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

Thanks, and good afternoon, everyone. I'd like to welcome all of you to the webcast and conference call covering Laird Superfood's earnings for the first quarter of 2025. Joining us today are Jason Vieth, who serves as our President and Chief Executive Officer, along with Anya Hamill, our Chief Financial Officer. At this point, you should all be able to access the earnings release we issued, which went out following the close of trading today. You can find it in the Investor Relations area of Laird Superfood's site, www.lairdsuperfood.com. Before we get started, I want to remind everyone that management might share forward-looking statements on this call as defined under federal securities laws; such statements reflect management's present expectations and carry risks and uncertainties that may lead actual results to differ materially from what's described. For a fuller discussion of those risks and uncertainties, please see today's press release as well as our other SEC filings. With all that said, I'm going to hand things over to Jason.

Thanks, Trevor, and good morning to all of you. It's a pleasure to walk you through what Laird Superfood accomplished in the first quarter of 2025 — another robust stretch for a premium, high-growth brand with solid margins and plenty of room in the market. In Q1 2025, net sales climbed 18% versus a year earlier, reaching $11.7 million, compared with $9.9 million during that prior-year period. That gives us a fifth straight quarter of double-digit top-line expansion, all the more notable given the inflationary and uncertain conditions that have recently taken hold. Profitability continues to stand out for us. Gross margin in Q1 of 2025 came in at 41.9%, which is 1.9 points better than Q1 a year ago. Even with heavy commodity cost pressure on inputs like coffee and coconut milk powder, that level sits comfortably above what food companies typically deliver. Sustaining margins in the high 30% to low 40% range while generating sales growth of nearly 20% speaks to both the durability and the outstanding execution of our omnichannel model, powered by strategic sourcing, a variable cost approach to manufacturing, and tight control over trade spending. Our Q1 performance also shows how far we've come on the 2 main strategic commercial priorities meant to fuel strong expansion on Amazon and to broaden our wholesale distribution considerably. E-commerce rose 6% in Q1, paced by our Amazon results, where better inventory management and focused marketing efforts lifted platform demand for Laird Superfood items. On the direct-to-consumer side, repeat buyers and subscribers accounted for over 75% of Q1 DTC sales — evidence of our success in building lasting relationships and of the confidence and allegiance consumers place in the brand. In wholesale, we likewise kept up outstanding momentum, with net sales up 35% year-over-year and now representing close to half of all LSF revenue. Gains in grocery and club store distribution drove that increase, spanning key partners in both natural and conventional grocery, along with better dollar sales velocity at accounts we already serve. Efficient promotional tactics and robust consumer appetite for our offerings underpinned that momentum. As we mentioned on earlier calls, we anticipated Q1 sales growth would be held back by out-of-stock problems affecting our creamer and instant latte products after demand ran unexpectedly high in Q4 2024. That impact did indeed materialize, but I'm happy to say we've worked past those constraints by qualifying more raw material suppliers and boosting flexibility in our supply chain, and we now hold a stronger inventory position on our coconut milk products, which should let us accelerate growth on those items during the back half of 2025. Turning to our supply chain, Q1 offered yet more proof of the agility we've cultivated in that area. Even though coffee, cacao, and coconut milk powder costs kept inflating, we managed to offset most of that pressure thanks to solid ties with suppliers, efficiency gains in how we operate, and the early steps we're taking to soften what tariffs will do to us. Within our Q1 gross margin of 41.9% sits a 3.3 point gain tied to a shift in when we capitalize inbound freight. Strip that out, though, and our margin strength still stands out. Holding yearly gross margins at no less than the upper 30s remains our target, and when it comes to possible commodity price corrections in 2025, we're cautiously optimistic, since those could lift our profitability further. Our approach, as we've said before, is to keep pricing sharp so volume growth comes first, which sets us up to grow a bigger, more profitable operation once commodity costs return to normal. On the subject of tariffs, let's tackle the obvious issue. Naturally, a lot of what we use, including our coconut products and our coffee, gets brought in from farms abroad. We're monitoring the situation closely, and we believe we can handle the effect of the tariffs imposed so far while staying inside the guidance we gave earlier. If substantially more tariffs hit our ingredients, we'd probably have to raise prices to absorb that blow. Before passing things to Anya, I'd like to point out how our profitability keeps improving; during Q1 2025, our net loss shrank to $0.2 million, versus a $1 million loss in Q1 2024. On top of that, adjusted EBITDA came in positive at $0.4 million, against a negative $0.8 million a year earlier. That outcome shows the operating leverage we're gaining as the business scales, which strengthens our route to lasting profitability. Our balance sheet also stays solid, carrying no debt and plenty of cash to run things as we keep growing revenues and move past breakeven profitability; now I'll let Anya walk through the quarter's financial specifics.

