Laird Superfood, Inc. (LSF) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today's Laird Superfood, Inc. Third Quarter 2022 Financial Results Call. My name is Hana and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for question and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host Reed Anderson of ICR. Please go ahead.

Thank you. Good afternoon and welcome to Laird Superfood’s third quarter 2022 earnings conference call and webcast. On today’s call are Jason Vieth, Chief Executive Officer; Anya Hamil, Chief Financial Officer; and Andy Judd, Chief Commercial Officer. By now, everyone should have access to the company’s third 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. As usual, I will start today with an overview of our third quarter results and an update on our key strategic initiatives, and then I'll turn it over to Andy Judd, our Chief Commercial Officer, for a deeper dive into sales, products and channels. Then Anya Hamil, our CFO, will cover the third quarter financials in detail, and we'll finish by opening up the call to your questions. This is now my third time providing you with a quarterly update on our business. On my first call as CEO, I was still coming to understand the Laird Superfood brand and business. At that time, I was intently listening to our analysts and investor communities in assessing various options for our path forward. On my second call, I reaffirmed our focus on getting our costs under control and fixing the middle of our P&L. This was the period in which it became clear to me that we were giving away our cash through inefficient marketing spend and weak gross margin and that we were not on a path to achieve scale benefits before we would run out of cash. During that call, I reiterated that a key area of focus for us going forward would be to improve our gross margin. Since that time, our leadership team has been focused on making the pivotal and strategic changes required to stabilize operations and put us on a path to profitability. The scope of the actions necessary to transform Laird Superfood has turned out to be much broader than was expected when I came on board, touching nearly every aspect of the business. Today, I'm pleased to be able to report that we've been making significant progress and I want to take a few minutes to recap and talk about the positive changes underway on this business and why our team is so energized as we look to next year and beyond. On the commercial side, we have been actively reshaping our portfolio, aligning the core focus by channel and discontinuing items that do not fit. We took a nearly 10% price increase on our business across all channels, which just recently rippled into the wholesale channel. Our DTC marketing engine and ecosystem has been completely overhauled, reducing our tax by more than $20 versus the last three quarters' run rate and on pace for further reduction as we go forward. In our DTC business, we removed free shipping and have, in fact, increased the price of our shipping to pass through holiday costs imposed by our carriers. We are actively shifting our business to our most profitable channels and attacking the cost challenges of particular parts of our business, such as our liquid creamers. And we have completed our brand redesign, reformulating nearly 25% of our portfolio to improve taste and/or increase our functional benefits. On the supply chain side, we recently announced that we have made the decision to close our sisters Oregon manufacturing facility. While this was not an easy decision, it is one that will provide a significant lift to our gross margin once we have worked through the transition. We've entered into a partnership with a co-manufacturer to produce the entire line of powder products, replacing everything that was previously made in our own facility. In doing so, we have added new capabilities and flexibility to our business, including the ability to produce single-serve products for the first time. I am also excited to announce that we have just completed an agreement with a third-party logistics provider that will handle all of our distribution and logistics for Laird Superfood. This was the final step in enabling our variable cost supply chain model, which as a small CPG business, will allow us to scale up and down without being burdened by high levels of overhead that have clouded our financial visibility and decision-making in the past. We have also created and tested a new liquid creamer formulation that can be run at scale, which will allow us to transform that from a significantly unprofitable piece of business to a product that we can beneficially expand in the future. And finally, on the people and organization side, we have completely rebuilt our teams, including nearly the entire Executive team, adding decades of experience and expertise in consumer goods and food across all disciplines. As you can see, we have made a lot of progress over the past quarters and expect to complete this turnaround in the middle of 2023, after which Laird Superfood will look like a completely different business. Meanwhile, the demand for healthy and nutritious whole food products like Laird Superfood has never been greater, and we are excited to be putting ourselves into a position to be able to capitalize on these trends. Now, let's talk some of the specifics from our third quarter. During prior calls, we outlined margin improvement as the top initiative for this team, and I'm happy to report that we continue to make headway on cost reduction initiatives during the third quarter, particularly as it relates to consumers in the macro environment. In our online business, we reduced our Q3 DTC marketing spend by nearly 60% versus last year, and these changes are driving lower and more efficient marketing spend and lower customer acquisition costs. We repurposed a portion of that spend to the Amazon platform, driving 27% growth in that business during the quarter. As I mentioned earlier, we also raised our shipping costs during Q3, and we did so without seeing a significant loss of consumer acquisition or conversion. This means that during 2022, we have been able to increase the price of most of our online portfolio by around 10% and to pass on many of the shipping costs that had previously burdened us. The decline in wholesale revenue during the third quarter was largely attributable to the club channel, where we did not repeat a regional rotational program from the prior year. As Andy will share in a moment, we also experienced some unexpected challenges in the grocery channel during Q3, stemming from product moving from distributor warehouses to the retailer shelf. We have largely fixed these issues and are working with our customers to ensure a smoother path from distributor warehouses to their shelves, including examining order patterns and auditing to ensure that the product makes it to the shelf. In the third quarter, gross margin showed solid sequential improvement, reaching 23.4%, a 520 basis point increase versus the second quarter, driven by lower discounts and labor costs. However, on a year-over-year basis, gross margin was down 5.9 points as our highlighted focus on drawing down inventories continued to deleverage our fixed manufacturing costs. But as I mentioned a moment ago, subsequent to the end of Q3, we announced a co-packing partnership that will quickly alleviate these pressures during 2023. This strategic pivot to an outsourced manufacturing model will significantly improve our financial profile by reducing fixed overhead and simplifying our business, enabling us to focus on maximizing our commercial growth potential. This is an important step towards our committed long-term target of 35% gross margin, which in 2023 will also incorporate product and ingredient optimization and harmonization. The new co-packing partnership covers all of our powdered creamers and hydration products, which represent nearly half of our overall product sales mix today. We expect that moving these products to a co-packing model will add between six and eight points to our gross margins, which we expect to realize over the next several quarters as the transition is fully implemented. It is worth noting that we expect to see certain one-time charges in Q4 related to the co-packer transition, specifically impairment of fixed assets, leasehold improvements, and inventories, as well as cash charges for the sisters lease exit and restructuring costs. I'm pleased to be able to share that we have agreed in principle to our exit from the sister's facility, and we're working through those estimates now. The shift to third-party manufacturing will also enable us to be more responsive to our customer demand, while fully aligning our cost structure with the current state of the business. While the operating environment remains very challenging, the changes we are making to our business model are significantly improving the underlying economics and strengthening our competitive position, creating a more experienced and more nimble organization focused on maximizing our most profitable commercial growth opportunities. As we go forward, we will maintain a strict focus on improving our profitability and maintaining our cash position to support our future operations and other opportunities that may emerge. With that, I will hand it over to our Chief Commercial Officer, Andy Judd.

