Brianna Gerber: It is, yes. And then recall last year from an absolute dollar basis, Q1 was the highest revenue quarter, so we have the toughest comp there. And then other quarters were lower than that. So there’s also easier comparisons as we move throughout the year.
Mitch Pinheiro: And then with the new retail partners, could you — Rob, can you give us sort of — compare and contrast your thoughts there with the launch at Walmart, which wasn’t — maybe wasn’t exactly the right customer fit, but how you expect the launch to go, why you chose these companies, and if it portends further retail expansion in the future?
Rob Fried: There might be further retail expansion in the future but it won’t be mass retail like Walmart in the near future. Vitamin Shoppe is interesting because the store managers at Vitamin Shoppe are very well informed. They know Niagen very, very well. They were selling NMN extraordinarily well, but have removed NMN from their shelves since it became an illegal ingredient. And longevity in general is an important category for Vitamin Shoppe. So there was not a lot of education that needed to be done at Vitamin Shoppe. Marketing initiatives with Vitamin Shoppe will be further direct enhancement with the store managers. We won’t have to do a mass television campaign to create awareness to support it, which was the case with Walmart.
And as you recall, we did a television campaign. And when we got it up and running, the sales were actually quite strong at Walmart, it just took too long. And by the time we got the ad out and running and distributed, Walmart had already made its decision to pull back and they did not justify further investment in that media campaign. Sprouts as well is another example of a specialty high end retail that we think is of extreme overlap with the poor customer base of Tru Niagen, and will not require significant investment of advertising dollars to support. And you might see more deals like that, specialty retailers that are well informed and are directly overlap our customer base.
Mitch Pinheiro: And when it comes to pricing of the product, will it be similar to your e-commerce prices or –and margins similar to your — are margins similar to your e-commerce business?
Rob Fried: No. The margins are lower in retail than they are in e-commerce. And yes, the pricing will be comparable.
Mitch Pinheiro: And then I guess, just the last question is — so in the R&D, so your investment or you got — I forget the name of the firm that approved your — your supplement integrity, but was that a major expense in Q1?
Brianna Gerber: No. I’ll commence assured as I believe the one you’re referring to, we also have NSF certified report. Those actually get picked up in our cost of goods sold related to making and certifying the products. So it was not a driver of R&D. That increase in R&D, and as you saw, it was up about $900,000 year-over-year also sequentially from fourth quarter, about $1 million was related in large part to this new vertical that we’ve been talking about, getting that ready for launch, also new NAD precursor development that we’ve been working on as well as there’s always some ongoing SERP studies and other things in that number. We do expect Q2, similarly heavy investments. We talked about first half again set up there and moderating a bit in the second half with respect to R&D.
Operator: Our next question comes from the line of Sean McGowan with ROTH Capital Partners.
Sean McGowan: Switching back to the question on the retailers. When you’ve talked in the past about different periods of time with Watsons, there was occasionally kind of a pipeline fill and a pipeline contraction. So should we be expecting kind of an abnormal load-in period for these retailers as they stock the product initially or will the load-in be more gradual?
Rob Fried: There is obviously an initial purchase, but it’s not quite as dramatic.
Sean McGowan: And will they each have the product in all of their stores at the same time to start out with?
Rob Fried: They don’t yet, but they’re building towards that.
Sean McGowan: And I think I hear you loud and clear on the cadence of R&D spending Brianna. But would you say that this quarter, is this the low point of the year for gross margin as a percentage of sales, or you expect to see a lower quarter than this?
Brianna Gerber: Well, I’d say that 60.7%, that’s pretty strong. It’s certainly just slightly below our 60.8% full year number, and we said we expect to be slightly up. So I think you can imply in that what you will, which is probably it’s one of the lower, but there is some mix aspect to that. And so when you get closer to the 61% and above, it has stronger e-commerce mix in those numbers. We think this is a solid gross margin higher than 60.8% for the year felt comfortable.
Sean McGowan: Rob, did I hear you correctly that despite going up against the event, the marketing event last year on Amazon, your sales through Amazon were actually up versus the first quarter of last year?
Rob Fried: Yes, sir.
Sean McGowan: So would you attribute that to the — is that sign that, that effort was successful, or do you step back and say, maybe we didn’t need to spend that money? I mean, I look at it as the awareness was raised and you got that additional follow through. How are you guys looking at it?
Rob Fried: I think it was a good program that was too expensive.
Sean McGowan: And then the last question I have for now is the 1,000 milligram SKU. Is that — do you expect that — and you may have commented on this in the past, but do you expect that to be revenue accretive? I know — you know that I take the product. And so now instead of taking 400 or 300 a day, I’m taking 1,012, so — I mean 1,000 and 300. So I’m thinking slightly more, but I’m only taking two pills. So is that revenue accretive to you guys?
Rob Fried: It is slightly revenue accretive, but also more cost effective.
Sean McGowan: But I’m just wondering if something that’s a good deal for me, is that a bad deal for you. You know what I mean?
Rob Fried: It’s a good deal for both.
Brianna Gerber: Underscoring Rob’s earlier point on new-to-brand, the fact that it was more new to brand than we expected. It’s very early. And as Rob noted, we’ve been in and out of stock. We are chasing demand. We’ve now caught up. So it will be better to see a clear picture. But we’re not seeing that there’s a large percentage kind of doing what you are doing. There may be some. But overall, we’re getting people to trade up to the higher dose. There’s good retention, good lifetime value, projections. So we’re feeling confident in that SKU for the long term. Still a small piece of all of the business, but it’s the right move to make.
