Thank you for standing by, and welcome to the Second Quarter 2022 Earnings Conference Call and Webcast for Laird Superfood, Inc. I would now like to turn the call over to Mr. Reed Anderson of ICR to begin. Mr. Anderson, please proceed.

Thank you. Good afternoon and welcome to Laird Superfood’s second quarter 2022 earnings conference call and webcast. On today’s call are Jason Vieth, Chief Executive Officer; Anya Hamil, Interim Chief Financial Officer; and Andy Judd, Chief Commercial Officer. By now, everyone should have access to the company’s second quarter 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 all the financial information presented on today’s call is unaudited and 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 Vieth, Chief Executive Officer of Laird Superfood.

Thanks, Reed. Welcome, everyone, and thank you for joining us today. I’m going to begin today’s meeting by providing a high level overview of our second quarter results and an update on our key strategic initiatives. I’ll then turn it over to Andy for a deeper dive into sales, channels and products, followed by Anya, who will cover the financials in detail. We’ll then open up the call to your questions. But before I jump into our quarterly results, I want to take a moment to recognize and thank the Laird Superfood leadership team, most of whom are still within the first few months of their new roles. This team has taken the reins during a challenging time for both Laird Superfood and the broader economy end market and are doing a phenomenal job of reorienting the business and company to our biggest opportunities across both the commercial and operational aspects of the business. In just a few short months, we’ve been able to completely overhaul our sales and marketing organizations and agency ecosystems, and to streamline our operations to deliver meaningful costs and cash savings. The foods of much of this labor are yet to be realized. And I’m excited as ever for the prospects of expanding the reach of our Laird Superfood daily ritual, and doing so with a much better cost structure than in the past. Our second quarter results reflect some early progress on cost savings initiatives and efforts to drive wholesale channel growth against the backdrop of what has become a challenging operating environment. We continue to face headwinds to our online business due to the ongoing impacts from changes in Apple’s security features. The result being that we’re seeing less consumer engagement on our site, especially at the lower order values. We also encourage…

Thanks, Jason. Despite marketplace and consumer volatility, we remain optimistic that our mission to help consumers take the next step in their health and wellness journey by providing functional plant-based foods and beverages is powerful and scalable. We are making progress towards building a sustainable long-term and profitable growth agenda across all channels. Our Online business was challenged in Q2, down 16%. We significantly reduced insufficient spending with direct media down 48% for DTC business versus year ago, in order to reset to a more sustainable and profitable marketing mix across all digital channels. We instead made investments to create new content and supportive an alternative media approach and began the process of redesigning our packaging and brand to be more relevant and create a compelling design that speaks to the benefits of our value proposition at the first moment of truth. Online sales were also impacted by consumer spending pressure due to inflation. This was primarily reflected in declines a new customer orders less than $40. While we didn’t maintain plus 25% growth in AOV or average order value versus year ago, and plus 14% versus prior quarter. This was a result of the broader marketplace inflation consumers are experiencing, and structural changes impacting digital advertising models industry-wide. As shown in a plus 78% increase in CAC or consumer acquisition cost year-over-year. Despite these factors, we did see momentum driven by changes we are making with regard to our approach on Amazon. On Amazon, we saw it plus 25% increase in new consumers versus the same perod a year ago and we are seeing a much lower CAC compared to our DTC business. From a retail perspective, we have several new activations that should drive momentum in Q3, Q4, and beyond. We have been working diligently to enhance our…

