Good afternoon and thank you for joining the Laird Superfood Incorporated Second Quarter 2023 Financial Results Conference Call. My name is Kate and I will be the moderator for today’s call. [Operator Instructions] I would now like to pass the call over to our host, Trevor Rousseau. You may proceed.

Thank you and good afternoon. Welcome to Laird Superfood’s second quarter 2023 earnings conference call and webcast. On today’s call are Jason Vieth, Laird Superfood’s President and Chief Executive Officer and Anya Hamil, our Chief Financial Officer. By now everyone should have access to the company’s second quarter 2023 earnings 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 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 will turn the call over to Jason.

Thanks, Trevor. Hello and welcome everyone. Thank you for joining us again today. Our results in the second quarter continue to demonstrate that we are successfully reigning in spend and driving our business toward profitability. Our cash burn was a record low $1.4 million during Q2 and continues to decelerate both on an annual basis and sequentially versus prior periods. Our adjusted net loss in Q2 came in almost 50% lower than during Q2 of last year benefited by improved gross margins, but also driven by lower marketing and G&A spend. This is the result of our success and improving our marketing effectiveness, where our ROAS increased by 86% during the past year as well as the leaning out of our organization and other G&A spend. On the commercial side, our strategy to drive business in wholesale continues to payoff. Our brand has always been a great fit for the natural channel and in the 12 weeks ending June 18, 2023, our Laird Superfood growth in the natural channel was plus 69%, driven by a combination of distribution expansion as well as strong increases in our dollar sales velocity behind rebranding activity that we outlined on prior calls. During Q2, we also made significant investments into wholesale trade, the majority of which was in support of new items and other distribution gains at key customers, but which also included the ongoing charges associated with the product quality event that we had discussed during our Q1 earnings call. We have an exciting lineup of products hitting shelves in Q3 this year with our biggest seasonal program-to-date and we have a great digital program lined up and will continue to execute retail support programs with our top customers. We also have a series of initiatives underway to further grow our brand awareness…

Thank you, Jason. Net sales of $7.7 million in the second quarter of 2023 decreased 11% as compared to $8.7 million in the prior year period. This was primarily driven by lower sales in e-commerce channels. Given the level of pullback in our marketing spend, which was 6% to 7% year-over-year reduction of DTC specific work in media and 30% overall marketing spend decrease, this decline was expected. These marketing cuts were strategic in nature in order to cut inefficient spend and reduce our customer acquisition costs in order to build a more sustainable direct to consumer business and improve our profitability in this channel. Additionally, our Amazon sales were negatively impacted by inventory out of stocks related to the previously discussed product quality issue experienced in Q1. We expect this out of stock issue to be fully resolved in the third quarter. The decline in e-commerce was partially offset by growth in our wholesale channel driven by distribution gains in retail, pricing as well as velocity improvements behind new packaging and rebranding campaign launched earlier this year. In the second quarter, we continue to build on the success we achieved in the first quarter from the strategic actions implemented last year. For the second quarter in a row, gross margin was in the mid-20s, with Q2 gross margin, reaching 24.3%, 120 basis points improvement sequentially over Q1 and 610 basis points improvement versus the same period last year. This year-over-year margin expansion is driven by our supply chain transition to an asset-light third-party co-manufacturing and fulfillment model and it would have been even stronger except for the investments that we have made in trade promotions to drive incremental awareness in trials in retail stores. I expect the need for this level of support in our retail channel to continue…

Thanks, Anya. While turnarounds are by nature in unsteady progression, I am pleased to be able to report our continued progress against the key strategic goals of improving our cost structure and slowing our cash burn, growing our brand in wholesale business and improving our product portfolio. As we go forward, we will continue to keep a vigilant focus on reducing our costs and slowing our cash burn. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

Thank you. [Operator Instructions] The first question will be from the line of Diana Tokar with Canaccord Genuity. Your line is now open.

So congratulations on the reduced cash burn. Maybe it gives you a nice runway it looks like but I am wondering what’s kind of a steady state of cash burn that you would expect over the next 12 months?

Hi, Bobby. This is Anya Hamil. Thank you for that question. Our cash burn was – hi, our cash burn was $1.4 million in Q2 and it was about $6 million in Q1. It was much higher in Q1 because of the Sisters exit, but also timing off account receivables collections, which was above $1.4 million that fell into Q2. So, if you normalize for that, it’s just under $3 million is kind of the normalized Q2 cash burn.

Thank you.

And I expect that to continue in that range, but slowly reduce throughout the back half of the year.

Okay, great. Thank you. And then I am wondering, just understanding the Amazon dynamic as you restock in that channel, so you guys benefit on a sell-in basis or sell-through?

Hey, Bobby, it’s Jason. Hey, see, I can take that, so let me give a little bit more color on what’s going on with Amazon. So in Q1, we had a quality event as you know that caused us to go out of stock as we recalled all of the products that had the rancid coconut powder inside of it that we had received from us supplier. And as we pulled that back, we were able to pretty quickly get the product out of the wholesale channels. So by going to [indiscernible], we got everything out of their warehouses quickly. And then we reached into each one of the retailers that have been shipped and we were able to withdraw that as well. And some of that you are seeing we continue to get the final bills now as we went through that product, but we allocated for that for the most part back in Q1. On the DTC channel, it was even easier because of course we control all that inventory and so we simply cordoned that off and then reran the product and put it into our warehouses, where we were surprised quite frankly within Amazon. And the challenge that we had is first, we had to have all the products withdrawn from out of the Amazon warehouses. We would have thought of that as a series of DCs that we had shipped to, but Amazon subsequently ships that down to the – I don’t know if you’d call him a micro DC, but basically smaller DC so that we can all receive our orders overnight or within 24 hours through prime memberships, etcetera. And so, withdrawing out of all of those warehouses turned out to be a slow affair. And you can’t start restocking until they have…

Okay. Great. And then just quickly on the natural channel growth, so you guys had some nice growth there. And I am wondering kind of just, if you can remind us where the ACV is for you guys in that channel, is that a measure of the amount of headroom left to go?

