ChromaDex Corporation (NASDAQ:CDXC) Q3 2022 Earnings Conference Call November 2, 2022 4:30 PM ET
Company Participants
Tom Shumaker – Investor Relations
Robert Fried – Chief Executive Officer
Brianna Gerber – Interim Chief Financial Officer
Conference Call Participants
Jeff Cohen – Ladenburg Thalmann
Sean McGowan – ROTH Capital
Jeff Van Sinderen – B. Riley
Mitchell Pinheiro – Sturdivant & Company
Brian Nagel – Oppenheimer
Operator
Ladies and gentlemen, thank you for standing by, and welcome to ChromaDex Corporation’s Third Quarter 2022 Conference Call. My name is Joelle, and I will be the conference operator today. At this time, all participants are in a listen-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 third quarter of 2022. If you have not reviewed this information, both are available within the Investor Relations section of ChromaDex’s website at www.chromadex.com.
I would now like to turn the conference call over to Tom Shumaker, LifeSci Advisors Agency, IR Counsel for ChromaDex. Please go ahead, Mr. Shumaker.
Tom Shumaker
Thank you. Good afternoon, and welcome to ChromaDex Corporation’s third quarter 2022 results investor call. With us today are ChromaDex’s Chief Executive Officer, Rob Fried; Interim 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 of results of such trials, the timing of future regulatory filings, the expansion of the sale of TRU NIAGEN in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities as well as anticipated results of operations. Forward-looking statements represent only the company’s estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause ChromaDex’s actual 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 the effect of the COVID-19 pandemic as well as inflationary and adverse economic conditions 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 expectations.
In addition, certain of the financial information presented in this call references non-GAAP financial measures. The company’s earnings presentation and earnings press release, which were issued this afternoon and are available on the company’s website, present reconciliations to the appropriate GAAP measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www.chromadex.com.
With that, it’s now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried.
Robert Fried
Thanks, Tom. Good afternoon, everyone, and thank you for joining us on our investor call today.
For the third quarter, we delivered a significant improvement in adjusted EBITDA or cash EBITDA, which is a $1.2 million loss. And we remain on track to deliver positive EBITDA in the fourth quarter of this year. The solid bottom line performance was achieved with net sales of $17.1 million for the quarter. Over 65% of the period sales came from our direct-to-consumer e-commerce business, which grew 7%. Our emphasis on profitable growth was evident in the decline in total marketing expense year-over-year both in absolute dollars and most importantly, as a percentage of net sales as we focus on the most efficient digital media investments with measurable return.
Following the quarter, we raised $7.7 million of capital net of fees with existing strategic investors and the new investor Nestle Health Science. We entered the fourth quarter in a strong financial position with improving P&L metrics, important partnerships in place and a solid balance sheet. Brianna Gerber, our CFO, will cover ChromaDex’s financials in more detail in a moment. Also Andrew Shaw, our Head of Scientific and Regulatory Affairs, will join us for Q&A.
Growth in the e-commerce business was driven by a nearly 20% increase in sales on Amazon, while our website sales declined year-over-year. We’ve dedicated significant resources, both people and financial to optimizing our brand and landing page content as well as campaign funnels on Amazon with impressive results, including a consistent number one ranking in the vitamin B3 category. Amazon represents nearly 70% of our e-commerce business, and we’re now focused on applying similar strategies to our own website to improve conversion. Importantly, our cost per acquisition, or CPA, decreased by approximately 40% year-over-year on both Amazon and our own website. We significantly reduced spend as we are undergoing a project to revamp the website and our acquisition engine. Against this backdrop of lower overall spend, we’re building a stronger social media presence to drive more organic traffic to our site as well as Amazon.
We’re also testing new approaches to drive TRU NIAGEN brand awareness in the fourth quarter as we continue to focus on efficient marketing spend. One example was our launch with Shop H2. The host any Sao is an author and television personality, who has been a TRU-NIAGEN consumer for the last 5 years. This personal experience with our brand allowed them to speak with authenticity and conviction about its amazing benefits during the 2 54 minute segments. The Danny Sao team told us this is the most successful launch event of any supplement on the show with the 90 count products selling out during the first airing.