Thanks Jason. Laird Superfood's mission to help the consumer optimize their everyday performance by harvesting the natural and functional benefits of plants is building momentum. We are making significant progress towards building a sustainable, long-term and profitable growth agenda across multiple platforms from our own direct-to-consumer model to Amazon to all channels of retail trade. While overall online business in Q3 was down 8%, we did see quarter-over-quarter improvement of five points sequentially for the channel, and a composition of the improvement is consistent with our strategic plan. We saw significant growth in Amazon, up 27% year-over-year as we brought on a fantastic new partner to help us manage and deploy media. Since that transition, we have already seen an 11% increase sequentially in return on ad spend for the platform, and we achieved our most successful Prime Day results to date. We expect this performance on the Amazon platform to continue to improve as we see additional opportunities to turn continued consumer acquisition into more subscribe and save purchases where we are significantly underdeveloped versus our peer set, have room for further investment in upper funnel awareness media and are implementing new replenishment, and inventory management approaches. For our direct-to-consumer business, we continue to reset our platform for long-term profitability. In order to do this, we have to make sure our investment levels and returns are sustainable. And while it continues to be a tough marketplace for consumer acquisition and our acquisition cost was still up 32% versus a year ago. We reduced media by 60% versus a year ago with only a 19% reduction in sessions, reflecting both the loyal organic traffic we have and the previous inefficiency in our media. As a result, we realized an 80% increase in return on ad spend on the remaining investment in the quarter. The price increase that we took in June has had minimal effect on volume and website conversion still running in excess of 6%, which is an increase of 13% versus a year ago and well above industry benchmarks. Despite the challenges to acquire new consumers in DTC, we continue to see consumer loyalty to Laird Superfood at all-time highs with a 4% increase in subscriptions and 5% growth in our lifetime value, which grew two points sequentially versus Q2. In addition, we saw 25% growth in average order value versus a year ago, and we are seeing growth in on-trend portions of our portfolio as we expand our leadership in functional plant-based coffees and creamers with items like our coffees with functional mushrooms, our superfood coconut creamer with functional mushrooms and our Instafuel Instant Latte. We are excited about the formation of a new go-to-market approach that includes the combination of a more focused and profitable spending profile with better utilization of our CRM tools to acquire new and lapsed consumers. When combined with the high level of loyalty against on-trend products, we believe that our DTC business is on a solid path forward. Overall, our retail sales in Q3 had mixed results. The largest driver of change year-over-year is the loss of a regional rotation in our club business compared to a year ago, which accounts for 70% of the decline in our wholesale net sales for the quarter. We have modified our full offering to the club channel and we'll be launching new packaging to improve performance in the channel in Q1 of 2023. And we have also brought on new channel sales leadership to better execute against these opportunities. We are seeing positive trends in our core coffee and creamer categories as consumers continue to increase in home consumption. In our liquid creamers business, we saw our retail dollar velocities increase plus 11% and plus 21% and Natural Mulo, respectively, for the 12 weeks ending 10/2/2022. Our dollar sales growth is outpacing the overall category and the plant-based creamer segment. In the natural channel, we rank as a top five dollar and unit share brand in plant-based creamers, improving unit share by nearly three points, while still having a significant opportunity to match the distribution levels of our plant-based peers. We have reached our share position with 15 less points of ACV versus the other top plant-based share leaders. We are excited about this continued growth in liquid creamers and have plans to further enhance our productivity behind new packaging in Q1 and a new aseptic format in Q2. This success in refrigerated creamers was offset by challenges in our shelf-stable powdered creamer business, where we experienced distribution losses as a result of retailer in-store assortment changes on lower-performing items as well as replenishment challenges between distributors and retail customers. We have initiated efforts to improve replenishment through better collaboration with key wholesale partners and increased support in Q4 through key digital platforms to improve the velocity trend. Despite the headwinds in the quarter, our consumer loyalty metrics reached an all-time high with our Net Promoter Score reaching 82 in Q3, and our customer satisfaction was at 4.9% on a five-point scale. In the quarter, we completed new research that indicated that over 43% of the US is actively using functional food and beverages, a clear indicator that the addressable market is reaching significant scale as consumers continue to see cleaner and more functional foods. In Q4, we will start to see our redesigned packaging rollout, which will significantly improve our shopability and breakthrough at the first moment of truth at shelf and further highlight our functional benefits that make our value proposition truly unique. Our new protein bars are now in retail, and we are readying more exciting innovation that we'll be launching in Q4 and into 2023. We will be introducing renovated product lines that improved taste and functionality as well as expanded single-serve offerings across our creamers, Instant Lattes and Daily Prebiotic Greens. 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 last year. We are more focused than ever on spending against the right strategic priorities, building a true omnichannel growth agenda, and driving future growth in a significantly more efficient manner. I am so grateful to the entire LSF team for their diligence to push harder and find new opportunities to improve our business. Now, let me turn the call over to Anya Hamil, our CFO, to further discuss third quarter results.

