Robert Fried

It's an iterative process. It is improving and it's improving each quarter, we're seeing a better return on our advertising spend in the optimization process. By the way, you know, we're not alone in this process. As you know, this is a process that's present pervasive throughout e-commerce companies, particularly since IOS made its algorithmic changes and made it more difficult for social media companies to retarget companies or target individuals based on their personal preferences. So it's been more challenging for many companies with over the last couple of years to efficiently spend their digital marketing dollars to convert upfront, but still our marketing spend as it is relative to new-to-brand. Customers is still too high. Each quarter. It's getting better and I think next quarter will be better and will continue to get better. But it's still not good enough.

Matt Dhane

Okay. Okay. That's helpful. I did also want to ask one additional question around the new product launch that you've referenced several times during this call. As you sit here today and you referenced that you're going to be ramping up spending on R&D and marketing around that here in Q1. Is your expectation that this new product is going to be launched here in the first half of '24. Is that is that a fair expectation at this point in time? Or is it still really up in the air?

Robert Fried

I would say it's possible.

Matt Dhane

Okay. I appreciate it.

Robert Fried

Sure.

Brianna Gerber

Thanks, Matt.

Operator

Sure, Matt, there are no further questions at this time. I would now like to turn the call over to Brianna Gerber for closing remarks.

Brianna Gerber

Thank you, Mandeep. There will be a replay of this call beginning at 7.30 p.m. Eastern Time today. The replay number is 1807702030 and the replay ID is 1584242. Thank you, everyone, for joining us today and for your continued support of ChromaDex.

Operator

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