Outside of the e-commerce business, our new partnerships are impacted by timing, but the business is improving. Looking ahead to the fourth quarter, we see several bright spots, including Watsons, H&H, Sinopharm and of course, Nestle Health Science. For Watsons, we expect higher sales in the fourth quarter to align with seasonal demand following a pickup in our shipments to Watsons in the third quarter. We’re beginning to see the COVID-19 headwinds abate, and we continue to find new ways to strengthen our partnership by building on TRU NIAGEN’s already established brand awareness in Hong Kong.
As mentioned last quarter, HMH launched their first exclusive product with NIAGEN the Swiss beauty activator in Australia and has since rolled it out in China, where Swiss is the largest brand on cross-border platforms with promising launch results. HMH has developed 2 additional exclusive NIAGEN formulation products for its Swiss innovation portfolio, which they expect to roll out into Australia, China and other markets. We’re optimistic about the early start of this partnership and look forward to building upon this foundation in 2023.
And finally, as noted earlier in the call, we wanted to highlight the signing of a long-term commercial supply agreement with Nestle Health Science and an investment into ChromaDex by its parent company, Nestle. The agreement includes an approximately $2 million initial purchase of NIAGEN for the 2022 calendar year period and a $5 million private placement or $4.8 million after fees, which we collected in October. The deal not only provides necessary the nonexclusive right to manufacture market, distribute and sell products using NIAGEN under its brands worldwide, except where ChromaDex has existing exclusive agreements, but also enables us to work directly with the marketing and science departments of a world-class dietary supplement and foods company.
The private placement is a strong show of support from Nestle for what we are trying to accomplish in building ChromaDex as a worldwide healthy aging and wellness brand backed by science. We also made significant advancements in our China strategy this quarter. Our joint venture is now fully established to accelerate the approval of health food registration for TRU NIAGEN and Mainland China, also known as Blue Hat approval. Cross-border sales of TRU NIAGEN into China are off to a strong start with Sinopharm Jinsha, — we began managing our cross-border platforms in September. TRU NIAGEN relaunch began with a successful premiere at the China International Natural Health and Nutrition Expo, or NHNE, Asia’s largest health and nutrition trade expo with over 100,000 distributors and retailers in attendance.
TRU NIAGEN was awarded the most popular brand of the year at the conference, knowing how excited our partners are to assume the distribution and marketing of TRU NIAGEN in China, we continue to make real headway in becoming the premier NAD boosting brand in the market. Our global addressable market is still largely untapped. We are committed to delivering on the promise of the enormous potential for our ingredient NIAGEN, supported by compelling scientific research that speaks to its broad use cases, extensive safety data and commitment to quality, which is rare in the dietary supplement industry.
I’ll briefly highlight 2 recent studies on NR. First, we announced the results of the ChromaDex external research program, or SERP, as we call it, study on Stage I heart failure patients with reduced ejection fraction. Results of the study demonstrated that high-dose NR was safe and well tolerated, almost doubling the whole blood NAD levels, increasing white blood cell mitochondrial respiratory function and decreasing the expression of inflammatory markers. The study marks a major milestone in investigating the safety and tolerability of NR is a crucial step that will pave the way for future clinical research. There’s also the 8th published clinical study to show that NR reduced inflammation, demonstrating remarkable consistency of this beneficial effect in humans.
Second, a recent preclinical study demonstrated that NR extended lifespan in mice in faulted DNA repair. In this mouse model, the inability to repair DNA results in accelerated neurodegeneration and rapid agent. Interestingly, researchers found that compared to other popular longevity compounds, including metformin and resveratrol NR had the greatest effect on extending lifespan in these mice.
In addition, ChromaDex maintains a strong and growing patent portfolio, reinforcing our position as the scientific leader in the NAD industry. On that note, the Delaware appeal and our exclusively licensed NR patents from Dartmouth is scheduled for December 6. We believe we have very strong arguments for the District Court’s decision to be overturned on appeal, but regardless of the outcome. We’re very confident in the strength of our owned and licensed portfolio for NR and other NAD precursors to provide us protection for many years to come.