Thanks, Andy. Net sales decreased 6% to $8.7 million in the second quarter of 2022 compared to $9.2 million in the second quarter of 2021, primarily due to lower sales in our direct-to-consumer business. Year-over-year sales decline in the food [ph] business appears to be driven by an overall pullback in consumer spending due to inflationary concerns, combined with online traffic, shifting back to stores with the end of COVID. As well as these key factors, I’ll reduce marketing spend as we optimize marketing mix between all digital channels towards more profitable programs, elevated promotional spend and changes in our free shipping offerings to improve our gross margins. Despite the challenging economic environment, we saw year-over-year growth in our wholesale channel which grew 4%, driven by distribution gains in Grocery and Club. Amazon business grew 13%, reflecting the focus that we have placed in this channel, due to its relative profitability and ability to reach a large installed consumer base. Gross margins declined 560 basis points to 18.2% versus the same period last year. Margin compression was driven primarily by inflation in raw materials, packaging and inbound freight, driven by increased costs of ocean freight to bring raw materials to all production facilities. Outbound freight was nearly flat year-over-year as our teams were able to offset higher freight rates through efficiency improvements in DTC parcel shipments. Other drivers included fixed costs to leverage in our internal manufacturing facilities due to low production volume and elevated promotional activity, partially offset by lower labor costs due to gain efficiency and organizational rightsizing earlier in the second quarter. Moving down to the P&L to OpEx. Operating expenses totaled $6.5 million, an improvement of $2 million compared to $8.5 million in the year ago period. The biggest driver was the reduction of $1.5 million…

Thanks, Anya. With the attention grabbing headlines of inflation and recession, there’s no doubt that we are now operating in a less certain moment for consumers and it has clearly become more challenging to gain their attention and consideration for premium health and wellness products. In our Q2 results demonstrate that Laird Superfood has strong staying power amongst its followers, and in fact continues to grow across many key metrics with our consumers. Our continued growth in average order value, lifetime sales value, and Net Promoter Score demonstrate that despite the headwinds facing today’s consumer, they continue to value the Laird Superfood proposition and lift to us as a high quality food source for their health and wellness journey. Our dedicated team remains committed to our brand positioning and core strategies, and we are as excited as ever for the potential for Laird Superfood to become a leading name in healthy functional foods. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

Yes, thank you. [Operator Instructions] Our first question comes from Alex Fuhrman with Craig-Hallum. Alex, your line is now open.

Great, thanks, everyone for taking my question. I wanted to ask about the shortfall in your guidance. You mentioned a number of different headwinds that I think a lot of other e-commerce companies are seeing as well. And in particular, some of the marketing challenges related to the iOS changes. Curious is that mostly impacting your ability to get new customers to come into the brand as inflation has been weighing on consumers? Have you seen your long-term core customers start to behave any differently as well? Or is it really more about marketing challenges in reaching new customers?

Hey, Alex, this is Jason. I’m going to give you a couple of thoughts. And then I’ll hand it over to Andy to give a little bit more detail. It’s a really great question. And obviously to your point is, it isn’t just a Laird issue, it is a industry issue right now, especially amongst the DTC focus companies like ours. So we started to see this about a year ago, you’ll remember we talked about a couple of quarters, but we’ve taken some of that into – through our own action as well. As we talked about, as we took price increase, we also pulled back on the free shipping that we were offering. And so for any orders under $40 now other than new orders, we’ve pulled back on the free shipping aspect. And as a result of that you’re seeing a change of activity. You’re seeing our longest standing consumers largely migrate to larger orders, and very little drop off, if any in that space, and I’ll let Andy speak to that in a moment. But what you are seeing is some attrition that took place, especially right after that change with new consumers. And we have modified that action, just really in the last few days we put free shipping back on for new orders for new consumers that are coming in, so to entice them to make that first order. What we found is that we weren’t getting the same conversion that we expected. And so the drop off has really been amongst consumers that would come into Laird as opposed to our current subscriptions and subscribers what we’ve seen really positive staying powers, as I referred to in my earlier discussion. But Andy, why don’t you if you want to put a little bit more of a wrapper around that. That’d be great.

