Good afternoon. Thank you for joining the Laird Superfood, Inc. Fourth Quarter 2023 Financial Results Call. My name is Matt, and I will be your moderator for today's call. All lines will be muted during the presentation, and we will have a question and answer session at the end. I will now hand it over to our host, Steven Richie, General Counsel of Laird. Steve, please proceed.

Thank you, and good afternoon. Welcome to Laird Superfood's fourth quarter and full year 2023 earnings conference call and webcast. On today's call are Jason Vieth, Laird Superfood President and Chief Executive Officer; and Anya Hamill, our Chief Financial Officer. By now, everyone should have access to the Company's fourth quarter and full year 2023 earnings release filed after today's market close. It is available on the Investor Relations section of Laird Superfood's website. Before we begin, please note that during the course of 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.

Thanks, Steven. Good afternoon, and thank you to everyone who has joined us today. Now that you have all seen our Q4 2023 results, I hope that you will agree that it is not an overstatement to say that Laird Superfood had a tremendous quarter. During Q4, we hit our team's goal of a financial trifecta: positive sales growth, positive profitability, and positive cash flow, the latter two of which were a first for our company while trading as a public entity. These results represent just the latest step in what has been a rather steady path of improvement since I first spoke with all of you two years ago. I'm proud to say that these improvements have allowed us to remove the going concern disclosure from our financials. This is a significant vote of confidence in our financial position and outlook and further motivation for our team to ensure that we operate the business as professionally and confidently as possible. I'll start with what might be our most noteworthy accomplishment in a quarter full of them. During Q4 2023, we were able to return our DTC business to over 10% growth versus the same quarter in 2022. This was accomplished despite a decrease in our marketing spend by 54% during the same comparative period, which obviously means that our marketing effectiveness metrics surged once again during Q4. This represents our first quarter of growth in this channel since almost two years ago after the changes to iOS upended the DTC industry and was accomplished through more effective targeting and messaging, by highlighting our most solid products, and creating better offerings for bundles and cross-selling. One key to this accomplishment was the increase of our revenue from subscriptions to 46% of our total DTC net sales base, which I would assert demonstrates that consumers are recognizing the benefits of consistently attending to their health through their nutrition, and that our coffee, creamers, greens, and adaptogenic mushroom products are a perfect fit for consumers to create what we at Laird Superfood have referred to as the healthy daily ritual. In addition to converting more of our customers to subscribers, we were also successful in Q4 in increasing our net sales from new DTC customers by 76% year-over-year, driven by our partnership with The Shawn Ryan Show and other well-executed top-of-funnel marketing activities. I am also pleased to report that our average DTC order reached more than $57 in Q4. Given these metrics, it should not be surprising that our brand affinity remains extremely strong with our consumers. Our Net Promoter Score still hovers in the mid-70s and our customer satisfaction score is at 4.9 on a 5-point scale. A large portion of our e-commerce business is also conducted on Amazon, and here, I am happy to report that we have continued to make steady progress in returning this business to growth after the challenges created by the quality event we encountered approximately a year ago. After that event, it took approximately six months to fully withdraw and replenish our coffee creamers on the Amazon platform, during which time we saw a significant reduction in sales. But in Q4, with our stock inventory levels restored to normal, we were able to execute our marketing plan on this platform and restore our path to growth. During Q4, our net sales through Amazon reached $1.76 million, a 38% increase over Q3 of '23, despite a 22% pullback in direct media spend on Amazon during that time. This is a testament to the cohorts we have established on this platform, which was further aided by a 26% increase in revenue from subscriptions, which now represents nearly a quarter of Laird Superfood net sales on Amazon. Given the lapping of those 2023 challenges during the first half of this year, we expect to see strong growth for Laird Superfood through Amazon throughout 2024. Turning to our wholesale business, I am pleased to add that we continue to make steady progress in expanding our distribution in this important strategic channel. To date, our wholesale business has been largely concentrated in the natural channel, where we have continued to make great strides to build out our brand among consumers motivated by health. During 2023, our clubs of distribution in natural finished the year up 24% versus the end of 2022, driven by wins in large national retailers as well as smaller independents that are vital to consumers in this channel. Specific to Q4, I am pleased to announce that we were successful in securing national distribution with Whole Foods for our shelf-stabilizers, which will complement the full national distribution that we had recently attained on our core liquid creamer portfolio. Those items began shipping a few weeks ago and bring us to eight items in distribution within Whole Foods across the country. I'm equally pleased to share that we have also had continued success at Sprouts Farmers Market, where we now have 22 items in distribution, representing one of our most complete build-outs of any retailer in the country. I am also excited to share that during Q4, we became the number one brand within the coffee category at Sprouts, outpacing other brands in this category. We believe that this is just the start of the exciting things to come as we continue to build our brand strength and share our health and wellness portfolio with consumers across the country. As we look forward from here, we will execute an expansion strategy into additional categories in the natural channel and begin to put emphasis on growing our distribution in the conventional channel, where we currently have very little distribution in a very large market. Along with the success we are having commercially, we recognize that we couldn't achieve any of this if we didn't have a supply chain that is as flexible, responsive, and adaptive as we do. Last year, our supply chain was able to shut down our facility in Oregon, identify co-packing distribution partners and move our entire business over the span of just around two months. Our supply chain team operated nearly flawlessly through a quality event in the first half of last year, quickly replenishing our raw material inventory and keeping most of our key suppliers supplied throughout that challenging stretch. And now with our powder products fully transitioned to an asset-light supply chain model and with our liquid creamer transition behind us, we were able to achieve over a 40% gross margin during Q4. Our supply chain is flexible and agile and is built to support our future growth. Going forward, we continue to expect our gross margin to remain in the high 30s. Our focus on cost management extends beyond the supply chain for our operational expenses as well. During Q4, we reduced our total year-over-year adjusted operational expenses of $6.1 million to $3.7 million, representing a decrease of 38% in Q4 of 2023. This was accomplished by a broad-based reduction in our operational expenditure, which we will continue to manage tightly going forward. And finally, I want to share a few thoughts on our cash position, which increased in Q4 2023 by $280,000. Based on our working capital needs and planned investments, we do not anticipate generating positive cash flow in every quarter. However, we do believe that with our planned growth rate in 2024 and beyond, we may soon be generating cash to support our operations. I also want to reiterate that we were able to remove the going concern disclosure from our financials. We are proud of this recent change and believe that with our forecasting growth profile and gross margin outlook, Laird Superfood is now positioned to carry an improved financial profile in the future. And now, let me turn the call over to Anya to discuss the fourth quarter results in more detail.

