Q4 2021 Laird Superfood Inc Earnings Call
Presenting on today's call is unaudited and during the course of this call management may make forward looking statements within the meaning of the 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 the risks that could cause actual results to differ materially from those expressed or implied.
Any forward looking statements made today and now I'd like to turn the call over to Jason <unk>, Chief Executive officer of layered superfood.
Thank you Reed.
Welcome everyone and thank you for joining us today.
I'm going to begin with a brief summary of our overall positioning.
Key growth drivers and highlights from the quarter.
Scott Maguire, our Chief operating officer, and Valerie Ellis, our Chief Financial Officer will follow with additional detail and we will briefly discuss our 2022 outlook before opening up the call for your questions.
Let me start by saying that after spending the last five weeks diving into the business I can attest that we are making real progress against our long term vision to become one of the leading players in the natural food and beverage space.
Our brand is strong and the products resonate with consumers on every major purchase driver, including quality taste functionality sustainability of price.
Our customers still deeply connected to our brand and want to engage with us as evidenced by our strong repeat rate and 76% net promoter score.
And perhaps most importantly, the layered superfood branded this incredibly unique among food brands and then it has proven that it can span multiple day parts and usage occasions.
Providing consumers with a portfolio of products to activate at power in the morning, hydrate and nourish their day and wind down their evenings.
Strategically we have already begun to make two major pivots in our business.
First we are moving from an organization that was built to grow at all costs to one that will be fundamentally more strategic and measured and analytically driven.
This will become apparent in our marketing investments during 2022.
Like other businesses that rely heavily on the internet and social media for promoting and selling their products are digital marketing costs to acquire new customers has increased over the past year in part, reflecting structural changes to the largest digital and social platforms, but also due to our over reliance on the same tactics.
While we remain deeply committed to our online platform. This challenge will require us to make a more thorough assessment of our marketplace dynamics to help us optimize our marketing spend to drive high Rois.
And I am pleased to report that were already underway in this effort.
At the same time, we have initiated work streams to gain stronger consumer insights. So that we can build a better segmentation and more efficiently target our marketing spend.
We have also kicked off work to redesign and align our packaging across all of our products. So that we can enhance both the first and second moment of truth with our consumers.
We are also shifting from an entrepreneurial founder driven organization to a more traditional consumer packaged goods business model.
As such you can expect to see us bring in more CPG talent to grow and operationalized our business.
Last month I mentioned at the wholesale channel will be critical to realizing our vision of scale and that we will continue to broaden our portfolio, while expanding our overall store count.
To that end I am pleased to announce that we have hired a leader for our wholesale business.
Cerro Moro will be joining us as our senior vice president of sales across all physical retail channels.
Daryl joins us with decades of experience in the natural food industry. Most recently as the CFO and head of sales for performance kitchen.
Formerly as the VP of sales at Bulletproof Daryl was instrumental in the growth of that brand from around $20 million to more than $100 million in sales across many categories channels and retailers.
With Daryl onboard we will be able to drive strategic focus and activity with key sales agencies and retailers and will begin building our go to market strategy in foodservice and other alternative channels.
Operationally I'm very pleased to report that we continue to punch well above our weight. Despite all the challenges that our industry has faced related to inflation labor material availability overall supply chain and more.
Our 98% fill rate during the fourth quarter is a great example of our team's success and illustrates the strength of our operation as well as the acumen of the team that runs it every day.
And we are identifying numerous opportunities for cost reduction across various factors, including ingredients packaging and distribution.
As we look to 2022 and beyond the future for <unk> Super food remains exciting and expensive.
We have quickly built a trusted and respected brand with a portfolio of health and wellness oriented foods and remain confident in our ability to grow distribution in bricks and mortar stores as well as in our native online environment.
Given the recent challenges I mentioned with the value proposition for digital advertising, we do expect that our growth will slow in the near term as we assess various marketing tactics to acquire new customers online.
