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Operator: Thank you for standing by, and welcome to the Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast for Laird Superfood, Inc. I would now like to turn the call over to Mr. Steve Richie of Laird Superfood to begin.

Steve Richie: Thank you, and good afternoon. Welcome to Laird Superfood’s fourth quarter and full year 2022 earnings conference call and webcast. On today’s call are Jason Vieth, Laird Superfood’s President and Chief Executive Officer; Anya Hamil, our Chief Financial Officer; and Andy Judd, our Chief Commercial Officer. By now, everyone should have access to the company’s fourth quarter and full year earnings press release filed today after market close. This is available on the Investor Relations section of Laird Superfood’s website at www.lairdsuperfood.com. Before we begin, please note that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management’s current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to today’s press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. And now, I’d like to turn the call over to Jason.

Jason Vieth: Thank you Steve. Welcome everyone and thank you for joining us today. It’s been a busy few months since we reported our progress and turning around Laird Superfood and I’m excited for all the progress that we will be sharing with you today. I’ll start the call with an update on our overall business and progress against our key strategic initiatives. Before I hand it over to Andy Judd, our Chief Commercial Officer, for a deeper dive into our performance across products and channels. Then Anya Hamil, our CFO will cover the fourth quarter in detail, and we’ll finish by opening up the call to your questions. During our last call, I announced that we would be closing our manufacturing facilities in Sisters, Oregon as we had just completed an agreement with both a co-manufacturer and third party logistics provider to handle the powder manufacturing and distribution for our business.

I am happy to report that we have already completed that transition to these two partners and that they’re both are now fully operational and integrated into our supply chain. Since December, these partners have produced and shipped 100% of our powder products and they have proven to be responsive, adaptable and supportive in every way. Let me take a moment to share my immense pride in our Laird Superfood supply chain team who in the span of just a couple of months came together to completely shut down our manufacturing facility in Oregon to stand up both the new co-packer and third party distribution center in Utah and to build and implement the various support systems and other controls required to run our business there. This was all accomplished before the end of January and I am blown away by the speed and professionalism with which our combined teams have completed this transition.

And by the long term opportunities that this will create to increase our supply chain flexibility and drive down our total operational costs. Similarly, I am pleased to be able to announce tremendous progress on the commercial side of the business. In the fourth quarter, we began the transition to our new branding and packaging, which brings an entirely new design to our portfolio and enhances our imagery to better highlight both our Laird Superfood brand and the taste appeal of our various food products. We unveiled this new look at the natural food industry’s largest convention Expo West and I can attest that the feedback was ferociously positive. And as Andy will share very shortly, we have already seen a nice bump in our recent retail sales velocities, which we attribute to the new branding and its ability to draw in consumers at that first moment of truth when they see our new package on the shelf or on the screen.

We are also in the process of rolling out packaging with a new Velcro seal that will allow for better resealing of our products, which has been one of the few complaints that we’ve consistently received over the last few years. When viewed on a retail shelf, our brand now commands consumer attention. When purchased embedded home, it delights consumers at the all-important second moment of truth each time that they are preparing to consume the product. I’m also proud to share that our revised approach to our direct to consumer or DTC business is continuing to pay off. During the fourth quarter, we lowered our consumer acquisition costs from $90 back in Q4 of 2021 to just $30 in Q4 of 2022. And not only did we reduce our acquisition costs by two-thirds in the past year, but we did it while simultaneously increasing our average order value and we remain on the right track to fundamentally reshape our DTC business as we drive it toward profitable growth.

As we were refining and focusing our DTC approach and spending model, we made it a strategic goal to accelerate our growth on Amazon, and I’m pleased to share that we grew that channel by 38% during Q4 versus the same period a year ago. We accomplished this by executing a strong Black Friday and overall holiday shopping season, which allowed us to grow our average order volume by 13% versus the year before. At the same time, we also made good progress in driving out third party sellers of our products and owning the buy box for our product portfolio key operational improvements that set the table for further expansion throughout this year. Up to this point, our wholesale business has been our most challenging and unfulfilled opportunity. And I’m pleased to be able to share that we brought in a new sales leader during Q4 to address this.