Yes. It’s a great question. So, it varies across items, of course, that in generally, you can think about our liquid creamers in the 60% range, and our powder creamers in the 40% range. We still have a lot of opportunity to fill out the breadth of portfolio in both of those two lines. And we do still have a number of other products that are really gaining traction in the natural channel as well, bars most notably recently, but our supplement lines, also now starting to gain steam. And those are barely on the radar at this point, Bobby. There is a strategic question for us as we go forward. We are – I would tell you, we are doubling down into the natural channel as we go forward to close those distribution gaps with our broker and with those retailers, really fill out our portfolio and then start to promote the family line accordingly. And that’s why we are seeing such great lift right now. We have had tremendous promotional responsiveness as well as those distribution gains, and the result is some really strong growth in that channel.

Great. Thank you.

Thanks Bobby.

Thank you. The next question will be from the line of Alex Fuhrman with Craig-Hallum. Your line is now open.

Hi guys. Thanks for taking my question. Just looking at the numbers here, I mean even with the lower guidance for the full year, I mean you are still implying a nice little sequential build in revenue in the third quarter and fourth quarter relative to what we saw in the first half of the year. Can you talk about what’s going to drive that and to what extent, we might expect that growth or some of those drivers to persist into next year?

Hey, Alex, how are you doing? It’s great to hear your voice. And good question. I am glad to talk about this a little bit, because we are really excited about the back half as well. I would tell you, there are a number of initiatives really that are driving that one has continued expansion within especially that natural channel. But we have a really big seasonal program that’s launching in natural and in club, launching new as well, but really natural and club will be carrying that. And we have expanded our pumpkin lineup, as well as our holiday later season lineup, peppermint mocha, as well. But that pumpkin lineup, we really expect to be a big one for us, with additional shippers, and display that we have picked up and a couple of new products. We also had some really exciting movement on our daily greens. You will recall that we reformulated that to a much better tasting product. And the consumer response has been outstanding. And so we continue to drive that online. It’s quickly become our top SKU online over the course of just the last few months. And we are seeing tremendous uptake from consumers in that and are really excited about the possibilities as we go forward there. And then on top of that with Amazon coming back on to the question we just answered from Bobby, we expect to see Amazon inventories replenished. And that sell through to really pick up again as we go into later, Q3 and coming out of Q4. We have got some really exciting promotions, and merchandising opportunities that we are executing at retail as well. And so really, we are expecting it to be a nicely rounded incremental increase basically for the rest of this year.

Okay, that’s really helpful. Thanks Jason. Then it looks like you guys have taken some price increases over the past year and year-to-date. Has there been any sort of material reaction, customer wise to the price increases? Have those been enough to cover your rise in product cost?

Yes. Great question. I forgot I would be remiss if I didn’t mention one big driver in the back half as well. That wasn’t what – I didn’t have here on my notes, because I was waiting to make sure we got the press release out. But we just entered the first of what we expect to be several large marketing deals that we are exploring right now. We are partnering with the Shawn Ryan Show. And with Shawn Ryan, which we believe will help us to tap millions of new consumers that are outside of our core focused demographic today. Very much a fit within our demographic, but consumers we have not been targeting as well as we could have. So, I think that’s going to be a really exciting opportunity for us as we go forward. And you will see more on that. Shawn has been just a tremendous partner to us already, even as we have just been starting this up and is a big believer in the products and what we are doing here with the company. And so we are really excited about that. And then yes, with regards to the price increases, what I would tell you on that Alex is we mentioned last year, we needed to move price, we hadn’t touched it for really, for many years. And still believe that we are delivering an incredible value relative to the products that we are putting out. But we are in a position now where we expect gross margin, as we have mentioned before, to eclipse the 30% rate in the second half of this year. So, we are getting now to where we have a business that can return gross margin dollars as we are selling incrementally in a way that starts to support the marketing. And that’s the exciting position that we talked about last year and probably it seems far off back then. But now through a couple of I would say targeted and smart price increases, we have tried – really tried to hold the line and really just cover the COGS increases that had taken place through the pandemic. And so now we are back in a good position on that Alex. And I think as we go forward now with the transition that we made with the re-launch of our liquid products, we are going to see gross margins rise above 30% and a very different business model in place.

That’s great. Thank you very much, Jason. Appreciate everything.

Yes. Thanks Alex.

Thank you. At this time, there are no additional questions registered. [Operator Instructions] At this time, there are no additional questions remaining. So, I would like to pass the call back over to the management team for closing remarks.

Thanks everybody for joining today. It’s an exciting opportunity for us to get back with you every quarter to share the progress that we are making and against that strategy that we outlined that’s really reducing our losses on the P&L as well as really holding on to our cash position to create optionality for us into 2024 and 2025. We feel like we are making the right steps here. And while we continue to tweak the business and as you see with some of the – with the call down on revenue, we are making choices that hold on to cash in a smart way and really put ourselves in a position to be able to grow some of these new exciting lines that you will see in the second half of this year. So, thanks so much for joining in and we look forward to sharing additional updates very soon.

That concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.