Earnings Call Transcript - LSF Q3 2025

Operator, Operator

Good afternoon. Thank you for joining the Laird Superfood, Inc. Third Quarter 2025 Financial Results Call. My name is Matt, and I'll be the moderator for today's call. I would now like to pass the conference to our host, Trevor Rousseau, Head of Investor Relations with Laird Superfood. Trevor, please proceed.

Trevor Rousseau, Head of Investor Relations

Thank you, and good afternoon. Welcome to Laird Superfood's Third 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 is 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.

Jason Vieth, CEO

Thank you, Trevor, and good afternoon, everyone. Thank you for joining us today for our third quarter 2025 earnings call. I'm pleased to report another quarter of solid top line growth as we continue to execute on our strategy to build Laird Superfood into a leading player in the premium plant-based functional food space. Net sales for the third quarter increased 10% year-over-year to $12.9 million, driven primarily by strong performance in our wholesale channel. For the first 9 months of 2025, net sales were up 15% to $36.5 million. Our wholesale channel continues to be a standout with net sales up 39% in the quarter and 40% year-to-date. This growth reflects our focused efforts on expanding distribution, particularly in grocery and club stores, where we've seen robust velocity gains and increased shelf space. We're seeing strong consumer demand for our core products like coffee creamers, hydration enhancers, and functional beverages, as shoppers increasingly seek out clean, functional ingredients that align with healthier lifestyles. The wholesale channel contributed 53% of net sales during Q3 and through the first 3 quarters of 2025, represented 49% of our total net sales. This is well aligned to our strategic intent of transitioning Laird Superfood to being a wholesale-led company. In our e-commerce channel, which represented 47% of net sales in the quarter, we experienced an 11% decline year-over-year, primarily due to softness in our direct-to-consumer platform from lower new customer acquisition. However, this was partially offset by continued growth on Amazon.com. Year-to-date, e-commerce was relatively flat, and we remain optimistic about this channel's potential as we refine our digital marketing strategy and leverage our loyal repeat customer base, which accounted for about 88% of DTC sales in the quarter. Gross profit for the quarter was $4.7 million, down 7% from the prior year, with gross margin contracting to 36.5% from 43% last year. This was fully expected and largely due to commodity cost inflation and channel mix shifts towards wholesale, but also due to the nonrecurrence of a one-time supplier settlement benefit that we recorded in Q3 of last year, which impacted margins by about 3 points. Year-to-date, gross profit increased 9% to $14.4 million, as we have managed to offset a good portion of the commodity and tariff impacts that have swept the national headlines. Anya will provide more details on our financials in a moment, but overall, these results demonstrate the progress that we're making in scaling our business while navigating a dynamic market environment. Turning to business highlights. We're excited about the momentum in our wholesale expansion. We've continued to add distribution points at major retailers, and our velocities in core categories like shelf-stable creamers continue to outperform our expectations. This validates our focus on premium functional ingredients that resonate with consumers, shifting away from sugar-laden and artificial options. On the innovation front, we're continuing to invest in product development to diversify our portfolio and drive repeat usage. We are excited to be launching our new protein coffee in the next month, and we have already begun shipping our new liquid creamer products. On liquid creamers, this marks an enormous improvement to our existing formulation. We've now replaced the coconut oil with organic coconut cream, increased the level of adaptogenic mushrooms, and replaced cane sugar with lower glycemic index coconut sugar. The resulting taste and texture are far superior to our previous products, and I would dare say the best tasting and healthiest products on the market. We are relaunching these creamers as organic formulations and packaging them in a post-consumer recycled plastic bottle that will be really attractive on the retailer shelves. Now back to protein coffee. We have high expectations for this launch. This marks Laird Superfood's first foray into dairy products, a market which is somewhere around 10 times as large as the plant-based market that we have been participating in to date. And the product that we are launching is dynamite. It's a high-quality freeze-dried coffee blended with 10 grams of dairy protein per serving, perfect for anyone looking to add protein to their diet. And with low calories and no sugar, it's also a perfect fit with today's health and wellness trends and great support for anyone taking GLP-1s. As part of our strategy to streamline operations and focus resources on our highest growth opportunities and Laird Superfood brand, we've made the decision to discontinue the Picky Bars brand in the second quarter of 2026. This will allow us to redirect investments toward the core Laird Superfood brand, which we believe has the strongest potential for scale. In connection with this, we recorded a $661,000 impairment charge in the quarter related to Picky Bars intangible assets. From an operational standpoint, we were able to reduce our inventory by more than $1 million in the third quarter. You'll recall that we had strategically built our inventory through the first half of 2025 in order to meet rising demand without the out-of-stocks that we experienced last year and to mitigate the impact of tariffs on imported raw materials, particularly from Southeast Asia. As we continue to sell through this inventory in the coming quarters, we expect cash flows to improve as a result. And speaking of tariffs, I am also pleased to report that we recently were informed that our coconut milk products will not be subject to additional tariffs, reducing the impact on our go-forward costs and improving our 2026 financials by more than $1 million. For the balance of 2025, we're focused on optimizing our supply chain, managing costs, and driving efficiencies to expand margins over time. We'll also continue to monitor the macroeconomic factors like commodity inflation and potential trade policies, but we're well positioned to navigate them as we close out this year and head into 2026. Q3 was another step forward in our journey to build a scalable, profitable business. We're executing on our plan, and I'm excited about the opportunities ahead. With that, I'll turn it over to Anya for a more detailed review of our financials.