I’d like to now turn the call over to Brianna to discuss the quarter’s results, 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 employees who have joined us today. As mentioned last quarter, my immediate objective as interim CFO was to look at all areas of our cost structure with an emphasis on becoming a leaner and more focused organization beginning in the third quarter.
I’m proud to say we accomplished the first step in our objective reporting an adjusted EBITDA loss of only $1.2 million. Our underlying profitability is approaching cash flow breakeven, and we remain on track to achieve breakeven or better in the fourth quarter. Furthermore, this quarter’s adjusted EBITDA reflected an improvement of $5.1 million year-over-year and $3.4 million versus last quarter. This milestone was achieved in partnership with the entire leadership team at ChromaDex. I’m grateful to them and their teams for their ongoing commitment to look at our business differently in order to drive operational efficiency.
We realize there is still more work to do to achieve sustainable growth and profitability, which remains a critical focus in the current economic environment heading into 2023. I look forward to leading the company through this transition.
We also raised $7.7 million net of fees following the third quarter, further strengthening our balance sheet. Our solid cash position, coupled with improving profitability gives us a sound foundation to grow the business going forward. With that, let’s turn to the third quarter financials. ChromaDex reported total net sales of $17.1 million, down 1% year-over-year, a strong gross margin of 59.8%, and a significant reduction in overall operating expenses. Importantly, our e-commerce business grew 7% year-over-year despite a significant reduction in digital media spend.
Overall sales were down slightly, primarily due to continued COV-19 headwinds for our partners. Encouragingly, these headwinds are abating for our largest strategic partner, Watson, but remain challenging in other markets. The company has pivoted to spend on distribution channels and marketing campaigns with the highest short-term return on investment and a strong focus on conversion, which is evident in our financial results this quarter. Consistent with this, we paused our television campaign, which will affected is a much more expensive marketing approach in the short term.
Moving to the P&L details. As I said, total net sales in the third quarter of 2022 were down 1% year-over-year compared to the third quarter of 2021, with a 1% decrease in TRU NIAGEN driven by a 23% decline in combined Watsons and other B2B sales. Watson sales were roughly flat year-over-year, but other partners remain impacted by COVID-19 and new partnerships have been slower to ramp. This was largely offset by 7% growth in e-commerce.
Gross margins decreased by 130 basis points to 59.8% compared to 61.1% in the third quarter of 2021. The decline was primarily driven by increases in supply chain head count, including higher wages and other inflationary pressures, partially offset by business mix. We commend our supply chain team for achieving a consistent strong gross margin of approximately 50% in a challenging inflationary environment, which puts us on track to achieve our full year gross margin outlook.
Selling and marketing expense as a percentage of net sales decreased to 34.4% compared to 41.7% in the third quarter of 2021. We focus on the most efficient channels and investments within those channels, which resulted in an approximately 40% decline in customer acquisition costs for CPA. Beginning in the fourth quarter, we are testing tools to become even more sophisticated in targeting those consumers were most likely to convert.
As reported, general and administrative expense was lower by $5 million, primarily due to lower legal expense of $4.4 million as well as lower executive headcount and related expenses, including share-based compensation. While we will incur expense related to the Delaware appeal in the fourth quarter, we continue to expect full year 2022 legal expense to be under $7 million. For the third quarter of 2022, our operating loss was $3.1 million versus $8.8 million loss in the third quarter of 2021. The net loss attributable to common stockholders for the third quarter of 2022 was $1 million or a loss of $0.01 per share as compared to a net loss of $8.9 million or a loss of $0.13 per share for the third quarter of 2021.
Finally, our adjusted EBITDA, including legal expense, was a loss of $1.2 million compared to a loss of $6.3 million in the prior year. We recognized $2.1 million of other income this quarter related to the employee retention tax credit, which improved our reported net income, but is adjusted out of EBITDA to provide a better picture of the underlying business. Moving to the balance sheet and cash flow. Our balance sheet remains strong. We ended the quarter with $13.3 million in cash and did not borrow on our line of credit. Following the quarter end, we raised $7.7 million net of offering costs, with a new investor, Nestle Health Science and existing strategic investors in 2 separate transactions.
