Q1 2022 Laird Superfood Inc Earnings Call
As we work our way through known constraints in our operations structure and make the necessary adjustments that will set us up for future success.
During Q1, we did make significant progress in right sizing our cost structure, which helped to offset much of the impact on quarterly profitability and we will continue to make moves to identify and address supply chain efficiencies in our operation.
From an organizational perspective, we have made some key hires over the past month that speak to the power of the layered superfood brand and its tremendous growth potential.
As mentioned on our fourth quarter call Daryl Moore joined Us as.
The senior Vice President of sales in March with responsibility for all physical retail channels.
Daryl was most recently CFO and head of sales for performance kitchen and has decades of experience in the natural food industry.
<unk> has a proven track record of Omnichannel excellence, having led sales at bulletproof as it increase buybacks to around $100 million in revenue.
We also recently added Andy Jud as our Chief commercial officer.
Andy will be responsible for layered Super foods commercial strategy.
We're seeing marketing sales product development and customer experience to further leverage our platform to drive business growth and aggressively expand our market share across the online and wholesale channels.
As with Daryl Andy has extensive experience in consumer goods in the natural products industry. Most recently as the Chief marketing officer of your ASO.
Before that Andy served as CMO of one brands and VP of marketing for the Boulder brands business unit of Pinnacle Foods and previously held various leadership positions at several other major companies, including lightweight Saputo and Campbell's.
Andy will introduce himself to you in a few minutes.
Last week, we completed a review of our new three year strategic plan with our board of directors and our goals and strategies are aligned and clear.
We will continue to build a true omnichannel business that focuses on the daily ritual online, while leveraging our strengthening functional creamers coffee and hydration and broader retail outlets across the country.
Our commercial team has a clear set of sales and marketing objectives and measures and is already executing against them with renewed vigor and excellence as Andy will share in a few moments.
Moving forward, we will be laser focused on improving our gross margin with a long term focus on again exceeding 35%.
We have already begun to streamline our manufacturing and distribution operations.
And we will continue to do so behind investments that we've recently made in automation software and more.
In March we eliminated free shipping on orders below $30 and did not see a meaningful impact to our volume.
In addition, we have identified more than 10% of our portfolio for SKU reduction and recently initiated work to assess and optimize our products across AC health credentials and cost.
And finally, we will soon be announcing a list price increase across the bulk of our portfolio, which will address the cost inflation that we've incurred during the past two years.
Last month, we took the difficult actions of reducing our operations headcount costs by approximately 20% or $1 million per year on an annualized basis.
While this is always a difficult decision it was a necessary move given the progress that we've made in the last year to automate and improve our manufacturing processes and efficiency.
Despite this move I am pleased to report that we continue to service our business without any significant supply shortfalls.
We also expect to free up cash across our balance sheet through targeted inventory reduction and the sale of nonproductive assets and belief that we can increase our cash balance by more than $5 million from such activities during 2022.
As we go forward, we will continue to make moves that simplify our operation and allow us to focus on commercializing our portfolio of great tasting better for you products.
As you can see it's been a very busy couple of months of the team and we are rapidly making progress against our stated goals of shoring up our sales and improving our long term profitability and cash position.
Looking forward, we will remain focused on three key areas first.
Our commercial team will continue to overhaul our approach to targeting and retaining customers on our own site and the Amazon platform, while we meet with retailers to expand our distribution across our core product lines.
Second we will continue to work tirelessly to overcome the cost challenges that are flagging supply chains worldwide, and we will take the necessary actions to maintain and expand our gross margin back to pre pandemic levels.
And finally, we will continue to build the company's capabilities in areas that are core to our ongoing success, including on our commercial and operation teams, but also across our entire G&A structure.
In summary, the next phase of our layered Super food journey is well underway and we are making significant progress to create a substantial and profitable company.
And while the market in the U S economy remained extremely challenging.
Optimistic about our trajectory.
With a leading net promoter score and a portfolio of great tasting better for you plant based products, we are right on trend and poised to capture additional market share and achieve our long term vision to become one of the leading players in the natural food and beverage space.
With that I will hand, it over to our Chief commercial officer, Andy John to discuss our first quarter annual aberrations in a bit more detail Ken.
Eddie.
Thanks, Jason Hello, everyone I'm excited to be onboard and look forward to meeting many of you very soon.
There is great momentum for <unk>.
The right combination of people products and passion.
Attractive at this moment as it will combined my experiences and growing and building in emerging high growth brands and a personal passion to eat more plant based foods that are better for you and the Earth.
