Laird Superfood, Inc. Q1 FY2025 Earnings Call

Thank you for attending the Laird Superfood First Quarter 2025 Financial Results Call. My name is Matt, and I'll be the operator for today's call. All lines have been muted during the presentation portion of the call. I'd now like to pass the conference over to our host, Trevor Rousseau, Head of Investor Relations. Trevor, please go ahead.

Thank you, and good afternoon. Welcome to Laird Superfood's first quarter 2025 earnings conference call and webcast. On today's call are Jason Vieth, Laird Superfood's President and Chief Executive Officer; and Anya Hamill, our Chief Financial Officer. By now, everyone should have access to the company's earnings release, which was filed today after market close. It is available on the Investor Relations section of Laird Superfood's website. Before we begin, please note that during this call, management may make forward-looking statements within the context of federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those described. Please refer to today's press release and other filings with the SEC for a detailed discussion of these risks and uncertainties. And with that, I'll turn the call over to Jason.

Thank you, Trevor, and hello everyone. I'm delighted to share with you the results of Laird Superfood's first quarter of 2025, which marked another strong period as a high-growth premium brand with robust margins and significant market potential. During Q1 2025, we achieved an 18% year-over-year increase in net sales to $11.7 million, up from $9.9 million in the same period last year. This marks our fifth consecutive quarter of double-digit sales growth, which is even more impressive in what has recently become an inflationary and uncertain economic environment. Our profitability metrics remain a highlight. In Q1 of 2025, we delivered a 41.9% gross margin, a 1.9 point improvement versus Q1 of last year. This margin strength, despite significant commodity price pressures in ingredients such as coffee and coconut milk powder, positions us well above the industry average for food companies. Our ability to sustain margins in the high 30% to low 40% while driving nearly 20% sales growth underscores the resilience and exceptional execution of our omnichannel business model, driven by strategic sourcing, a variable cost manufacturing approach, and disciplined trade spend management. Our Q1 results also demonstrate the progress that we are making in our two primary strategic commercial initiatives to drive robust growth on Amazon and to significantly expand our wholesale distribution. Our e-commerce channel grew by 6% during Q1, led by our performance on Amazon, which delivered strong results driven by improved inventory management and targeted marketing execution that created demand for our Laird Superfood products. In our direct-to-consumer business, more than 75% of Q1 DTC sales came from repeat customers and subscribers, a testament to our ability to foster long-term relationships and a demonstration of the trust and loyalty that our consumers have in the brand. Similarly, we continue to make exceptional progress on the wholesale front with net sales increasing 35% year-over-year and now contributing nearly half of our total LSF revenue. This growth was driven by distribution gains in grocery and club stores, including key partners across both natural and conventional grocery, coupled with improved dollar sales velocity at existing accounts. Our efficient promotional strategies and strong consumer demand for our products fueled this momentum. As noted on our previous calls, we expected our Q1 sales growth would be tempered by out-of-stock issues with our creamer and instant latte products, stemming from unexpectedly high demand during Q4 2024. Indeed, we did feel that impact, yet I am pleased to report that we have resolved these constraints by qualifying additional raw material suppliers and enhancing our supply chain flexibility and that we are now in a stronger inventory position on our coconut milk products. We expect to drive accelerated growth on these products in the second half of 2025. Focusing on our supply chain, Q1 was another testament to the agility that we have built in this function. Despite persistent commodity inflation in coffee, cacao, and coconut milk powder, we were largely able to mitigate these cost impacts through strong supplier relationships and operational efficiencies, and by making moves that will mitigate the impact of tariffs on our business. Our 41.9% gross margin in Q1 includes a 3.3 point benefit from a timing change in capitalization of inbound freight. But even without this, our margin resilience is notable. We remain committed to our goal of sustaining annual gross margins in at least the upper 30s, and we're cautiously optimistic about potential commodity price corrections in 2025 that could further enhance our profitability. As mentioned previously, our strategy remains to maintain sharp pricing to prioritize volume growth, positioning us to build a larger, more profitable business from commodity cost normalization. Speaking of tariffs, let's address the elephant in the room. As you expect, much of our raw materials, such as our coconut products and our coffee, are imported from farms overseas. While we continue to watch this situation very carefully, we feel that we are in a position to manage the impact of the tariffs that have thus far been levied within the guidance that we have previously provided. Should significant additional tariffs be levied on our ingredients, we would likely need to take price to accommodate that impact. Before I hand it over to Anya, I want to highlight our continued progress on profitability. In Q1 2025, we narrowed our net loss to $0.2 million compared to a $1 million loss in Q1 2024. We also achieved a positive adjusted EBITDA of $0.4 million compared to a negative $0.8 million in the prior year. This result demonstrates the operating leverage we're unlocking as we scale our business, reinforcing our path towards sustainable profitability. Our balance sheet remains strong with no debt and ample cash to operate our business as we continue to grow our revenues and push beyond breakeven profitability. Now let me turn it over to Anya to dive into the financial details for the quarter.

