Q2 2023 Laird Superfood Inc Earnings Call
Okay.
Okay.
Good afternoon, and thank you for joining de layered the superfood incorporated second quarter 2023 financial results Conference call. My name is Kate and I will be the moderator for todays call 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 call over to our host Trevor Russo you May proceed. Thank you and good afternoon.
Welcome to cubic foods second quarter 2023 earnings conference call and webcast.
On today's call are JCB led cubic foods', President and Chief Executive Officer, and Arne you handle our Chief Financial Officer.
By now everyone should have access to the company's second quarter 2023 earnings release today after market close.
It is available on the Investor Relations section of <unk> website at Www Dot <unk> Dot com.
Before we begin please note that during the course of this call management may make forward looking statements within the context 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 these risks and uncertainties.
With that I'll turn the call over to Jason.
Thanks, Trevor Hello, and welcome everyone. Thank you for joining us again today.
Our results in the second quarter continued to demonstrate that we are successfully reining in spend and driving our business towards profitability.
Our cash burn was a record low $1 $4 million during Q2 and continues to decelerate both on an annual basis and sequentially versus prior periods.
Our adjusted net loss in Q2 came in almost 50% lower than during Q2 of last year benefited by improved gross margins, but also driven by lower marketing and G&A spend.
This is the result of our success in improving our marketing effectiveness.
<unk> increased by 86% during the past year as well as the leaning out of our organization and other G&A spend on the commercial side, our strategy to drive business and wholesale continues to pay off.
Brand has always been a great fit for the natural channel and then the 12 weeks ending June 18, 2023, our alerts superfood growth in the natural channel was plus 69% driven by a combination of distribution expansion as well as strong increases in our dollar sales velocity behind the rebranding activities, we outlined on prior calls.
During Q2, we also made significant investments in the wholesale trade the majority of which was in support of new items and other distribution gains at key customers, but which also included the ongoing charges associated with the product quality of that we had discussed during our Q1 earnings call.
We have an exciting lineup of products hitting shelves in Q3 of this year with our biggest seasonal program to date and we have a great digital program lined up and we'll continue to execute retail support programs with our top customers.
We also have a series of initiatives underway to further grow our brand awareness and to drive continued sales velocity growth at the shelf.
Our DTC business saw solid results on the relaunch of both are prebiotic daily Greens, and coconut water hydration product platforms.
These two lines helped us to rebuild crucial gaps in our supplements portfolio.
And plus 48% sequential growth versus Q1 in that segment.
Our green products has quickly become a top seller on our DTC platform.
We're pleased with the repeat rates and reviews that we're seeing.
In June we relaunched our hydration platform, which we believe is among the cleanest hydration products in the marketplace.
Harnessing the power of dried coconut water now and convenient stick packs and with electric lights.
As in prior quarters, we strategically reduced our DTC media spend by 67% during Q2 by cutting inefficient spend, thereby improving our overall ROE as by 86%.
The quality event that we discussed during our Q1 call that you unexpectedly long out of stocks on Amazon during Q2.
Whereas we were able to quickly rebuild our inventory positions in both DTC and wholesale.
Turned out to be far more challenging to do with Amazon, where we needed to first wait for Amazon to get the products fully withdrawn from all of their warehouses across the country before we were finally able to begin rebuilding our inventory.
The result of this was approximately 12 weeks without any inventory of many of our top selling skus.
In fact, we are only now getting our inventory at Amazon back to full strength on a national basis, and we expect this issue to finally be fully resolved by the end of Q3.
The upshot to this issue is that we were able to quickly pull back marketing spend on this platform netting a positive return of contribution margin dollars to the P&L.
Turning now to operations.
We are now more than six months into our move to an asset light supply chain and we remain extremely satisfied with the relationships and results that we've had so far achieved with our co packing and distribution partners.
Not only did our Q2 cost of goods sold improved by 12 points of gross sales versus just a year ago.
But we also increased our production capacity by approximately three times that of the peak production in our own facility.
At the same time, we've added incremental sensory and quality assurance checkpoints to our manufacturing processes to ensure that our product is the highest quality.
Finally, I am pleased to announce the continued evolution of our marketing model from a low ROI pay to play digital marketing approach to a focused celebrity and PR led model that will seek to leverage Laird Hamilton and other likeminded health and wellness Influencers to drive the awareness and trial of Blair Superfood.
To that end, we just announced a large partnership with Sean Ryan and as Sean Ryan show, which we expect to enable us to reach a largely untapped demographic for our products.
