Good afternoon. Thank you for attending the Laird Superfood, Inc. Fourth Quarter 2023 Financial Results Call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for opportunity questions and answers at the end. [Operator Instructions]. I would now like to pass the conference over to our host, Steven Richie, General Counsel of Laird. Steve, please go ahead.

Thank you, and good afternoon. Welcome to Laird Superfood's fourth quarter and full year 2023 earnings conference call and webcast. On today's call are Jason Vieth, Laird Superfood President and Chief Executive Officer; and Anya Hamill, our Chief Financial Officer. By now, everyone should have access to the Company's fourth quarter and full year 2023 earnings release filed after today's market close. It is available on the Investor Relations section of Laird Superfood 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 context of 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 these risks and uncertainties. With that, I'll turn the call over to Jason.

Thanks, Steven. Good afternoon, and thank you to everyone who has joined us today. Now that you have all seen our Q4 2023 results, I hope that you will agree that it is not an overstatement to say that Laird Superfood had a tremendous quarter. During Q4, we hit our team's goal of a financial trifecta, positive sales growth, positive profitability and positive cash flow, the latter two of which were a first time ever for our company while trading as a public entity. These results represent just the latest step in what has been a rather steady path of improvement since I first spoke with all of you two years ago. And I'm proud to say that these improvements have allowed us to remove the going concern disclosure from our financials. This is a significant vote of confidence in our financial position and outlook and further motivation for our team to ensure that we operate the business as professionally and confidently as possible. I'll start with what might be our most noteworthy accomplishment in a quarter full of them. During Q4 2023, we were able to return our DTC business to plus 10% growth versus the same quarter in 2022. This was accomplished despite a decrease in our marketing spend by 54% during the same comparative period, which obviously means that our marketing effectiveness metrics surged once again during Q4. This represents our first quarter of growth in this channel since almost two years ago after the changes to iOS upended the DTC industry and was accomplished to more effective targeting and messaging and by highlighting our most solid products and creating better offerings for bundles and cross-selling. One key to this accomplishment was the increase of our revenue from subscriptions to 46% of our total DTC net sales…

Thank you, Jason. Net sales were $9.2 million in the fourth quarter of 2023, an increase of 2.6% as compared to $9.2 million the prior year period and flat to the third quarter of 2023. As Jason discussed, both the e-commerce and wholesale channels delivered growth in the fourth quarter. E-commerce contributed 66% of total net sales and increased 2% year-over-year, led by DTC growth of plus 10%. These improvements were in part offset by a year-over-year decline in Amazon sales of 12%, a substantial and narrower decline than in the previous quarters and driven by a 59% Amazon media spend reduction as we resolve to improve profitability on this platform. Wholesale contributed 34% of total net sales and increased 5% year-over-year, reflecting continued growth in club and distribution expansion in the natural channel as well as product velocity improvement behind updated packaging, which launched in the second quarter of 2023. Gross margin in the fourth quarter rose to 40.4%, which is a 45-point improvement on a year-over-year basis due to charges related to Sister's access activities in the fourth quarter of 2022. On an adjusted basis, gross margin improved 21 points year-over-year and 10 points sequentially versus Q3 of 2023, driven by continued benefits of transitioning to third-party co-manufacturing and distribution. Q4 gross margin of 40% is a milestone that supports our expectation that we can deliver margins in the upper 30s in the coming quarters. Operating expenses in the fourth quarter of 2023 totaled $3.7 million, a decrease of $11.6 million compared to $15.3 million in the prior year period. This reduction was driven by lab and expenses related to our exit from Sisters in the fourth quarter of 2022. Excluding onetime charges, operating expenses were reduced $2.4 million, primarily due to lower marketing costs, resulting on strategic…

Thanks, Anya. I know that I seem to say it every quarter, but I want to reiterate that I believe that the future of our Laird Superfood business has never looked brighter. This time around, please indulge me while I share my thesis for that condition. First, our Net Promoter Score and customer satisfaction scores are indicative of our incredible brand strength and the trust based on our brand by Laird Superfood consumers and should be the envy of any virtually any major food company today. Second, our product portfolio is well positioned for the health and wellness trends that continue to grow in importance both within the U.S. and internationally, as demonstrated by our Q4 volume and sales growth. Importantly, our gross margin is now in line with many of the premier companies in our industry and can provide us with strong cash generation as we continue to grow our business. And finally, I would wager that our organization is as still, competent, motivated and engaged as any similarly sized company in the industry. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

[Operator Instructions] First question is from the line of Bobby Burleson with Canaccord Genuity. Your line is now open.

Congratulations on turning the corner here towards a much better performance, so it's really exciting to see. So, I guess, like my first question is just -- when we think about the growth for this year that you guided to, what kind of OpEx growth would be required to support that guidance? It sounds like online is coming back nicely. And obviously, your spend is a lot lower these days in DTC. So just curious, are you spending more to access conventional? Or can you really drive a lot of operating leverage this year?

