Laird Superfood, Inc. (AMEX:LSF) Q4 2023 Earnings Call Transcript
Laird Superfood, Inc. (AMEX:LSF) Q4 2023 Earnings Call Transcript March 12, 2024
Laird Superfood, Inc. beats earnings expectations. Reported EPS is $0.02, expectations were $-0.21. Laird Superfood, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. Thank you for attending the Laird Superfood, Inc. Fourth Quarter 2023 Financial Results Call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for opportunity questions and answers at the end. [Operator Instructions]. I would now like to pass the conference over to our host, Steven Richie, General Counsel of Laird. Steve, please go ahead.
Steven Richie: Thank you, and good afternoon. Welcome to Laird Superfood's fourth quarter and full year 2023 earnings conference call and webcast. On today's call are Jason Vieth, Laird Superfood President and Chief Executive Officer; and Anya Hamill, our Chief Financial Officer. By now, everyone should have access to the Company's fourth quarter and full year 2023 earnings release filed after today's market close. It is available on the Investor Relations section of Laird Superfood website at www.lairdsuperfood.com. Before we begin, please note that during the course of this call, management may make forward-looking statements within the context of federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.
Please refer to today's press release and other filings with the SEC for a detailed discussion of these risks and uncertainties. With that, I'll turn the call over to Jason.
Jason Vieth: Thanks, Steven. Good afternoon, and thank you to everyone who has joined us today. Now that you have all seen our Q4 2023 results, I hope that you will agree that it is not an overstatement to say that Laird Superfood had a tremendous quarter. During Q4, we hit our team's goal of a financial trifecta, positive sales growth, positive profitability and positive cash flow, the latter two of which were a first time ever for our company while trading as a public entity. These results represent just the latest step in what has been a rather steady path of improvement since I first spoke with all of you two years ago. And I'm proud to say that these improvements have allowed us to remove the going concern disclosure from our financials.
This is a significant vote of confidence in our financial position and outlook and further motivation for our team to ensure that we operate the business as professionally and confidently as possible. I'll start with what might be our most noteworthy accomplishment in a quarter full of them. During Q4 2023, we were able to return our DTC business to plus 10% growth versus the same quarter in 2022. This was accomplished despite a decrease in our marketing spend by 54% during the same comparative period, which obviously means that our marketing effectiveness metrics surged once again during Q4. This represents our first quarter of growth in this channel since almost two years ago after the changes to iOS upended the DTC industry and was accomplished to more effective targeting and messaging and by highlighting our most solid products and creating better offerings for bundles and cross-selling.
One key to this accomplishment was the increase of our revenue from subscriptions to 46% of our total DTC net sales base, which I would assert demonstrates that consumers are recognizing the benefits from consistently attending to their health through their nutrition, and that our coffee, creamers, greens and the adaptogenic mushroom products are a perfect fit for consumers to create what we at Laird Superfood have referred to as the healthy daily ritual. In addition to converting more of our customers to subscribers, we were also successful in Q4 in increasing our net sales from new DTC customers by 76% year-over-year, driven by our partnership with the Shawn Ryan Show and other well-executed top-of-funnel marketing activities. I am also pleased to report that our average DTC order reached more than $57 in Q4.
Given these metrics, it should not be surprising that our brand affinity remains extremely strong with our consumers. With our Net Promoter Score still hovering in the mid-70s and our customer satisfaction score at 4.9 on a 5-point scale. A large portion of our e-commerce business is also conducted on Amazon. And here, I am happy to report that we have continued to make steady progress in returning this business to growth after the challenges created by the quality event that we encountered approximately a year ago. Out of that event, it took approximately six months to fully withdraw and replenish our coffee creamers on the Amazon platform. During which time, we saw a significant reduction in sales. But in Q4, with our stock inventory levels restored to normal, we were able to execute our marketing plan on this platform and restore our path to growth.
During Q4, our net sales through Amazon reached $1.76 million, a 38% increase over Q3 of '23, despite a 22% pullback in direct media spend on Amazon during that time. This is a testament to the cohorts that we have established on this platform which was further aided by 26% increase in revenue from subscriptions, which now represents nearly 1/4 of Laird Superfood net sales on Amazon. Given the lapping of those 2023 challenges during the first half of this year, we expect to see strong Laird Superfood through Amazon throughout 2024. Turning to our wholesale business. I am pleased to add that we continue to make steady progress in expanding our distribution in this important strategic channel. To date, our wholesale business has been largely concentrated in the natural channel, where we have continued to make great strides to build out our brand among consumers that are motivated by health.
During 2023, our clubs of distribution in natural finished the year up 24% versus the end of 2022, driven by wins in large national retailers as well as across smaller independents that are vital to consumers in this channel. Specific to Q4, I am pleased to announce that we were successful in securing national distribution with Whole Foods for our shelf stabilizers, which will complement the full national distribution that we had recently attained on our core item liquid creamer portfolio. Those items began shipping a few weeks ago and bring us to eight items in distribution within Whole Foods across the country. I'm equally pleased to share that we have also had continued success at Sprouts Farmers Market! who has been a great partner to our brand and where we now have 22 items in distribution, representing one of our most complete build-outs of any retailer in the country.
I am also pleased to share that during Q4, we became the number one brand within the coffee category of sprouts, charging ahead of the likes Beats, Full Approved, Meltdown, Death Wish all the other brands in this category. We believe that this is just the start of the exciting things to come as we continue to build our brand strength and share our health and wellness portfolio with consumers across the country. As we look forward from here, we will execute an expansion strategy to an additional categories in the natural channel and begin to put emphasis on growing our distribution and conventional channel, where we currently have very little distribution in a very large market. Along with the success that we are having commercially, it comes with a recognition that we couldn't achieve any of this if we didn't have a supply chain that was a flexible, responsive and adaptive as we do.