Thank you, Jason. Net sales were $9.2 million in the fourth quarter of 2023, an increase of 2.6% as compared to $9.2 million in the prior year period and flat to the third quarter of 2023. As Jason discussed, both the e-commerce and wholesale channels delivered growth in the fourth quarter. E-commerce contributed 66% of total net sales and increased 2% year-over-year, led by DTC growth of over 10%. These improvements were, in part, offset by a year-over-year decline in Amazon sales of 12%, a substantial and narrower decline than in the previous quarters, driven by a 59% reduction in Amazon media spend as we resolve to improve profitability on this platform. Wholesale contributed 34% of total net sales and increased 5% year-over-year, reflecting continued growth in club and distribution expansion in the natural channel as well as product velocity improvements behind updated packaging, which launched in the second quarter of 2023. Gross margin in the fourth quarter rose to 40.4%, which is a 45-point improvement on a year-over-year basis due to charges related to the Sisters' access activities in the fourth quarter of 2022. On an adjusted basis, gross margin improved 21 points year-over-year and 10 points sequentially versus Q3 of 2023, driven by continued benefits of transitioning to third-party co-manufacturing and distribution. Q4 gross margin of 40% is a milestone that supports our expectation that we can deliver margins in the upper 30s in the coming quarters. Operating expenses in the fourth quarter of 2023 totaled $3.7 million, a decrease of $11.6 million compared to $15.3 million in the prior year period. This reduction was driven by lab expenses related to our exit from Sisters in the fourth quarter of 2022. Excluding one-time charges, operating expenses were reduced by $2.4 million, primarily due to lower marketing costs, resulting from strategic cuts of inefficient spend and reduced personnel costs and other general and administrative expenses following the restructuring activities in 2022. I am pleased to report that in the fourth quarter, for the first time in the Company's history, we achieved positive net income and positive cash flow. Net income as reported was $0.1 million in the fourth quarter of 2023, an improvement of $15.7 million versus the prior year period. Net cash added in the quarter was $0.3 million compared to cash burn of $3.2 million in both the third quarter of 2023 and the fourth quarter of 2022. These results were driven by margin expansion and significant reductions in general and administrative costs, demonstrating the strong progress we have made in managing costs and pushing the business towards profitability in future quarters, although we do not expect this to occur in a perfectly linear manner. We ended Q4 2023 with $7.7 million in cash and no debt as we continue to conservatively manage our balance sheet. We now project that we will have enough cash to fund our operations into 2026. Our annual report on Form 10-K will not contain the going concern language that was included in our prior quarterly report. Further, after many conversations with several vendors regarding our ability to put in place an asset-backed loan, we are optimistic that such a vehicle is available to us should we decide that we would prefer additional funding to support our operations or growth. The changes we have made to our business model have significantly improved the underlying economics and strengthened our competitive position. As we go forward, we will continue to focus on maximizing our most profitable commercial growth opportunities while maintaining strict emphasis on continued cost to drive the business toward profitability and maintain our cash position to support our future operations and other opportunities that may emerge. Our full-year 2024 guidance is as follows: Net sales are expected to be in the range of approximately $38 million to $40 million, representing growth of 10% to 15% compared to 2023. Gross margin is expected to expand to approximately 37% to 40%, excluding any one-time extraordinary charges, representing a 7- to 10-point improvement versus 2023. With that, I'll turn the call back to Jason.