Thanks, Jason, and good afternoon to all of you. I'll walk you through some further specifics regarding our financial results for the first quarter of 2025, along with how we see the full year shaping up. After a record-setting 2024, our results in the first quarter of 2025 were just as strong. Even though we ran into certain out-of-stock issues during the quarter, net sales rose 18%, reaching $11.7 million, up from $9.9 million in the same period a year earlier. That marks the second consecutive quarter in which our wholesale channel drove the company's growth, rising 35% year-over-year and representing 47% of our total net sales. This increase came from expanding distribution in grocery as well as faster movement at shelf in both retail and club. E-commerce sales rose 6% year-over-year and made up 53% of total net sales, with media efficiency in this channel continuing to improve significantly. Growth here was fueled by robust sales on Amazon, extending the sales momentum we've built over the previous 4 quarters and powered by excellent commercial execution. Gross margin for the fourth quarter landed at 41.9%, versus 40.0% in the comparable period a year ago. A shift in the timing of inbound freight capitalization contributed 3.3 points to gross margin in Q1 2025. As Jason noted, even setting that change aside, Q1 gross margin stood at 38.6%, which was flat on a sequential basis against Q4 2024, demonstrating resilience in our margin even with inflationary pressure on key commodity costs including coffee and coconut milk powder. Our supply chain team keeps driving efficiencies by working directly with key raw material suppliers and co-packing partners to uncover cost savings that offset climbing commodity costs. Operating expenses came in nearly flat for the first quarter versus the same quarter last year, as higher selling fees tied to volume growth and people-related costs like stock-based compensation, which is a noncash expense, were almost entirely offset by lower general and administrative expenses and reduced marketing spend, reflecting our ongoing efforts to improve media efficiencies and trim nonworking spend. Net loss for the quarter was $0.2 million, compared with a $1.0 million loss in the prior year period. And adjusted EBITDA was positive $0.4 million, versus a $0.8 million loss in the same quarter a year earlier. This $1.2 million improvement in adjusted EBITDA came from top line growth and margin expansion. Now shifting to our balance sheet: we closed the quarter with $7.2 million in cash and no debt. During this quarter, we put money into building our inventory safety stock so we could minimize other stocks and seize future growth opportunities. This effort led to $1.3 million of cash usage in the quarter, compared with $0.4 million of cash used in operating activities in the same period last year. We believe our inventory is now appropriately sized to give us the supply chain flexibility needed to meet expectations of increased demand through the rest of the year. Our forecast remains that the cash we have on hand is enough to support operations while we expand the business and pursue operational enhancements that move us toward breakeven and profitability. There's also an asset-backed credit facility we can draw on if the need arises. Coming out of Q1, we had solid momentum across our core categories, healthy inventory positions, promising innovation, and belief in our team and brands; we're eager about our capacity to keep posting strong results. So we're confirming our guidance for the full year. Net sales should land somewhere from $52 million to $54 million, reflecting 20% to 25% growth over the prior year, and we continue to anticipate gross margins staying in the upper 30s, even with commodities costs climbing and tariff pressure. As we said before, our aim is to steer adjusted EBITDA to breakeven across the full year, and we'll put the excess back into fueling top line growth. Operating cash flow for the full year should come in between $1 million and $2 million negative, reflecting added spending on inventory to back top line growth and reduce out of stocks. With that, I'll hand things back to Jason for closing remarks.