In November, Doug Lee joined us from Chocolove, where he was the Head of Sales for the top chocolate brand in the natural channel. Though he’s only been here for a few months, Doug is already partnering closely with our various brokers that represent Laird Superfood across conventional and natural channel grocers, club and mass. And we have a solid slate of category reviews coming up over the next month that can quickly change the sales trajectory of our business. As I mentioned earlier, we are already seeing significant improvements in our retail velocities as our new branding and packaging takes hold and as we work with retailers to execute better trade promotion plans and optimize the assortment and shelving of our products. Likewise, the performance of our club business also continues to improve driven by a combination of new branding and better in store activation of our brand.

In addition to the transitions and improvements that I’ve already outlined, we continue to make steady progress in our liquid creamer transition to an aseptic product which remains on track to launch later this summer. We recently had the opportunity to taste the product coming from our first scale production run. And I can attest that it is a great tasting creamer and a big taste improvement versus our current formulation. The conversion of this product to an aseptic format will also allow us to sell it across all channels, including DTC and Amazon. All in, I expect that once we reach a steady state in our aseptic production, this transition will enable more than a 20 point improvement versus current gross margins for our liquid creamer product driven by better tolling, distribution and raw material costs.

Amongst all the positive developments on the business, we did encounter a product quality issue last month, the impact of which was partially reflected in our Q4 financials. Essentially, we received a rancid coconut milk powder product from one of our suppliers and the ingredient made it into several of our products before we got it. We realized that these products went out to our standards very early after shipment and I am proud to share that we immediately initiated a voluntary product withdrawal and contacted all impacted retail customers and brand consumers to aggressively pull back everything that we could. In doing so, we took utmost care of the brand and our relationships with customers and consumers and have replaced the product for impacted consumers wherever possible.

The feedback from our retail customers and consumers has been outstanding as they have asserted their appreciation for our transparency and their commitment to our brand. We are still estimating the total cost in this event and expect to receive reimbursement from our suppliers given that we have been able to trace the issue to the product that they provided to us. I don’t have much more than I can share at this time, but we will obviously keep everyone apprised the material updates during subsequent calls. Over the past year, we brought on a leading team of seasoned CPG executives that have gone a long way in executing the turnaround of this business in a very short timeframe. As we set up for our reporting cycle in 2023, I want to take a moment to point out once again the tremendous progress that has been made in the past year.

First, we completely overhauled our branding and packaging and improved the taste functionality and packaging of many of our products. As a result, we expect to see improved takeaway as more consumers find and try our products and as they increase their repeat purchases. We transitioned from home manufacturing in Central Oregon to a highly flexible asset light model that sits squarely on a major transportation node. Excluding onetime charges, we expect to see 7 to 10 points of gross margin improvement during 2023. Third, we rebuilt our entire retail broker network as well as our marketing partner ecosystem. As a result, we expect to be able to discuss solid distribution expansion during the second half of this year. We have also largely rightsized our inventory positions and are actively managing our AR and AP to better leverage our working capital to maximize our cash position.

And finally, we have made significant improvements to our financial and accounting capabilities and to our IT systems and infrastructure. This in turn has provided us with confidence in our data and decision making and improved the speed with which we are able to execute. I am extremely proud of all that our Laird Superfood team has accomplished in a very short time frame. We are in a very different position in 2023, one from which we can now expand with speed and confidence. A year ago, when I accepted the CEO role at this company, our cash burn rate was such that without substantial operating improvements, our cash will not last much more than one year. I’m pleased to share that a year later, we have implemented numerous changes to the company that have both reduced our cash burn and improved our efficiency and market positioning.