Thanks, Anya. I know that I seem to say it every quarter, but I want to reiterate that I believe that the future of our Laird Superfood business has never looked brighter. This time around, please indulge me while I share my thesis for that condition. First, our Net Promoter Score and customer satisfaction scores are indicative of our incredible brand strength and the trust placed in our brand by Laird Superfood consumers and should be the envy of virtually any major food company today. Second, our product portfolio is well-positioned for the health and wellness trends that continue to grow in importance both within the U.S. and internationally, as demonstrated by our Q4 volume and sales growth. Importantly, our gross margin is now in line with many of the premier companies in our industry and can provide us with strong cash generation as we continue to grow our business. And finally, I would wager that our organization is just as competent, motivated, and engaged as any similarly sized company in the industry. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

The first question is from Bobby Burleson with Canaccord Genuity. Your line is now open.

Congratulations on achieving significant progress; it's truly exciting to witness. My initial question pertains to the growth you projected for this year. What type of operational expense growth will be necessary to support that guidance? It appears that online sales are recovering well, and your spending in direct-to-consumer is notably lower now. Are you spending more to access traditional channels, or can you achieve substantial operating leverage this year?

Yes. Bobby, it's a great question. Thanks, by the way. I appreciate it. We're really excited, obviously, about this quarter and where the quarter came in. Yes, good to talk to you again. So, look, I mean, the reality is, and you and I have discussed this as well, so I know this won't be a surprise to you. But we built this team really to be able to scale from here, and we don't believe we need really substantially any more operational expenses. There are a couple of line items that are going to be variable in the P&L, and the broker commission is one of those. So, as we continue to grow that piece of the business, we'll pay additional brokerage fees. Conversely, as we continue to grow Amazon, there is a variable component selling cost to that as well. So, we will have to scale those two sales organizations as we grow. But really, Bobby, to be honest, our organization is built to be able to carry not only this brand but also the piggy bar business as well. And frankly, as I've told them many times, we're in a position that now with everything that we've done, if we were to make an acquisition at any point or if we were to scale the business significantly from here over the course of the next 12 to 18 months, we don't really have to make any additional investments to do that.

That's fantastic to hear. I have a quick follow-up regarding the source of your growth. You've mentioned daily creams and performance mushrooms as contributors to your direct-to-consumer growth. I'm curious about the overall brand perception. Are you planning to expand into other performance-focused categories, such as ready-to-drink shakes, or explore other related areas that showcase Laird's athletic capabilities and could significantly enhance the brand?

