Laird Superfood Q2 2024 Earnings Call Transcript

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August 7, 2024

There are 5 speakers on the call.

Operator

Good afternoon. Thank you for attending today's Laird Superfood Inc. 2nd Quarter 20 24 Financial Results. My name is Jaylen. I'll be your moderator for today.

Operator

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Trevor Russo. You may proceed.

Speaker 1

Thank you, and good afternoon. Welcome to Layered Superfoods' Q2 2024 Earnings Conference Call and Webcast. On today's call are Jason Beek, Larry Superfood's President and Chief Executive Officer and Anja Hamill, our Chief Financial Officer. By now, everyone should have access to the company's 2nd quarter earnings release, which was filed today after market closed. It is available on the Investor Relations section of Layered Superfood's website at www.layeredsuperfood.com.

Speaker 1

Before we begin, please note that during 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.

Speaker 2

Thank you, Trevor. Good afternoon, and thank you to all of our investors that continue to follow and support us, and a kind welcome to those of you who are just joining the journey. Today, I'm thrilled to share that the Layered Superfood Growth story has once again put up results that should be the envy of the industry. During the Q2, we grew the net sales of our business by an impressive 30% versus the same period 1 year ago, which marks an 8 point acceleration versus the 22% sales growth that we had reported during Q1 of this year. Net sales growth during the Q2 was once again led by our e commerce segment, which grew by 47% year over year.

Speaker 2

Our sales through Amazon once again led the way with an eye popping 80% growth rate in Q2, driven by our continued improvement in product availability, marketing effectiveness and inventory management. We had our most successful Prime Days event in the history of Laird Superfood this year and are excited for the opportunity that we now have to build on that success with new consumers that just entered our franchise. During Q2, our DTC business grew by an impressive 32%, which you'll recognize as an acceleration from the already strong 25% growth that we had reported in this channel during the Q1. With approximately half of our DTC sales now coming from subscriptions, we have built a predictable revenue model that fosters stronger customer relationships and increased brand affinity by our consumers. Beginning in 2024, we have focused our DTC channel in providing cultivated content, unique products and programming from Laird and Gabby, and our consumers are demonstrating that they value it.

Speaker 2

On the wholesale side of our business, we grew net sales by 9% year over year during Q1, just narrowly missing another quarter of double digit growth in this channel. Retail scanner sales for our Layered Superfood brand were once again up even more than our net sales at plus 30% across the conventional multi outlet plus natural channel for the 12 week period ending June 16. Retail scanner data demonstrated that all of our product segments grew once again during the Q2 with our coffee and instant latte products leading growth in this channel at 53% 48% retail sales growth, respectively. On the operations side, I'm pleased to share that we once again outperformed our target of 40% gross margin by achieving a 41.8% gross margin during the quarter. Our supply chain team has done an incredible job of procuring the highest quality ingredients from around the world at the best prices and has built a network of highly competent professional partners among our various co manufacturers.

Speaker 2

We are currently in the process of implementing a total margin management or TMM program, and I am confident that our team will be able to identify additional cost savings as we expand and grow our business from here. In addition to the outstanding operational results that I have just shared, I am pleased to announce that we were able to settle our outstanding legal claim due to rancid coconut milk powder that had been received from one of our suppliers last year. In this case, I am happy to share that we were able to come to a mutually agreeable and long term beneficial agreement with this supplier who really stepped forward to support our business on this matter. The result for Laird Superfood will be $475,000 of cash to be recouped over the next 6 months. Q2 was by all measures a very successful quarter for Laird Superfood.

Speaker 2

And while we are extremely pleased with the financial results, we are even more excited about the future opportunities that we are building. As consumers continue to seek out the healthiest, most natural foods that are available to them, Layered Superfood is perfectly positioned to capitalize on this trend with our expanding portfolio of premium products. With that, I will now turn it over to Anja to discuss our Q2 results in more detail.

Speaker 3

Thank you, Jason, and good afternoon, everyone. As Jason noted in the Q2, we have continued to make progress executing the strategy we articulated earlier in the year, which is to return the business to growth while improving profitability. I am pleased to share with you that our Q2 results have exceeded our operating plan on every key metric. Net sales grew 30% to $10,000,000 compared to $7,700,000 in the prior year period and were up by $100,000 sequentially versus the Q1 of 2024. E Commerce channel led the company growth, increasing by 47% year over year and accounted for 61% of our total net sales.

Speaker 3

Amazon platform had the best ever quarter in the company's history, delivering an impressive 80% growth, driven by increasing revenue from both subscription and new customers and also lapping last year inventory out of stocks related to the quality event that took place in Q1 of 2023. DTC platform also grew 32%, driven by a steady increase in subscribers and repeat orders, higher order to value and lower discount rates due to strategic shifts in promotional spend. Wholesale net sales increased by 9% year over year and contributed 39% of total net sales, driven by growth in retail channel of 26% due to new distribution and velocity accelerations as well as more efficient promotional spend. This was partially offset by timing of club channel orders shifting into the 3rd quarter. Gross margin came in at 42% in the 2nd quarter, which is more than a 17 point improvement on a year over year basis.