<unk> has two very powerful tools to find consumers at the intersection of functional food and flexible shopping.
We have a powerful active lifestyle brand with a great portfolio. This portfolio can expand significantly and coffee creamers and has the ability to create new categories across multiple day parts from sunrise to sunset.
We look at the ever evolving landscape, how consumers shop across physical and digital platforms layered Super food is well positioned with an infrastructure to capture shoppers and partner with retailers with the necessary flexibility to create a truly holistic omnichannel approach.
In the near term, we are poised to continue our growth across our core platforms and coffee creamers and coffee with the recent launch of our bright cuts functional coffee pods, we are enabling consumers to enjoy single use coffee pods, but with a DPI certifying that is commercially conversable a brighter future for all indeed.
We also have plans in the coming months to expand our reach and snacks with new launches later this summer of a line of layered Super food plant based protein bars, each bar lives up to the clean ingredient and nutritional standards related Super food with timberlands with plant based protein made from a blend of P and pumpkin.
Hugh.
We are excited about increasing our snack portfolio by attacking a key category to satisfy our in case. These borrowers take incredible and I can't wait for each of you to taste them.
As Jason mentioned, we have a ton of great potential to unlock a more holistic growth agenda across both digital and retail platforms for our digital platforms. We continue to see deep loyalty and affinity with growing LTV and a best in class retention program with nearly 400000 consumers and our.
CRM and estimates databases actively engaged in our mission and brand.
Despite continued year over year pressure on acquisition costs in Q1, we did see slight sequential improvement in our cash and are still experiencing solid growth R&D DC platform with an acceleration of new consumers on Amazon.
The opportunity even more reach and growth as we lock in the right balance of investment across platforms.
Our wholesale business I'm excited about how we can lead the charge to redefine the power of what plant based creamers in coffee should be from simple nondairy alternatives to helping consumers get more out of every cup.
We have significant upside to expand our retail footprint from our less than 10% ACB and move up to consistent with a level fee at plant based non functional competitors I have seen firsthand the potential with other plant based brands to achieve transformative growth when partnered with TV.
Taylor's to create a destination for incremental need states. We have the same opportunity for functional coffee and beverages and is largely untapped in traditional food.
Now, let me turn the call over to Valerie <unk>, our CFO to further discuss our first quarter results.
Thanks, Andy net.
Net sales increased 26% to $9 3 million in the third.
First quarter of 2022 compared to $7 4 million in the first quarter 2020, we had strong growth.
Primary channels with wholesale up 31% and online increasing 24%, including 35% growth in DTC driven by the contribution of our clients to keep our portfolio as well as continued improvement in average order values and retention rate.
Results in wholesale reflected continued progress in grocery.
Frigerator liquid creamer business, our shelf stable product.
Although the site improvement.
From a category standpoint, Tiki bar, which we acquired in May of last year continued to be the primary factor driving strong growth in hardware.
Hydration and beverage enhancing supplements were up 18%, reflecting solid adoption of new products, such as our measure mechanical renewed recover and activate immune and coffee creamers rose nearly nine beautiful liquid and powder.
And Mcgrath.
Gross margin declined 390 basis points on a year over year basis to 29% sales in the first quarter 2019, compared to 24, 8% of net sales in the prior year period.
The decrease is a combination of factors, including compression related to elevated promotional activity due to both our growing retail business and specific promotional events online combined with elevated inventory costs due in part inbound freight rate and other inflationary pressures.
These factors were partially offset by ongoing progress around optimizing DTC shipping expense as well as improvements in production and lease expenses related to our liquids.
<unk> expenses as reported totaled $15 9 million compared to $7 2 million engineered a period with the majority of the increase stemming from a onetime noncash charge for goodwill and intangible asset impairment of $8 million.
Excluding these items operating expenses were $7 9 million.
General and administrative expenses as reported were 11 $8 million.
At $8 2 million from the prior year period, nearly all of which was driven by the noncash goodwill and intangible asset impairment charge mentioned previously.
Excluding the goodwill and intangible asset impairment charges G&A expenses were $3 8 million up approximately 160000 in the year ago period with elevated personnel costs relating to executive transitions and elevated professional fees, partially offset by a benefit from the arbiter of market based stock units associated.
You hit it with an executive departure.
Sales and marketing expense increased approximately $674 million.
Due to growth in advertising and marketing fees compared to the sequential quarter copper sales and marketing expenses were down approximately 690000, reflecting an improvement as a percent of net sales from 50% in the fourth quarter to 43% in the current period.
Net loss as reported with $14 1 million on an adjusted basis net loss of $6 7 million up approximately one 4 million from the year ago period.