In the third quarter of 2022, our net cash used in operations was $3.7 million versus a $5.9 million use of cash in the third quarter of 2021. The difference year-over-year was primarily driven by a lower net loss, slightly offset by higher working capital investments. These included higher trade receivables due to timing of payments from customers as well as the timing of payments to our vendors impacting accounts payable. As it relates to our 2022 full year outlook, all key metrics remains unchanged from last quarter’s outlook with the exception of G&A expense, which we now expect to be down $6 million to $8 million, an improvement from our previous guidance of down $6 million to $7 million.
And as mentioned upfront, we are on track to achieve cash flow breakeven or better in the fourth quarter. We provided details on the P&L metrics in our earnings press release, along with the slide presentation.
In summary, we’ve made meaningful progress in the last 3 months and expect to continue to make strides towards our goal of sustainable cash flow breakeven. Beyond improving our operational discipline, we are engaging more frequently with our partners to share consumer insights and important scientific research, including educational sessions with our scientific affairs team.
In addition, we made important strategic progress. We relaunched TRU NIAGEN with Sinopharm in China, signed our joint venture to pursue Blue Hat registration in this market and entered into a long-term expanded supply agreement with one of the world’s leading health and wellness company, Nestle Health Science.
I remain humbled and grateful to the entire ChromaDex team as well as our partners for their support.
Operator, we are now ready to take questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Jeff Cohen with Ladenburg Thalmann.
Jeff Cohen
Firstly for you, Brian, this employee retention tax credit. That was federal. And is there any follow-on to that expected in the future?
Brianna Gerber
No follow-on. Other income in the quarter, we booked it that way because we believe that one time, and we wanted to exclude it from our underlying operations rather than looking at a payroll tax offset within SG&A. So there’s no follow-on expected. The cash is not yet collected but would be expected sometime in 2023.
Jeff Cohen
Got it. Okay. And when you talk about the decrease in marketing spend for the quarter as far as the channels out there, could you maybe call out for us some of the channels that were bolstered and some of them that were muted, I imagine that television was one of the muted channels.
Robert Fried
That’s correct. We spent less on television. We spent — actually, we spent less across the board. There’s much more of a focus on performance marketing and a little bit less focus on brand marketing and top of the funnel marketing, that would include television. But also it’s a philosophical switch more towards conversions and less towards awareness. So we actually spent less across the board.
Jeff Cohen
Okay. Perfect. And then, Rob, I want to talk about this a little bit. The $2 million purchase order, did that come through in October? Was that added in the third quarter? Or that will be fourth quarter?
Robert Fried
Fourth quarter.
Jeff Cohen
Fourth quarter. Okay, got it. And then maybe talk to us a little bit more about Nestle, which I’m trying to get a better understanding of the multi-ingredient market, what may be you’re thinking or what maybe they’re thinking as far as snacks, bars, powders, yogurts, et cetera?
Robert Fried
At this point, we’re just thinking dietary supplements. As you know, there was some discussion with them about making it a hero ingredient in Boost. But we still haven’t solved the stability and liquid scientific problem, at least for long enough for it to be included in Boost. And as you know, they’re always interested in including it in dietary supplements. And we’ve mentioned in the past that this is something we were in discussions with Nestle about. We did agree to make this deal with Nestle. We know that it’s a great ingredient — we are very careful about the companies to whom we supply NIAGEN II, making sure that there are companies that are science-based, not out to take advantage of us or infringe on our patents or try to even steal from us or our patents. We consider Nestle to be at the top end of science-based dietary supplement companies. They’re the largest dietary sopping company in the world to date. We’re excited about supplying NIAGEN to Nestle and help us expand the awareness of this ingredient around the world. And we’re very hopeful that they’re going to do it [ph].
Jeff Cohen
Super. Okay. And one last point over question. Congratulations on. It sounds like breaking through on cash and certainly, EBITDA for the fourth quarter.
Operator
Your next question comes from Sean McGowan with ROTH Capital.