Of course. Thanks, Alex, for the question. Yes, Jason is right. The largest portion of consumer kind of mix that we’re seeing is definitely impacting new consumer orders. And in particular, new consumer orders at the lower value rings, where we’re seeing definitely compression through your – I would say, a less efficient media mix, primarily anchored in our social media tactics where, as noted in prepared remarks, our CAC is still over 70% higher than it was a year ago. While we are also seeing some consumer behavior trends in kind of a post-COVID reality that we’re seeing migration back to retail, where we are seeing significant velocity increases in our food and creamer business as well. So, I think, that the combination of the inefficiency in the marketing tools as well as some behavioral changes and a consumer inflation dynamics that are happening, are really putting a pressure on that particular set, where we see favorability in some of our larger loyal returning attrition levels, where we’re seeing increases in NAV or LTV is up and continuing to rise both sequentially and year-over-year, and orders in the $75 range plus have actually moderately increased in the quarter.

Okay. That’s really helpful. Thanks. And then if you could talk about the cash burn for a minute, it was pretty significantly improved here in the second quarter relative to the rate that you’d been burning cash last year, you guys give a lot of great detail on your expenses in the press release. So it looks like maybe there were some non-sustainable offsets to G&A this quarter like the gain on the sale and the reversal of some stock-based comp. But, if you kind of strip out some of those non-sustainable items, can you give us kind of a sense of what we should expect to see in terms of cash burn or EBITDA or even just G&A or sales and marketing expenses for the rest of the year, assuming results for the rest of the year come within your updated guidance.

Hi, Alex, this is Anya Hamil. Thanks for the question. So, yes, you’re correct. Cash burn was $2.7 million total, and just under $4 million from operating activity. So they both improved relative to prior year, and in line with the strategies that we’ve been focusing on to improve the cash burn, and to get the company to sustainable growth. So, as you mentioned, there was a one-time benefit in Q2 that we realized that was part of our plan to improve our balance sheet was sold some real estate assets, OEM, specifically. And so that generated $1.5 million improvements to our cash flow. But overall, outside of that, we were able to achieve an improved cash flow primarily through working capital management, specifically around inventory balances. So our team is focused on driving the inventory down to sustainable and optimized levels that don’t jeopardize supply chain interactions, but ensure that we have no optimal level of inventory versus the cash that’s tied up in that asset. So that is in the midst of it’s going to continue, and I expect to see further reduction by the end of the year. As I mentioned in the earnings release, it will change a little bit quarter by quarter, because we still have obligations to our suppliers that we are fulfilling. But we are on track to get to the inventory position that we are targeting by the end of the year, which will free up additional cash. And then took the lot – the third thing is overall operating expenses management, we’ve been doing a lot of work outside of headcount, non-headcount related, G&A expenses, and really focusing on optimizing fees, professional fees and consultant fees, to help us reduce that cash flow. And we’re going to continue making progress towards the end of the year in that area.

Okay, that’s really helpful. Thanks, Anya, and thanks, Jason.

Thank you. Our next question comes from Bobby Burleson with Canaccord. Bobby, your line is now open.

Great, thanks for taking my questions. I’m curious about the distribution losses that you mentioned, understand you’re working to gain those back, any sense on timing?

This is Andy. I can give you some perspective on – go ahead, Jason.

That’s alright, Andy. You go ahead.

Yeah, so we’ve seen a few order declines, it’s really that are affecting our shelf stable creamer business in the natural channel. That distribution loss is only resulting in about a 5% loss in distribution, so pretty moderate, largely due to a couple of things. One is we have seen some kind of store-by-store optimization that’s take in place, 1Q [ph] we’ve got some out of stock issues that are definitely causing troubles like many partners and other brands are seeing where we’ve got staffing issues at retail. And then the third one is we’ve got some authorization to shipment challenges. We have recently brought in a new partner to give us some retail coverage. They’re actively already in stores starting this month. And we hope to see that stuff rectified over the balance of the second half of the year as we go forward.

Okay, great.

Hey, Bob, the one thing I would add. That’s super helpful by Andy. Let me add – I just want to add for you just give them more context. So I mentioned this earlier, but we’ve changed over our broker coverage across every class of trade. And really, I think we’ve gotten to the premier broker in each one of those classes. And then in this case, as you go through a transition, there’s naturally going to be some attrition, you just – as you go from one team to the next, you can lose sight of some of those activities that need to be executed. And so, we’re working really diligently right now with our new broker to get everything restored, as Andy mentioned, through those – really those three – those three factors or those three actions that we’re undergoing right now. So we should see that we get the growth engine running again, as we go into the back half of the year. Yeah.

