Thank you for standing by, and welcome to the fourth quarter and full year 2022 earnings conference call and webcast for Laird Superfood, Inc. I would now like to turn the call over to Mr. Steve Ritchie of Laird Superfood to begin.
Thank you and good afternoon. Welcome to Laird Superfood's fourth quarter and full year 2022 earnings conference call and webcast. On today's call are Jason Vieth, Laird Superfood's President and Chief Executive Officer, Anya Hamill, our Chief Financial Officer, and Andrew Judd, our Chief Commercial Officer. By now, everyone should have access to the company's fourth quarter and full year 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 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. Now I'd like to turn the call over to Jason.
Thank you, Steve. Welcome, everyone, and thank you for joining us today. It's been a busy few months since we reported our progress on turning around Laird Superfood, and I'm excited for all the progress that we will be sharing with you today. I'll start the call with an update on our overall business and progress against our key strategic initiatives before I hand it over to Andrew Judd, our Chief Commercial Officer, for a deeper dive into our performance across products and channels. Anya Hamill, our CFO, will cover the fourth quarter in detail, and we'll finish by opening up the call to your questions. During our last call, I announced that we would be closing our manufacturing facility in Sisters, Oregon, as we had just completed an agreement with both a co-manufacturer and third-party logistics provider to handle the powder manufacturing and distribution for our business.
I am happy to report that we have already completed that transition to these two partners and that they both are now fully operational and integrated into our supply chain. Since December, these partners have produced and shipped 100% of our powder products, and they have proven to be responsive, adaptable, and supportive in every way. I want to take a moment to share my immense pride in our Laird Superfood supply chain team, who, in the span of just a couple of months, came together to completely shut down our manufacturing facility in Oregon to stand up both a new co-packer and third-party distribution center in Utah and to build and implement the various support systems and other controls required to run our business there.
This was all accomplished before the end of January, and I am blown away by the speed and professionalism with which our combined teams have completed this transition and by the long-term opportunities that this will create to increase our supply chain flexibility and drive down our total operational costs. Similarly, I am pleased to be able to announce tremendous progress on the commercial side of the business. In the fourth quarter, we began the transition to our new branding and packaging, which brings an entirely new design to our portfolio and enhances our imagery to better highlight both our Laird Superfood brand and the taste appeal of our various food products. We unveiled this new look at the natural food industry's largest convention, Expo West, and I can attest that the feedback was ferociously positive.
As Andy will share very shortly, we have already seen a nice bump in our recent retail sales velocities, which we attribute to the new branding and its ability to draw in consumers at that first moment of truth when they see our new package on the shelf or on the screen. We are also in the process of rolling out packaging with a new Velcro seal that will allow for better resealing of our products, which has been one of the few complaints that we've consistently received over the last few years. When viewed on a retail shelf, our brand now commands consumer attention. When purchased and viewed at home, it delights consumers at the all-important second moment of truth each time that they are preparing to consume the product.
I am also proud to share that our revised approach to our direct-to-consumer or DTC business is continuing to pay off. During the fourth quarter, we lowered our consumer acquisition costs from $90 back in Q4 of 2021 to just $30 in Q4 of 2022. Not only did we reduce our acquisition costs by two-thirds in the past year, but we did it while simultaneously increasing our average order value, and we remain on the right track to fundamentally reshape our DTC business as we drive it toward profitable growth. As we were refining and focusing our DTC approach and spending model, we made it a strategic goal to accelerate our growth on Amazon. I'm pleased to share that we grew that channel by 38% during Q4 versus the same period a year ago.
We accomplished this by executing a strong Black Friday and overall holiday shopping season, which allowed us to grow our average order volume by 13% versus the year before. At the same time, we also made good progress in driving out third-party sellers of our products and owning the buy box for our product portfolio, key operational improvements that set the table for further expansion throughout this year. Up to this point, our wholesale business has been our most challenging and unfulfilled opportunity. I am pleased to be able to share that we brought in a new sales leader during Q4 to address this. In November, Doug Lee joined us from Chocolove, where he was the head of sales for the top chocolate brand in the natural channel.
Though he's only been here for a few months, Doug is already partnering closely with our various brokers that represent Laird Superfood across conventional and natural channel grocers, club, and mass.We have a solid slate of category reviews coming up over the next months that can quickly change the sales trajectory of our business. As I mentioned earlier, we are already seeing significant improvements in our retail velocities as our new branding and packaging takes hold and as we work with retailers to execute better trade promotion plans and optimize assortment and shelving of our products. Likewise, the performance of our club business also continues to improve, driven by a combination of new branding and better in-store activation of our brand.