Anya Hamill, CFO

Thank you, Jason, and good afternoon, everyone. I will now provide you with some additional details on the third quarter of 2025 financial results and our outlook for the full year performance. I am pleased to report another robust quarter for Laird Superfood highlighted by double-digit top line growth, healthy gross margins, positive adjusted EBITDA, and $1.1 million of positive operating cash flow. Net sales grew 10% to $12.9 million compared to $11.9 million in the prior year period and $12.0 million last quarter. And excluding Picky Bars products, net sales increased 14% in the third quarter. Although net sales growth came in softer than anticipated, primarily due to the timing of large wholesale customer orders, our underlying fundamentals remain strong and unchanged. Our wholesale channel continued to deliver exceptional momentum, increasing 39% year-over-year and representing 53% of total net sales, driven by ongoing distribution gains in both grocery and club. E-commerce sales declined 1% year-over-year, reflecting softness in DTC, though this was primarily offset by continued growth on Amazon. Overall, the e-commerce channel contributed 47% of total net sales. Gross margin in the third quarter delivered robust 36.5 points compared to 43.0 points in the corresponding prior year period. It is worth noting that prior year Q3 margins have benefited from one-time favorable supplier settlement that accounted for approximately 3 points of gross margin. Excluding that one-time benefit, Q3 gross margins were about 3.5 points lower than the corresponding prior year period and 3.4 points lower than the second quarter of 2025. These results are in line with our expectations given commodity inflation in our key raw materials, such as coffee and coconut milk powder, and increased tariff costs. We are confident in our ability to hold gross margins in the upper 30s for full year 2025 and beyond, which is at the level of best-in-class CPGs, despite 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 $0.4 million in the third quarter compared to the same quarter last year, driven by increased marketing investment and advertising costs as well as increased selling costs due to higher sales volume. General and administrative expenses were relatively flat during Q3 of 2025 with Picky impairment charges, largely offset by decreased personnel costs and professional fees. Net loss for the third quarter was $1.0 million compared to $0.2 million loss in the prior year period. The increase in net loss was primarily due to a $0.7 million impairment charge of long-lived intangible assets related to the Picky Bars brand, as well as higher marketing and selling costs on higher top line sales. This was offset in part by decreased personnel costs. Adjusted EBITDA was positive $0.2 million compared to $0.1 million in the same quarter prior year. The improvement in adjusted EBITDA was driven by top line growth and discipline around cost control as we are well on the way to breakeven and profitability. Now turning to our balance sheet. We ended the quarter with $5.3 million in cash and no debt. As we discussed last quarter, we made targeted forward purchases of certain raw materials earlier this year to mitigate tariff-related cost increases. During the third quarter, we began drawing down this inventory, reducing our position from approximately $11 million to $10 million while increasing our cash balance by $1.1 million quarter-over-quarter. We expect to continue building our cash position in the fourth quarter and into early 2026, as inventory continues to convert to cash. We exited the third quarter with solid momentum in our core categories, a strong innovation pipeline, and continued confidence in our team and our brands. While macroeconomic uncertainty, particularly with the e-commerce channel and the timing of large customer orders are impacting our near-term top line, our underlying fundamentals remain strong. Reflecting year-to-date trends and these timing effects, we are updating our full-year 2025 net sales growth expectation to approximately 15% growth. We continue to expect gross margin to hold in the upper 30s range and to achieve breakeven adjusted EBITDA for the full year. We also remain confident in our ability to deliver a strengthened cash position, supported by our disciplined execution and positive operating cash flow in the third quarter. And now I will turn the discussion back to the operator and open it up for questions.

Operator, Operator

First question is from Eric Des Lauriers with Craig-Hallum.