Thanks, Anya, and I appreciate all of you being here with us today. Laird Superfood keeps establishing a distinctive niche across the food and beverage sectors through our lineup of products that undergo minimal processing and contain clean ingredients. The 18% increase in sales we posted in Q1 beats what many competitors have managed, and it reflects the appetite for our healthy functional foods. On top of that, our achievement across two channels — doing well in retail as well as e-commerce — provides the adaptability that distinguishes us in the retail landscape of today. These last few years have brought major change to Laird Superfood, and even so, we still feel we are only at the beginning. I take enormous pride in how our team has executed, and I'm enthusiastic about our ongoing expansion as we continue building on this momentum. Even with the headwinds our industry currently faces, just as Anya said, we stay confident about our 2025 outlook and our capacity to generate long-term value for shareholders. Operator, that wraps up our prepared remarks, and we're ready now to take questions on the call.

I realize you already mentioned this somewhat, yet at the risk of dwelling on the tariff topic, perhaps we could go a bit further into it. Regarding what you said, Jason, I simply want to clarify: does that reflect the temporary pause — the 10% rates, so to speak? Or does it pertain to the initial Liberation Day rates? And then, as a follow-up, when you consider handling tariffs and however they ultimately turn out, how much might that be limiting your capacity to boost trade spend, given your aim of managing toward that high 30% gross margin?

JP, I appreciate the question. It seems to be on everyone's mind, so I'm glad to have it raised. Yes, essentially what we mean is this: the 10% tariff currently in place — I wouldn't call it de minimis, but we can deal with it without any issue. The larger tariff that takes effect following the 90-day pause will carry a greater impact, yet we still believe we can absorb it inside our P&L. There will be some effect on gross margin; however, we possess other levers, other spending levers, that we can pull to offset that while remaining inside the guidance we provided to you all. Naturally, it's a bit — saying upper 30s is somewhat broad. We remain very confident that we can finish the year in the upper 30s. Naturally, tariffs would create a somewhat greater impact, yet we can handle it across the remainder of the P&L so that we can still reach that adjusted gross margin breakeven point we previously identified. So the truth is, with these tariffs, nobody truly knows where they'll land. We are definitely monitoring them, planning strategically around them, but we also put our blinders on to keep operating and performing as well as we can, pulling forward inventory purchases while they're less expensive. I think much of this — honestly, I think much of this is going to disappear. It's only a question of when. So we're attempting to be as long on inventory as we reasonably can be to get through that period; and ultimately, if we'd be hit with really big tariffs as were originally announced and the entire industry is impacted, there will be nothing left to do to take price, then we'll take price; we're trying to hold the line on that. I said earlier that we felt we could manage it. And we think that by keeping our price sharp, we can take volume, we can take share, and we're seeing some of that playing out in the market already. We're seeing opportunities open up. A number of those have already been put into action, while others are things we're actively pursuing at this moment, and we believe they could deliver real value for our company once certain commodity prices decline again and once some of the tariffs are eventually lowered or eliminated. So our outlook is positive that we will end up in a stronger position. My sense is that our team is extremely skilled when it comes to handling strategic opportunities and challenges, and you have people here who for many years mostly collaborated together during the WhiteWave period and dealt with plenty of this kind of scenario planning back then. So in fact we are welcoming a portion of this change and feeling that we can come out as winners as everything unfolds.

Great, that's really useful context, and I appreciate it. Could we pivot for a moment to the wholesale momentum? I was hoping you might be able to give us a bit more granularity, particularly around those rising velocities. Were there one or two specific factors really fueling that, a couple of SKUs where you saw those velocity gains most clearly? And I believe the press release included a remark about revenue being partly offset by promotional spend. So if you could address that — was there a significant promotion that gave the wholesale business a real boost this quarter? Or was it more a matter of minor adjustments, perhaps on pricing, perhaps on trials? Any insight you can offer regarding the wholesale momentum.