In addition to the transitions and improvements that I've already outlined, we continue to make steady progress in our Liquid Creamer transition to an aseptic product, which remains on track to launch later this summer. We recently had the opportunity to taste the product coming from our first scale production run, and I can attest that it is a great-tasting creamer and a big taste improvement versus our current formulation. The conversion of this product to an aseptic format will also allow us to sell it across all channels, including DTC and Amazon. All in, I expect that once we reach a steady state in our aseptic production, this transition will enable more than a 20 point improvement versus current gross margins for our Liquid Creamer product, driven by better tolling, distribution, and raw material costs.
Amongst all the positive developments on the business, we did encounter a product quality issue last month, the impact of which was partially reflected in our Q4 financials. Essentially, we received a rancid coconut milk powder product from one of our suppliers, and the ingredient made it into several of our products before we caught it. We realized that these products were not to our standards very early after shipment, and I am proud to share that we immediately initiated a voluntary product withdrawal and contacted all impacted retail customers and brand consumers to aggressively pull back everything that we could. In doing so, we took utmost care of the brand and our relationships with customers and consumers and have replaced the product for impacted consumers wherever possible.
The feedback from our retail customers and consumers has been outstanding as they have asserted their appreciation for our transparency and their commitment to our brand. We are still estimating the total cost of this event and expect to receive reimbursement from our suppliers given that we have been able to trace the issue to the product that they provided to us. I don't have much more that I can share at this time, but we will obviously keep everyone apprised of material updates during subsequent calls. Over the past year, we brought on a leading team of seasoned CPG executives that have gone a long way in executing the turnaround of this business in a very short timeframe.
As we set up for our reporting cycle in 2023, I want to take a moment to point out once again the tremendous progress that has been made in the past year. First, we completely overhauled our branding and packaging and improved the taste, functionality, and packaging of many of our products. As a result, we expect to see improved takeaway as more consumers find and try our products and as they increase their repeat purchases. We transitioned from owned manufacturing in Central Oregon to a highly flexible asset-light model that sits squarely on a major transportation node. Excluding one-time charges, we expect to see seven-10 points of gross margin improvement during 2023. Third, we rebuilt our entire retail broker network as well as our marketing partner ecosystem.
We expect to be able to discuss solid distribution expansion during the second half of this year. We have also largely right-sized our inventory positions and are actively managing our AR and AP to better leverage our working capital to maximize our cash position. Finally, we have made significant improvements to our financial and accounting capabilities and to our IT systems and infrastructure. This, in turn, has provided us with confidence in our data and decision-making and improved the speed with which we are able to execute. I am extremely proud of all that our Laird Superfood team has accomplished in a very short timeframe. We are in a very different position in 2023, one from which we can now expand with speed and confidence.
A year ago, when I accepted the CEO role at this company, our cash burn rate was such that without substantial operating improvements, our cash would not last much more than one year. I'm pleased to share that a year later, we have implemented numerous changes to the company that have both reduced our cash burn and improved our efficiency and market positioning. As a result of these changes, without having raised any additional capital during this time, we still have more than a year of cash remaining. While we expect to require a cash raise at some point before mid-2024, we will be able to present a much stronger business model that sets us up for continued growth and expansion as we become a leader in functional plant-based foods. With that, I will hand it over to our Chief Commercial Officer, Andrew Judd.
Thank you, Jason. Next month, I will celebrate my first year at Laird Superfood. We just returned from the Natural Products Expo West Trade Show, and I am as optimistic as ever as we showcased our brand transformation and talked with retailers about our mission to help consumers achieve new levels of performance by ensuring they fuel their bodies with real, functional, whole plant-based foods. As Jason discussed, it has been a year of strategic change and tremendous progress as we worked to improve our go-to-market model and transition from a primary focus on DTC to an omni-channel brand.
I am grateful for the hard work our team has made to improve our business fundamentals, operate a more efficient and effective marketing model, and build a foundation for multi-channel growth for years to come. Q4 progress was marked by an improved trend in crucial sales channels we have historically been underdeveloped, including a +19% net sales growth in retail, excluding club, and the significant growth on Amazon that Jason mentioned. While our overall online business in Q4 was down 5%, the channel saw sequential growth in back-to-back quarters on reduced spend as we continued to see strong Amazon growth and our most efficient quarter in our DTC business for the year. This improvement is consistent with our strategic plan as growth on Amazon was up +38% year-over-year, while simultaneously improving average order value on the platform by 8% versus year ago.