Eric Des Lauriers, Analyst

Great. First one for me, I just wanted to zero in a little bit more on the guidance. So certainly understand the volatility and size and timing of some key customer orders in the wholesale channel. I guess I was just a little confused if this negatively impacted Q3 results or Q4 or maybe both? If you could just give a bit more color on perhaps where this timing shifted to, would be helpful?

Jason Vieth, CEO

Yes, Eric, it's good to hear from you, and I appreciate your question. The situation we are facing is primarily related to timing issues with reorders and new orders, which are quite significant for new regions in the club space. This is mainly what has caused our situation. Additionally, since we have only a few customers that distribute to the broader retail space, specifically UNFI and KeHE, we have encountered some timing issues there as well. What we are noticing is that our sell-through rates are healthy; however, the timing has created a bit of a challenge for us. As we approach Q4, we are being a bit cautious regarding timing as well. Overall, things are progressing well, and the results are promising, but the process is moving somewhat slower than we had anticipated regarding replenishment schedules and inventory management. There has also been some rebalancing of inventories, particularly with the retail distributors, which we are monitoring closely. This is affecting Q3 and Q4, but we don’t foresee any long-term implications for the overall health of the business. We believe that the business remains strong and continues to gain traction, especially in the club sector. While we are slightly off from our expectations, we are still generally on the right path.

Eric Des Lauriers, Analyst

Yes. Yes. No, that certainly makes sense to me. And yes, I mean, at this size and the size of the orders, certainly, this dynamic isn't unique to you guys. I just wanted to sort of zero in on Q3 versus Q4, but I got what I need to know. Next question, I suppose, is somewhat related. Last quarter, the 750-milliliter product, Refresh, had some nice impact on shelf space and velocities. I just wanted to sort of check in and see how those sales are trending? And any sort of early indications on how you might think of this protein beverage as well? Obviously, not out on shelves yet, but just curious how you're looking at that as well?

Jason Vieth, CEO

Yes, that's a great question. I'll take that again and let Anya jump in after this. Regarding the 750 ml product, the upsizing went as expected. Currently, the data shows a decline in units sold but a corresponding increase in dollar sales following the size change from 500 ml to 750 ml, which is a 25% increase. We saw unit sales decrease by a similar amount, but overall sales volume remained steady. At this point, I'd give that a checkmark, though it’s not quite an A to F scale since we’re about to continue this effort. This was a nine-month endeavor, and as we mentioned, we are fully committed to the co-packer, transitioning to a fantastic formulation in a fully organic package that we believe will have a significant impact. We had to catch up due to some lost distribution with small accounts at the start, which put pressure on our broker to recover those losses. We're just now getting to the point where they’ve caught up, and we’re moving into another transition. We've learned valuable lessons from the challenges we faced, and we are committed to applying those as we move forward to avoid repeating past mistakes. Our broker understands what needs to be done, and communication is solid. We are already in a few stores, including Whole Foods, with the new post-consumer recycled plastic bottles and a 100% organic formula that tastes great and is very healthy. We haven’t seen any returns yet since it only hit the shelves last week, but we’re optimistic about it. When I review the scanner data, we are right in line with our expectations. Kudos to the team on their forecasting; it took us longer to reach this point than anticipated, but we have now caught up and plan to maintain our position from here.

Eric Des Lauriers, Analyst

Great. I appreciate that color. Next one just a bit of a high-level question. So coffee prices obviously at record highs right now. On the one hand, I could see that having a negative impact on volumes of coffee-adjacent products like creamers; on the other hand, it may have a tailwind to coffee alternatives like your mushroom-based coffee and functional coffee. So just curious what you're seeing from a sort of macro impacts on your different product types here? And just kind of how to think about the impact of elevated coffee prices on your business?

Jason Vieth, CEO

Yes, this is something we consider regularly, and I believe everyone in the industry is as well. We've done well in sourcing our coffee throughout 2025, which has allowed us to maintain our pricing so far. In recent years, we've only increased retail prices by about $1. If coffee prices continue to rise and we have to make purchases under that pressure, we may have to adjust our prices. However, because we maintained a slightly premium price initially, we've managed to capture significant volume and secure valuable distribution points by collaborating with retailers, positioning ourselves as a strong premium option without excessive pricing. This strategy has worked well for us. On the creamer front, we've definitely noticed a slowdown in that segment. It’s clear that there will be a volumetric decline, but we still have substantial market share available in the coffee category to pursue. We believe we offer a remarkable product with our high altitude Peruvian organic coffee infused with functional mushrooms at our current price point, and we are seeing positive feedback for that.