Okay, great. Thanks for that additional color. In terms of cost savings, one of the things you mentioned, Jason, in your opening comments was you’re still kind of early in those – in benefiting from some of those actions you’ve taken. So just kind of curious what in your mind, in terms of order of magnitude, I think, capturing those savings? And also, once again, the timing of how long it’s going to take?

Yeah, it’s good, Bobby. Good question. Thanks for that. The reality for us as we continue to understand the business better, as obviously, as we dig through and get to a little bit further down through some of the challenges we’ve been having. As we’ve seen volume pull back a bit, it’s really helped us to understand where we’re getting leverage where we’re not to our facility, and how we streamline and improve those processes. And so we made some of those moves early on, as we had mentioned, where we reorganize to be able to, to really be able to attack those costs. As we go forward, we have opportunities across our ingredients, and how we think about what ingredients we’re putting into what packages and how much of each one we’re putting into the package, we have opportunities in our procurement and the buying that we’re doing to restructure some of those agreements as well. And then, two, we have opportunities in our operations and really thinking about how we are most efficiently producing and distributing our goods today. And that’s not only in house, but with our co-packers as well. So we are reorganizing our co-pack network as we go through this, in addition to the work that we’re doing internally. In terms of the ending, I’d say it’s – maybe we’re in the third inning, if you a baseball analogy, we’ve made some of those changes, but it’s really going to play out over the course of the next few quarters. Some of the initiatives such as the list price increase that we took really just went into effect. And so we haven’t seen the benefits of that flow through the P&L yet. Similarly, we have a number of cost reductions that are in a similar state will continue to ramp up as we get through the second half of the year.

Okay, great. And if I can just sneak one more in just looking through your PowerPoint, where you have almost perfect to offset in terms of hydration and beverage enhancing supplements0 decline of the increase from harvest snacks and other food items. Now, I’m wondering in the hydration category, whether or not there’s anything that you can call out there in terms of what’s driving that decline and what your expectations are for that product segment going forward?

Sure. This is Andy, again. I’ll give some context that we had seen definitely an incremental level of competitiveness in that space. There’s been a good amount of activity that took place in 2021, that’s led to some competitors really getting active, it particularly in paid media, that’s risen the overall cost there. So as we talked earlier about some of the costs rising in the platform levels, we are seeing some incremental scale of that at a category level as well. It’s kind of creating some, I’ll say, aggregate steepness in that curve. And as we’ve been working against trying to offset those efficiencies, we’ve really focused on some of our core categories coffees and creamers. And then, most recently, when we’ve made some investments on the Picky brand, which will be involved in that snack portfolio piece. So there’s kind of a couple of components, one of some headwinds additively. And that we’re working to make sure that we’re supporting our core categories as best we can. And then the second one is, kind of a reinvigoration behind our Picky brands and spending back on that piece of the portfolio as well.

Thank you, Andy. Thank you for taking my questions.

Thank you. Our next question comes from George Kelly with Roth. George, your line is now open.

Hey, everybody, thanks for taking my question. So just a few for you. The first on pricing, curious, how much pricing did you take? And was it the first time that you took significant pricing this year?

Yeah, George, hey, this is Jason. Nice to hear from you again. We took pricing on to the tune of about 10% not on every product, but on a large portion of the portfolio. And we did it somewhat strategically in that regard, there are a couple of categories, such as liquid creamers, where we felt that there wasn’t a market opportunity. So we put that through in our DTC channel first, and I’ve seen early results that seemed to confirm that the elasticity impact isn’t going to be as great as what you can hear. And that’s just going to ripple through begin to ripple through the retail channel here as it works its way through the various retailers that we – all of which that we passed it along to.