This strong Q4 close enabled us to deliver +18% net sales growth on the platform for 2022 versus year ago. We are also seeing the benefit of scaling our approach to the platform and saw a +16% sequential increase in Q4 in our Subscribe & Save orders. For our DTC business, we focused our efforts to drive a more efficient model as we reset the platform for long-term profitability. In order to do this, we significantly reduced our advertising investment by 52% versus year ago, with only a 35% reduction in sessions, reflecting both the loyal organic traffic we have and the previous inefficiency in our media. As a result, we realized a 67% decrease in our consumer acquisition cost or CAC, which is our lowest level since Q3 of 2020.
The price increase that we took in June of 2022 helped increase our average order value by 8% year-over-year for the quarter. The team executed a tight Q4 holiday plan, realizing strong conversion of over 9%, up +50% versus 2021. Our efforts to rebuild behind richer retention marketing resulted in the growth of our CRM database to over 400,000 consumers, a +11% increase versus Q4 2021, and seeing our highest email conversion in over eight quarters at 9%. As expected, 2022 was a challenging year for our DTC business, along with many others in the industry, as rising acquisition costs and shifting consumer behaviors challenged growth. Our team remained steadfast in finding ways to shift resources, eliminate excess, and still maintain strong loyalty and return customer orders.
Thanks to these retention efforts, we still maintained a 45% repeat customer rate in 2022. We continue to see positive trends in our core creamers categories at retail as consumers continue to move towards more functional offerings with increased benefits, like the ones in our functional plant-based creamers with adaptogens. In our liquid creamers business, we saw our retail dollar velocity increase +74% and +21% in natural and MULO, respectively, for the 12 weeks ending 1/1/2023. Within these channels, we remain the number one functional creamer, and our dollar sales growth once again outpaced the overall category and the plant-based creamer segment. With accelerating velocity growth and improving dollar share in the natural channel, up nearly two points in Q4 versus year-ago, we are excited about this continued growth in liquid creamers.
These continued strong productivity gains at retail are a clear indicator we have a strong brand and proof of concept. With the margin enhancement expected from our transition to aseptic that Jason mentioned earlier, we have a ton of optimism about the opportunity to scale our position in the Liquid Creamer segment. We are also seeing an improved velocity trajectory on our shelf-stable powdered creamer business, driven by improved retail support and execution. In the natural channel, our dollar sales velocity grew +13% for the latest 12 weeks ending 1/1/2023. We saw increasing velocity on our powdered creamers in every month of the quarter. Overall, our consumer loyalty metrics remain at an all-time high, with our Net Promoter Score reaching 82 in Q4. Our customer satisfaction remained at a 4.9 on a five-point scale.
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 year ago. I am more convinced than ever that we have a bright future ahead. The Laird Superfood value proposition is on trend in sizable markets and categories with a loyal consumer base and supported by a talented team. Q4 saw us implement the initial phases of our brand and portfolio improvement plan. We saw our redesigned packaging begin to roll out to consumers. In fact, we've already seen an acceleration in year-over-year velocity, +11% and +4% in the natural and MULO channels, respectively, in the first four weeks of 2023 as the new packaging landed on shelves.
This packaging redesign improves shopability in retail and breakthrough at the first moment of truth at shelf, further highlights the functional benefits that make our value proposition truly unique. Our brand refresh is much more than just packaging. As we recently announced, over the course of 2023, we will refresh nearly 30% of our portfolio to improve taste and functionality while still maintaining our industry-leading standards in clean, simple, functional ingredients. For example, our line of Instant Lattes will now have adaptogens and functional mushroom extracts across all items in the segment. We have added new flavors like Mocha Latte and new single-serve sachets for on-the-go, with both launching in retail and online in March. We are also relaunching our Prebiotic Daily Greens with an incredibly delicious new formula and available in single-serve sachets.
This is just the beginning of an exciting year of innovation in 2022. Let me turn the call over to Anya Hamill, our CFO, to further discuss fourth quarter results.
Thanks, Andy. Net sales of $9 million in the fourth quarter of 2022 were sequentially flat to the third quarter of 2022 and decreased 4% as compared to $9.4 million in the prior year period, driven by lower volume in DTC and club channels. As Andy discussed, our DTC decline was primarily driven by a 52% year-over-year reduction in media to cut inefficient spend and reduce customer acquisition costs as we build a more sustainable direct-to-consumer business going forward and improve our profitability in this channel. The decline in DTC was partially offset by tremendous growth in our Amazon.com channel, driven by continued adoption and momentum built from optimized marketing strategies. Our wholesale channel also delivered double-digit growth, driven by new distribution in the natural channel and velocity improvements in Liquid Creamer.