Eric Des Lauriers, Analyst

That's great. Congrats on the continued strong wholesale growth, and I appreciate you taking my questions.

Operator, Operator

Next question is from the line of Nicholas Sherwood with Maxim Group.

Nicholas Sherwood, Analyst

Can you discuss what you have observed regarding limited time offer products? I've noticed the pumpkin spice creamer on the shelves and would like to hear your insights from retailers and consumers about those products.

Jason Vieth, CEO

Yes, we've observed a strong year overall in the category. We did experience a delayed start with one of our major retailers due to an unusual operational issue, but overall, we are performing very well and are making up for that delay. For us, this year will turn out to be quite typical. While it's not a major segment of our business right now, I believe it presents a significant opportunity for us moving forward, and we are actively promoting our offerings as we transition from this year. We sold out early at nearly all retailers, which I would describe as a highly successful year.

Nicholas Sherwood, Analyst

Okay, perfect. Switching to e-commerce, what is the strategy for Amazon sales to start making up for some of the lost direct-to-consumer sales? Should we expect this to become more prominent in 2026? Can you explain the current strategy in that area?

Jason Vieth, CEO

Yes, that's a great question. Our two main sales strategies are to increase our retail presence and strengthen our online sales. When I joined a couple of years ago, our retail business was quite small, but now we're at approximately a 50-50 split between retail and online. Over the next few years, we anticipate this will shift towards a 2/3 retail and 1/3 online model, and we plan to grow our wholesale side significantly. In terms of online sales, we expect to lean more towards Amazon rather than direct-to-consumer sales. However, we need to be mindful of our pricing on Amazon to ensure it aligns with retail trends. This careful management has contributed to our strong growth in recent years, although we have seen some recent slowdown, which seems to be a broader industry issue affecting many brands on Amazon. We are currently adjusting our strategies, reallocating our spending across various marketing efforts to improve our presence on the site and encouraging Amazon customers to return to our brand. We remain optimistic about our future with Amazon. For direct-to-consumer, we see it as a platform for consumers to access our full product range, subscribe to various offerings, and gain insights into health and wellness related to Laird and Gabby. Over the next couple of years, we expect DTC sales to remain relatively flat following a strong performance last year, and the outlook for this year presents some challenges. Our main growth drivers will be our Amazon sales and our wholesale business. Therefore, DTC will play a less significant role going forward.

Nicholas Sherwood, Analyst

Understood. And then my last question is talking about this new protein coffee. It looks like a really big opportunity for the company. Can you sort of walk me through what you're thinking for the strategy on activating that new product? Are there specific regions, specific types of consumers that you're looking to reach or specific retailers that you're partnering in the early stages of this product activation? And are there any early learnings that you've already had kind of in the early stages of bringing this to market?

Jason Vieth, CEO

Yes, that's a great question, and I apologize for not addressing that earlier. We are really excited about this product as it marks our first entry into the dairy market. As you know, we’ve often mentioned that Laird and Gabby’s diet is omnivorous, and entering this segment has always been part of our plan. This venture focuses on the 90% dairy and 10% plant-based, which opens up a huge market for us. Our protein coffee product aligns with a popular trend seen on TikTok, where people mix protein powder into coffee, and we are thrilled to launch it. We believe we’ve created the highest quality freeze-dried cold-brewed coffee, which is incredibly smooth and paired with a distinctive blend of dairy proteins. While I can’t share specifics for competitive reasons, it’s crafted to froth and blend excellently, making it a delicious option. This product is perfect for anyone seeking additional protein, especially given the current focus on high-protein offerings linked to GLP-1. We feel strongly that our timing with this product aligns well with market needs. We have partnered for an early major launch, with plans to put shippers in their retail space, and we intend to share more about that next quarter. We're entering this market with a solid strategy, launching both online and in stores, including on platforms like Amazon. To promote it, we will collaborate with third-party social influencers to build awareness through a comprehensive campaign, which will include retail initiatives and organic marketing supported by Laird and Gabby. Expect strong TikTok promotion as well. We aim to execute our most robust launch for this product during my time at Laird, and we hope consumers respond positively. We believe entering the dairy space will be well received, and this product maintains our commitment to clean ingredients while providing a great taste matched with a solid nutritional profile.

Operator, Operator

Next question is from the line of George Kelly with ROTH Capital Partners.

George Kelly, Analyst

A few questions for you. First, just to follow up on that prior question related to the protein coffee that you're launching. Do you anticipate launching additional dairy products as soon as next year and what might those look like?