Yeah, absolutely. And I genuinely appreciate that question as well, since this is something I was hoping to dig into a bit further. So wholesale, as you're aware, has truly been a growth engine for us over the past couple of years; we're experiencing some of the strongest acceleration on that strategic priority. That is — when we consider where our future growth comes from, it's really Amazon and wholesale; and our intention was to land at roughly a 50 to 50 split between wholesale and e-comm at some point in 2025. So we're exactly on track for that. I'd say we're only a few points away from it at present. And we expect wholesale will probably outgrow online going forward, since we've secured some truly excellent distribution gains over the past year, and now we're enjoying the payoff from those. Then, to address your specific point, we're also seeing genuinely impressive velocity gains. Even in cases where we're adding distribution on products, what we observe is velocity gains for those products in other stores. That's quite uncommon when it occurs. And I believe it genuinely reflects the trends fueling our sales at the moment; so around — just around broader health movements. So what we're observing in particular, JP, on the wholesale side is truly robust growth in coffee, in our powdered coffee creamers. Our instant latte products have performed very well. And so that coffee solution set, specifically, has been the catalyst. We're also seeing solid growth on our mushrooms. We've had really strong growth lately on the bars once more. So really the entire portfolio is performing, but I'd highlight — above all I'd highlight the strength of those — of the coffee solution set I referenced; it did create some issues for us in Q4 of last year, as you know, the strength — the growth was so powerful that it depleted our supply. And as I said, we've moved past that. I'm happy to report that, as far as I know, none of our coconut milk items are currently out of stock in any channel; our wholesale distributors have us fully restocked. Amazon is in excellent shape. And our DTC products are available again. So for the rest of the year in that area, I think we're sitting in a truly strong spot, with improved supply setups, and we're confident we can meet that commitment this year. Then, on your specific question regarding trade spend, really, that remark was mostly about the fact that we had some expenses from earlier periods come in that went beyond our projections. So in the prior year, especially during that Q3, Q4 stretch when we were expanding, we discovered that certain promotions performed even better than we'd understood, which likely contributed to pushing some of those out of stocks. But by doing so, we got far more product into shoppers' hands and genuinely generated extra trial; and so all things considered, though going over your trade budget a little is always somewhat uncomfortable, when we line that up against the robust growth we achieved last year, we feel quite good that it remained a highly efficient use of spend and, honestly, keeps fueling the momentum we're seeing in retail at this moment.

Great. I really value all of that detail. Let me squeeze in just one more before we finish. Since the large liquid creamer first hit shelves, is there anything you can share about how velocities are tracking, or any feedback you've gotten from customers?

Yes. Yes, that's a terrific question. On the customer feedback side, my sense is it's largely positive; things were somewhat more uneven than we'd expected, partly because the reset windows were out of sync. Our biggest accounts, as you're surely aware, are Sprouts and Whole Foods for that liquid creamer; beyond those, we have several other strong accounts, including Wegmans and Target, and so on. Their timing all differs. That meant we needed 2 sets of inventory across both KeHE and UNFI in order to service them; so I'd say these were valuable lessons the teams took away, ones that will serve us going forward. Still, it proved harder and stretched out longer than we'd planned; as a matter of fact, some of those rollouts are still being worked through. My understanding is Natural Grocers is only now getting back online following a stretch of — roughly a — a stretch of being out of stock, and during that transition the codes got scrambled; several other smaller retailers find themselves in the same spot. So what I'd say we're mostly seeing is velocities landing where we'd forecast; we never figured we'd capture a complete 1:1 pickup right away, given that you're — that you're moving up in size by 50%. So some volume — or rather some unit attrition against the volume — is to be expected. And we're landing almost exactly where we'd projected, which as I recall we modeled at roughly 0.8 conversion. So it remains — I keep repeating that it's early days — it remains early days for a few of those retailers; for those that have already made the switch, such as Sprouts, which transitioned sooner, things appear to be going quite well. And so we're quite confident that in probably the next quarter, once we're completely through all of it, we can return and deliver a report to you folks stating that Liquid is performing well.