Sean McGowan
A couple of questions. I’m not sure who wants to take them, but I’ll fire them out. So the decline in sales on the website, do you think that’s a function of Amazon’s growth or the pullback of marketing? Or can you just talk about that a little bit? And is that a source of concern for you guys?
Robert Fried
It’s not a source of concern. I do — we don’t believe that it’s cannibalization from Amazon, and we do not believe that it’s a function of reduced spend. We think it’s just simply a function of giving it a little bit more love and attention. We think it will come around, and we’ll start seeing growth there soon.
Sean McGowan
Okay. And is this one of the things you referred to when you say kind of folks more on performance marketing and conversion rather than brand building?
Robert Fried
It is.
Sean McGowan
Okay, great. On Nestle, just kind of taking a step back, the sales in the quarter were — I know you don’t guide on a quarterly basis necessarily, but it was a little bit lower than I thought it would be but the guidance for the year is still the same. So would you characterize the Nestle order as kind of incremental to what you thought you would get earlier in the year? Or is it kind of part of the whole plan and it really hasn’t been a change in your overall sales outlook?
Robert Fried
Our outlook is largely the same for the year. So Nestle is accretive, but there are some things that we anticipated that are either getting deferred or lower. — in some of our B2B partners. Overall, we’re retaining the same full year outlook, including Nestle.
Sean McGowan
Okay. And last thing, I know there or tight numbers, but I’m just wondering if there’s something going on the Ingredients gross margin seem to be — to take a pretty significant step backwards. Is there anything going on there the center eye?
Brianna Gerber
Nothing unusual. That’s a function largely of any pricing to our consumers. — certain — excuse me, customers get scale. They may get a lower price, but it’s still a very good gross margin business for us. The other thing, if you look historically, is from time to time, there’s necessary revenue recognition in those numbers. It gets booked in ingredient sales that gets recognized purchases in the quarter relative to their overall forecast. So it causes some lumpiness in those numbers.
Sean McGowan
Okay. So when it gets recognized, is that unusually higher unusually low gross margin?
Brianna Gerber
It’s accretive to the gross margins when you look at the deferred rather getting recognized in there. Thanks, Sean.
Robert Fried
No.
Operator
Your next question comes from Jeff Van Sinderen with B. Riley.
Jeff Van Sinderen
Just wanted to touch on Walmart for a second. I know there was some transitional or there were some transitional elements there. Just wondering kind of what you’re seeing at Walmart and the outlook there?
Robert Fried
Well, as you know, we’ve reduced the number of stores from 3,000 to 2000, and we’ve reduced the number of SKUs from 2:1. Notwithstanding that, the sales are pretty strong per store in Walmart and Walmart is very high on ChromaDex. But as you know, we pulled back on the TV spend. We expect that in 2023, we’re going to kick in that TV again and start driving more traffic to Walmart. So our expectation is sometime during the year next year, we’ll start that up again, and the sales will pick up. But Walmart remains very bullish on TRU NIAGEN.
Jeff Van Sinderen
Okay. And then along those lines, I mean, I realize it’s — you’re dealing with floor sets and such. But has there been any discussion of potentially adding it back to more stores, if they’re bullish on it, if they start to see better results next year — there is okay…
Robert Fried
Yes.
Jeff Van Sinderen
Okay. And then I wanted to shift over to Nestle for a moment, if we could. Just any color you can give us — I realize there’s going to be about $2 million in Q4. But any color you can give us on sort of what expectations you have for the quarterly contribution from Nestle sort of the progression for next year, what that might look like from Nestle overall sales?
Robert Fried
We don’t know yet. We know that they made this $2 million purchase, and we know that they have some pretty aggressive marketing plans to distribute this not just in the U.S. but globally, especially globally. But we don’t know what their purchasing projections are until they launch the product.
Jeff Van Sinderen
Okay. And they’re launching — do they have a date in mind for launch?
Robert Fried
I expect it to be launched within the next few months.
Jeff Van Sinderen
Okay.
Robert Fried
And again, it’s going to be launched across several Nestle brands.