As a result of these changes and without having raised any additional capital during this time, we still have more than a year of cash remaining. And while we expect to require a cash raise at some point before mid-2024, we will be able to present a much stronger business model that sets us up for continued growth and expansion as we become a leader in functional plant based foods. With that, I will hand it over to our Chief Commercial Officer, Andy Judd.

Andrew Judd: Thank you, Jason. Next month, I will celebrate my first year at Laird Superfood. We just returned from the natural products Expo West trade show and I am as optimistic as ever as we showcased our brand transformation and talk to retailers about our mission to help consumers achieve new levels of performance by ensuring they fuel their bodies with real, functional, whole plant based foods. As Jason discussed, it has been a year of strategic change and tremendous progress as we worked to improve our go to market model and transition from a primary focus on DTC to an omnichannel brand. I am grateful for the hard work our team has made to improve our business fundamentals operating more efficient and effective marketing model and build these foundations for multichannel growth for years to come.

Q4 progress was marked by an improved trend in crucial sales channels that we have historically been underdeveloped including a plus 19% net sales growth in retail excluding club and a significant growth on Amazon that Jason mentioned. While our overall online business in Q4 was down 5%, the channel saw sequential growth in back to back quarters on reduced spend as we continue to see strong Amazon growth and our most efficient quarter in our DTC business for the year. This improvement is consistent with our strategic plan as growth on Amazon was up plus 38% year-over-year, while simultaneously improving average order value on the platform by 8% versus year ago. This strong Q4 close enabled us to deliver plus 18% net sales growth on the platform for 2022 versus year ago.

We are also seeing the benefit of scaling our approach to the platform and saw a plus 16% sequential increase in Q4 and our subscribing save orders. For our DTC business, we focused our efforts to drive a more efficient model as we reset the platform for long term profitability. In order to do this, we significantly reduced our advertising investment by 52% versus year ago. With only a 35% reduction in sessions, reflecting both the loyal organic traffic we have and the previous inefficiency in our media. As a result, we realized a 67% decrease in our consumer acquisition costs or cap which is our lowest level since Q3 of 2020. The price increase that we took in June of 2022 helped to increase our average order value by 8% year-over-year for the quarter.

The team executed tight Q4 holiday plan realizing strong conversion of over 9% up plus 50% versus 2021. Our efforts to rebuild behind richer retention marketing resulted in the growth of our CRM database to over 400,000 consumers a plus 11% increase versus Q4 2021 and seeing our highest ever conversion in over 8 quarters at 9%. As expected, 2022 was a challenging year for our DTC business, along with many others in the industry as rising acquisition costs and shifting consumer behaviors challenge growth. But our team remains steadfast in finding ways to shift resources, eliminate excess and still maintain strong royalty return customer orders. Thanks to these retention efforts, we still maintained a 45% repeat customer rate in 2022. We continue to see positive trends in our core premium categories at retail as consumers continue to move towards more functional offerings with increased benefits like the ones in our functional plant based creamers and deductibles.

In our liquid creamers business, we saw our retail dollar velocity increase plus 74% and plus 21% and Natural and Mulo respectively for the 12 weeks ending 1/1/23. Within these channels, we remain the number one functional creamer and our dollar sales will once again outpace the overall category and the plant based premier segment. With accelerating velocity growth and improving dollar share in the natural channel, up nearly 2 points in Q4 versus a year ago, we are excited about this continued growth in natural premiums. These continued strong productivity gains at retail, our clear indicator we have a strong brand and proof of concept. With the margin enhancement expected from our transition to aseptic that Jason mentioned earlier, we have a ton of optimism about the opportunity to scale our position in the liquid creamer segment.