A detailed reconciliation of non-GAAP adjusted net loss is included in our earnings.
Our balance sheet remains healthy and we ended the quarter with over 27 million of cash and investments.
Note that cash.
Cash used in operating activities improved 30% to $3 6 million versus $5 1 million in the year ago period, primarily driven by inventory rationalization.
Our inventory position remains strong and we continue to strive for improving trends are balancing the level of our investment to support growth and mitigate supply chain disruption.
Now for our 2022 outlook.
At this point, we are maintaining our previously provided 2022 guidance anticipating net sales of $41 million to $44 million.
By wholesale growth, particularly in Creamers and functional coffee product as well as online gains across our portfolio.
The strategy, Jason and Andy referenced bode well for our future in retail, but will require time to ramp up implying more visible progress of our wholesale growth in the second half of 2022 and building in early 2023.
We continue to expect full year 2022 bucks, 19th at 24% to 26% driven by price optimization operational efficiencies and improvements in our refrigerated liquid creamer margin profile offset by inflationary pressures.
I'll turn the call back to Jason.
Thanks Bill.
We've clearly made a lot of progress over the past few months and are more excited than I've ever been for where this brand can go as.
As we head into the heart of the retailer review schedule I am optimistic that we will be able to gain significant distribution expansion in 2023.
I am confident that the revamped that Andy is leading across our branding packaging and insights will pay dividends in identifying targeting and attracting consumers to our brand across both the wholesale and online channels.
And we will continue to relentlessly attack our costs and optimize our products in order to expand our gross margin.
We are in both a challenging macro environment and a transformative moment for the <unk> business. Our results in the first quarter demonstrate the strength of our brand proposition and our product portfolio.
Moving forward, we will continue to build off of these assets to deliver the healthiest and best tasting plant based foods to our consumers.
This concludes our prepared remarks.
Operator, we are now ready to open the call to questions.
Thank you.
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A question, we will pause here briefly ask questions are registered.
Our first question comes from the line of Bobby Burleson with Canaccord. Please go ahead.
Great. Thanks for taking my questions.
So congrats on the solid quarter and reiterated guidance.
A couple of things just yes, there's obviously a lot of stuff impacting the consumer these days and we're hearing a lot about price sensitivity.
In grocery and elsewhere.
But it sounds like from what you've managed to do with the.
Elimination of free shipping for $30 and under.
Youre not seeing a lot of pushback.
And just just curious like.
What do you think about your particular customer cohort when it comes to this price sensitivity that we're hearing out there.
Okay.
Hey, Bobby this is Jason Thanks for that question, that's something that.
Topic of conversation.
The topic of conversation for us as well.
Over the last couple of weeks as you'd imagine so we went through.
Right deal of deliberation with regards to free shipping and as it turns out it ended up being pretty much a non event I think what's happened is the consumers become so accustomed to prices rising in general and so many other.
Online ordering platforms have moved away from free shipping.
I don't believe that the consumers are sensitized to it as they would have been in the past.
Yes, I'll take that and run with it a little bit more broadly as well as I do want to hand, it over to Andy to add to introduce himself and also share some thoughts on that question.
We are operating in a market with premium products and you always have that concern as prices continue to rise and consumers become more aware of their shopping builds that you are going to be hit I recall going through something very similar just over a decade ago. The last time that there was inflation like this and we were pricing the silk business and we are.
Concerned around taking that first price increase we ended up taking a few of them and we did sequentially in a short period of time, what we found is that while some consumers that are in to your franchise at the lower end and maybe willing to trade. Your valued do that Youre also attracting a number of other consumers that are leading in coffeehouses as mixed.
Hempel with.
Our restaurants in general and as they come back into their homes.
Our consumer foods, there, they're looking for products that are as premium is what they're leaving behind and we feel like our portfolio and they're just really well positioned to.
To sustain that trend.
A trend that I mentioned that stroke did really well with horizon organic and really frankly, most premium products during that time that you saw organic and natural foods continue to grow remarkably well.
Despite the inflation and the recession that hit the economy. So I feel like we're in a similar position now, but Andy has spent the last the last.
Six weeks or so that he's been here really getting them to understand our consumer and start really driving insights. So let me turn it over to him. So he can share a little bit more in smallpox.
Hi, Bobby Thank you for the question.
In addition to that.
That Jason brought high value.
We've seen a really deep I'll hit the loyalty piece as well a really deep loyalty in this consumer group in this cohort they understand the functional benefits of our products a lot of them are in subscription based.