Thanks Andy. Net sales decreased 19% to $8.8 million in the third quarter of 2022 compared to $10.9 million in the third quarter of 2021, driven by lower volumes in the wholesale business and DTC channels and partially offset by strong growth at Amazon.com. The decline in wholesale was mostly driven by reduced volumes in club, where we did not repeat original rotation from the prior year. In addition to the continued pressure on consumer spending due to inflationary concerns, the decline in DTC was driven by lower new customer orders that were a result of planned initiatives to improve our gross margins, including reductions in marketing spend, price increase implemented at the end of the second quarter, and changes to our free shipping threshold. The decline in D2C was partially offset by double-digit growth in our amazon.com channel, driven by continued adoption and momentum built from optimized marketing strategy. Gross margin declined 590 basis points to 23.4% versus Q3 of 2021, but improved 520 basis points sequentially versus Q2. The margin compression versus prior year period was driven primarily by fixed manufacturing cost deleverage as we strategically drew down inventory balances by writing lower production volumes. Gross margin was also negatively impacted by higher freight costs, partially offset by lower labor costs stemming from cost reduction initiatives. Operating expenses totaled $7.8 million, a decrease of $0.7 million compared to $8.5 million in the year ago period. The decline was driven by lower sales and marketing expenses as well as lower research and development costs, while general and administrative expense was consistent with the prior year period. Sales and marketing expenses decreased approximately 16% to $3.4 million due to lower advertising expenses and personnel costs. Net loss as reported was $5.7 million, an increase of 7% versus prior year period. On an adjusted basis, net loss was also $5.7 million, an approximately 6% increase in the year ago period, but improving sequentially about 10% compared to our results in Q2, demonstrating continued progress in our cost savings initiatives. A detailed reconciliation of non-GAAP adjusted net loss is included in our earnings release. Now turning to our balance sheet and cash flow. We ended the quarter with just over $21 million of cash and no debt as we continue to conservatively manage our balance sheet. Cash yields in operations was $3.6 million, an improvement of over $300,000 from Q2. Now moving to our outlook, despite the fact that we anticipate a challenging economic environment to continue in the fourth quarter. We reaffirm our guidance and estimate of net sales for 2022 will be a lower end of board stated range of $36 million to $38 million, and that gross margin is forecasted to be approximately 20% for the full year. Note that, the gross margin guidance excludes any onetime charges associated with the closure of our manufacturing operations in Sisters, Oregon and other onetime actions. With that, I'll turn the call back to Jason.

