Laird Superfood, Inc. Q2 FY2025 Earnings Call

Good afternoon. Thank you for attending today's Laird Superfood, Inc. Second Quarter 2025 Financial Results. My name is Jay, and I'll be your moderator for today. Operator Instructions. I would now like to turn the conference over to our host, Trevor Rousseau. Please proceed.

Thank you, and good afternoon. Welcome to Laird Superfood's Second 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 at www.lairdsuperfood.com. 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 good afternoon, everyone. Welcome to Laird Superfood's Second Quarter 2025 Earnings Conference Call. I'm Jason Vieth, CEO of Laird Superfood, and I'm joined today by our CFO, Anya Hamill. Let me start by saying how proud I am of our team's performance this quarter. In a challenging environment with ongoing economic pressures, commodity inflation, and shifting consumer preferences, we once again delivered impressive financial results that underscore the resilience and appeal of the Laird Superfood brand. Net sales grew 20% year-over-year to $12 million in Q2, marking another quarter of robust top-line expansion. This growth was fueled by our strategic focus on wholesale, which surged 47% and now represents just under half of our total net sales, driven by distribution gains and velocity growth in grocery and club channels. Our e-commerce channel also held steady with positive 2% growth in a very challenging digital market, contributing 52% of total sales, thanks to continued strength on Amazon. This quarter obviously marked an acceleration in our stated strategy to intentionally grow wholesale to become the largest percentage of our total business, and I am proud that we are succeeding in making that transition. Looking at our product categories, coffee creamers led the way with 44% growth, making up 56% of gross sales in Q2 as consumers increasingly seek out our plant-based functional creamer options. Coffee, tea, and hot chocolate products grew 44% as well, driven by strong growth in our coffee products. This is in line with our intent to become a powerhouse in functional coffee solutions and speaks to consumers' interest in turning their morning ritual into a healthy and nutritious way to start their day. On the profitability front, we achieved a gross margin of 39.9%, while slightly down from last year due to higher trade spend, commodity costs, and some small tariff impact, our margin level remains among the best in the industry. Operationally, we've demonstrated agility in managing our supply chain even amid tariff pressures, allowing us to deliver positive adjusted EBITDA of nearly $150,000 this quarter, a meaningful improvement from the prior year's slight loss. This marks our continued progress towards sustainable profitability with year-to-date adjusted EBITDA at just over $500,000. Our balance sheet remains solid with $4.2 million in cash and no debt, though we strategically invested in inventory this quarter to support demand and mitigate tariff costs and supply chain risks, leading to $4.1 million in cash used from operations year-to-date. We expect to normalize this in the coming quarters as we convert our inventory into cash. These results position us as one of the fastest-growing food companies in the public markets, outpacing many peers in the healthy nutrition space. For context, we've seen mixed performances across the industry this quarter, and these announcements reflect a sector that's navigating inflation and softer demand in certain channels, yet rewarding brands with innovation and execution, brands like ours. We expect tariffs to remain a wildcard for the back half of this year and beyond, but our team continues to make headway in our cost structure through key strategies such as direct sourcing of our materials and freight optimization. We are proud to not have taken any tariff-related price increases while still delivering our gross margin targets, thereby delivering our highest quality health and wellness food products to consumers at the best value possible. We believe that this gives us a strategic advantage versus many of our competitors while also leaving open the opportunity to increase our price at a later date if the conditions necessitate. The economic environment may feel overall shaky right now, but we are building on tremendous momentum and are cautiously optimistic as we head into the second half. The consumer landscape is dynamic, but our focus on clean plant-based Superfood backed by Laird Hamilton's legacy and our commitment to quality positions us to capture share. Going forward, we'll continue to invest in brand building, innovation, and operational efficiency to drive long-term value. With that, I'll turn it over to Anya for more financial details.