As reported, gross margin was -4.6%, driven by one-time exit and disposal costs related to the transition to a co-manufacturing model and restructuring costs associated with closure of our Sisters facility. Adjusted gross margin was 19%, a decline of 440 basis points versus Q4 of 2021. The margin compression versus a year ago period was driven primarily by fixed cost deleverage on the lower production volume as we reduced and optimized inventory levels leading into our packaging refresh and transition to co-packing, as well as increased costs associated with inventory reserves and disposals and inflationary freight costs. Operating expenses totaled $15.3 million, an increase of $6.1 million compared to $9.2 million in the year ago period.
The increase was driven by impairment of intangible assets, losses and termination of leases of manufacturing facilities, exit and disposal costs, including impairment charges for factory equipment, furniture, and software, as well as severances and retention bonuses. Excluding one-time costs, operating expenses were $6.1 million, which is actually $3.2 million lower than fourth quarter of last year due to reduced sales and marketing expenses as well as lower people costs across the organization. Net loss, as reported, was $15.6 million, an increase of 126% versus the prior year period. On an adjusted basis, net loss was $4.3 million and approximately 38% lower than the year ago period and 23% lower sequentially compared to our Q3 results, demonstrating continued progress in our cost savings initiatives.
A detailed reconciliation of non-GAAP adjusted net losses is included in our fourth quarter earnings release. Turning to our balance sheet and cash flow. We ended the quarter with $17.8 million of cash and no debt as we continue conservatively manage our balance sheet. Cash used in operations was $3.2 million, an improvement of over $400,000 versus Q3. Moving on to our outlook. Although we anticipate that an uncertain economic environment with historically high inflation rates impacting consumer spending will continue into 2023, we believe that the strategic actions we have taken in 2022 and continue to take in 2023 have positioned the business for net sales growth in the high single digits and gross margin improvements of seven- 10 points for full year 2023, excluding any one-time charges.
While I anticipate that we will see gross margin improvements from the co-packer move right away, the timing of losses and potential recoveries related to the product quality issue that Jason talked about earlier, unrelated to the move, will dampen our first quarter results. We have already anticipated and ramped up in our gross margin outlook throughout 2023 and expect that we will exit the year with gross margins in excess of 30%. With that, I'll turn the call back to Jason.
Thanks, Anya. When I joined Laird Superfood last year, it soon became apparent that while we had an exceptional brand, we would need to do a hard reset of our business fundamentals. Since last summer, our team has been reworking every aspect of this business, and I'm extremely pleased that we are now on the cusp of emerging as a much improved business. With a stabilized e-com platform and green shoots forming in our wholesale operation, we are in a great position to leverage the flexibility of our new asset-light supply chain and drive growth across our business in 2023. We have assembled a small but mighty team of CPG leaders and experts, and I look forward to seeing all that they will deliver in this year and beyond. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.
Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions are registered. The first question is from the line of Alex Fuhrman with Craig-Hallum. You may proceed.
Hey, guys. Thanks very much for taking my question. you know, wanted to ask about the significant improvement in gross margin that you're expecting to see this year. Anya, I think you kinda touched on this in your very last remarks here. If I'm understanding this correctly, it sounds like the improvement in margin rate from shifting to the outsourced model, it sounds like you should see that right away, and then Q1 has perhaps an additional headwind related to the quality control issue. You know, as you think about your target of 30% plus this year, should we expect gross margins to build throughout the year and kinda grow into that target or, you know, are you more or less expecting to be, you know, right around there, notwithstanding the Q1 quality issue?
Hi, Alex.
Hey, Alex. This is Jason.
Thank you for the question. This is Anya. Jason, go ahead.
Sorry we're having to do this remotely today. We've got a couple of folks that got sick, including myself, coming back from Expo, we might be a little bit awkward in some of these. Alex, thanks for your question. You know, listen, I tell you that we had planned for the gross margin to build throughout the year. Really we expect it to largely achieve it in the first quarter, we knew we had some offsetting costs as we made the transition. You know, we had moved most of the inventory in Q4, had set up and done some production runs. We expected really to step into that relationship with our co-packer over the course of a couple of months.
I can tell you that it's gone swimmingly between us and the co-packer. They're doing a phenomenal job. They've come up to speed much more rapidly than we had planned in our forecast and in our plans. We're really excited about where that is. As you alluded to, though, we do have this quality issue that will impact us. I did mention that we expect that to be offset over the course of this year as we work with our supplier around the root cause behind this. We're very comfortable that we understand what the issue is. Now we're working that back, and we expect to have remediation against that.