Nevertheless, we recognize that we have built something special within the CPG industry and remain deeply committed to the digital channel.
We will focus on converting our database of existing layers to prevent customers into repeat purchasers and into subscription by executing a new white glove customer experience.
And while we will aggressively sell into the wholesale channel that startup takes time due to retailer reset timing and so we expect our net sales to come in between $41 million to $44 million in 2022.
We anticipate that our gross margin percentage will be lower in the first half of the year, but will improve steadily through the year as we implement several operational improvements and update our free shipping policy.
These initiatives will take time to implement and drive benefit, which we should start to see in Q2, and then accelerating for the balance of the year.
In summary, although we do expect some modest headwinds in the near term as we reset our customer acquisition model and continue to operationalize our manufacturing facility.
The growth opportunity for our brand has never been stronger.
As consumers continue to seek out great tasting plant based nutritious foods.
Super food is poised to capitalize on this opportunity by expanding our portfolio in the wholesale improving our positioning in packaging and adapting our marketing model.
We remain deeply committed to building a premier health and wellness plant based food brand and we'll continue to drive the business behind our commitment to our planet and our people.
With that I will hand, it over to our Chief operating officer, Scott Maguire to discuss our fourth quarter and annual operations in a bit more detail Scott.
Scott.
Thanks, Jason and greetings everyone.
I will speak to three key highlights in the fourth quarter and provide an update on the supply chain and the current impact on our business.
First off we achieved record production output both in units and an overall efficiency.
This was the result of multiple engineering projects and the collective efforts of our strong team.
Always focused on driving excellence.
Secondly, last quarter, we mentioned that we had moved into our new customer fulfillment center.
This move has enabled us to consolidate critical raw and finished goods inventory on campus.
Most importantly, it was a key step in attaining the planned synergies between layered super fluid and the picky Barr acquisition.
And finally, the design of this facility enables a faster more efficient fulfillment process for direct and retail customers. All of this was put in place.
In time for a successful black Friday promotion, where we hit our velocity and service calls.
Third in our growing refrigerated creamer channel, we had our first full quarter of our new production and supply plan that led to a continued reduction in spoils and therefore improved margins.
Our supply to distributor distribution centers with strong.
While we encountered some store level in stock issues on the initial distribution of our two new flavors.
We believe those are now resolved.
Now speaking to supply in recent quarters, we have discussed the common concern regarding our unique internationally sourced ingredients in the supply chain delays dominating the headlines.
We bypass the largest ports and have positioned ourselves well with safety stock, we saw very little impact and we're able to fill orders at 98% in the fourth quarter.
We realize there is ongoing risk to shipment delays and unavailable ingredients.
But we continue to carefully plan ahead and stay very close to the most recent supply chain developments in the areas of inflation and availability.
And finally stepping back to Jason's comments on a go forward approach to gross margin improvement opportunities. While we expect that Q1 will be at a lower margin due to seasonally lower volumes increased shipping expenses and product mix, we should see our gross margin rise through the year as we implement and leverage technology and <unk>.
Automation projects expand our in house production.
Further improve our fulfillment process and leverage increased volumes during the back half of the year.
Now, let me turn the call over to Valerie <unk>, our CFO to further discuss fourth quarter results.
Thanks Scott.
Net sales increased 29% $9 1 million in the fourth quarter of 2021 compared to $7 3 million in the fourth quarter of 2020.
The year over year improvement was led by 39% growth online, reflecting strong direct to consumer sales and a 16% gain in wholesale.
Our continued DTC growth, reflecting ongoing strength in conversion rate.
40% team and average order volume.
Further 6% improvement in regarding rate compared to the fourth quarter prior year.
And the benefit of our picky buyer acquisition.
Our mid teens gain in wholesale reflected continued progress and growth rate both in our refrigerated liquid cleaner business as well as our shelf stable product assortment.
Partially offset by a slight retraction due to timing of pump sale.