We are also seeing an improved velocity trajectory on our shelf stable powder creamer business driven by improved retail support and execution. In the natural channel, our dollar sales velocity grew plus 13% to the latest 12 weeks ending 1/1/23 and we saw increasing velocity on our powder creamers in every month of the quarter. Overall, our consumer loyalty metrics remain at an all-time high with our net promoter score reaching 82 in Q4 and our customer satisfaction remained at a 4.9 on a 5 point scale. I want to note that we have executed all of this while also substantially reducing our overall spending on marketing and sales and marketing G&A versus a year ago. I am more convinced than ever that we have a bright future ahead. The Laird Superfood value proposition is on trend in sizable markets and categories with a loyal consumer base and supported by a talented team.

Q4 saw us implement the initial phases of our brand and portfolio improvement plan and we saw our redesigned packaging begin to roll out to consumers. In fact, we’ve already seen an acceleration in year-over-year velocity plus 11% and plus 4% and the natural mulo channels respectively in the first 4 weeks of 2023 as the new packaging landed on shelves. This packaging, redesign, improves shop ability in retail and breakthrough at the first moment of truth at shelf and further highlights of functional benefits that make our value proposition truly unique. Our brand refresh is much more than just packaging as we recently announced over the course of 2023, we will refresh nearly 30% of our portfolio to improve taste and functionality, while still maintaining our industry leading standards including simple functional ingredients.

For example, our line of Instant Lattes will now have functional mushroom extract across all items in the segment. Again, we’ve added new flavors like mocha latte. And new single serve sachets for with both launching in retail and online in March. We are also relaunching our daily pre buyout agreements with an incredibly delicious new formula and available in single serve sachets. This is just the beginning of an exciting year of innovation in 2022. Now let me turn the call over to Anya Hamil, our CFO to further discuss fourth quarter results.

Anya Hamil: Thanks, Andy. Net sales of $9 million in the fourth quarter of 2022 were sequentially flat to the third quarter of 2022, and decreased 4% as compared to $9.4 million in the prior year period, driven by lower volume in DTC and club channels. As Andy discussed, our DTC decline was primarily driven by 52% year-over-year reduction in media to cut inefficient spend and reduce customer acquisition costs as we build a more sustainable direct to consumer business going forward, and improve our profitability in this channel. The decline in DTC was partially offset by tremendous growth in our Amazon.com channel, driven by continued adoption and momentum built from optimized marketing strategies. Our wholesale channel also delivered double digit growth, driven by new distribution in the natural channel and velocity improvements in liquid creams.

As reported, gross margin was negative 4.6% driven by one time exit and disposal costs related to the transition to co manufacturing model and restructuring costs associated with closure of our Sister’s facility. Adjusted gross margin was 19% a decline of 440 basis points versus Q4 of 2021. The margin compression versus the year ago period was driven primarily by fixed cost deleverage on a lower production volume as we reduced and optimized inventory levels, leading into our packaging refresh and transition to co-packing, as well as increased costs associated with inventory reserves and disposals and inflationary freight costs. Operating expenses totaled $15.3 million, an increase of $6.1 million compared to $9.2 million in the year ago period.

The increase was driven by impairment of intangible assets, losses and termination of leavers of manufacturing facilities. That was in disposal costs, including impairment charges for factory equipment, furniture and software, as well as severances and retention bonuses. Excluding onetime costs, operating expenses were $6.1 million which is actually $3.2 million lower than fourth quarter of last year due to reduced sales and marketing expenses, as well as lower people costs across the organization. Net loss as reported was $15.6 million, an increase of 126% versus the prior year period. On an adjusted basis, net loss was $4.3 million and approximately 38% lower than the year ago period and 23% lower sequentially compared to our Q3 results demonstrating continued progress in our cost savings initiatives.

A detailed reconciliation of non-GAAP adjusted net profit is included in our fourth quarter earnings release. Now turning to our balance sheet and cash flow. We ended the quarter with $17.8 million of cash and no debt as we continue conservatively manage our balance sheet. Cash used in operations was $3.2 million an improvement of over $400,000 versus Q3. Moving on to our outlook. Although we anticipate delivering certain economic environment with historically high inflation rates impacting consumer spending will continue into 2023. We believe that the strategic actions we have taken in 2022 and continue to take in 2023 have positioned the business for net sales growth in the high single digits and gross margin improvement of 7 to 10 points for full year 2023, excluding any one time charges.