Jeff Van Sinderen
Okay, great. And then just kind of factoring in everything that you can see today and I realize it’s early, but what sort of overall revenue growth rate are you contemplating to be feasible for the company for next year as you’re kind of looking at everything? Do you think it’s mid-single digit, high single digit, double digit? Anything you can — any color you can give us there, maybe a range, just some idea?
Robert Fried
There are a lot of things going on right now that we are developing and are excited about. I certainly expect us to grow more next year than this year. But we’re not yet in a position to give you that forecast.
Brianna Gerber
On our margin next year. We expect to give you that outlook next to March.
Jeff Van Sinderen
Got it. And best of luck in the rest of the quarter.
Operator
Your next question comes from Mitch Pinheiro with Sturdivant & Company.
Mitchell Pinheiro
Staying on the message theme for a second. I’m curious, why didn’t early take a stake in ChromaDex as part of an ingredient deal?
Robert Fried
Nestle has done a great deal of diligence about ChromaDex. On the TRU NIAGEN brand on our intellectual property on the quality of our science — they like the company.
Mitchell Pinheiro
Okay. I mean you are a small company. And here’s this this $100 billion consumer them and they take a modest rounding our kind of stake, but it was just something that I thought was — is there so is there — are there any — I didn’t — but are there any lockup or anything that — where they are permitted to — or not permitted to purchase more than a certain amount.
Robert Fried
I believe there’s a 1-year lockup.
Mitchell Pinheiro
Okay. And can they — is there any limit to how much they could buy? No. is of ChromaDex.
Robert Fried
No, there is not.
Mitchell Pinheiro
Okay. And then is Nestle — as part of this, is Nestle using at all of TRU NIAGEN be branded or will be their brand?
Robert Fried
It will be NIAGEN branded as an ingredient, but it will be their consumer brand.
Mitchell Pinheiro
Okay. Moving on, as far as — so the cross-border sales in China have been off to a strong start. I mean how strong start — how meaningful? Is it — does it get to $1 million a quarter? I mean, just some sense of size, I don’t even know how really the cross-border works. If you could talk about that just a little bit.
Robert Fried
Sino is very methodical. As you know, we’ve been talking to them for a very long — it took a long time to close that deal. And we’ve seen their marketing plans and their marketing plans are impressive to us. We know that the addressable market is enormous there. But they do have a cadence to the way they work. So we don’t know when it’s really going to kick in. Our expectations as the numbers will eventually be significantly more than $1 million a quarter. I just don’t know when.
Mitchell Pinheiro
Are there things sort of claim and things that Sinopharm can have in China that we can’t have in the United States.
Robert Fried
No. and I do a stop a lot of people who are selling other products from making false claims and the CFDA has been cracking down on them, but we would never make a claim outside of what’s allowed.
Mitchell Pinheiro
Okay. And then just getting back to your e-commerce business here. So Amazon, you generally — you remain sort of neutral or indifferent as to which channel, Amazon or your own site that sales are generated, correct?
Robert Fried
No, I think we prefer to be on our site. You have to pay Amazon of fairly significant fee, 15%. And there’s much of the customer data is not shared by Amazon.
Mitchell Pinheiro
Okay. And so then to talk just what — so — but it sounded like you’re okay in the quarter, you were okay with Amazon being up and your own site being down. Can you explain why you’re okay with that then? Or what the rates…
Robert Fried
Sorry interrupt. No, we’re not okay with that. We have every expectation that we’re going to start seeing growth on our own website. It’s just that Amazon themselves have been very proactive with ChromaDex. They like the way we’re managing it, they like the way we’ve optimized the site and the content we put there. And the way we’ve managed our marketing spend with Amazon — and obviously, we’ve continued to grow in our Amazon sales within our category and within larger categories. And the relationship with Amazon is very strong and it’s improving. But we’d like to see our website grow, and we expect that it will.
Mitchell Pinheiro
Okay. And then as far as you’d mentioned and related to this, you’re testing new tools for the fourth quarter. That’s new tools for your own website, correct?
Brianna Gerber
Mitch, I think you were referring to the tools to test targeting and customer cohorts on our own website. We are testing those. That’s more about our own website and targeting tools, and we’re doing that in the fourth quarter.