Speaker 3

I am pleased to highlight that this is the 3rd consecutive quarter where we have achieved gross margin above the 40% threshold. This consistency underscores the effectiveness of margin improvement initiatives we have implemented over the last 18 months. Which are transitioning to 3rd party co manufacturing model, moving to direct sourcing of key raw materials and implementing trade promotion efficiency. These results further support our expectation for sustainably achieving gross margin atorabove40% in the coming quarters. Operating expenses decreased $1,000,000 in the 2nd quarter compared to the same period last year, reflecting lower SG and A costs and improved marketing efficiency.

Speaker 3

SG and A as a percentage of revenue declined 14 points compared to last year as we remain focused on ongoing expense management and committed to improving our bottom line. Net loss for the Q2 was $200,000 which is $800,000 improvement from the 1st quarter and 93% better than the prior year period. Our balance sheet remains strong with $7,800,000 in cash and no debt. I am particularly pleased to report that we have delivered 500,000 dollars positive cash flow this quarter, reflecting our improved performance and effective management of working capital. This robust financial position provides us with the flexibility to support our long term growth objectives and future investments.

Speaker 3

We continue to project that we have enough cash to fund our operations into at least 2026 as we grow our business and make operating improvements that drive us towards breakeven and profitability. Looking ahead, we are optimistic about the remainder of 2024. We expect continued growth in our core business segments as we remain focused on executing our strategic priorities. We are raising our guidance on both net sales and gross margin. We now expect net sales to be in the range of $40,000,000 to $44,000,000 for the full year 2024, which represents 17% to 29% growth versus prior year.

Speaker 3

And gross margin is expected to expand to approximately 40% to 41%, representing 10 to 11 points improvement versus 2023. And now I will turn the discussion back over to Jason for any closing remarks.

Speaker 2

Thank you, Anja, and thank you to everyone on the call and to all of those that are supporting our journey. We are in an exciting moment for Laird Superfood, one that is now squarely focused on expansion and growth as we introduce our branded products to more consumers across every class of trade. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

Operator

Our first question comes from JP Wallum with the company ROTH Capital Partners. JP, your line is now open.

Speaker 4

Thanks and good afternoon. Hi guys. Maybe if we could just start on the revenue and the guidance. If I think about kind of the lower end of guidance and I sort of run rate this Q2 number, it gets us just about there. And so maybe if you guys could just talk about what gives you confidence in raising the guidance and whether you sort of see everything in place to hit that lower bound or if there is anything in the back half of the year that you're really counting on to accelerate in the last two quarters?

Speaker 4

And then maybe just if there's anything that you think is worth pointing out in terms of risk to that guidance number?

Speaker 2

Yes. Hey, JP. I'll start and then I'll hand it over to Anya to give you a few more details. But the one thing about our business is there's a bit of seasonality in the second half. There are a couple of big events that take place.

Speaker 2

One being the general back from school I'm sorry, back from summer vacation back to school period. That generally has a very positive outcome for us, especially at retail. Typically what you see is a lot of people that have been away on vacation, leaving some of their healthier habits, enjoying summer, come back and buckle down and start school seems to be the time that they do that. So in most health and wellness brands, there is a similar type of trend. The other thing that happens for us in the second half that really plays a large role is the start up of our seasonal programs.

Speaker 2

So we have a couple of seasonal SKUs that performed very well for us. We do get additional displays at retail with a number of those items. We're really excited about the seasonal program again this year and what we've been able to accomplish in preparation from all the channels. And really what's happening in the second half is just a continuation of some of these trends. Amazon is performing incredibly well for us.

Speaker 2

We continue to build new cohorts. What we're seeing is kind of that the gift that keeps giving behind that because once the cohorts are established and you have a market to them, you provide the product, obviously becomes a lot less expensive to continue to distribute product to them and sort of build awareness against your brand. So all of that happens. And then finally, we get to the seasonal period with Black Friday coming in, which is very important to us in the DTC and Amazon online shopping behavior really accelerates during that period. So we're very bullish.

Speaker 2

We're pretty conservative crew by nature. I think you guys probably have come to appreciate that. For us to take up guidance is fairly significant. Anja, anything you want to add?

Speaker 3

Yes. I'd just add. So like you mentioned, Jason, in our e commerce business, Black Friday and Prime Days, additionally driving sequential increase in the sales rate versus the first half. And also our marketing pressure was probably one of the lowest in Q2, and we expect to have a marketing pressure in the back half of the year.

Speaker 4

Okay, great. That's very helpful. And so maybe if I just switch over to gross margin for a minute. Obviously, want to commend the job that's been done so far to get all the way to 42%. And so maybe if we can kind of just talk about the margin management program that you highlighted, Jason.

Speaker 4

Am I right in kind of reading through that maybe we have sort of reached a at least a temporary ceiling for kind of the scale, call it the $40,000,000 run rate scale that we're sitting at right now. And that program is a way to kind of see where else we can get some margin expansion from? Or do you think that there's more margin to be had even sort of just as the business is going today?

Speaker 2

Yes. Great question, JP. I think it's a little bit of both. So this TMM or whole estate margin, total margin management concept created by 15 or so years ago. We executed it in past slides.