Yes. That's certainly a question that we've been discussing as a team over the last couple of months. We've been in a position that as you guys know from the last couple of years, we really had to turn around the business, where the business was on a path to running out of cash pretty quickly a couple of years ago. The last two years have really been focused around rebalancing the portfolio, getting our mix right and then obviously resetting the cost base. Not only in terms of the manufacturing and distribution costs, but all the G&A and marketing as well. And so, we're really close to that, I would say, Bobby. We're still refining it and see some opportunities here as we go forward as well within that core business. But certainly, now we are in a position to do two things that we were not in a position to do previously, because we had gross margins, as you'll recall, that were so anemic that we couldn't expand the business without losing more money. Well, that's done. We now have a gross margin that is approaching best-in-class manufacturers within the food space. The more we sell, the more cash we drop to the bottom line. And so, the sales team is dead set, focused on bricks-and-mortar opportunities, and we've had tremendous calls throughout 2023 that we believe will result in additional distribution going forward. Just as we always do. We've really been able to be aggressive with those sales calls because we now have the margin to support expansion. The other thing to get more directly to your question that we're really starting to focus on now is how do we expand and continue to grow our legacy within superfoods? For a little while there, we became a creamer brand. We do still have a great creamer business. Frankly, the best creamer product on the market, the cleanest, best tasting, most nutritious product on the market. But we also have these amazing greens products, which I would tell you is the best tasting, most nutritious product in that space as well. We have performance mushroom products that have taken off. It's really been those three products, in particular, with support from a number of other categories, including bars. Those products, being greens, adaptogenic mushrooms, and creamers, are carrying the bulk of the weight for the portfolio. Our shoulders have broadened to really be that superfoods brand, not just a super-creamer brand, and it certainly opens up the opportunity to explore those more performance-based categories in RTD and others.

Next question is from the line of Alex Fuhrman with Craig Hallum. Your line is now open.

Congratulations on the many milestones that you hit here in the quarter. What I'd like to ask about is the return to positive e-commerce growth which certainly seems like a big milestone. If I'm interpreting your comments correctly, it sounds like growth on lairdsuperfood.com was especially strong. Can you talk about what's been driving that? I know you mentioned some of your newer products helping to lift average order size. Has that been the primary driver? It looks like you guys have been emphasizing subscriptions more as well. Just any color on that would be helpful and what we might expect to see on lairdsuperfood.com into this year and beyond?

Alex, nice to hear from you. Yes. Great question, and I certainly want to be able to talk more about this. I could not be more proud of our DTC business. It is, in fact, the LSF or lairdsuperfood.com platform that returned to a 10% growth. That's the first growth in a couple of years. We have a new leader on that business. I mean you guys know we've changed a lot of the organization now. We have a new marketing leader and we have new DTC channel leadership as well, and that combination has proven to be really powerful. We've done a couple of things in particular that have really helped to drive that. One is that same broadening of our portfolio that I mentioned a moment ago with Bobby. It's not only been the creamers in the last months, but the creamers, the greens, and the adaptogenic mushrooms that are doing really well. That's a function of a couple of things. First is we've really reengaged Laird and Gabby as the real brand representatives of Laird Superfood. I would say that's only natural, and you would think: why did we ever not? Why did we ever go away from that? I think, as I mentioned before, a couple of years ago, there was some drift from that, and that's completely changed. In doing that, we've really seen a great response from the activations that Laird and Gabby are doing. It's always our highest ROI and highest ROAS material marketing collateral that we put out. So, that's really great. We also entered a partnership with Shawn Ryan, who is a podcaster, has a tremendous show, one of the largest followings in the country and the world. Shawn is not only an advertising platform for us but also our partner. He partnered with us, became an investor in the business. He is a big advocate of mushrooms, adaptogenic mushrooms, and the benefits for folks that have had traumatic brain injuries, as well as for everyone in general for their health. In becoming a spokesperson and trusted partner, he has been an unbelievable asset to us, and we've really enjoyed working with Shawn and have had tremendous benefits. So, those two have been really influential. The third factor that I'd add to that is our DTC team has done incredible work to turn consumers into customers and customers into subscribers. As a result, we have nearly 50% of our revenue in that DTC channel now coming through subscriptions, which obviously pays off over the long term in terms of the stickiness and the volume consumers continue to order, especially when they consider how beneficial it is to their health on a regular basis. So, those three factors have been the key driver, and we anticipate that they're going to be long-lasting for us.

That's terrific. Really appreciate that. And then if I could ask also just about the returns and discounts, it looks like that was the lowest level in the fourth quarter in more than a year. Where is that improvement coming from? I know you had some higher-profile incidents with some of your wholesale customers and things like that. Is that kind of coming from the direct channel as well? And do you expect those improvements to continue into this year?

Alex, this is Anya. Thank you for the question. So, I can address that. Yes, you're right. It was the lowest in the year. However, like we talked in the last couple of quarters, Q2 and Q3 were high because we chose to invest in growth for the retail business. We're now starting to pull that back, and we did so in Q4. Part of the savings are coming from our wholesale business, and we'll continue at that optimized level of spend. Not quite linear, not quite maybe as low as Q4, but in that range. The DTC side, as we optimize the mix between trade and marketing investments, there's some savings coming from that business as well, although not nearly as much as from retail. So, I think you can expect to see a pretty similar range in the mid-teens in terms of discounts going forward in 2024.