While I anticipate that we will see gross margin improvement from the co-pack model right away, the timing of losses and potential recoveries related to the product quality issue that Jason talked about earlier unrelated to the move will dampen our first quarter results. We have already anticipated a ramp up in our gross margin outlook throughout 2023 and expect that we will exit the year with gross margins in excess of 30%. With that, I’ll turn the call back to Jason.

Jason Vieth: Thanks, Anya. When I joined Laird Superfood last year, it soon became apparent that while we had an exceptional brand, we would need to do a hard reset of our business fundamentals. Since last summer, our team has been reworking every aspect of this business and I’m extremely pleased that we are now in the cusp of emerging as a much improved business. With a stabilized e com platform and green shoots forming in our wholesale operation, we are in a great position to leverage the flexibility of our new asset light supply chain and drive growth across our business in 2023. We have assembled a small but mighty team of CPG leaders and experts, and I look forward to seeing all that they will deliver in this year and beyond. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

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Operator: The first question is from the line of Alex Fuhrman with Craig Hallum. You may proceed.

Alex Fuhrman: Hi, guys. Thanks very much for taking my question. I wanted to ask about the significant improvement in gross margin that you’re expecting to see this year? And Anya, I think you kind of touched on this in your very last remarks here. But if I’m understanding this correctly, it sounds like the improvement in margin rate from shifting to the outsourced model. It sounds like you should see that right away and then Q1 has perhaps an additional headwind related to the quality control issue, as you think about your target of 30% plus this year, should we expect gross margins to build throughout the year and kind of grow into that target? Or are you more or less expecting to be right around there, notwithstanding the Q1 quality issue?

Anya Hamil: Hi, Alex. Thank you for the question, it’s Anya. Jason, go ahead.

Jason Vieth: Hi, Alex. Hi, sorry, we’re having to do this remotely today. We’ve got a couple of folks that got sick, including myself coming back from Expo. So we might be a little bit awkward in some of these. Hi, Alex, thanks for your question. Listen, I tell you that we had planned for the gross margin to build throughout the year. Really, we expect it to largely achieve it in the first quarter, but we knew we had some offsetting costs as we made the transition. We had moved most of the inventory in Q4 had set up and done some production runs, but we expected really to step into that relationship with our co-packer over the course of a couple of months. I can tell you that it’s gone seemingly between us and the co-packer, they’re doing a phenomenal job.

They’ve come up to speed much more rapidly than we had planned in our forecast and in our plans. So we’re really excited about where that is. As you alluded to though, we do have this quality issue that will impact us. I did mention that we expect that to be offset over the course of this year as we work with our supplier around the root cause behind this. We’re very comfortable that we understand what the issue is. And so now we’re working that back expect to have remediation against that. But for the first quarter, certainly we would expect to see an impact. And as a result, as you said, a build in the gross margin profile as we move sequentially through the year, so that we’re exiting well over 30% by the end of the year.

Alex Fuhrman: Okay. That’s really helpful. Thanks, Jason. If I could ask, just on the direct to consumer, business, it sounds like your customer acquisition costs were reduced really significantly. Is that a function of something you’re doing differently or maybe some ineffective marketing programs that got cut. Curious where you’re seeing that coming from and if you think it’s possible to sustain that going forward this year?

Andrew Judd: Thanks, Alex. This is Andy. Yes, I’ll jump in here. We’re really pleased with the trajectory and what we saw in Q4. On our CAC overall, I do think it is something that we’ll be able to sustain going forward. The combination of a couple of things. One, I believe in the last quarter’s call, we talked about new research that we brought back that’s really helping us and the upfront with better targeting overall against a new segmentation model that came in at the tail end of summer which is really helping us with what I would classify as more qualified leads versus more broad prospecting. But also as implication secondly to the overall structure of where we spend our dollars and how we spend our dollars in Q4. So we’re really pleased that I think we’ve come to a place where we’re starting to even see a little bit of improvement from there on our overall marketing.