But Sean Ryan show reports, an estimated 3 million listeners between Spotify and Apple podcast platforms 175 million subscribers on Youtube and nearly 1 million followers on tick tock.
We believe that a majority of these consumers have had little to no awareness of alerts Super food in the past and are excited to be working with Mr. Ryan to share the positive health benefits of our food with millions of new potential advocates of the grant.
We look forward to being able to share other big marketing ideas in the near future.
Now, let me turn the call over to Andre to discuss further the second quarter results.
Thank you Jason net sales of $7 7 million in the second quarter of 2023 decreased 11% as compared to $8 7 million in the prior year period.
This was primarily driven by lower sales and e-commerce channels, given the level of pull back in our marketing spend which was 67% year over year reduction of DTC specific working media and 30% overall marketing spend degree this decline was expected.
These marketing cuts were strategic in nature in order to cut inefficient spend and reduce our customer acquisition cost in order to build a more sustainable direct to consumer business and improve our profitability in this channel.
Additionally, our Amazon sales were negatively impacted by inventory out of stocks related to the previously discussed product quality issue experienced in Q1, we.
We expect this out of stock issue to be fully resolved in the third quarter.
The decline in E Commerce was partially offset by growth in our wholesale channel driven by distribution gains in retail pricing as well as the velocity improvements behind new packaging and rebranding campaign launched earlier this year.
In the second quarter, we continued to build on the success, we achieved in the first quarter from the strategic actions implemented last year.
For the second quarter in a row gross margin within the mid Twenty's with Q2 gross margin, reaching 24, 3% 120 basis points improvement sequentially over Q1, and 610 basis points improvement versus the same period last year.
This year over year margin expansion is driven by our supply chain transition to an asset light third party co manufacturing and fulfillment model.
It would have been even stronger except for the investments that we have made in trade promotions to drive incremental awareness and trial in retail stores.
I expect the need for this level of support and our retail channel to continue in the third quarter and taper off towards the end of the year, allowing gross margin expansion to ramp up further into 30% plus range in the second half of 2023, excluding any onetime extraordinary.
Operating expenses for the second quarter totaled $5 5 million, a decrease of $1 million compared to $6 5 million in the year ago period.
On an adjusted basis.
Operating expenses decreased $2 4 million driven by lower marketing costs, resulting from strategic cuts of inefficient spend lower people costs and other general and administrative expenses following the restructuring activities in 2022.
Net loss as reported was $3 5 million for the second quarter of 2023.
<unk> of $1 4 million versus the prior year period on an adjusted basis.
Net loss for the second quarter was $3 3 million, which was approximately $2.8 million lower than a year ago. These.
These improvements in the bottom line were driven by expanded gross margins lower marketing and SG&A spend a detailed reconciliation of non-GAAP . Adjusted net loss is included in our earnings release.
Now turning to our balance sheet and cash flow.
We ended the quarter was $10 6 million of cash and no debt as we continue to conservatively manage our balance sheet cash burn in the second quarter was $1 4 million was the lowest the company ever cheat and less than half of the prior year period of $3 9 million I anticipate third quarter.
Cash burn to ramp up due to working capital needs to support our stepped up demand in the back half, although our year end cash forecast is on track with our operating plans.
Moving onto our outlook. Despite the progress made improvements in the middle of our P&L, we had higher promotional trade spend in the second quarter as we increased support in our wholesale channel.
As well as inventory out of stocks that impacted our Amazon performance.
We expect to resolve this issue during Q3, but we are updating our guidance to reflect net sales in the range of 34 to 37 million and gross margins of 27% to 29% for the full year 2023 with.
With second half gross margins exceeding 30%, excluding any onetime extraordinary costs.
With that I'll turn the call back to Jason.
Yeah.
Thanks Tanya.
While turnarounds are by nature, and unsteady progression I'm pleased to be able to report our continued progress against our key strategic goals of improving our cost structure and slowing our cash burn.
Growing our branded wholesale business and improving our product portfolio.
As we go forward, we will continue to keep a vigilant focus on reducing our cost and slowing our cash burn.
This concludes our prepared remarks, operator, we're now ready to open the call to questions.
Thank you.
We will now begin the question and answer session. If you would like to ask a question. Please press star followed by a one on your telephone keypad. If for any reason you would like to remove your question. Please press star followed by it too.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question again to ask a question. Please press star followed by one we will pause momentarily to compile the roster.
The first question will be from the line of Diana Poker with Canaccord Genuity.
Your line is now open.
Canaccord so.
Congratulations on the reduced cash burn.
Yeah, maybe.
