Laird Superfood, Inc. (LSF) Earnings Call Transcript & Summary

Thanks, and good afternoon. I'd like to welcome everyone to the conference call and webcast for Laird Superfood's second quarter 2024 earnings. Joining us today are Jason Vieth, who serves as President and Chief Executive Officer of Laird Superfood, along with Anya Hamill, our Chief Financial Officer. At this point, you should all be able to access the company's earnings release for the second quarter, which came out today following the close of the market; you can find it in the Investor Relations area of Laird Superfood's site, www.lairdsuperfood.com. Prior to starting, I want to remind you that management might deliver forward-looking statements on this call as defined under federal securities laws. Such statements reflect management's present expectations and beliefs, and they carry risks and uncertainties that might lead actual outcomes to differ materially from what those forward-looking statements describe. For a thorough review of these risks and uncertainties, please see today's press release as well as other documents filed with the SEC. With that said, I'll hand things over to Jason.

Thanks, Trevor. Good afternoon, everyone, and I appreciate all of our investors who keep tracking and backing us, plus a warm hello to those of you who are only now getting on board. Today, I'm delighted to report that the Laird Superfood growth story has delivered numbers once more that ought to make the rest of the industry jealous. In the second quarter, we raised our company's net sales by a remarkable 30% compared with the identical stretch 1 year earlier, representing an 8 point speedup over the 22% sales growth we posted in Q1 of this year. Once again, our E-commerce segment drove net sales growth in the second quarter, expanding 47% year-over-year. Sales through Amazon yet again paved the way, posting a stunning 80% growth rate in Q2, powered by our ongoing gains in product availability, marketing effectiveness and inventory management. This year we enjoyed the most successful Prime Days event in Laird Superfood's history, and we're eager about the chance we now have to extend that momentum with new consumers who have just joined our franchise. In Q2, our DTC business expanded a remarkable 32%, which you'll note is a speedup from the already robust 25% growth we posted for this channel in the first quarter. Since roughly half of our DTC sales now derive from subscriptions, we have established a predictable revenue model that encourages stronger customer relationships and greater brand affinity among our consumers. Starting in 2024, we have concentrated our DTC channel on delivering cultivated content, unique products and programming from Laird in Gabby, and our consumers are proving they appreciate it. Over on the wholesale side of our business, we lifted net sales 9% year-over-year in Q1, only barely falling short of another quarter of double-digit growth in this channel. Retail scanner sales for our Laird Superfood brand climbed once more by even more than our net sales, at plus 30% across the conventional multi-outlet plus natural channel for the 12 week period ending June 16th. Retail scanner data showed that each of our product segments grew yet again in the second quarter, with our coffee and instant latte products spearheading growth in this channel at 53% and 48% retail sales growth, respectively. On the operations front, I'm happy to report that we beat our 40% gross margin target once more by delivering a 41.8% gross margin in the quarter. The team handling our supply chain has accomplished something remarkable by sourcing top-grade ingredients worldwide at optimal pricing, and they've established a group of extremely capable professional collaborators across the different co-manufacturers we work with; right now, we're in the middle of rolling out a total margin management initiative, also known as TMM, and I have every confidence that additional cost reductions will be uncovered by our team as we continue expanding and growing the business going forward; beyond the excellent operational outcomes I just described, I'm delighted to report that we managed to resolve the legal claim we had pending regarding rancid coconut milk powder that came in from a supplier of ours during the prior year. On this matter, I'm glad to say that we reached a mutually agreeable arrangement with that supplier that will be beneficial over the long term, and they truly came forward to back our business on this issue. For Laird Superfood, the outcome will be $475,000 in cash recovered across the coming 6 months. By every measure, Q2 was a highly successful quarter for Laird Superfood. And though the financial results bring us great satisfaction, what excites us even more are the future opportunities we are creating. As consumers keep searching for the healthiest and most natural food options available to them, Laird Superfood finds itself ideally positioned to take advantage of this trend through our growing lineup of premium offerings. With that, I'll hand things over to Anya so she can walk through our second quarter results in greater detail.