Okay. Excellent. And then next question on there were several comments in the prepared remarks just about momentum in the fluid – the refrigerated creamer business. So, curious, I guess 2-part question. What was the contribution from fluid in the quarter? And then secondly, what that – I believe that had been stable for several quarters. So if you’re seeing momentum, just curious, what’s really driving that?

Yeah. I can answer the momentum in the marketplace, and then Anya and/or Jason chime in on some of their contribution components. Yeah, as I mentioned in the prepared remarks, we are seeing, I would say, sequential growth overall on coffee and creamers. The hypothesis here is that as consumers are migrating from some coffee house purchases, they are monitoring discretionary income, they’re coming back, we’ve seen that pretty care just really happening across both, coffee, creamers, refrigerated, fluid as well as shelf stable. And we’re seeing some benefits of that, obviously, the refrigerated portion of the category that are 10 times the size of the shelf stable portions on market size perspective. And we’re seeing some benefits there where we do have some benefits in distribution that are changing year-over-year. And then as I mentioned in the prepared remarks, our velocity levels have grown significantly, specifically on latest 12 weeks year-over-year, we’re up 35% and the natural channel on a dollars per GDP level and 17% in Nuwell, respectively. So we’re seeing that overall that even though consumers are making some tradeoffs in their pocketbooks for where and how they consume their coffee, that they are still looking for value add where they can find it, and we’re seeing those benefits larger refrigerator premium business today.

And George, it’s same [ph]. No secret. We talked this before that that we’ve been struggling to really get our economic model set correctly for that liquid creamer product. We have the demand for the product is greater than what we’re willing to supply right now until we can get that fixed. We talked about the challenge we have in front of us and we need to get that fixed this year. We’re still working our way through that and we need to get to a better cost solution for that business. But in terms of the demand for Laird to enter that as a premium functional coffee creamer, we have tremendous opportunity in front of us.

Okay. That’s helpful. And then last question for me. The guidance – the adjusted revenue guidance to take down I think it was roughly $5 million bucks. Is that primarily from the Online it sounds like just in response to some of the earlier questions it sounded like you were saying it’s primarily in the Online business, but just want to confirm that I heard that right? Or is there sort of maybe some of the wholesale ramp, you were optimistic about just taking a little longer to play out, and it’s more of a 2023 story at this point?

Hey, George. It’s Anya. Well, it’s primarily Online, you’re correct. As we’ve seen softening demand, and online businesses, and elevated discounts to motivate consumers to do repeat orders and attract new consumers. So that’s the bigger part of the column [ph] down the guidance. But wholesale business is also taken longer to get the new profits distribution than we originally anticipated. And we’re going to see those benefits towards the end of the year, as you mentioned, in early 2023.

Okay. Great. Thank you.

Thank you. I would now like to pass the conference back over to Jason Vieth, CEO.

So thanks, everybody, for joining us again today. I think in terms of this quarter, while it didn’t hit – we didn’t hit everything as well as we expected to. And as we hope to, I think there’s a lot of great momentum on the business right now. And it’s very clear by looking at where the consumers are and how they’re valuing the business that we can continue to build on that as we go forward. There’s a bit of lumpiness in our business given the size of the business both at retail, in Grocery and Costco, and then also on DTC as we run various promotions. And we’re as excited and committed as ever, as we go forward to being able to deliver against these numbers and to grow the business from here. So I hope you guys are taking away from this all the excitement that we still have and the opportunity that we see. And, what’s the primary focus, as I mentioned on really blocking down and conserving cash, I feel like we’ve really weathered this first quarter, this latest [ph] quarter rather in a much better way, and I know a number of others have has looked and seen what’s going on in both public and private competitors in this space, and especially if companies are size. So we’re excited for where we go from here and look forward to talking with all of you in the future. Thanks a lot.

Thank you. This concludes today’s second quarter 2022 earnings call and webcast for Laird Superfood, Inc. Thank you for your participation. You may now disconnect your line.