It gives you a nice runway it looks like but I'm wondering what's kind of us.
Steady state of cash burn.
That you would expect.
Next 12 months.
Hi, Bobby this is on your Hamill. Thank you for that question.
Our cash burn was high our cash burn was $1 4 million.
In Q2 and it was.
About $6 million in Q1.
Was much higher in Q1 because of the sisters exit but also.
Timing of accounts receivable collections, which was about one 4 million that fell into Q2. So if you normalize for that it's just under $3 million.
It's kind of the normalized future.
I expect that to.
That range, but.
Slowly reduce throughout the back half of the year.
Okay great.
Thank you.
And then.
I'm wondering.
Just understanding the Amazon dynamic as you restock into that.
Chantal do you guys benefit.
On a sell in basis or sell through.
Hey, Bob It's Jason Hey, so yeah, I can take that so let me give you a little bit more color on what's going on with Amazon. So.
The in Q1, we had the quality of that as you know that caused us to go out of stock as we recalled all of the products that had the rancid coconut powder inside of it.
We have received from our supplier.
And as we pulled that back we're able to pretty quickly get the product out of the wholesale channel so by going to unify and Katie we got everything out of their warehouses quickly and then we reached into each one of the retailers that have been shipped and we were able to withdraw that as well and some of that youre seeing we continue to get the final bills now.
As we read through that product, but we allocated for that for the most part back in Q1 on the DTC channel was even easier because of course, we control all of that inventory and so we simply core to hone that off and then reran the product and put it into our warehouses, where we were surprised quite frankly.
This was an Amazon and the challenge that we had is.
First we have to have all the product withdrawn from out of the Amazon warehouses, we would've thought of that as a series of Dcs that we had shipped two but Amazon subsequently shifts that down to the I don't know if you call them, a micro DC, but basically smaller <unk>. So that we can all receive our orders overnight or within 24 hours.
I'm memberships et cetera, and so withdrawing out of all of those warehouses turned out to be a slow affair and you can't start restocking until they have withdrawn from every warehouse and gotten all the product out because we had a number of skus impacted it took a long time much longer than we anticipated.
You can't start to restock until they're all out either so as those are coming back we were awaiting discern we had the replenishment order, but we couldn't we weren't allowed to send it until the product was out and so anyhow. It just ended up being a very lengthy process knocked us out for about 12 weeks, the resulting impact of that is one we are out of we were literally out of stock on our <unk>.
Top items for almost three months, we went dark and.
The good news is we knew this was happening we were able to adjust our spend accordingly, so we pulled back on the marketing spend and you saw that flow back in.
We talked about with the EBITDA and cash benefit that we got the slowdown that we had in the losses there.
But what it does mean is which go back and rebuild cohorts. So to your question on sell through we're now finally getting in a position where we're getting the last of that inventory out and in a sustainable fashion, where the sell through is not so fast that we're again depleted because that started to happen also because.
You Couldnt lineup, all the orders fast enough to keep up with sell through but we're getting back into position now we expect to be fully in stock over the course of Q3.
It is still impacting our business a bit at this point, but.
Pulled back our Amazon media marketing media dollars Accordingly, and so we're in a position now where from a contribution margin perspective.
Were not being hurt but from a sales perspective. Unfortunately, we're kicking it down the road a little bit as we wait to get fully back into stock I don't believe there will be any long lasting impacts Amazon is essentially a pay to play model, where the media that you put in we will generate the eyeballs and typically the conversion that you would expect in <unk>.
So we've seen those conversion metrics they were.
Where we need them to be we just cant spend at this point because of the out of stocks that we've had so I do anticipate by the end of Q3 before the end of Q3 that we'll have that business humming again.
Okay, Great and then just.
Quickly on the natural channel growth. So you guys had some nice growth there and I'm wondering kind of just if you can remind us where the ACB is for you guys in that channel.
Just as a measure of the amount of headroom left to go.
Yes, it's a great question. So we're it varies across items of course, I think generally you can think about our liquid creamers in the 60% range and our powder creamers in the 40% range, we still have a lot of opportunity to fill out the breadth of portfolio in both of those two lines and we do still have a.
<unk> of other products that are really gaining traction in the natural channel as well.
<unk>, most notably recently, but our supplement lines also now starting to gain steam and.
Our barely on the radar at this point Bobby there is a strategic question for US as we go forward. We've we're I would tell you we're doubling down into the natural channel as we go forward to close those distribution gaps with our broker and with those retailers really fill out our portfolio and then start to promote the family line Accordingly, and Thats what.