Speaker 2

On you and I did at companies such as WhiteWave and Solvos and have a number of ideas that we can drive additional margin expansion behind as does our supply chain. We have a phenomenal supply chain that really dug deep and figured out, some very strong procurement strategies, co manufacturing strategies, etcetera. We have gotten a lot of the low hanging fruit out. I think that's what you see when you get to 40% plus growth. Land is gross margin, so minus land including distribution.

Speaker 2

And so you really start looking digging under the covers to see what else is there. We've identified actually quite a few levers still that we have to pull, but there are some offsets. You're seeing some continued inflation in a couple of

Speaker 1

commodities that are important to us.

Speaker 2

And at this point, as long as we can hold over 40%, as we've outlined, 40% is kind of the target that we hold ourselves to. We'll be over that more in some quarters as we were this quarter, but we really don't we're not seeing a path that takes us under that. And we'll we recognize if inflation moves up significantly that we'll price for that. But right now, we don't need to. We're very comfortable where we are.

Speaker 2

We have some additional levers in front

Speaker 1

of us and we'll look to keep

Speaker 2

it in that low-40s range as we go forward.

Speaker 4

Okay. That sounds great. And maybe just to squeeze one last one in and probably a bit more open ended for you guys. But I just want to kind of think a little more high level and sort of think about some longer term growth and kind of what levers there are available to really kind of stepping on revenue growth from here. Maybe if you want to kind of just talk about how you're thinking of the right mix of marketing going forward, if there's certain channels that you're seeing as effective marketing going forward or really if there's just kind of any new product innovation that you think is really kind of catching customers and you want to highlight for sort of the next stage here?

Speaker 2

Yes. Well, J. P, that really is a good high level open ended question. I could probably talk for 20 minutes. I'll try to be a little bit more concise.

Speaker 2

I mean, the reality is, as we've said many times, we are in the very early innings of Layered Superfood. We've got products, you can pick up any of them, turn them over, read the ingredient label and realize not only are they the smallest number of ingredients of any product in their categories, but they're the best and most premium ingredients. They're all ingredients that you know by name. There are no fillers or additives or stabilizers or multiplies. We're really great at putting very healthy food into the packages.

Speaker 2

And so for us, we feel like we're just starting to get that message out to the consumers. Even the consumers that know Laird and that know Gabby, a lot of them don't know we have a food brand. So marketing is key. We'll continue to build awareness. Product placement is key.

Speaker 2

We have very little product placements still across both the natural and the conventional channels, even less on conventional, of course. And so we'll continue to make those calls out to retailers. We're building a brand and portfolio of products that is healthier than any other that we know of in the industry and feel really great about that. We think we're right on the rate trends, but it takes time. And so we're being patient.

Speaker 2

We're spending time with retailers, talking to right retailers at Worksman, putting the marketing behind it, really leveraging layered and Gabby into that marketing. That's been just a tremendous there are tremendous assets to us in so many ways as founders and innovators, creators of most of these products and then as brand ambassadors and influencers, I just couldn't ask for better partners. And so we'll continue to really lean in with Laird and Gabby as the way to share how health and wellness and nutrition oriented our nutrition oriented our products are. And then we're not that's just in the grocery and online channels that we operate in today. We haven't even started to scratch the surface of where this can go until we really get into the foodservice channel and we're in the process now of setting that up and looking out at college and universities where kids are taking terrible coffee and lots of product.

Speaker 2

We walk in and it's like you hear the pipe pipe or kids come walking over from their tables. And the same thing happens when we go to B and I events. So we have all kinds of B and I campuses, all the major tech firms, etcetera that have large campuses, open commissaries and products, our health and wellness oriented. We fit so incredibly well. And then you're talking airlines and hotels, all the places we can go that we haven't even started to go.

Speaker 2

So it's early innings, JP, we're being metered in what we do. We're not going to spend like we used to years ago at Laird Superfood. We've reigned in the marketing to be very cautious. Our ROIs and ROIs are very, very strong and we're going to grow. We're going to grow smartly and do it the right way.

Speaker 2

So that's what you're going to see in the future in addition to the new product innovation that we haven't yet shared, but we'll be sharing over the next quarters.

Speaker 4

Great. That's very helpful. Best of luck going forward.

Speaker 1

Thank you.

Operator

There are no questions registered in queue at this time. I'd like to pass the conference back over to our hosting team for closing remarks.

Speaker 2

Well, don't have a whole lot more to say. I think the numbers speak for themselves this quarter. We had a really great quarter and frankly are a lot more excited even about what the future has for us. We just completed our strategic growth plan process, shared that with the Board and have just an incredible number of levers in front of us in addition to those that we just outlined a moment ago. And we'll be coming back over the next quarters to share more on that.

Speaker 2

Meanwhile, thanks to everybody for joining us on this journey. As I mentioned, it is early innings. We have a long way to go. We've got a great team and we're excited to continue to share this with you. So everybody be well and we'll

Speaker 1

talk soon. Thank you.

Operator

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your

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Laird Superfood Q2 2024
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