Thank you, Jason, and good afternoon, everyone. I will now provide you with some additional details on the first quarter of 2025 financial results and our outlook for the full year. Coming off a record performance in 2024, we delivered equally strong results in the first quarter of 2025. Despite some out-of-stock challenges that we experienced during the quarter, net sales grew 18% to $11.7 million compared to $9.9 million in the prior year period. This is the second quarter in a row where our wholesale channel led the company's growth, increasing by 35% year-over-year and accounting for 47% of our total net sales. This growth was driven by distribution expansion in grocery and velocity acceleration at shelf in both retail and club. E-commerce sales increased by 6% year-over-year and contributed 53% of total net sales, with continued significant improvements in media efficiency in this channel. The growth was driven by strong sales in Amazon, building on our sales momentum over the previous four quarters and outstanding commercial execution. Gross margin for the first quarter came in at 41.9% compared to 40.0% in the corresponding prior year period. A timing change in capitalization of inbound freight accounted for 3.3 points of gross margin in Q1 2025. As Jason mentioned, even excluding that change, Q1 gross margin was 38.6%, which was flat sequentially to Q4 2024, showing resiliency in our margin despite inflationary increases in key commodity costs such as coffee and coconut milk powder. Our supply chain team continues to drive efficiencies by directly partnering with key raw material suppliers and co-packing partners to find cost savings to offset rising commodity costs. Operating expenses were nearly flat in the first quarter compared to the same quarter last year, as higher selling fees due to volume growth, and people-related costs such as stock-based compensation, which is a noncash expense, were nearly offset by lower general and administrative expenses and lower marketing spend as we continue finding ways to improve media efficiencies and cut nonworking spend. The net loss for the quarter was $0.2 million compared to a $1.0 million loss in the prior year period. Adjusted EBITDA was positive $0.4 million compared to a $0.8 million loss in the same quarter the prior year. This $1.2 million improvement in adjusted EBITDA was driven by top line growth and margin expansion. Now turning to our balance sheet. We ended the quarter with $7.2 million in cash and no debt. This quarter, we invested in building our inventory safety stock in order to minimize stockouts and capture future growth opportunities. This initiative resulted in $1.3 million cash usage in the quarter compared to $0.4 million of cash used in operating activities in the same period last year. We believe that now our inventory is appropriately sized to allow for supply chain flexibility required to meet expectations of increased demand during the balance of the year. We continue to project that we have sufficient cash to fund our operations as we grow our business and make operating improvements that drive us towards breakeven and profitability. We also have an asset-backed line of credit available for our use should we need it. We exited Q1 with strong momentum in our core categories, healthy inventory levels, exciting innovation, and confidence in our team and our brands. We are excited about our ability to continue to deliver strong performance. Therefore, we are reaffirming our full-year guidance. We expect net sales to be between $52 million and $54 million, which represents 20% to 25% growth versus the prior year, and we still expect gross margins to hold in the upper 30s despite rising commodities costs and tariff pressures. As previously shared, we will target to manage our adjusted EBITDA to breakeven on a full-year basis, and we'll reinvest the surplus to fuel our top line growth. We expect full-year operating cash flow to be in the range of $1 million to $2 million negative, driven by an incremental investment in inventory to support top line growth and minimize out of stocks. And with that, I will turn the discussion back over to Jason for any closing remarks.

Thank you, Anya, and thank you to everyone for joining us today. Laird Superfood continues to carve out a unique position in the food and beverage markets with our portfolio of minimally processed products and clean ingredients. Our 18% sales growth in Q1 outpaces many of our peers and speaks to the demand for our healthy functional foods. Our dual-channel success, thriving in both retail and e-commerce, gives us the versatility that sets us apart in today's retail environment. The past few years have been transformative for Laird Superfood, and yet we still believe that we're just getting started. I'm incredibly proud of our team's execution and excited about our continued growth as we build on this momentum. Despite current headwinds in our industry, as Anya indicated, we remain confident in our 2025 outlook and our ability to deliver long-term value for our shareholders. Operator, this concludes our prepared remarks, and we are now ready to open the call to questions.