Thanks, Anya. Let me start by taking a moment to share a hearty and public congratulations to Anya for her promotion to Chief Financial Officer of Laird Superfood. While the US economic outlook and its impact on the consumer remains uncertain, if not outright challenging, we in turn remain optimistic about the opportunity for health and wellness brands like ours to continue to grow and take a larger share of the market. In the first three quarters of this year, we managed to significantly improve the fundamentals of the Laird Superfood branded business and are now poised to expand in the next year and beyond behind a new brand platform with improved products and stronger retail placement across the country. And while we still have work to do to complete this turnaround, we are optimistic about the flexible variable cost manufacturing and distribution model that we will put in place during Q4 and excited to close this year on a strong note and carry that momentum into 2023. This concludes our prepared remarks. Operator, we are now ready to open the call to questions...

[Operator Instructions] The first question is from Bobby Burleson with Canaccord. Please proceed.

Great. Thanks for taking my question. So I guess -- hey, Jason and team. Wondering like the liquid streamer aseptic version that delayed without Coman support. It seems like that's something that shipped you guys up before you came on board and know you guys are pivoting to an entirely outsourced model. What is it that you're giving up for what you're gaining here? Because it seems like you can kind of get the margins maybe closer to where they used to be, but does that cap some of the ceiling for you guys there? Is that lower the ceiling for margins? And do you lose some control of the. I'm just wondering kind of what are the puts and takes of this shift.

Hey, Bobby, thanks for that question. That's a great question and one that we really kicked around a lot as we were working our way through what we wanted to do here. And the reality is for a food business our size it's really challenging to try to operate your own manufacturing facility, especially when you consider how many different types of packages and products we produce. The result of us having done that is that we had a facility that was running under 30% utilization with specific -- no specific line that was running really over 10% utilization. So we have a great team in that Sisters facility. They operationalized it as far as we could. And we spent this year really trying to see how far we can push down cost. And in the end, what we found is we really couldn't be competitive with the market. So that's a little bit of the background to how we ended up where we did. As we make this pivot into a co-packer, we up a lot of flexibility. We pick up the ability to make different sizes, including single serves. We pick up the ability to make different packages, including canisters, if we choose to do that within retail in particular. And so beyond cost, there's a lot of flexibility benefit. On the cost side, to your point, it immediately gets us back to our high watermark on margins, at least recent high watermark we expect this conservatively to push more than six points of margin back to the P&L. I suspect there will be a stronger benefit than that as we really operationalize it. We have a good partner that's really able to leverage our volume against other volumes within their network and is willing to share back costs pretty aggressively. So I don't think that it really does cap us. If we were running a facility at 80% utilization, had everything perfectly operationalized, we'd probably be in a better position, but we don't see that coming for the next number of years. So the reality is for us, gain the flexibility and to gain that cost benefit advantage that we can get from a co-packer this makes a ton of sense. On the liquid side, since you asked about that as well, I'll just mention to you, the liquid will not be going into this packer. That is a co-packed product today, as you know. But we're excited to announce that we've reworked our formulation. We weren't able to get to an aseptic producer in the past, which really limited the availability of co-packers to us. And as we go forward, we now have an aseptic product that we can choose to implement at the right time. And so we're taking a look at the implications of that back in the marketplace, what it can mean, how it can be sold, aseptic product, how it can be sold into a DTC and Amazon type of platform as well. And it just creates new opportunities that we don't have today by virtue of not having to be in a cold chain all the time. So we see a lot of cost benefit from that as well as, as I mentioned, a lot of commercial flexibility as well.