Mitchell Pinheiro
Okay. Okay, that’s it for me.
Operator
Your next question comes from Brian Nagel with Oppenheimer.
Brian Nagel
My first question is just with regard to the fourth quarter, sorry for being so near-term focus here because if you look at the kind of trajectory of sales through Q3, you have the guidance that you reiterated in your press release, it seems that you have to have a pretty significant uptick in sales growth in Q4 in order to hit that guidance. So I guess the question I have maybe so is there help us just with the building blocks. Are there certain pieces of sales that are coming in the fourth quarter that are new on the other side of that, what’s basically the assumption for the underlying growth in the business, the trajectory of the growth of the business as we’re going from Q3 into Q4 to get that guidance.
Robert Fried
So remember, we really have 2 large segments. There’s the direct-to-consumer segment and there’s the B2B segment. And as you know, we can’t really control the timing of some of these B2B orders like Watsons in particular, but some of the other ingredient partners. So the answer to your question is it looks like the fourth quarter is going to be pretty big. The answer is yes. And a lot of that has to do with the fact that certain orders that we know are coming in are confident or coming in that might have come in, in the third quarter are coming in, in the fourth quarter on the B2B side. The second part of your question, I think, had to do with how do we look at growth in general. Am I getting that right?
Brian Nagel
Well, I guess, Rob, I was just looking at the other focused on Q4. So you have these B2B orders coming in that are bolstering growth in Q4. So excluding that, if we were to get back to just I guess, a new normal business, if you will, the core business, if you will. I mean how is that — is that growth also expected to improve here in Q4 versus what we saw Q3, Q2?
Robert Fried
Yes. And one thing that we’re also seeing is the COVID impact is starting to lighten up. Remember, we have partners around the world who are retail-based. — and they were impacted by Colin, and we’re seeing a change there. So we’re seeing — we are seeing growth across the board that looks pretty good. But yes, there’s timing issues, and we have a lot of partners at this point. Some of those partners are up, some of the of them were down. But in general, yes, it looks good.
Brianna Gerber
And just one call on that, Brian. Watsons we’ve said is more aligned with the fourth quarter. So that’s a bigger number in the fourth quarter. And then plus we have Nestle now. So those are 2 callouts.
Brian Nagel
Got it. Then the second question I have is a follow-up to one of the prior questions. Someone asked you just about the growth beyond ’22. And Rob, again, you’re not — you haven’t put guidance out there yet and you haven’t really talked about that. But I guess the way I would ask the question is I think you said you expect growth in ’23 to be better than there was a lot of focus here in Q3 on expense all congratulations before breakeven. As you look at that, our immediate-term growth exactly longer-term growth trajectory, how should we think about the expenses in the model? Are you going to be able to accelerate that growth whilst keeping expenses lean? Or will you have to — will there have to be a reinvestment phase in [ph]?
Robert Fried
No. We — our plan is to get to profitability and stay in profitability, and we still expect there to be growth, but it will be profitable growth. And we’re looking at many opportunities that we see as growth opportunities. Sino is one, Nestle is one optimization of our website is a third additional partners like H&H, we think, is a growth opportunity, potentially some expansion into new markets, we think, is a good growth opportunity. And we’re already showing basic fundamental growth in Amazon. At some point, we think we will reinvest in awareness and television and expand the Walmart relationship and maybe other retailers sometime in 2023. But also remember, ChromaDex has a core differential advantage in that we’re very, very strong in R&D. So we have been investing in many molecules that are NAD precursors and other technologies. And so we have an expectation that you will see growth through innovation fairly soon.
Brian Nagel
So that was one follow-on that you’re saying new products or new products in addition to the 2 NIAGEN been talking about will…
Robert Fried
Yes, it could be new products. It could be new channels. It could be new technologies.
Brian Nagel
Appreciate it. Thank you.
Operator
Your next question comes from Sean McGowan with ROTH Capital.
Sean McGowan
Just kind of a housekeeping — is all of the revenue going forward from Nestle going to be booked in the Ingredients segment?