Related to product category, the current year quarter, delivering strong growth and harvest snack led by our acquired Tiki bar portfolio.
Coffee creamers stable largely due to the offsetting impact of continued growth in refrigerated liquid clean myself and soccer club performance related to our shelf staple clean room.
Gross margins improved 350 basis points on a year over year basis to 23, 6% of net sales in the fourth quarter of 2021 compared to 21% of net sales in the prior year period.
Net improvement stemmed from lower inventory call it operational efficiency.
Continued optimization of our DTC shipping expense via an improved average order value.
And improvements in both distributor charge backs and production waste from our refrigerated liquid creamer due to our extended shelf life and takeover of logistics discussed in previous quarter.
These improvements were partially offset by wholesale fulfillment cost timing of promotional activities and general inflationary pressure.
Operating expenses were $9 2 million compared to $6 million in the year ago period.
General and administrative expenses increased $1 2 million over the fourth quarter prior year, primarily in personnel costs professional fees and amortization Tiki bar acquisition related intangible.
While sales and marketing expense was $2 million largely due to growth in advertising and marketing.
But on a sequential quarter operating expenses of $9 2 million in the fourth quarter compared to $8 5 million in the third quarter of 2021.
Stable general and administrative expenses and an approximate $650000 increase in marketing expenses due to the timing of promotional activity.
As noted in previous calls after completing the infrastructure buildout required to support our business as a public company, we have now shifted to finding opportunities to maximize our efficiency and leverage in general and administrative expenses and as such we were pleased to deliver another sequentially flat quarter.
Related to sales and marketing we are now focused on driving returns and efficiency in our investments while not sacrificing growth.
Expect to continue to make progress here in the coming quarter, but not always in a perfectly linear either.
Our balance sheet remains healthy and we completed the year with nearly $32 million of cash and investments and no debt.
Our inventory position remains strong and we continue to hold that investment level and be ready to support growth and mitigate supply chain related disruption.
And now for our 2022 outlook.
We are anticipating net sales of $41 million to $44 million.
Driven by wholesale growth, particularly in refrigerated liquid cleaners, and functional coffee product as.
As well as online games across our portfolio.
The strategies, Jason referenced as well as our new SVP of sales, they're all more bodes well for our future in retail, but will require time to ramp up and flying more visible progress on our wholesale growth in the second half of 2019 and building early 2023.
We expect full year 2022, gross margins of 24% to 26% with continued operational efficiencies in our sister facility optimization of our DTC parcel call an improvement in our refrigerated liquid creamer margin profile offset by inflationary pressures.
Over the course of 2022, we will be further focused on finding elasticity in our free shipping program optimizing product pricing and packaging.
Viewing our portfolio for SKU rationalization opportunities and many other initiatives to drive additional margin improvement in late 2022 and into 2023.
And as our business continues to scale and realize continued share gains across the several large addressable markets in which we operate.
Vertically integrated approach create significant opportunity for fixed cost leverage.
I'll turn the call back to Jason.
Thanks, Bob.
In summary, 2021 was a strong year for their super food as we drove a 43% net sales growth in a difficult macro environment and against challenging year over year comps.
We have made and continue to make progress against many key initiatives that will set up our organization for continued success.
As we go forward, we will continue to execute against the tight set of strategies that will help us to further drive our topline growth by expanding our distribution points and improving our customer and consumer marketing model.
And while we expect some choppiness in the next couple of quarters as we stand up these initiatives and work to improve our operations.
Our long term growth thesis remains intact as we continue to lead and innovate within the plant based food industry.
This concludes our prepared remarks.
Operator, we're now ready to open the call to questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to turn that question. Please press star followed by two again to ask a question Press Star one as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question.
We will pause briefly as questions are registered.
The first question is from the line of Bobby Burleson with Canaccord Your line.
Hey, guys. Thanks for taking my questions.
So I guess the first one would just be it sounds like.
Wholesale and liquid creamer in particular are a big part of your <unk>.
