Hello and welcome to the LSF First Quarter 2023 Financial Results. My name is Elliot, and I’ll be coordinating your call today. [Operator Instructions] I would now like to hand over to Steve Richie. Floor is yours. Please go ahead.

Thank you, and good afternoon. Welcome to Laird Superfood’s first quarter 2023 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 first quarter 2023 earnings press release 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 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’ll turn the call over to Jason.

Thanks, Steve. Hello and welcome everyone. Thank you for joining us today. Our results in the first quarter demonstrate that we have built the right strategic plan for our business and that the team is capable of executing it. Though it remains a challenging operating environment to be growing a mid-size food brand, I am pleased to report that we are nevertheless making strong progress against our key strategic goals of improving our cost structure, growing our brand and wholesale, and improving our portfolio behind taste and packaging innovation. In just a few short weeks at the beginning of the year, we were able to transition our supply chain to an asset like manufacturing in third-party distribution model that is already operating with far greater efficiencies than what we were able to achieve when we operated our own facilities in Oregon. We are not only up and running in those facilities, but we are already producing greater volumes and lower costs with increased flexibility and responsiveness across a wider range of packaging sizes and formats. Our new partners have proven to be highly supportive and adaptive and true partners in every sense of the word. As Anya will detail shortly excluding one-time costs associated with our product withdrawal, we have already increased our Q1 gross margin by more than eight points year-over-year. At the same time, we have continued to make dramatic progress in reducing our marketing spend in the DTC channel. And as a result, continue to see a significantly higher return on our ad spend, a lower consumer acquisition cost and a vastly improved margin structure. We have now largely worked our way out of the inefficient marketing contracts that were set up over the last years and have finally been able to shift our investment to the…

Thank you, Jason. When we began our journey of brand transformation last year, we knew we had significant work to do to rebuild our go-to-market foundation. A year later, I’m pleased to see the scale of the changes that we have executed. And before I jump into details, I want to thank the entire organization for their diligence and dedication to set our incredible brand up for future success for years to come. In the first quarter, we launched updated packaging and executed a new campaign to reposition our Laird Superfood brand around fueling optimal daily performance. Though these changes have only been in market for a few months, we are already seeing improved sales velocities in retail and better conversion on our website. We have also launched some of our most successful innovation to date behind new adaptogenic protein bars and prebiotic daily greens. To address what we called out as inefficient historical spending levels, we have completely overhauled our marketing model. In our DTC business, we have reduced total spend by 70% in Q1 versus year ago, while simultaneously improving our return on ad spend by 280%. Importantly, we have simultaneously decreased our consumer acquisition cost and with our high lifetime value and gross margin improvements such that we are now delivering a positive ROI from our DTC customers. We’ve also returned net subscribers to positive growth for the first time since 2021 with sequential improvement in each month of Q1. As we’ve rebalanced our value proposition and drove the conversion of repeat consumers to our subscription offerings. It is important to note that all of this was achieved despite the product withdrawal that Jason discussed earlier. As Jason mentioned, the Q1 product withdrawal had its largest impact on Amazon, which led to a nearly 12 week blackout…

Thank you, Andy. Net sales of $8.1 million in the first quarter of 2023 were in line with our annual operating plan, and decreased 12.7% as compared to $9.3 million in the prior year period. Given the level of fullback in our marketing spent, this decline was expected driven by lower sales volume in e-commerce and club channels. Specifically, our e-commerce sales decline was driven primarily by DTC due to a 70% year-over-year reduction in media as we got inefficient spent and reduced our customer acquisition costs in order to build a more sustainable direct-to-consumer business and improve our profitability in this channel. The decline in DTC was partially offset by growth in our retail channel driven by both higher velocities in liquid and shelf-stable creamers and distribution expansion in the natural channel. As reported, gross margin was 23.1% compared to negative 4.6% in the fourth quarter of 2022 and 20.9% in the prior year period. First quarter margins were negatively impacted by a one-time cost related to product withdrawal that Jason and Andy both talked about earlier. Excluded those one-time charges, I am pleased to report that we achieved 27% adjusted gross margin, which is an improvement of over eight points from the sequential quarter and prior year period. This margin expansion came as a result of our supply chain transformation to third-party co-manufacturing and fulfillment model that was completed in the beginning of the first quarter. And as in line was our expectation for that transition. I expect our gross margin to continue to improve throughout the year, as we see the full benefit of the transformation to variable cost model as well as other margin improvement initiatives planned for the second half of the year. Operating expenses totaled $6.2 million, a decrease of $9.7 million compared to…

Thanks, Anya. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

Thank you. [Operator Instructions] We have a question from JP Wollam from Roth Capital Partners. Your line is open.

Great. Thanks for taking the question. Maybe if we could just start, it sounds like the Amazon issue may have cost some sales during the quarter, but maybe from a high level, if we just think about where we are here at the end of Q1 and relative to, kind of the performance of the last year, what sort of gives you confidence around the maintained guidance and sort of thinking about whether demand has troughed and is on the upward slope at this point. Maybe just if you could talk to how you’re thinking about that as we go through the remainder of the year?