Program as well and a lot of those <unk> were above the threshold. So this is also not just about understanding that we have really loyal consumers, but also making sure that we're getting more savvy on our order mix and pricing up on some of our smaller orders to make sure that we're driving profitability across the total platform.
Well.
Great. So just a quick follow up so it sounds like maybe that's giving you a little confidence on that list price increase that's coming.
But.
Just wondering on <unk>.
<unk> elimination of free shipping.
$30 and below kind of what percentage of your.
DTC or online that is.
Big of a slice of your activity is that represent.
Yes, Bobby.
I'll, let bill jump in if you happen to know that percentage off the top of our head. It's a relatively small percentage quite frankly, and as Andy alluded to it's our least profitable consumer as well so what.
What we saw as a trade up and therefore, an increase in our average order volumes, we did that and so.
Through Q1, the metrics are going the right way for us.
We are able to we have been able to trade out of.
A good majority of those consumers thus far.
But in terms of the actual percentage I can get back to you with that I don't have that handy right now.
Okay great.
Thanks ill jump back into the queue.
Thanks, Bob.
The next question is from the line of Alex Fuhrman with.
Craig Hallum Capital. Please go ahead.
Hey, guys. Thanks for taking my question.
I wanted to ask Nathan I think you mentioned in your prepared remarks.
Launching protein bars in the near future.
Curious, if we can get a little bit more color on the timeline of that launch and how impactful you think it can be and I imagine. This is something that most of your loyal core customers are already consuming from from competing brands. I mean, do you have a sense of what protein bars youre customers are.
Our currently eating and how many of those customers do you think youll be able to.
Trial your products.
Sure.
Thanks, Doug This is Andy I'll jump in on that one in particular, we're really excited with alerts for food.
Plant based protein bars, I think theres a couple of components here one it does present, a really nice incremental space that extends that afternoon day part for us in the snacking occasion that is differentiated from some of our portfolio, but really round out.
The complementary snacking.
Products that consumers is looking for with that leads up to the Queen and nutritional standards.
That layer provides against our.
Our broader portfolio. It also gives us a chance to leverage some of the capabilities that we've been able to build in concert in collaboration with our <unk> acquisition.
And look at how we can drive it from <unk> across both the <unk> business.
Analytics <unk> business and when we looked at the opportunity.
To drive this particular nutritional bundle that is higher protein than the Peggy bar lower net carbs.
Well it really stood out that there is a great opportunity. There obviously is a multibillion dollar category.
And as consumers continue to shift their behaviors and eating towards snacking. It was it's a really nice opportunity for us and that will launch here later this summer.
That's terrific.
Yes.
Hey, Alex let me add just one other thing on that.
And it was kind of leading to this is a product we for a while considered putting under.
Putting the picky buyers under the <unk> brand and incorporating those we'd move strategically to let those live alone and so we're going to have this product come out at <unk> first entry into the bar business. We think that it is as Andy said, a very differentiated proposition.
With its protein makeup plus.
And ingredient makeup plus the Adaptogenic ingredients and then we are at the same time as a result of that though going forward with the <unk> expansion on those bars too and that's a really big strategic shift for us that gives us the ability as we are going at selling the levered buyers to sell the picky buyers in southern that a complete package.
Differentiated brands and products that are picking up or being more of that immediate energy source available for.
On the go.
Let it consumption, whereas <unk> is a protein bar that is not bringing those rent ready carbs in the same way and so we're really excited about what those two can do together for us.
That's terrific sounds like a great opportunity. Thank you.
Yes.
Thank you.
Our next question comes from the line of George Kelly with Roth Capital Partners. Please go ahead.
Hey, everybody thanks for taking my questions.
So just a couple for you I'll start with the.
The cost reductions I think Jason you mentioned that there were some reductions that you guys already implemented on the Opex side I was wondering if you could just.
Talk through what were those and.
Are there still areas that you think there's real opportunity both.
With respect to Opex and with Cogs.
For continued cost savings.
Yeah, Hey, there George.
Great question and glad to get a chance to show a bit more of a detailed limits as I mentioned, we did go through a head count reduction and as painful as that always is the reality is it was necessary because of the.
<unk> of the automation of the process improvements that the team have made over the course of the last 12 plus months, we have a team that's really executing very well and frankly to be able to meet our demand even today as we scale up.
<unk>.
Revenue in the back half of the year with the team that's in place. So we're really excited about with what we've done on the factory floor.
So that was one move that we made as I mentioned, we did breakdown we did change the free shipping policy. So we implemented a 30 dollar threshold on that and that allowed US then to reduce some of the shipment shipping costs that we had and pick up some shipping income.