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

Hi, Anya, hi Jason. I appreciate you guys taking my questions tonight. So I know you touched on it a little bit, but just to kind of keep beating the dead horse with tariffs, if we could just maybe dive in a little bit deeper, the statement that you made, Jason, I just want to clarify, is that based on sort of the pause kind of, call it, 10% rates? Or is that regarding the original Liberation Day rates? And just a follow-up would be, as you think about managing tariffs and wherever they may shake out, I guess, how much is it potentially inhibiting your ability to increase trade spend as you sort of think about managing to that high 30% gross margin?

Thank you for the question, JP. It's a topic that's on everyone's mind, so I appreciate the opportunity to discuss it. The current 10% tariff is manageable for us, and while it’s not insignificant, we can handle it without issues. The larger tariff that will take effect after the 90-day pause will have more of an impact, but we believe we can still manage it within our profit and loss framework. There will be some effect on gross margin, but we have various strategies and spending adjustments ready to help accommodate this while remaining within the guidance we’ve provided. When we mention an upper 30% margin target, it’s a bit broad, but we remain confident in achieving that for the year. Tariffs may have some effect, but we have ways to mitigate that through our overall P&L to maintain that breakeven point for adjusted gross margins we previously stated. The situation with these tariffs is uncertain. We are closely monitoring them and planning our strategy accordingly while continuing to operate effectively, including advancing inventory purchases while prices are lower. Many of these tariff issues may resolve themselves; it's just a matter of timing. We are trying to hold a significant amount of inventory to navigate through that time. If we face significant tariffs as initially projected and the entire industry is affected, we will have no choice but to adjust our prices, and we are prepared to do that. We're focusing on maintaining competitive pricing to capture volume and market share, and we’re already seeing some of this unfold. There are opportunities that have emerged, and some are being pursued actively, which we believe could greatly benefit our business as commodity prices decrease and some tariffs are lifted or eliminated. We are optimistic about ending up in a strong position. Our team is skilled at managing strategic opportunities and challenges, having worked together for many years, notably during our time at WhiteWave, where we dealt with similar scenarios. We view these changes as opportunities and believe we can emerge successfully as the situation develops.

Perfect. That's very helpful color. I appreciate that. If we could kind of switch over just to the wholesale strength. I was just hoping maybe you could provide a little bit more detail about specifically kind of the increasing velocities. Were there a couple of things that were really driving that, a couple of SKUs where you really noticed those improved velocities? And I think in the press release, there was a comment maybe about revenue being offset by promotional spend. So just if you could touch, was there some kind of large promotion that really helped that wholesale business this quarter? Or was it kind of just some small tweaks, maybe pricing, maybe trials? Anything that you can kind of share on the wholesale strength?

Absolutely. I appreciate your question because I wanted to delve deeper into this topic. Wholesale has significantly contributed to our growth over the past couple of years. We are experiencing excellent acceleration in this area. Looking ahead, we see our growth primarily coming from Amazon and wholesale, aiming for a nearly equal split between wholesale and e-commerce by 2025, and we are on track for that, currently just a few points shy. We believe wholesale will likely surpass online sales moving forward, as we have achieved substantial distribution gains recently that we are now benefiting from. In response to your question, we are seeing considerable improvement in sales velocity, even for products gaining distribution in other stores, which is a rare occurrence. This indicates positive trends in our sales right now. Coffee sales are particularly strong, especially our powdered creamers and instant latte products, which have been key drivers. We are also experiencing growth in our mushrooms and our bar products. Overall, our entire portfolio is performing well, with the coffee product line standing out in strength. We did face challenges in Q4 of last year due to unexpectedly high demand that led to supply shortages, but currently, we have ample stock of coconut milk products across all channels. We are back in stock with our wholesale distributors, Amazon is performing well, and our direct-to-consumer products are accessible again. We feel well positioned for the remainder of the year with better supply agreements and confidence in our delivery capabilities. Regarding trade spend, we saw some unexpected expenses from prior periods. In Q3 and Q4 last year, particularly during our growth phase, some promotions exceeded our expectations, which may have contributed to the out-of-stocks. While exceeding the trade budget is a bit challenging, considering the strong growth we had last year, we view this as an efficient investment that continues to enhance our retail momentum.