Growth outlook for 2022.
Curious in terms of.
All of the different products and segments you guys operate in.
Or do you think the guidance is most conservative if you had to call out a couple of things.
Hey, Bobby.
How are you doing thanks for that thanks for taking the question I think hey, there.
That's beyond with you here again, so great question for us the liquid creamer remains an incredible opportunity for us just given the addressable market of what that category as well as the fact that we're still sitting at about a 5% ACB.
In conventional.
Opportunities enormous for us.
What we've been working on is really to get our capacity in line and be ready to go and I mentioned that we have a new sales leader thats, joining and he's really going to be able to take the helm here quickly and start to drive that business. As we go forward. We're walking into review season. There are a number of reviews that he'll be able to jump into pretty quickly with the sales organization. So we do see them.
Incredible opportunity to drive that business from here and Thats going to be our number one SKU as we go forward in the broader bricks and mortar channels and so that will be to your question of where do we see opportunity from here. That's a big part of the opportunity for us I would say.
The upside very much.
Sits in that in that particular channel and with that product at the same time, though we have we have really a tremendous opportunity on the powder creamers powdered creamers.
Today are again, a largely untapped opportunity yet I think at this point, we're at about a 15% ACB on that product.
Get that into a ubiquitous distribution, but also into broader distribution with our club channel, where we've made really great headway.
Our headway already I see tremendous opportunity in that space also the creamer portfolio first and foremost I would tell you to the coffee portfolio has really been requested by a number of retailers already we're presenting that over the course of the next few months and see opportunity to take that into club as we go forward as well.
And then on the DTC side, there is really a great opportunity here, Bobby too to continue to drive the whole portfolio and that's what the DTC channel provides us of course, the ability to take more of our products to Amazon leverage that.
In a stronger way.
Ready to go platform is another space, where I would tell you that we have a lot of upside opportunity versus.
Where we are today and what we're planning in the next couple of months.
Great and then just a quick follow on.
In terms of inflationary and supply chain compared with you touched on.
I think managed.
Do you know any significant disruptions.
Are there specific ingredients or.
Our supply chain and kind of the channels that you could call out.
Where maybe you're more concerned about inflation.
<unk>.
Yes, yes.
Yes, thanks, Great Great question, Bobby I would say that.
Just like to hear from everybody.
Everybody anything coming over Ocean container has has risk.
Whether you can get it on a ship.
It's going to make it to the port that's all worked out pretty good for us up to this point and you know as I've said, we've been at a really good spot in inventory levels and so we havent had quite the same issues that others have had but we have to keep an eye on it too because even though we largely bypassed the major ports there are still challenges in some countries getting product.
Onto the ship.
Great understood. Thank you.
Thanks, Bobby.
Thank you Mr Burleson.
The next question is from the line of Alex Fuhrman with Craig Hallum Capital Group. Your line is open.
Hey, guys. Thanks for taking my question wanted to ask about first of all I guess about the online channel showed really strong growth in 2021, it looks like youre expecting that growth to moderate pretty significantly in 'twenty. Two can you talk about what.
Driving that is that mostly the planned reduction of.
Some of the underperforming.
Use that you have or just a different approach to digital marketing if you could give us a little bit more color on that that would be helpful.
Hey, Alex you bet. This is Jason So look I would tell you that there is that as a strategic decision first and foremost and so we went into Q4 of last year, we started to see challenges with regards to the cost to acquire new customers.
And we did start to see a bit of a slowdown in that quarter, but Moreover, what we saw was it.
Quite a quite an increase in the acquisition cost so as we enter into this year and really in this first half of the year, we're going to be doing is shoring up our DTC spend making sure that we're putting into the highest ROI vehicles there.
Theres been a shift you guys I'm sure have read about with Apple and Facebook and iOS and as a result, a number of other companies, including ours flooded to the same the.