For the first quarter, certainly we would expect to see an impact, and as a result, just as you said, a build in the gross margin profile as we move sequentially through the year, so that we're exiting well over 30% by the end of the year.
Okay. That's really helpful. Thanks, Jason. If I could ask just on the direct-to-consumer business, it sounds like your customer acquisition costs were reduced really significantly. Is that a function of something you're doing differently or maybe some ineffective marketing programs that got cut? Curious, you know, where you're seeing that coming from and if you think it's possible to sustain that going forward this year.
Thanks, Alex. This is Andy. Yeah, I'll jump in here. You know, we're really pleased with the trajectory and what we saw in Q4 on our CAC overall. I do think it is something that we'll be able to sustain going forward. You know, it's a combination of a couple of things. One, I believe in last quarter's call, we talked about new research that we brought back that's really helping us in the upfront with better targeting overall against a new segmentation model that came in at the tail end of summer, which is really helping us with what I would classify as more qualified leads versus more broad prospecting.
Also has implications, secondly, to the overall structure of where we spend our dollars and how we spend our dollars, in Q4. We're really pleased. I think we've come to a place where we're starting to even see a little bit of improvement from there on our overall marketing. We still do have some things that we're gonna lap out that are, you know, long-term contracts, that will expire here as we go through the balance of 2023, that I think we'll see continued efficiency gains on our overall marketing spend. Yeah, tremendous progress made by the team in Q4, without a doubt.
Okay, Alex, I'll just add-
Let me add one thing to that. Alex, I'll add one thing to that. I think Andy's very humble in this space, and I just wanna say that in the last year really, there have been two big pushes that he's been leading. One is to shift non-working media over to media. You saw in Q4 with media down 52%, the channel's still performing as it was. He's been able to take out a lot of cost and still hold up the channel performance with pretty much where it was. Really great job there. Secondarily, he's been moving working media to be truly working, you know, quote, unquote.
We had a number of programs, marketing programs that really were not effective, and Andy's been doing a great job with his team of weeding those out. What we expect this year is, A, to be able to spend less, but B, to be able to spend it more efficiently, even where we are still spending. It really does bode well for the next year and beyond.
Okay, that's really helpful. Thank you all, and Jason and your whole team, I hope you all feel better soon.
Thanks, Alex.
Thanks, Alex.
Thank you, Mr. Fuhrman. The next question is from the line of Bobby Burleson with Canaccord. You may proceed.
Hey, Jason and team. Sorry for the background noise. Just curious on a couple of things. Congratulations on that gross margin outlook, well over 30% exiting this year. I'm curious, does that include any benefit from the potential reimbursements, or would that be in addition?
Yeah. Hey, hey Bobby, thanks for that question. You know, I think it's... As we think about the margin going through this year, I would tell you that we ought to be over 30% regardless. Certainly with, at this point, that would be included in there. We expect that in either condition, we would be able to exceed 30% over the course of this year. This is really, I mean, as we've talked about in the past, we needed to make this move in order to really be able to reset our margin profile.
In doing so, we just put ourselves into a very different manufacturing position, not only in terms of the cost, but I want to mention too, just this asset-light model and the flexibility that it presents in a business that's still very young, and as a result, has some erratic swings in sales from month to month. This really allows us to produce not only more of, you know, cost effectively in general, but really, as the revenue is swinging for, in any given month, to match up our supply to our demand much better and, you know, really help our inventory carrying costs and our labor costs as well. It's a really big, transformational change for our business.
Great. In terms of the net sales growth, high single digits, curious what's happening on a segment level there. It sounds like DTC is, you know, on track, and there's still some big changes coming for wholesale. Curious kind of order of magnitude where the contribution's coming from, just the top line growth from your segments.
Hi Bobby, this is Anya Hamill. Thank you for the question. Our growth is going to be driven by retail channel, including club, more so than in 2022. We expect that segment to be outpacing the overall company growth. Within e-com, it's also returning to growth in 2023, driven by Amazon, while we stabilize in our direct-to-consumer segment. Hope that helps.
No, that's helpful. The DTC opportunity for aseptic, is that kind of baked into. Is there gonna be some commencement for that this year, as long as everything goes right with your demands, that you'd have some, aseptic moving through DTC and perhaps Amazon?
Yes, Bobby. This is Andy.
Yeah.
I do think that's an opportunity for sure. We'll start to begin to have that happen in the second half of the year as we put the proposition and make sure that we get the right profit structure around that unit pack out going in the second half for sure.
Great. Thank you.
Thank you, Mr. Burleson. That concludes the question and answer session, as well as today's call. Thank you for your participation. You may now disconnect your line.