Thanks, Jason, and good afternoon to all of you. Like Jason mentioned, during Q2 we kept moving forward with the plan we laid out earlier this year — getting the business growing again while also making profitability better. I'm happy to tell you that our Q2 numbers beat our operating plan across every key metric. Net sales rose 30%, reaching $10.0 million, versus $7.7 million during the same period a year ago, and sequentially they were higher by $0.1 million compared with Q1 of 2024. The e-commerce channel drove the company's growth, climbing 47% year-over-year and representing 61% of our total net sales. Our Amazon platform delivered the strongest quarter ever in company history, with impressive growth of 80%, fueled by higher revenue from subscriptions as well as new customers, and also because we were lapping last year's inventory out-of-stocks tied to the quality event that happened in Q1 of 2023. The DTC platform also rose 32%, powered by a steady climb in subscribers and repeat orders, better order value, and reduced discount rates stemming from strategic changes in promotional spend. Wholesale net sales were up 9% year-over-year, making up 39% of total net sales, lifted by a 26% increase in the retail channel from new distribution and faster velocity, plus more efficient promotional spend. That was partly offset by the timing of club channel orders moving into Q3. Gross margin reached 42% during Q2, an improvement of more than 17 points year-over-year. I'm glad to point out that this marks the third quarter in a row in which we've hit gross margin above the 40% threshold; such consistency highlights how well the margin improvement efforts we've put in place over the past 18 months are working — shifting to a third-party co-manufacturing model, transitioning to direct sourcing of key raw materials, and achieving trade promotion efficiency; these outcomes further back our expectation of sustainably reaching gross margin at or above 40% in quarters ahead. Operating expenses fell $1.0 million in Q2 relative to the same period last year, mirroring lower SG&A costs and better marketing efficiency. SG&A as a percentage of revenue dropped 14 points versus last year, as we stay focused on continuous expense management and remain committed to enhancing our bottom line. Net loss in Q2 was $0.2 million, an improvement of $0.8 million from Q1 and 93% better than the prior year period. Our balance sheet stays strong, with $7.8 million in cash and no debt. I'm especially pleased to share that we generated $0.5 million in positive cash flow this quarter, reflecting our better performance and effective working capital management. This solid financial position gives us the flexibility to back our long-term growth goals and future investments. We still anticipate having sufficient cash on hand to support our operations at least through 2026, while we expand the business and carry out operational enhancements that move us closer to breakeven and profitability. As we look forward, we feel good about the rest of 2024. We anticipate ongoing expansion across our main business segments, since our attention stays on delivering against our strategic priorities; we are lifting our outlook for both net sales and gross margin. Our current projection for net sales is $40 million to $44 million for the full year 2024, reflecting growth of 17% to 29% compared with the prior year. Gross margin should also widen to roughly 40% to 41%, which marks an improvement of 10 to 11 points relative to 2023. At this point, I'll hand things back to Jason for any closing remarks.

Appreciate that, Anya, and thanks as well to each person joining us on this call and to everybody who's backing what we're building. Laird Superfood is at a thrilling point right now — one that is firmly centered on scaling up and growing as we bring our brand and our products to additional consumers throughout every class of trade. That wraps up what we had prepared to say. Operator, we're ready at this point to take questions from the line.

Thanks, and good afternoon, everyone. Hi, folks. Perhaps we could begin with revenue and the guidance. When I consider the lower bound of the guidance and sort of annualize this Q2 figure, it brings us roughly to that point. So maybe you could explain what makes you confident enough to raise the guidance, and whether you believe everything is lined up to reach that lower bound, or whether there's something in the back half of the year you're truly depending on to pick up speed across the final two quarters? And then perhaps also, if there's anything you feel deserves mention regarding risk to that guidance figure.

Yes. JP, I'll kick things off, and then I'll pass it to Anya so she can provide a few additional details. But the way to view our business is that the second half carries some seasonality. A couple of major events are going to occur. First, there's the general return from school — sorry, the return from summer vacation, the back-to-school stretch, which tends to produce a strongly favorable result for us, particularly in retail. Usually, what happens is plenty of folks who've been away on vacation, letting go of some healthier routines, enjoying summer, then come back and get serious again, and the beginning of school appears to be when they do so. And so, across most of the wellness brands, a comparable pattern shows up. The other development for us in the second half that truly matters a great deal is the launch of our seasonal programs. We have a few seasonal queues that deliver strong results for us. We do secure extra displays at retail with several of those items. We're genuinely enthusiastic about the seasonal program once more this year and what we've managed to achieve so far and in preparation across all the channels; and really, what's taking place in the second half is simply an extension of some of these trends. Amazon is doing amazingly well for us. We keep building a new cohort. What we observe is essentially that it's the gift that keeps on giving, because once those cohorts exist, and you can market to them, you supply the product, obviously, it becomes far cheaper to keep distributing product to them and further build awareness for your brand. So, all of that occurs; and then finally, we reach the seasonal stretch with Black Friday arriving, which matters greatly to us in DTC and in Amazon, as online shopping behavior truly speeds up during that window. So we're quite bullish. We're a fairly conservative group by nature. I think you folks have probably grown to recognize that. For us to raise guidance is fairly meaningful. Anya, anything you'd like to add?

Yeah. Jason, I'd simply build on what you said — in our e-commerce operation, Black Friday and Prime days are also fueling a sequential rise in the sales rate compared with the first half. Plus, our marketing pressure was likely among the lowest in Q2, and we anticipate a stack up in marketing pressure during the back half of the year.

Okay, that's a big help. Let me pivot to gross margin for a moment. Clearly, credit is due for how far things have come in reaching 42%. Jason, could we discuss that margin management initiative you mentioned? Is it fair to interpret this as meaning we've hit what might be at least a short-term cap at the current scale—the $40 million run rate we're at today—and that the program is simply a means of finding other sources of margin improvement? Or do you believe additional margin is available even with operations proceeding as they are now?