Yes, hey, JP. It’s a great question and one that we wrestle with over here quite a lot. The reality is that as you know very well and a number of others do as well, we’re in the midst of a pretty massive business transformation right now, and it’s really in the rear view of the last 12 months the majority of that has taken place. And really as we moved through those 12 months, what we did strategically was to pull back DTC media spend. You heard that today. And we had a significant pullback executed in Q1, but that’s been ongoing for the last few quarters because that particular channel’s just become incredibly inefficient for most companies that are operating in the DTC space, especially for companies like ours and consumer goods that don’t have as large of an LTV as some other industries. And so we’ve pulled back on that and strategically made the pivots towards Amazon and a wholesale and to – pursuant to your question that you asked, Amazon was hit by the quality issue in Q1. We feel very bullish about our opportunity within Amazon. It’s not an inexpensive channel to play in. And so we continue to hone our model, really look at our media spend and all of the support that we give to that channel relative to the sales that are returned. And we’ll continue to do that as we go forward as well. But we see a lot, a really significant opportunity to grow our Amazon business, which frankly had not been a priority for the Laird Superfood organization until sometime less than a year ago when this team came in. So strategically, we’re looking at pulling, really throttling back DTC spend until that model corrects itself and we see…

Great. I think that’s very helpful. And maybe that segues a little into my second question, but just as you think about, maybe more clarity on the online side, but are there any trends you can point out as it relates to both your repeat customer orders, whether that’s average order value coming down or getting higher and then maybe also compare that to anything you see in terms of new customers and their orders relative to maybe a year or two ago?

Thanks for the question, JP. This is Andy. We are seeing a nice improvement in our AOV. Largely as Jason mentioned, we’ve gone through transformation and rebuilt both our portfolio approach to improve a lot of our products across the board, whether that’s adding functionality, improving taste, and even launching into to new spaces like adaptogenic protein bars or most recently at the end of the quarter, we launched a Prebiotic Daily Greens product. All of those pieces are contributing to increases in AOV and maintaining a really high repeat level across the board. So, I do think we are seeing a nice stabilization behind a great product and proposition. We did make a change in Q1s also improve our subscription value offering, which has helped move high frequency promotion, repeat users into a more stabilized subscription model, which will help bolster that channel overall. As it relates to new customers per the commentary, we did reduce significant spend by almost 70% to the channel in the quarter, which was largely against a highly inefficient CAC and Q1 of 2022. We are still seeing a good amount of new consumers come into the portfolio and their AOV is higher than the AOV of new consumers a year ago, largely driven by a reduction in the frequency of the promotions that we had been running. So overall, there is a reconciliation of our value proposition and how we price more efficiently and to the overall model itself. And I think those are some of the components Jason mentioned earlier about where we cease progress moving in the right direction for the channel. And now we’re going to go look for new acquisition from Amazon where the CAC is much lower or has been historically much lower than our DTC model and in retail.

And JP I’ll just add, while we’ve got the opportunity on that, I’ll add just one more point to frame up what Andy just indicated, which is, we’re bringing down our acquisition cost at the same time that we’re taking up our AOV and our gross margin and our LTV. So that equation’s going to start working in our favorites, obviously working in our favor already relative to where we’ve been. But we’re very focused on making it work in our favor in terms of profitability as well and pushing us towards that breakeven point much more quickly than where we were headed, a couple quarters ago.

That sounds great. Very helpful. And if I could just slide one last quick one in there. Just in terms of velocities I was wondering, I know you made a comment about kind of the spike you saw post the rebrand, and I was just wondering if you could give us a little more color around how that trended following the initial spike and not sure whether or not you would want to make any comments about since quarter end, but even if just during the quarter, could you maybe talk a little bit more about how that trended following the rebrand?

Yes, of course. Yes, we were very pleased with the immediacy of the incremental or accelerating velocities that we saw. Our rebrand started to roll out in the natural channel primarily our – at first with our shelf-stable creamer products. Then it was followed by Costco and then, rebranding online relative to a wholesale redo of our website. And then subsequently our liquid creamers started to roll out towards the end of the quarter. At each of those windows, we saw almost an immediate acceleration across each of those segments which was really exciting. The complication came with the quality issue that Jason referred to where we did then immediately pull back some of those products out of the marketplace, particularly the shelf-stable creamer, powdered creamer products. But since they’ve gone back in, we’ve seen that acceleration return and velocity growth continuing. So to your direct question around the trending component of it while not consistent, but we’ve had two moments where it did show up the shelf and the acceleration of velocities happened in both instances. So, we’re really pleased overall with how it’s trended. Our liquid creamer business and the natural channel velocities are over 40% are wholesale are – club store sales on a velocity level are up 30%. So, we’re really pleased with the overall performance of the brand at this point.

Great. Really appreciate all the help. Best of luck going forward.

Thanks JP.

We have no further questions. So this concludes our Q&A and today’s conference call. We’d like to thank for your participation. You may now disconnect your lines.