Yes. Bobby, it's a great question. Thanks, by the way. I appreciate it. We're really excited, obviously, about this quarter and where quarter came in. Yes, good to talk to you again. So, look, I mean, the reality is, and you and I have discussed this as well, so I know this won't be a surprise to you. But we built this team really to be able to scale from here, and we don't believe we need really substantially any more OpEx. There are a couple of line items that are going to be variable in the P&L, and the broker commission is one of those. So, as we continue to grow that piece of the business, we'll pay additional brokerage fees. Or on the flip side, as we continue to grow Amazon, there is a variable component selling cost to that as well. So, we will have to scale those two sales organizations as we grow. But really, Bobby, to be honest, our organization is built to be able to carry not only this organization but the piggy bar -- or sorry, not only this brand, but the piggy bar business as well. And frankly, as I've told them many times, we're in a position that now with everything that we've done that if we were to make an acquisition at any point or if we were to scale the business significantly from here over the course of the next 12, 18 months, we don't really have to make any additional investments to do that.

That's great. Really great to hear. And then a quick follow-up just on where the growth is coming from. Obviously, you guys highlighted daily creams and performance mushrooms as part of that DTC growth. And I'm wondering kind of the overall perception of the brand, does that -- do you guys start to move more into other kind of performance-centric or things like ready-to-drink shakes? Or are there other adjacent categories that kind of reflect Laird's athletic prowess and something that's more performance-oriented where the brand would really kind of explode?

Yes. That's certainly a question that we've been discussing as a team over the last couple of months. We've been in a position that as you guys know from the last couple of years, we really had to turn around the business, where the business was on a path to running out of cash pretty quickly a couple of years ago. And so, the last two years have really been focused around rebalancing the portfolio, getting our mix right and then obviously resetting the cost base. Not only in terms of the manufacturing and distribution costs, but all of the G&A and marketing as well. And so, we're really close to that, I would say, Bobby. We're still refining it and see some opportunities here as we go forward as well within that core business. But certainly, now we are in a position to do two things that we were not in a position to do previously because we had gross margins, as you'll recall, that were so anemic, that we couldn't expand the business without losing more money. Well, that's done. We now have a gross margin that is approaching best-in-class manufacturers within the food space. The more we sell, the more cash we drop to the bottom line. And so, the sales team is dead set, focused as bricks-and-mortar opportunities, and we've had, as I mentioned on that call -- and I know the sound quality wasn't great. Hopefully, it's better now. But we've had tremendous calls throughout 2023 that we believe will result in additional distribution going forward, just as we always do. But we've really been able to be aggressive with those sales calls because we now have the margin to support expansion. The other thing to get more directly to your question that we're really starting to focus on now is, how do we expand and continue to grow our legacy within superfoods? For a little while there, we became a creamer brand. And we do still have a great creamer business. And frankly, the best creamer product on the market, the cleanest, best tasting, most nutritious product on the market. But we also have these amazing greens product, which I would tell you is the best tasting, most nutritious product in that space as well. And we have these performance mushrooms, mushroom products, adaptogenic mushroom products that have taken off. And it's really been those three products, in particular, with support from a number of other categories, including bars. But those three products being greens, adaptogenic mushrooms and creamers, that are carrying the bulk of the weight for the portfolio. But it broadened us in doing that. It broadened our shoulders to really be that superfoods brand, not just a super-creamer brand, but a superfoods brand, and does open up the opportunity to get to some of those more performance-based categories in RTD and others are certainly on that list, Bobby.

Next question is from the line of Alex Fuhrman with Craig Hallum. Your line is now open.

Congratulations on the many milestones that you hit here in the quarter. What I'd like to ask about is the return to positive e-commerce growth which certainly seems like a big milestone. And if I'm interpreting your comments correctly, it sounds like growth on lairdsuperfood.com was even especially strong. Can you talk about what's been driving that? I know you mentioned some of your newer products helping to lift average order size. Has that been the primary driver? It looks like you guys have been emphasizing subscriptions more as well. Just any color on that would be helpful and what we might expect to see on lairdsuperfood.com into this year and beyond?