Perfect. Really appreciate all that color. And if I could just slide one last one in. Just since launching the large liquid creamer on shelf, any color you can provide on how velocities are doing there or any kind of customer feedback? Thanks.

Yes, great question. Customer feedback is generally good. It was a bit more choppy than we anticipated in part because the reset windows didn't line up. The biggest accounts that we have, are Sprouts and Whole Foods on that liquid creamer. We have a handful of other nice accounts with Wegmans and Target, et cetera. They're all at different timing. We had to have two sets of inventory in both KeHE and UNFI to be able to fulfill that. There are great learnings that the teams had out of that that will help us in the future. It was more challenging and took longer than we anticipated. In fact, we're still going through some of those executions. I think Natural Grocers is just now coming back online after a little bit of being out of stock through that transition; the codes got mixed up. What we're seeing is largely velocities coming in where we had planned. We expected not to get a full 1:1 pickup out of the gates because you're upsizing by 50%. There should be some unit attrition to the volume, and we're coming in right about where we expected. It's still early days. With a couple of those retailers that have transitioned like Sprouts that transitioned earlier, I think are looking quite good. We have a lot of confidence that, probably next quarter when we're fully through everything, we can come back and give you a good report.

Awesome, I really appreciate all the color. Thanks for the time.

You bet, JP.

Next question is from the line of Ayden Morgenstern with Greenland Capital. Your line is now open.

Hi, thank you so much for taking my call. I just had a question about the marketplace and how it fits into your overall strategy. Is it drop-ship based? What kind of margin and costs are involved? And how do you make sure it doesn't distract from the core product innovation?

Hey, Ayden, how are you doing? I'm going to have to ask you to clarify that. I'm not sure I'm following your question exactly. Can you give me a little more color?

Yes, you announced in March this new marketplace where you're having promotions with other smaller health companies. How does it fit? Are you buying that inventory and selling out, or is it just drop-shipping through your platform? What costs are associated with this new thing?

I got you, Ayden. The marketplace is a component of our DTC platform that was announced a couple of months ago. This is a nonstrategic launch that we did to bring in partner and affiliated lifestyle products to allow the consumers to come to our DTC site to have a more robust shopping and living experience. Part of what we do with DTC is we bring content on Laird and Gabby and other influencers to our site in an exclusive manner to allow our consumers a reason to shop at that site. Other DTC operators are finding a lot of attrition out of their site and a hard time to bring consumers in. What we're finding is that, with unique content and the supporting marketplace, we give consumers a reason to come in and spend time and ultimately to shop and purchase on our sites. The way to think about that is just as another supportive marketing component. We're not looking to make a lot of money out of that. We're not going to sell a lot of goods. We don't drop-ship any of it. It's nothing but a pass-through. If you buy, for instance, a red light therapy machine, we just pass that click over to one of our partners to make that purchase. Our consumer is living a lifestyle that is very health and wellness-oriented and sometimes just health and wellness seeking. Providing various products related to that lifestyle on our marketplace is highly engaging and really helps drive our DTC traffic and retention as well.

Got that. I really appreciate it. Thank you. And then just another question about the Palisade fires. There hasn't been any mention, but I know a lot of the market is in the L.A., California area, and there was some donations. Is there any impact in Q1 that arose from that?

Yes. Very good question. There's a lot of displacement, and we over-index in the Southern California consumer market. We can't say that we have been negatively impacted by that. As you say, we provided support to first responders and followed up with products back to various firehouses. We saw it as a great opportunity to say thanks to those pillars of the community. Hopefully, that built some goodwill, but we've not seen a noticeable slide in sales that made it to my desk.

Got it. Well, I really appreciate you taking the time to clarify, and I'm excited to see what happens next.

Thanks, Ayden. Appreciate it.

Thank you for your questions. There are currently no further questions registered. There are no additional questions waiting at this time, so I'll pass the call back to the management team for any closing remarks.

Once again, we'll just share a big thank you to all of you for joining us. We always appreciate the opportunity to talk a little about our results. In this case, we are pleased and proud of our fifth straight quarter of double-digit growth, especially in this environment. The uncertainty speaks volumes to what the team has been able to put together and execute. We're excited for the rest of this year and look forward to talking to you all in another quarter.

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