Why we're seeing such great lift right now we've had tremendous promotional responsiveness as well as distribution gains in the result is some really strong growth in that channel.
Great. Thank you.
Thanks, Bobby.
The next question will be from the line of Alex Fuhrman with Craig Hallum. Your line is now open.
Hey, guys. Thanks for taking my question.
You know just looking at the numbers here I mean, even with the the lower guidance for the full year I mean, you're still implying a nice little sequential build in revenue in the third and fourth quarter relative to what we saw in the first half of the year can you talk about what.
<unk> going to drive that and to what extent.
We might we might expect that that growth of some of those drivers to persist into next year.
Hey, Alex how are you doing and it's great to hear your voice.
And good question I'm glad we get to talk about this a little bit because we are really excited about the back half as well I would tell you. There are a number of initiatives really that are driving that one is continued expansion within the especially the natural channel.
But we have a really big seasonal program, that's launching in natural and in club launching Mueller as well, but really natural club will be carrying that and we've expanded our pumpkin lineup as well as our holiday.
Later season lineup peppermint mocha, as well, but with a pumpkin lineup, we really expect to be a big one for us with additional shippers and display that we've picked up in a couple of new products. We also had some really exciting movement on our daily Greens.
You'll recall that we reformulated that to a much better tasting product and the consumer response has been outstanding and so we continue to drive that online. It has quickly become our top SKU online over the course of just the last few months and we're seeing tremendous uptake from consumers in that and are really excited about the possibility.
These as we go forward there and then on top of that with Amazon coming back on to the question. We just answered from body, we expect to see Amazon inventories replenished and that fell through to really pick up again as we go into.
In the later Q3 and coming out of Q4, we've got some really exciting promotions and merchandising opportunities that we're executing at retail as well.
So really we're expecting it would be a nicely rounded incremental increase basically for the rest of this year.
Okay. That's really helpful. Thanks, Jason and then it looks like you guys have taken some price increases.
Over over the past year and year to date.
Has there been any sort of material reaction customer wise to the price increases have those been enough to.
To cover your rise in product cost.
Yes, great question, and I forgot I would be remiss, if I Didnt mentioned, one big driver in the back half as well that wasn't what I do.
Now here in my notes because I was waiting to make sure. We got the press release out, but we just entered the first of what we expect to be several large marketing deals.
We're exploring right now we are partnering with the Sean Ryan show and with Sean Ryan.
Which we believe will help us to tap millions of new consumers that are outside of our core focus demographic today very much fit within our demographic, but consumers we have not been targeting as well as we could have so.
I think thats going to be a really exciting opportunity for us as we go forward, you'll see more on that.
<unk> been just a tremendous partner to us already even as we have just been starting this up and is a big believer in the products and what we're doing here with the company and so we're really excited about that.
And then with regards to the price increases what I would tell you on that Alex is we.
We mentioned last year, we needed to move price, we hadn't touched it for really for many years and still believe that we are delivering an incredible value relative to the product that we're putting out but we are in position now where we expect gross margin as we've mentioned before too.
To eclipse the 30% rate in the second half of this year. So we're getting now to where we have a business that can return gross margin dollars as we're selling incrementally in a way that starts to support the marketing and that's the exciting position that we talked about last year and probably it seemed far off back then but now through a couple of.
I would say targeted and smart price increases we've tried really tried to hold the line and really just cover the cost increases that had taken place through the pandemic and so now we're back in a good position on that Alex.
As we go forward now with the transition that we made with the relaunch of our liquid products, we're going to see gross margins rise above 30 in a very different business model in place.
That's great. Thank you very much Jason I appreciate everything.
Yes, Thanks, Alex.
Thank you.
At this time there are no additional questions registered so as a reminder, the star followed by one to ask a question we will pause here briefly.
At this time there are no additional questions remaining so I would like to pass the call back over to the management team for closing remarks.
Thanks to everybody for joining today.
<unk> opportunity for us to get back with you every quarter to share the progress that we're making against that strategy that we outlined is really reducing.
Our losses on the P&L as well.
Really holding on to our cash position to create.
Create optionality for us into 2024, and 2025, we feel like we're making the right steps here and while we continue to tweak the business end.
SEC.
The.
With the call down on revenue, we're making choices to hold on to cash in a smart way and really put ourselves in position to be able to grow some of these new exciting lines that youll see in the second half of this year. So.
Thanks, so much for joining in and we look forward to sharing additional updates very soon.
That concludes today's conference call. Thank you for your participation you may now disconnect your lines.
Okay.
That concludes today's conference call. Thank you for your participation you may now disconnect your lines.