Okay. Great. And then just maybe a couple more, I don't know how many people are asking questions here, but let me just ask on the guidance. It was a narrow range to begin with for revenue this year. And we've got not that long left to the year, but we still have kind of a big holiday season to push. So I'm wondering what you might be seeing that prompts you guys to go to the low end of such a narrow range?

Yes. So for us, for the rest of the year, Bobby, what we're seeing is that we believe we have a very strong online program in place as we head into Black Friday and the holidays. Indian team have been -- and I can comment a bit more, but they put a lot of focus, obviously, against this time of the year, and we feel like we have the product portfolio in a great place, that we have the right marketing programs to be able to deliver against those objectives. For us, the biggest challenge, especially in the business of our size, it's just the lumpiness of retail. We're selling primarily through a couple of distributors and one club partner in particular. And the result of that is that, if a single order doesn't come in, it creates challenges or it fills you at if it does. So -- so I'd tell you, yes, we're still guiding to that range. We're looking at the lower end of that range at this point. And we expect to be able to bring it in, that we're watching that lumpiness of retail really closely.

Sure. Okay. And then just one more quick one, but kind of higher level. There's a lot of -- we went to a food tech Expo in New York a couple of months back and a lot of small kind of natively digital brands were complaining and kind of struggling in terms of customer acquisition costs and just a lot of the headwinds there that everybody is talking about. And I'm wondering, how do you kind of explain the layered value in an environment where there's a lot of maybe subscale brands that seem interesting? Are you -- what is it that's kind of difference about what you've built that makes it attractive potentially as part of a portfolio of brands, if we're thinking about it that way at some point.

Yes. Great question, Bobby. I'm going to lead this off and I'm going to hand to Andy as well because as the Head of Marketing and Commercial for us, I'd be remiss if I didn't give him a kick at this one as well. It's a great question, and we get excited about this. I mean the reality is this is -- what you're asking is exactly why I joined this company, and I would say, that the folks around the table did as well. What Laird represents, what it brings is a halo of health and wellness and nutrition, whole food nutrition that really stands alone. You can see that in our NPS scores, which are consistently hovering in that 80-plus mark at this point. Our customer satisfaction score, which recently were 4.9 out of five, consumers really value what we bring and its differentiation versus the other "superfoods” and other health foods that they can buy. There is recognition, very, very strong…

I am associate -- shameless plug, but I saw pretty interesting influencer basically discarding all the other creamers that they were looking at a pretty popular store and just focusing on yours is the only one would recommend. So you guys have won some mindshare out there. It seems like there's still an opportunity to capitalize on that.

Yes, Bobby, this is a -- I 100% agree with your comments there. As I mentioned in the prepared remarks, there is a building sentiment and affinity towards the clean and functional value proposition that we have. And to your direct question around the challenges for consumer acquisition, it is a tough marketplace. No doubt about it. We still encounter the same challenges in consumer acquisition. I think what the variance that we have is a couple of things. One, we have largely historically been focused primarily on our DTC business, and we have not really fully utilized other platforms like an Amazon to really drive significant consumer acquisition. And we're seeing that at a significantly lower cap than what we see in our DTC business, both in the recent quarters as well as just generally historically. New consumers on Amazon was up 46% year-over-year and up sequentially versus Q2. And then the second piece I would say is that consistent with that loyalty, we have a really strong database because of how we've been acting in go-to-market in the past. Now we've got almost 450,000 people in our database. That's up 26% versus a year ago. So we have a lot of things kind of in our organic and owned tools that can help offset some of that too.

Fantastic.

Thank you, Bobby.

Thank you, Mr. Burleson. The next question is from Alex Fuhrman with Craig-Hallum. Please proceed.