Same tactics in the same media and the costs really accelerated so we're taking a step back really reviewing the spend in those areas and as a result, we have intentionally.
We moderated some of that growth I do believe that there will be.
As all of the water rushes one direction or the time I do believe that the same thing will happen here and we will see some moderation in those costs and as a result, we'll be able to redeploy some of the same tactics that we have been utilizing efficiently, but we're in discussions now with various agency partners to find.
The best ways for us to allocate our marketing dollars. The most effective ways must most efficient ways for us to allocate those dollars to drive the most of online growth and at the same time, while we do that that's really an acquisition cost issue at the same time, we're very fortunate in that we are well ahead of our competitors with a very large CRM database of customers that we can go back in.
<unk> again, and so we're going to be working very diligently and our marketing organization to convert orders into repeat orders and repeat orders from the subscriptions and we'd have a lot of success with that in the past without really putting a concerted effort against it so.
I mentioned this new white glove treatment will be will be driving outreach to customers based on their purchasing habits.
Giving them cross sell suggestions based on what their interests are and what they purchased in presenting targeted personalized messages.
Both in terms of what we're offering as well as thanking those customers to make sure that they feel valued.
And I think as we make that transition.
With some of the digital tactics that I mentioned and really look for for better performing opportunities. We have this incredible database database of consumers that will continue to work with to offer them. The best products in terms of what they're looking for.
Based on what we know about them.
Great. That's really helpful. And then if I can ask on the wholesale side.
You've had nice slow and steady growth there over the last couple of years without a shelf stable liquid cream or how should we think about how you are planning to grow that channel. This year and next year is it kind of continued growth with your existing product and then.
Layer in the shelf stable liquid creamer or are you similarly going to be reducing some of the skus that you have out there for wholesale just like you are on the E Commerce side.
Yes.
That's a good question so Alex what I would tell you on that as we have already a terrific offering in the shelf stable space with our powder and in the refrigerated space with our liquid creamer.
I mentioned coffee as well Thats another area, where in retail we're getting we are getting inbound interest and have had some early success and so we will be pressing all of those much more aggressively as we go forward. We started digitally native that's really where our focus was over the last couple of years and we had great efficiencies in growing that business.
And we're able to during Covid, we're able to leverage the fact that shoppers are going online rather than the stores.
Now we recognize that as we go forward that is going to be a big growth driver for us getting our products out into the stores. The Aseptate Kramer I would think about is as gravy on top because as I mentioned, our maximum ACB item is the shelf stable.
Creamer in conventional and that's a <unk>. So we have incredible upside in both natural and in conventional across the creamer category, including both our powders and our refrigerated and then that <unk> product that we're still.
Still working on right now and haven't yet launched when we get that launched that will present us with a great DTC opportunity as well as another shelf stable opportunity to compete with the few liquid shelf stable creamers that they are at market today.
Great. That's really helpful. Thank you very much.
You bet.
Thank you Mr Chairman.
The last question is from George Kelly with Roth Capital Partners. Your line is now open.
Hey, everybody thanks for taking my questions.
So just a few.
First I'll start with the online business.
I'm curious you talked about how it's become more challenging to find new customers.
I think that.
Environment is just it's very competitive with other.
Online businesses, we're seeing that all over the place, but can you kind of break that down more granularly between.
Is it really just have you seen elevated churn or is it really just to sort of attack issuer conversion anything else you can.
0.2.
Just as far as that growth slowing.
Yes, you bet George I'll.
I will tell you it's for US as we were exiting the year, we had a big cat issue.
Relatively big CAC issue, we saw.
CAC.
Double or so as.
As we were going through that.
And that's that's not completely atypical because if you think about the season that it is and the competition that.
There is for those advertise advertisement opportunities certainly that played a role but.
But structurally that Facebook iOS issue played a role as well and as you alluded to others are seeing that same issue. We still look great in terms of the LTV of our.
The lifetime value.
Of our brand with our consumers are online consumers, we saw that that held up incredibly well.