We still do have some things that we’re going to lap out that are — the long term contracts that will expire here as we go through the balance of 2023. That I think we’ll see continued efficiency gains on our overall marketing spend. But yes tremendous progress made by the team in Q4 without a doubt.

Jason Vieth: Hi, Alex, let me add one thing to that — Alex, I’ll add 1 thing to that. I think Andy is very humble in this space. And I just want to say that in the last year really, there have been two big pushes that you’ve been leading. One is to shift non-working media over to media. And so you saw in Q4 with media down 52% the channel still performing as it was. So he’s been able to take out a lot of cost and still hold up the channel performance pretty much where it was. So really great job there. But then secondarily, he’s been moving “working media to be truly working”. So we had a number of programs, marketing programs that really were not effective and Andy has been doing a great job with his team of weeding those out. And so what we expect this year is A, to be able to spend less, but B, to be able to spend it more efficiently even where we are still spending. So it really does bode well for the next year and beyond.

Alex Fuhrman: Okay. That’s really helpful. Thank you all and Jason and your whole team. I hope you all feel better soon.

Andrew Judd: Thanks Alex.

Jason Vieth: Thanks Alex.

Operator: Thank you, Mr. Fuhrman. The next question is from the line of Bobby Burleson with Canaccord. You may proceed.

Bobby Burleson: Hi, Jason and Anya, sorry for the background noise. So just curious on a couple of things. Congratulations on that gross margin outlook well over 30% exiting this year. I’m curious does that include any benefit from the potential reimbursement or would that be an addition?

Jason Vieth: Yes. Hi, Bobby. Thanks for that question. I think it’s as we think about the margin going through this year, I would tell you that we ought to be over 30% regardless certainly with — at this point, that would be included in there. But we expect that in either condition we would be able to exceed 30% over the course of this year. This is really, I mean, as we’ve talked about in the past, we needed to make this move in order to really be able to reset our margin profile and in doing so would just put ourselves into a very different manufacturing position, not only in terms of the cost, but I want to mention too, just this asset light model and the flexibility that it presents in a business that’s still very young and as a result has some erratic swings in sales from month to month.

So this really allows us to produce not only more cost effectively in general, but really as the revenue is swinging in any given month can match up our supply to our demand much better and really help our inventory carrying costs and our labor costs as well. So it’s a really big transformational change for our business.

Bobby Burleson: Great. And then in terms of the net sales growth, high single digit, curious what’s happening on a segment level there. That sounds like DTC is on track and there’s still some big changes coming to wholesale. So curious kind of order of magnitude, where the contribution is coming from the top line growth from your segments?

Anya Hamil: Hi, Bobby. This is Anya Hamil. Thank you for the question. So our growth is going to be driven by retail channel, including club more so than in 2022. We expect that segment to be outpacing the overall company growth and then within e-com, it’s also returning to growth in 2023, driven by Amazon, while we stabilize in our direct to consumer segment. Hope that helps?

Bobby Burleson: No, that’s helpful. And the DTC opportunity for aseptic is that kind of baked into — is there going to be some commencement for that this year as long as everything goes right with your commence that you’d have some aseptic moving through DTC and perhaps Amazon?

Andrew Judd: Yes, Bobby. This is Andy. I do think that’s an opportunity for sure. We’ll start to begin to have that happen in the second half of the year as we put the proposition and make sure that we get the right profit structure around that unit pack out going in the second half for sure.

Bobby Burleson: Great. Thank you.

Operator: Thank you, Mr. Burleson. That concludes the question-and-answer session, as well as today’s call. Thank you for your participation. You may now disconnect your lines.