Thank you, Jason, and good afternoon, everyone. I will now provide you with some additional details on the second quarter of 2025 financial results and our outlook for the full year. I am pleased to share that we have delivered another strong quarter of high-growth top line, robust gross margins, and disciplined spend management. Net sales grew 19.9% to $12.0 million compared to $10.0 million in the prior year period and $11.7 million in the last quarter. Similar to the first quarter, our wholesale channel led the company's growth in the second quarter, increasing by 47% year-over-year and accounting for 48% of our total net sales. This growth was driven by distribution expansion and velocity acceleration at shelf in grocery and club stores. E-commerce sales increased by 2% year-over-year and contributed 52% of total net sales, led by continued growth on the Amazon platform. Gross margin in the second quarter delivered a robust 39.9% compared to 41.8% in the corresponding prior year period. Although Q2 gross margins were about 2 points lower than in the first quarter of 2025 and in the corresponding period a year ago, we are very pleased with these results given commodity inflation in our key raw materials such as coffee and coconut milk powder and increased tariff costs. These results show resilience in our ability to hold gross margins in the high 30s, which is at the level of best-in-class consumer packaged goods despite the inflationary pressures and even without using pricing as a lever. 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 increased $0.7 million in the second quarter compared to the same quarter last year, driven primarily by two reasons: one, increased marketing, advertising, and selling expenses due to sales volume growth; and two, slightly increased general and administrative expenses, driven primarily by stock-based compensation, which is a non-cash expense and largely offset by broad cost reduction measures. Net loss for the second quarter was $0.4 million compared to a $0.2 million loss in the prior year period, and adjusted EBITDA was positive $0.1 million compared to a loss of $0.1 million in the same quarter prior year. This $200,000 improvement in adjusted EBITDA was driven by top line growth, margin management, and discipline around cost control as we are well on the way to breakeven and profitability. Now regarding our balance sheet, we ended the quarter with $4.2 million in cash and no debt. The increase in cash usage in the second quarter relative to the first quarter was primarily driven by our decision to bolster our inventory in order to meet higher demand for our products, address out-of-stocks experienced early in the year, as well as forward purchase of raw materials in anticipation of potential tariffs on the import of raw materials that we source outside of the United States, particularly in Southeast Asia. As we sell through this forward purchase inventory during the second half of 2025, we expect our cash balance to normalize and increase by the end of the 2025 fiscal year. In addition, during the second quarter, our accounts receivables balance was elevated due to the timing of shipments, which resulted in a shift in payments received from Q2 to Q3. 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 forward to breakeven and profitability. We also have an asset-backed line of credit available for our use should we need it. We exited the second quarter with strong momentum in our core categories, exciting innovation, and confidence in our team and our brand. Despite ongoing macroeconomic uncertainty, particularly within the e-commerce landscape, we remain confident in our ability to deliver on our full-year growth plans. Based on the strength of our first-half performance, the continued momentum in the wholesale channel, and strong execution across our organization, we are reaffirming our full-year 2025 net sales growth guidance in a range of 20% to 25%, gross margin to hold in the upper 30s and breakeven adjusted EBITDA. We expect full-year operating cash usage to be approximately $2 million, driven by an incremental investment in inventory to support top-line growth and minimize out-of-stocks. And now I will turn the discussion back over to Jason for any closing remarks.

Thank you, Anya. Our 20% sales growth is among the best in our industry and speaks to the demand for our healthy functional foods. I want to reiterate our confidence in our mission and our team and in the long-term opportunity for Laird Superfood. Our brand is strong in health and wellness, and our balance sheet remains attractive and with no debt. Despite the challenges presented by tariffs and a less confident consumer, we are optimistic in our team's ability to navigate these issues and deliver long-term value for our shareholders. Thank you for joining us again today, and thank you for your continued interest in Laird Superfood. This concludes our second quarter 2025 prepared remarks, and we are now ready to open the call to questions.

Operator Instructions. Our first question comes from George Kelly, ROTH Capital Partners.

First one for you is just about your revenue guide for the year. If I just kind of play that through in the back half, it bakes in a pretty significant kind of step-up versus the revenue performance in the first half. So I was just wondering what you're seeing that gives you confidence that you'll be able to hit on that 2 half step-up.

Jason here, and I'll let Anya add any thoughts as well. That's a great question and one we've examined closely. The current environment isn't conducive to rapid growth for most companies, so we're pleased to confirm our guidance and project growth of 20% or more this year. It's important to note that a few issues affected us in the first half that we don't expect to recur in the second half. In Q1, we faced a significant out-of-stock problem that hurt sales of our powder creamer products, costing us over $1 million in sales. Additionally, in Q2, UNFI experienced a cyberattack that disrupted shipments for several weeks, which impacted a crucial part of our business since we rely heavily on our two distributors, UNFI and KeHE. With one distributor down, it had a noticeable effect. We do not foresee setbacks of that scale happening again this year. Furthermore, we've secured new distribution that will begin rolling out in the coming weeks and months, placing us in a strong position to benefit from these additional opportunities, which we're monitoring closely. Lastly, our liquid business, which underwent a transition at the end of last year and the beginning of this year, is now returning to its previous performance levels, and we're observing sales and velocities recovering nicely. Although we faced some challenges during that transition, we've gained valuable insights, and we believe we've moved past those difficulties. Overall, we're optimistic about our progress as we enter the second half of the year.

That's very helpful. I have a couple more questions regarding your explanation. Can you quantify the impact of the cyberattack? Additionally, could you provide more details about the liquid product? I believe you mentioned a transition in sizing, and I noticed that one of the liquid products was recently labeled as having a new and improved formula. Is that part of the transition? Generally, how is the liquid product performing? Are you satisfied with what you're observing? Any additional details would be appreciated.