Jason Vieth, CEO

Yes. Great question, George. Thanks for that. We do. We're working on a platform right now to make this much broader than just a singular product that we bring out. We think that there's opportunity across a number of products that we're probably not ready to go into at this point, George, but you can imagine that there are really 2 vectors to that. One is in the dry category space where we see additional opportunity to expand this line and potentially take it into very close but adjacent lines that we're in today. So you can probably surmise a pretty good guess against that. And we also see the opportunity to take this into liquid products. And so we've been working to develop both of these. We think that protein is very important. We believe that we can bring a cleaner protein, not only the protein source but the ingredients that surround it than what you see at market today, and that we have the brand to do that. So you will absolutely see additional dairy products. And yes, we would expect them to come to market over the course of the next 15 months.

George Kelly, Analyst

Okay. Okay. That's helpful. And then the conversation in response to one of the questions just about the sort of how you're going about the instant the protein coffee launch. I was hoping you could do some kind of similar with the new liquid product. And I guess what I'm trying to understand, it's just so hard for me to try to quantify what the ramp could look like and the implications on the model and consolidated growth for the next few years, etc. It's just such a big category and such an important category, and you've had kind of varying success there historically. So I guess if you could help at all just with what the distribution plan is? Have you lost any distribution points versus the prior formulation? And do you anticipate a lot of promotion behind it? Or just any kind of context you can give about that launch?

Jason Vieth, CEO

Thanks, George. That's an important question I'd like to address. We did experience some loss in distribution during the transition, but we've mostly recaptured that. We're nearly back to our expected position. In the past, our product and proposition didn’t meet expectations. Initially, the 500 ml size was too small, and when we moved to 750 ml, we didn't successfully appeal to consumers and highlight the value of getting 50% more for a better price, which caused some confusion. Now, we have a significantly improved product. As I mentioned, we're using a recycled plastic bottle, which resonates with our environmentally conscious consumers. It's 100% organic, which is also crucial in the Natural channel. The formulation change includes replacing cane sugar with coconut sugar, swapping coconut oil for coconut cream, and enhancing the product's flavor. We've also increased the mushroom content for a stronger dose of adaptogens. There's a lot to communicate, and we recognize that this requires a robust marketing effort, which is already in progress. We haven't implemented the marketing yet as we want to allow the distribution to stabilize first, but expect to see activations soon, aligned with the distribution we've gained. The transitions will largely occur over the next two months, extending into January, with only a few minor changes afterward. Retailers are enthusiastic about our product and some have already initiated changes ahead of schedule. We are in a prime position to launch a significant marketing push as we wrap up the year and move into January. Similar to our protein coffee, you'll see this product come to life in the coming weeks. Regarding the size, it's indeed a large category valued at over $6 billion, filled mostly with products that have four ingredients, with only water being healthy. Much of what’s being sold is essentially just sugar, unhealthy oils, and chemicals. We see a fantastic opportunity to innovate, and I believe we finally have the right offer. We'll activate early to gather initial feedback and aim to leverage that in a substantial way based on market responses.

George Kelly, Analyst

Okay. That's helpful. And then 2 last questions for me. Tariffs, what's the impact this year and the expectation for next year? And then the second question is on Club. I was curious if you have any significant promotions planned in the next quarter or 2? And that's all I had.

Anya Hamill, CFO

Anya here. I will address the questions regarding tariffs and club, and Jason can add if needed. The tariff situation is quite dynamic, and we are closely monitoring it as it develops. Jason mentioned earlier that there have been some positive updates, including the exclusion of certain key raw materials like coconut milk powder from the tariffs, which is good news. However, the situation is still evolving. We first noticed the impact of tariffs in Q3, which is reflected in our gross margins, and we expect similar trends to continue into Q4. We're also planning for next year and considering the necessary actions, including potential pricing adjustments if required. Our main goal is to maintain our margins in the upper 30s despite the additional tariffs and commodity costs. As for the club, we've experienced notable success this year and have a strategy in place to support new regions, distribution, and products. We plan to continue implementing this strategy in Q4 and into the following year.

Operator, Operator

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

Jason Vieth, CEO

Yes. We are aware of the current headwinds in the consumer economy and the challenges many are facing this year, which seem to be increasing. Despite this, we are excited to be experiencing double-digit growth and believe we can maintain this momentum next year and beyond. We have significant growth potential, a strong product portfolio, and an exceptional team. As we approach the end of this year and into the next, we remain optimistic that we can navigate through any emerging challenges and stay ahead. Thank you to everyone for being part of this journey and listening today. We look forward to our next update in a quarter.

Operator, Operator

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