Alex, nice to hear from you. Yes. Great question, and I certainly want to be able to talk more about this. I could not be more proud of our DTC business. It is, in fact, that LSF or lairdsuperfood.com platform that returned to a 10% growth. That's the first growth in a couple of years. We have a new leader on that business. I mean you guys know we've changed a lot of the organization now. We have a new marketing leader and we have a new DTC channel leader as well, and that combination has proven to be really powerful. We've done -- I'll tell you a couple of things in particular that have really helped to drive that. One is that same broadening of our portfolio that I mentioned a moment ago with Bobby. It's really not only been the creamers in the last months, but the creamers, the greens and the adaptogenic mushrooms that are doing really well. And that's a function of a couple of things. First is we've really reengaged Laird and Gabby as the real brand representatives of Laird Superfood. I would say that's only natural, and you would think why did we ever not? Why did we ever go away from that? And I think just as I mentioned before, a couple of years ago, there was some drift to that, and that's completely changed. In doing that, we've really seen a great response from the activations that Laird and Gabby are doing. It's always our highest ROI and highest ROAS material marketing collateral that we put out. So, that's rally great. We also entered a partnership with Shawn Ryan, The Shawn Ryan Show. Shawn is a podcaster, has a tremendous show, one of the largest followings in the country and the world. And Shawn is not only an advertiser or an advertising platform with us. Shawn's our partner. He partnered with us, became an investor into the business. He is a big advocate of mushrooms, adaptogenic mushrooms, and the benefits for folks that have had traumatic brain injuries as well as everybody for their general health. And in becoming a spokesperson, trusted spokesperson for the adaptogens. He's just been an unbelievable partner to us as well, and we really enjoyed working with Shawn and have had tremendous benefit. So, those two have been really large. And the third factor that I'd add to that is our DTC team has just done incredible work to turn consumers into customers and customers into subscribers. And as a result, we have almost 50% of our revenue in that DTC channel now coming through subscriptions, which obviously pay off over the long term in terms of the stickiness and the amount of volume that consumers continue to order, especially when they consider how beneficial it is to their health on a regular basis. So, those three factors have been the key driver, and we anticipate that they're going to be long living for us.

That's terrific. Really appreciate that. And then if I could ask also just on the returns and discounts, it looks like that was the lowest level in the fourth quarter in more than a year. Where is that improvement coming from? Is that more -- I know you had some kind of higher-profile incidents with some of your wholesale customers and things like that. Is that kind of coming from the direct channel as well? And do you expect those improvements to continue into this year?

Alex, this is Anya. Thank you for the question. So, I can address that. Yes, you're right. It was the lowest in the year. However, like we talked in the last couple of quarters, Q2 and Q3 were high because we chose to invest into growth for retail business. And so, we're now starting to pull that back, and we did so in Q4. So, part of its savings -- part of the savings are coming from our wholesale business, and we'll continue kind of at that optimized level of spend. Not quite linear, not quite maybe as low as Q4, but in that range. DTC also, as we have optimized mix between trade and marketing investments, there's some savings coming from that business as well, although not nearly as much as from retail. So, I think you can expect to see pretty similar range and mid-teens in terms of discounts going forward in '24.

Next question is from the line of JP Wollam with ROTH Capital Partners. Your line is now open.

If I could maybe just start with sort of the revenue guidance for next year. Just want to kind of talk from a high level, maybe what gives you the confidence in revenue growth? And as we think about kind of the drivers of that growth for next year, maybe if you could just talk about sort of what -- and I don't know how much you want to say, but maybe being in there, if you'll have some small retail doors coming online in the middle of the year, but anything you kind of just want to say about how that revenue will build?

Yes. JP, good to talk to you again. So, I'll start off. I'll give a couple of thoughts on that, and then I'm going to hand it over to Anya. She can talk through the cadence a little bit, but I want to give you some of those drivers of where our confidence comes from. So, I'm going to go sequentially through three different channels and platforms. Starting with Amazon because that's -- for us, that's a really attractive opportunity for us. I mentioned on the call a couple of minutes ago on the prerecord that, last year, we had a bit of a trough in Amazon because we had that quality event in Q1, we had to withdraw all of our inventory out of Amazon. And that means you have to withdraw from their DCs and then they have to go out to all the micro DCs that they send to so that you can get that order in 24 hours or so. So, it's a slow process. And we had to pull it all back before they let us put anything else back in because it all had the same SKU numbers, so -- or UPC numbers. So as a result, we lost somewhere around five, maybe six months of creamer sales in that -- on that platform. And it wasn't -- I mean, I can't say it was zero, but we really lost a lot of business. And as a result of that, when you lose that piece of business, you lose the opportunity to cross-sell as well. And so, I would tell you that there's just a tremendous lapping opportunity on Amazon as a result of that. On top of that, we have very positive Amazon sales growth going on even before running into that. So,…

Appreciate all that. If I could just do one follow-up and maybe this one is more for Anya. But there was the comment about the ABL during the earlier remarks. And I just wanted to kind of follow up and make sure I'm thinking about it correctly. But was the commentary there more just that it was a vote of confidence in the future of the business? Or as we think about kind of expanding some of the SKU expansion and some of the growth next year, is that something that you think is going to be put into use next year to either build inventory or kind of fulfill some of that demand?

Yes. Thanks for that question, JP. Yes, we think that we have enough cash to get us through 2024 and '25 and hopefully beyond. However, the point of that comment was to signal that we do have additional liquid resources or liquidity in case if we needed for working capital expansion or any other opportunities that may arise. If we choose so, those funds are there based on conversations that we've had with several lenders. That would be available to us.

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

I just want to thank everybody once again for jumping on. This is by far the, I would say, the best performance that we've had as a public company, and we're really excited for the path from here. As we go forward, we'll obviously be back talking with you guys in just a few weeks, given how late the annual call ended up. And as we wrap Q1, look forward to getting back with everybody to share the continued progress on the story. So, thanks much.

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