Yes, great questions. Regarding the UNFI outage, we can't pinpoint an exact figure, but we estimate that it likely impacted us by around 8 to 10 points in retail sales during the quarter, specifically Q2. This issue has been resolved now, but we estimate a loss of a few hundred thousand dollars in sales. However, this was less significant than our out-of-stock situation, mainly because it was fixed in a couple of weeks. As for the liquid product, we transitioned from a 16-ounce to a 25.4-ounce size. We anticipated a relatively steady transition with minor fluctuations, but it lasted longer than expected. One particular retailer was slow to adopt the new packaging, which resulted in about six weeks of out-of-stock situations. This retailer is now fully on board, and sales are stable. From this experience, we learned the importance of clearly communicating product changes to consumers. Initially, they may have perceived the price increase without recognizing the larger quantity, leading to some misunderstanding. Overall, we've managed to improve velocity to align with our initial projections, and we're still addressing some of the smaller accounts, but we're optimistic about our progress over the last couple of months and expect to resolve all remaining issues shortly.

Okay. Great. And then just one last one for me. Innovation items for the back half of the year and then into 2026, where are you most focused? Where do you think you have the most opportunity? And that's all I had.

Yes, we are very excited about our innovation efforts. The main challenge is managing the rollout with our small team, so we need to pace ourselves to ensure we can keep up. Currently, we are working on transitioning a liquid creamer. We have learned valuable lessons and created a highly optimized formula that will allow us to eliminate a current ingredient, transitioning to coconut sugar, removing coconut oil, and making it entirely coconut cream-based. We're also switching to organic ingredients and using a post-consumer recycled plastic bottle, which is more consumer-friendly. Ironically, the paper packaging that seems recyclable is not actually so in the U.S. due to the lack of a two-step recycling system in many communities. We are pleased with our progress and have applied our previous learnings to avoid any issues this time around. This new product will stand out in the market, and we have received positive feedback from retailers. Additionally, we are excited about a protein-based coffee product. There have been many iced coffee products with protein introduced recently, and we have refined our formula based on a concept we saw last summer. This will be our first entry into dairy products, which we've been keen on exploring. We believe there’s a significant opportunity in the dairy sector, leveraging the benefits of functional mushrooms and offering a cleaner source of dairy. We are looking at organic elements as part of our entry strategy. This is a rapidly growing category both online and in retail, and we’re engaged in promising discussions. These will be our primary focuses in the next couple of quarters, and next year we plan to expand our dairy platform with some exciting product introductions we have been hinting at for some time.

Our next question comes from Nicholas Sherwood with Maxim Group.

Can you first go into how the Amazon Day kind of promotional period went for the company?

Sure, Nicholas, sorry, we lost you. Yes, Prime Day went well for us. It went to plan. We had a couple of really strong days out of the gate, and then it tapered off a little bit in the last couple of days. There's a little bit of a different pattern than what we've seen in the past where consumers shop for a while and then end up purchasing later in the Prime Days; at least that's been the behavior that we've seen in past years. We had a couple of really strong days out of the gate, and we came in nice, I think right where we expected to be as per our plan. Amazon in general, you guys probably see with the e-commerce numbers. E-commerce is slowing for us as it is for a number of other consumer brands. We're fine with that at the end of the day. We've talked a lot on previous calls about how we really want to encourage our consumers to shop wherever they want to shop. We really try through our pricing and our margin structure to help them do not care and for us to not care. The way we've structured this, just as a reminder to everyone, is DTC is our highest priced portfolio. We do that because if consumers are interested in the brand, willing to shop here, interested in all the education that we provide on that site, and they do it all from the comfort of their home and they don't have to really take any effort to go drive out, use the gas, go to their time, to go to a grocery, then we feel like that should be the highest price products in our portfolio. And Amazon, on the flip side, while we'd like to run the same prices, ends up being a little bit more competitive just due to the marketplace nature of that platform. When you look at grocery, you find that those are best prices, consumers are using their time and gas to go over and shop. Obviously, when you have all the physical products there, it's a very competitive marketplace. We want to make sure that we are as competitive as we can be. But when you look across our margin structure and the way that we leverage marketing into those various channels, what we try to do is make ourselves completely apathetic to where the consumer shops. We want the consumer to shop where they want to shop, but we want to not care. We've really tried to build a model that gets us to approximately the same margin across all the channels. You really see that, I think, in our results this quarter, where we saw a significant shift towards that bricks-and-mortar business, which we've been saying is our strategy since the day I walked in the door here. We're really excited to see the growth in the bricks-and-mortar side. Of course, we'd like to hold on to as much e-commerce sales as we can. But at the end of the day, we feel the consumer will shop where they want to shop, and we want to be in the position to allow them to do that. The results of this quarter really demonstrate that. It's a little bit more information than you're asking for with regards to Amazon. But with Amazon, what I'd say is it is slowing a bit for us. It's slowing for a lot of other consumer brands that we speak with that have reported recently. So is the DTC platform. We think we saw a tremendous amount of opportunity, though, in both of those platforms, but we're going to spend appropriately and market to those in a cost-effective way, just as we do across all the channels and ultimately let the shoppers go where they want to go.