Next question is from the line of JP Wollam with ROTH Capital Partners. Your line is now open.

I would like to begin by discussing the revenue guidance for next year. Could you share your insights on what gives you confidence in revenue growth? As we consider the factors driving that growth for next year, could you elaborate on any new retail locations opening in the middle of the year and how that might impact revenue?

Yes. JP, good to talk to you again. So, I'll start off. I'll give a couple of thoughts on that, and then I'm going to hand it over to Anya. She can talk through the cadence a little bit, but I want to give you some of those drivers of where our confidence comes from. So, I'm going to go sequentially through three different channels and platforms. Starting with Amazon, because that's a really attractive opportunity for us. I mentioned on the call a couple of minutes ago that last year, we had a bit of a trough in Amazon because we had that quality event in Q1, which required us to withdraw all of our inventory out of Amazon. That means you have to withdraw from their distribution centers, and they have to send it out to all the micro distribution centers that they use. So, you can get that order in 24 hours or so. It's a slow process. We lost somewhere around five, maybe six months of creamer sales on that platform. And I can't say it was zero, but we really lost a lot of business. As a result, when you lose that piece of business, you lose the opportunity to cross-sell as well. So, I would tell you that there's just a tremendous lapping opportunity on Amazon as a result of that. On top of that, we have very positive Amazon sales growth even before running into that. Coming into Q4, we were closing the gap quickly despite significantly less spend. In 2023, we pulled back the spend. In 2024, you're going to see a tremendous opportunity for us to grow that category or platform. Then to finish out the online business or the e-commerce business, the DTC opportunity for us is powered by those same fundamentals that I just shared in Alex's question. It looks great. I know it's been a rough road for a couple of years. Frankly, it's been a rougher road for a number of our competitors and continues to be. So, I think we're blessed to have a really great team in this space. They have honed their ROAS metrics to ensure we're only making smart investments that return to our bare minimum acceptable ROAS, which is profitable at this point for us. We also have Laird and Gabby and the Shawn Ryan partnership, and we feel that we can really invest behind those three and continue to maximize growth in that category. Finally, wholesale. I didn't leave it for last because it's our biggest opportunity by far. We're still in just a fraction of the doors within natural and we have very few distribution points within conventional today. Within natural first, I mentioned having eight items in Whole Foods nationally. Maybe 12 months ago, we had a couple of liquid items; three, I guess, liquid items. And we had three powders regionally, if I remember correctly. Now we have eight items nationally. This is a significant change for us year-over-year. We believe there is significant opportunity to continue to expand within Whole Foods and into other categories with our portfolio. That's now really been displayed in a best-in-class fashion at Sprouts, where we now have 22 items in distribution, 20 of those are in full distribution. We're continuing to do the same with the new brokerage we've employed to expand into all the independents and smaller chain stores. There is a really exciting opportunity within the natural channel to continue to close distribution gaps. The much larger opportunity is on the conventional side, where we have not put any effort in the past. The addressable market and the white space we have in distribution in that conventional space is enormous, JP. These numbers give me confidence. These are numbers I think are very attainable for us this year. We're committed to those numbers. As we go forward, we'll continue to look for upside.

I appreciate all that. If I could just do one follow-up, and maybe this one is more for Anya. But there was the comment about the ABL during the earlier remarks. I just wanted to follow up and make sure I'm thinking about it correctly. But was the commentary there more just that it was a vote of confidence in the future of the business? Or as we think about expanding some SKUs and some growth next year, is that something that you think is going to be put into use next year to either build inventory or fulfill some of that demand?

Yes. Thanks for that question, JP. Yes, we think that we have enough cash to get us through 2024 and 2025, and hopefully beyond. However, the point of that comment was to signal that we do have additional liquid resources or liquidity in case we need it for working capital expansion or any other opportunities that may arise. Those funds are accessible based on conversations conducted with several lenders.

There are no additional questions waiting at this time. I will now pass the call back to the management team for any closing remarks.

I just want to thank everybody once again for joining. This is by far the best performance we've had as a public company, and we're really excited for the path from here. As we go forward, we'll be back talking with you guys in just a few weeks, given how late the annual call ended up. In wrapping Q1, I look forward to getting back with everybody to share the continued progress on the story. So, thanks much.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.