Some of those smaller orders as.
As we go forward, there's still a number of areas and we're working on all of them simultaneously. One is on the product formulation. We're in a position now where we are in a number of ingredients that either were included without really realizing the product benefit of sharing the product benefit with consumers and as a result consumers are.
Our purchasing the product without recognizing the benefit that's being received and therefore, we have ingredients that.
Become superfluous to the proposition is very expensive. So we have some product re formulation work that's already teed up or kicked off I should say and then we have a number of initiatives still that we'll be working on in the back half of the year we.
We do have opportunities and external fees as well I think about the off.
Off premise warehousing that we have today, we have a significant number of pallet positions that are being held for us off site that and a lot of space internally Sterling. We're looking now at how we optimize that and consolidate that and we have some software and other expenses that we'll be reducing as well.
And then on the G&A front, we saw a number of non head count related costs.
But we're gonna be ripping through we put targets out for each one of our departments and they are executing against that but as you would imagine with this being the first time, we've really executed against something like that we're really as we're digging through that so far we're finding a lot of quarters.
And we're really bringing them in so those are the three primary areas. As we go forward I mentioned, we will continue to structure the organization appropriately as well in the G&A space. We've made moves already yes, you guys have seen across the executive team and a number of other areas. As we go forward, we will continue to consolidate as appropriate.
Bigger jobs.
If you're able to.
But people have great positions, but we figure team. So theres a lot underway. So at this point, but primarily it's going to be around that product formulation and getting rid of some of the external fees.
Okay, that's super helpful.
And then second question for me on.
Your full year guidance, if I just play that through.
Going through a sequential improvement kind of.
In revenue throughout the year, so I have revenue stepping up just to hit your number.
What gives you confidence that you can execute on that is it what I'm hearing is that new products and.
Sort of a renewed focus on wholesale and is there anything sort of within that that gives you visibility on on hitting those numbers.
Numbers.
Yes George.
That's a great question as well.
Turn it over to Andy Chevrolet.
Marshall strategy.
We had a similar with similar perspective, as we felt the year and as we got into the second half of the year. Our expectation is at that point, we're getting some of the wholesale wins to start to come in most of those are going to hit in 2023, but we are going after some quite a few in fact accounts that are off cycle.
Able to cut in products and so you think about some of those non traditional retailers in this space.
Our products that fit really well.
<unk>, five rei or bed Bath, <unk> beyond et cetera that are carrying Kramer coffee and bar products.
We'll certainly be spending time with them.
Trying to get that product listed prior to next year and have an expectation that we'll make some success. There. We also have a number of initiatives across retailers that.
We're working with today for expansion.
We had a recent win on Costco that I'll, let Andy speak to in a moment.
And there are a couple of other retailers that will be working to do the same and then on the ETE side.
We have significant opportunity last year in Q4, we reported that.
Had some challenges in executing due to our staffing and resource issues.
Where we had a number of folks that are positions that are going to take it and so we feel like there's an opportunity there to recapture what was missed.
We know that we can do more with Amazon and we've already started to press forward with adding.
So.
I would tell you that multi pronged approach across Amazon DTC and wholesale is really where we're putting our efforts and we feel like we can get additional listings and drive additional consumers to the platform.
Yes.
Let me add I'll put on top of that beyond the channel is on the product side. So we do have a number of new item launches as I mentioned in the prepared remarks relatively short break cups of coffee pods that were just launched here at the end of April our protein bars coming up this summer and we've got some other creamer and beverage products coming out towards the.
The end of the year. So I think the cumulative effect of the channel mix adjacent went through as well as our continued.
Expansion into incremental spaces for our portfolio on the product side does give us good confidence.
Yes.
Okay. That's great. Thank you so much.
Thanks George.
Thank you.
There are no additional questions waiting at this time I would like to pass it back to Jason for any closing remarks.
Sorry, guys I'm trying to get kind of get off a bit there.
So yes, I will thank all of you again for listening in today.
As always we appreciate you supporting our team and our business as we push through this transformation.
Q1 was a solid start to 2022 Super food and I'm proud and excited for the position that we're in.
At the same time, we recognize that the market the economy are likely to remain challenging for the foreseeable future.
I'm confident in our team and our brand and believe that we're poised to continue to grow and improve our business from here. So from our entire <unk> team to you and your families.
Wish you all a hearty mahalo.
Forward to talking with you soon.
That concludes the led Super Foods first quarter 2022.
I hope you all enjoy the rest of your day you may now disconnect.