Yes. That makes sense, focusing on the wholesale channel. Kind of talking about focusing on the wholesale channel, a lot of your increased spending was in marketing and advertising, while trade promotion was flat year-over-year. Do you have any plans to increase trade promotion because gross margin was in the kind of in the upper range of guidance? Or are you kind of not doing a ton of trade promotion as a wait-and-see thing on input costs related to tariffs?

Nicholas, this is Anya. Thanks for the question. Yes, I think it's a good one. It's certainly something that we are discussing as we are looking into the second half. Given the overall macroeconomic climate, I think consumers are certainly being somewhat price sensitive. As you perhaps noticed, we have not taken pricing so far. We have not increased our price given the commodity inflation that we experienced in our key raw materials as well as tariff impact that we already experienced to some degree and it's rolling out even at a higher rate in the back half. So we reaffirmed our gross margin targets for full year, and we are discussing what other supply chain efficiencies we can implement in order to offset those inflationary costs without increasing pricing, but promotional strategy is definitely something where we can lean into if we see the need in the back half.

Yes. And I love that question because as Anya said, it's something we've been kicking around. We do have the luxury of a strong gross margin and have the ability to invest into our categories and into our channels and retail customers, all customers. In fact, right now when consumers are, as Anya pointed out, becoming more price sensitive. So we feel like we're in a really strong position given the gross margin structure that we have. We'll utilize that as necessary to drive growth when we feel that we can win and take share from competitors.

Our next question comes from Eric Des Lauriers with Craig-Hallum.

This is Adam on for Eric. I only have one question here. Can you expand on some of the distribution gains in grocery and club? How broad-based are these gains? Should we think of one channel driving more growth than the other? Any color in terms of geographic regions would be very helpful.

Yes, those are excellent questions. I'll discuss the quarter first and then touch on the half-year as well. Just to give everyone a reminder about our business, our orders can be quite uneven. We rely on three large customers, two of whom distribute to multiple retailers. Specifically, UNFI and KeHE are two of our biggest customers, along with our club business. Our operations involve distributors since we don't have many direct shipments to retailers at this stage. This means that the timing of large orders can significantly impact quarterly results. For example, receiving a large order on June 28 for shipment that same day can drastically alter that quarter's performance compared to if it had been received a few days later, in July. That said, our club business has experienced strong growth. We saw a slight slowdown in our retail operations, which is largely due to distributors having stocked up on inventory at the beginning of Q2. Conversely, our club business was not experiencing the same saturation. It's essential to evaluate these results over a broader timeline than just a single quarter due to the significant nature of the orders compared to our overall business size. Moving forward, our club business continues to expand successfully. We've increased our presence of creamers in various regions. Previously, we covered most of California, parts of the Pacific Northwest, and the San Diego area. We tested our coffee products and saw excellent performance. In Q2, our coffee segment also did well within the Los Angeles area. As we progress into Q3 and Q4, we're already seeing the benefits of our expanded distribution. Additionally, we’ve started to expand our creamer business into the Southeast region for clubs, establishing a presence from the West Coast to Colorado and into the Southeast, where we are performing admirably. In the coffee segment, the successful rotation we’ve seen in Los Angeles suggests we may see rotations in other regions as well. While nothing is confirmed, it looks promising for growth in the club business moving into the latter half of the year. In the MULO and Natural segment, we continue to achieve steady growth. While we haven’t penetrated the mass market extensively yet, we've collaborated with Target, and certain products are rolling out to those stores. Our work with Sprouts has been remarkable as well, with significant expansion over the past few months, although the effects will be more noticeable later this year. Overall, across MULO, Natural, and Club, we are committed to expanding our distribution in brick-and-mortar channels. We have a dedicated sales team and a strong broker supporting us, leading to successful outcomes across the board right now.

Operator Instructions. There are no more questions registered in queue. I'd like to pass the conference over to our hosting team for closing remarks.

Thank you. I think really, I'd just like to say thank you to everyone for joining our quarterly earnings call today. We look forward to talking to you again in three months. There's been a lot of progress made again, and we're really excited to be able to come in and reaffirm our guidance that we've given and feel like we have a lot of opportunity as we go forward from here with some of the innovation that we mentioned, the expansion that we talked about. We'll be excited to talk to you in about three months from now. So have a great day. Thank you all very much.

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.