Last year, our supply chain was able to shut down our own facility in Oregon, identify co-packing distribution partners and move our entire business over the span of just around two months. Our supply chain team operated nearly flawlessly through a quality event in the first half of last year, quickly replenishing our raw material inventory and keeping most of our key suppliers supplied throughout that challenging stretch. And now with our powder products fully transitioned to an asset-light supply chain model and with our liquid creamer transition behind us, we were able to achieve over a 40% gross margin during Q4. Our supply chain is flexible and agile and is built to support our future growth. Going forward, we continue to expect our gross margin to remain in the high 30s.
Our focus on cost management extends beyond the supply chain for our operational expense as well. During Q4, we reduced our total year-over-year adjusted OpEx of $6.1 million to $3.7 million representing a decrease of 38% in Q4 of 2023. This was accomplished by a broad-based reduction in our OpEx spend, which we will continue to manage tightly as we go forward. And finally, I want to share a few thoughts on our cash position, which increased in Q4 2023 by $280,000. Based on our working capital needs and planned investments, we do not anticipate generating positive cash flow in every quarter. However, we do believe that with our planned growth rate in 2024 and beyond, we may soon be generating cash to support our operations. I also want to reiterate that we were able to remove the going concern disclosure from fires.
We are proud of this recent change and believe that with our forecasting growth profile and gross margin outlook, the Laird Superfood is now in position to carry an improved financial profile in the future years. And now, let me turn the call over to Anya to discuss the fourth quarter results in more detail.
Anya Hamill: Thank you, Jason. Net sales were $9.2 million in the fourth quarter of 2023, an increase of 2.6% as compared to $9.2 million the prior year period and flat to the third quarter of 2023. As Jason discussed, both the e-commerce and wholesale channels delivered growth in the fourth quarter. E-commerce contributed 66% of total net sales and increased 2% year-over-year, led by DTC growth of plus 10%. These improvements were in part offset by a year-over-year decline in Amazon sales of 12%, a substantial and narrower decline than in the previous quarters and driven by a 59% Amazon media spend reduction as we resolve to improve profitability on this platform. Wholesale contributed 34% of total net sales and increased 5% year-over-year, reflecting continued growth in club and distribution expansion in the natural channel as well as product velocity improvement behind updated packaging, which launched in the second quarter of 2023.
Gross margin in the fourth quarter rose to 40.4%, which is a 45-point improvement on a year-over-year basis due to charges related to Sister's access activities in the fourth quarter of 2022. On an adjusted basis, gross margin improved 21 points year-over-year and 10 points sequentially versus Q3 of 2023, driven by continued benefits of transitioning to third-party co-manufacturing and distribution. Q4 gross margin of 40% is a milestone that supports our expectation that we can deliver margins in the upper 30s in the coming quarters. Operating expenses in the fourth quarter of 2023 totaled $3.7 million, a decrease of $11.6 million compared to $15.3 million in the prior year period. This reduction was driven by lab and expenses related to our exit from Sisters in the fourth quarter of 2022.
Excluding onetime charges, operating expenses were reduced $2.4 million, primarily due to lower marketing costs, resulting on strategic cuts of inefficient spend and lower people costs and other general and administrative expenses following the restructuring activities in 2022. I am pleased to report that in the fourth quarter, for the first time in the Company's history, we achieved positive net income and positive cash flow. Net income as reported was $0.1 million in the fourth quarter of 2023, an improvement of $15.7 million versus the prior year period. Net cash add in the quarter was $0.3 million compared to cash burn of $3.2 million in both the third quarter of 2023 and the fourth quarter of 2022. These results were driven by margin expansion and significant reductions in general and administrative costs, demonstrating the strong progress that we have made in managing costs and pushing the business towards profitability in future quarters, although we do not expect this to occur in a perfectly linear manner.
We ended Q4 2023 with $7.7 million of cash and no debt as we continue to conservatively manage our balance sheet. We now project that we will have enough cash to fund our operations into 2026. And our annual report on Form 10-K will not contain the going concern language that was included in our prior quarterly report. Further, after many had conversations with several vendors regarding our ability to put in place an asset-backed loan, we are optimistic that such a vehicle is available to us, should we decide that we would prefer additional funding to support our operations or growth. The changes we have made to our business model have significantly improved the underlying economics and strengthened our competitive position. As we go forward, we will continue to focus on maximizing our most profitable commercial growth opportunities while maintaining strict emphasis on continued cost to drive the business towards profitability and maintain our cash position to support our future operations and other opportunities that may emerge.
Our full year 2024 guidance is as follows. Net sales are expected to be in the range of approximately $38 million to $40 million, representing growth of 10% to 15% compared to 2023. Gross margin is expected to expand to approximately 37% to 40%, excluding any onetime extraordinary charges, representing a 7- to 10-point improvement versus 2023. With that, I'll turn the call back to Jason.
Jason Vieth: Thanks, Anya. I know that I seem to say it every quarter, but I want to reiterate that I believe that the future of our Laird Superfood business has never looked brighter. This time around, please indulge me while I share my thesis for that condition. First, our Net Promoter Score and customer satisfaction scores are indicative of our incredible brand strength and the trust based on our brand by Laird Superfood consumers and should be the envy of any virtually any major food company today. Second, our product portfolio is well positioned for the health and wellness trends that continue to grow in importance both within the U.S. and internationally, as demonstrated by our Q4 volume and sales growth. Importantly, our gross margin is now in line with many of the premier companies in our industry and can provide us with strong cash generation as we continue to grow our business.
And finally, I would wager that our organization is as still, competent, motivated and engaged as any similarly sized company in the industry. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.
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