And that our subscriptions also held up very well so we feel great about what we're doing in our ability to retain our consumers and our our retention rate when I looked at that was very much on par with what you see in CPG best in class. So.
I would tell you that we're doing the right things with our consumers. It's just a matter of finding them and finding efficient ways to do it.
So this is giving us quite honestly and a great opportunity to step back really think about the messages that we're presenting to our consumers how we're presenting them how often we're presenting them.
Through which influencers through which search terms all of that is is being I would say investigated at this point and analyzed by our team to make sure that as we go forward. We can we can keep a very efficient plan in place.
And I would tell you acquiring new customers online it's challenging for everybody as you alluded to and again I point us back to the fact that we're in a very fortunate position to have such an embedded bed of consumers that we've already worked with them for whom we have E mail addresses and with whom we have ordering history and preference history. So we're really excited about what we.
You can do that.
Okay Cool that's helpful. And then next question for me on Opex.
Expectations for 2022, so I'm, just a little bit unclear on the two big buckets, being G&A and sales and marketing.
It sounds like you've said that regarding sales and marketing youre going to test more and kind of maybe pull it back a bit and see.
How it reacts is that a fair characterization of what you said in the prepared remarks, we should expect it to kind of come in before it may be a builds again and then can you also just talk about.
The opportunity should it G&A be kind of stable in 2022, or maybe just grow more moderately.
Yes, George Great questions I'll jump in and then I'll, let al come in as well and share a little bit more detail, but yes, I would tell you that in terms of sales and marketing spend we anticipate growing that at a slower rate than we're going to grow our net sales.
I'd say approximately half in terms of the total growth because we do believe there's some spend there that was not efficient.
And that's not all accounted for we are rebuilding our marketing plan at this point and I think we may find additional opportunities either to more efficiently grow based off of those dollars or conversely to be able to pull back some dollars based on our and our targets and what we can put to market effectively and efficiently.
So all of that review is taking place at this point and then in terms of G&A.
We've expanded that rather significantly in the last couple of years.
Certainly as we went public there were a number of costs that we had to had to incur as it related to.
To that overall capital situation.
As we go forward from here, we're going to be able to gain leverage out of that by really.
Holding that to a much slower growth rate in our net sales top line. So we feel really great about where both of those two lines can go over the next couple of years and that's really starting in this year, we're gaining that first round of leverage.
Yes.
Okay, great. Thank you.
Thank you Mr. Kelly.
There are no additional questions waiting at this time I will now pass the call.
<unk> for any closing remarks.
So.
Thank you guys.
I think you got the good sense for where the businesses.
I've been here for six weeks.
I'll, just say that in those six weeks what I've seen is that we have an incredibly strong brand. We have a product portfolio that is so unique within the CPG space and really able to span day parts and usage occasions and reach consumers throughout the day and there just arent a whole lot of other brands that I can think of it if any really.
<unk> that are able to do that and so as I sit back and look at this it's incredibly exciting and we.
A solid year last year, we're going to slow down growth a little bit this year as far as we can see just in a really challenging environment, but feel like the outlook for this business as we as we retool our sales and marketing.
And really get the most effective opportunities in front of us in that space and are working with the Influencers that are most effective for us in executing the tactics that really move the needle for us.
Really going to give us the chance to reenergize.
Overall, the top line growth of the brand.
And at the same time that we're expanding in that.
In the retail space behind.
The expansion that we have there with our sales organization and the opportunities that we see for the portfolio. So incredibly excited about where we're going we're going to do it in a smart way as I mentioned, where it's not going to be a growth at all costs, but a lot of smart growth at a lot of smart cost and that's really going to be the mantra for us as an organization and look forward.
Sean you guys, what we can do with this business here over the next couple of quarters.
So with that I think you guys look forward to speaking with you all here in the near future I appreciate your time today.
Thank you for your participation on today's call you may now disconnect your lines.
Okay.
Okay.