Hi, guys. Thanks very much for taking my question. I wanted to ask a little bit more about what the company is going to look like next year and going forward? I know you mentioned, Jason, that with the co-manufacturing partnership you're anticipating a six to eight-point lift in gross margin. What other ways is the company going to look different? Are pretty much all of your manufacturing cost and headcount there, expenses COGS. It seems like a lot of your physical presence in Oregon is now going to be a lot smaller, I don't know if that creates opportunities to save on SG&A, just from a high level, what do you think the company is going to look like one year from now as opposed to how it does today?

Yes. Hey, Alex. Good to hear from you. The company is going to look radically different is the reality. And this is -- we call it really what it is here for the first time, I think, on this call, which is it has been a turnaround for the last few quarters really started. We started, I thought more of a transformation, a little lighter, I didn't make a few tweaks more than a few tweaks, but I really didn't see the depths that we'd have to go through and how heavy the lift would be. So, yes, we'll be 100% command starting really before the end of this year. But certainly, as we move into 2023, we'll have a variable cost margin. It will be real clean and easy to see what our P&L looks like. We won't be beholden to manufacturing volumes that move up and down relative to some of those orders and shipments that I mentioned from a few large customers. We'll have a slimmer team and a much smaller G&A. We already are in the process now of reducing what was a 140-person team when I came in to -- at the beginning of this year to what will be under 40 people. And we'll have a significantly lower marketing spend. We've already cut back on our marketing G&A pretty dramatically over the course of this year, not only headcount, but in the discretionary expenditures as well. And our marketing spend is going to go down as we continue to get more efficient. We're seeing those efficiencies now and have a lot of confidence in our ability to reduce marketing next year even as we're growing sales more aggressively than we are this year. So a lot of this year has been focused organizationally on the infrastructure, really building and rebuilding kind of operations and IT and data infrastructure. As I mentioned before, we didn't have any consumer insights real analytics to be able to work from to build a segmentation target consumers. All of that work is done. And as we go forward, we have the ability to leverage it in a much more efficient way. So you'll see a much smaller team, a lot lower G&A. I think I would tell you a bit more nimbleness as well just given the size of the company and the ability to really get after some of these opportunities that we see.

Yes. That's really helpful, Jason. Thank you. And then what is the Co-Man relationship do for new product development? I mean I imagine for most of this year, it's one thing to just kind of walk downstairs around the corner and work with your product team. Is it going to be as easy to try out kind of new ideas? Is maybe the pace of new product development going to change a little bit more?

Yes, it's a great question. It really won't. And the reason is we -- the same individual that's running our R&D process right now is going to be running it next year. We'll have to get a new lab setup, but that lab is well it's attached to the facility, really doesn't leverage the facility in any other way. That's the scale of our manufacturing equipment and such that we could run test pilot type of runs there anyhow. So there really is no change. If anything, it becomes a little bit stronger because the Co-Man does have access to various formulas and other developments that they've been working on over the years that they've been willing and interested in sharing with us as product ideas. So I would tell you that it really shouldn't impact us, Alex. We have a lot of work to do in expanding our current portfolio. So I don't anticipate we'll speed up production of new products, but we have a number of improvements that we're making to existing products today, not only to make the product taste better, but to make it less expensively with different ingredients, better ingredients in many cases that are less expensive as well as to get into new pack sizes. So a lot of innovation that we'd say is more like a one-step adjacency, which is obviously a very higher opportunity for success, very much higher likelihood of success with lesser development costs.

Okay. That's really helpful. Thank you very much.

You bet, Alex.

Thank you. Mr. Fuhrman. There are no additional questions sitting at this time. So I will turn the call over to Jason Vieth, CEO, for any further remarks.

Thanks. I really just want to thank everybody for your continued attention and support of our brand and company. We're obviously extremely proud of the progress that we've made in turning around the business this year, but we're even more excited to put the business improvements into place in Q4 and 2023. And while these are clearly challenging economic times and that goes especially for the DTC channel, we've never been more confident that we're taking the right and the beneficial steps to be able to refocus our omni-channel sales platform while improving our cost position and our flexibility. So we Laird, I want to wish all of you and your families a safe and holiday season, and we'll continue to stay in touch as we execute this transformation in the balance of Q4, and we look forward to talking with you all again really soon. Thanks a lot.

That concludes today's Laird Superfood, Inc. third quarter 2022 financial results call. Thank you for your participation. You may now disconnect your lines.