Brianna Gerber
So since it was a fourth quarter event, we’re still going through the accounting, but my expectation at this point is yes, that it would be similar to the previous agreement and booked there. And again, those milestone payments will be recognized as deferred revenue over time and ingredient sales in NIAGEN.
Sean McGowan
Okay. And would you characterize the expected gross margin from that revenue as it gets recognized to be in line with the ingredient segment or in line with the overall company average?
Brianna Gerber
I’d say, overall, when you think about the ingredient purchase price, which is the biggest piece of it, and then there’s tiered royalties, it would still blend to be a bit lower, but still a healthy gross margin. And then there’s obviously milestones as well. putting milestone payments, call it, lower than NIAGEN ingredients on a blended basis.
Sean McGowan
Thank you very much.
Operator
Again, if you would like to ask a question next question comes from [indiscernible].
Unidentified Analyst
A group of questions. First of all, how big of a deal is it winning the most popular brand of Year award at the Chinese health show?
Robert Fried
Well, there were many entrants into that. So in terms of the numbers, it’s a very big deal. We don’t know how that translates into money, though.
Unidentified Analyst
Sino; given any indication, do they have much familiarity with winning that award and what has historically happened.
Robert Fried
I don’t think they’ve ever won the award before. I think this is the first time that they’ve had a product that they won the award. Look, there’s a great deal of enthusiasm at Sino. They’re putting a lot of time and attention and resources into this. The only thing is that they’re very methodical. So we have high expectations. Remember, also, we have a partner, H&H, which owns Swiss brands, which is also selling cross-border into China. And Watsons is selling a bit cross-bordering to China. So between those three and potentially some others, we expect sales cross-border to China to be very significant; we just don’t yet know when.
Unidentified Analyst
That’s helpful, Rob. And due to my lack of familiarity with that show, will H&H and others be able to benefit from that most popular brand award? Or does that somehow really stick specifically with Sino?
Robert Fried
Well, Watson’s benefits because Watsons is also selling the TRU NIAGEN brand, but HNH is selling the NIAGEN ingredient brand, not TRU NIAGEN consumer brand per se. But there were 130,000 people who went to that convention. It’s a very well-attended conventions. So clearly, awareness of TRU NIAGEN is growing there.
Unidentified Analyst
That’s helpful. And then you had referenced that the cross-border sales were off to a strong start once Sino has taken over. What metrics do you have that you can share with us that help us recognize that strong start?
Brianna Gerber
Yes, sure. Bill, it’s Brandon. So first, just a quick point. You’ll see the revenue from Sinopharm no longer in e-commerce, beginning next quarter, it will be in Trinidad other B2B. So just a quick note on that is a shift. So we’ve posted the show, had some orders from Sinopharm. And again, as Rob said, we expect that to be large over time, it’s a matter of timing and hard to predict when. But just have orders from Sinopharm, — they’ve taken over the cross-border platform, which was a big step, and we’re excited about in that business going forward.
Unidentified Analyst
And then did we hear correctly that you reduced customer acquisition cost by 40%, 40% this quarter. And if we did hear that correctly, would you provide a few more details around that success?
Brianna Gerber
Sure. So yes, you did 40% on a blended basis, but also is achieved on Amazon as well as Shopify. So there are some efficiencies in social and search. Rod touched on the website there and how we’re looking to optimize that spend better. And on Amazon, we also saw improvement as we continue to optimize that. I don’t know, if Rob, do you want to add anything or like United there?
Robert Fried
No, it’s like what I said before. It’s more of a focus on performance marketing versus brand marketing top of the funnel and continued optimization of not only our Amazon presence but also our website presence. I expect to see more of that in the near future.
Unidentified Analyst
Thank you both for the time.
Operator
There are no further questions at this time. Mr. Shumaker, I turn the call back over to you.
Tom Shumaker
Thank you, Joelle. Thank you, Rob. There will be a replay of this call beginning at 4:30 P.M. [ph] Pacific Time today. The replay number is 1800-700-2030 and the conference ID is 4126168.
Thank you, everyone, for joining us today and for your continued support of ChromaDex.
Robert Fried
Thank you, everyone.
Operator
This concludes today’s conference call. You may now disconnect.
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