Laird Superfood, Inc.

Standing by and welcome to the Laird Superfood, Inc. Fourth Quarter and Full Year 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Ashley DeSimone, Managing Director at ICR, to begin.

Thank you. Good afternoon, and welcome to Laird Superfoods' fourth quarter and full year 2020 earnings conference call and webcast. On today's call are Paul Hodge, Chief Executive Officer, Valerie Els, Chief Financial Officer, and Scott McGuire, Chief Operating Officer. By now, everyone should have access to the company's fourth quarter earnings press release, released today after market closed. This is available on the Investor Relations section of Laird Superfood's website at www.lairdsuperfood.com. Before we begin, please note that all of 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 they 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 risk 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 Paul Hodge, Chief Executive Officer of Laird Superfoods. Paul?

Paul Hodge Thank you, Ashley, and aloha, everybody. It's a pleasure to be speaking with you in regards to our fourth quarter and full year earnings report. To start with, I want to congratulate our team for amazing 2020 results. In spite of COVID challenges, we saw net sales growth of 98% over 2019. We executed a successful IPO and we launched innovative new products and entered new categories, including our liquid creamer, several snack products, our functional copies, as well as activate and renew products to round out our daily ritual of healthy living, as we believe better food leads to a better world. 2020 was truly an epic and amazing year, and trust that this team is committed to working hard every day to also make 2021 another amazing year. On today's call, I'm going to hit on the main drivers of our business we think that we'll probably be most interested in. To start, for all of our new investors, I'll give you a two-minute summary of who we are and what we do. We will then jump into our growth drivers and looking creamer. Then I'll hand over to Scott McGuire, our COO, to discuss his work on operational efficiencies before Valerie Ells, our CFO, discusses the financials. As always, we want plenty of time for Q&A. So to start off our new investors to the company, Laird Superfood is a high growth plant-based natural food manufacturer with an open-ended growth opportunity in the $759 billion grocery industry. We believe Laird Superfood is going to be a leader among the consumer industry's better free brands. And we're mission driven with global TAM appeal on trends and with an outsized e-commerce revenue contribution. At Laird, we believe better food leads to a better world because when people are healthier and feel good, they make better decisions. Our products provide daily sustained energy, nutrition, and hydration that we need to excel throughout our days from sunup to sundown. as part of our daily ritual, starting with our superfood coffee and creamer. Our mission is simple. We make products that deliver great taste and great quality. We want our products to be convenient, easy to use, affordable, and available to all. It's important for us to be able to provide these high-quality natural products at accessible pricing when you look at the price per serving. And we can do this while providing trusted, authentic products to the mass market. We accomplished this by vertically integrating self-manufacturing and direct sourcing whenever possible to eliminate the middlemen, but also the vertical integration gives us oversight to ensure sustainable and ethical practices through all phases of our supply chain from farm to fork. We have an online channel sales approach, and I'm constantly impressed by our leadership online as a native digital platform. In the fourth quarter, 61% of our business was online. We also sell wholesale and grocery mass and drug as well as food service where we are in the early innings. But our products are a natural fit and we see tremendous long term opportunity. The first we'll talk about growth drivers. Overall sales remain very strong. In 2020 we saw 98% net sales growth year over year, including 108% growth in wholesale and 90% growth in online sales. So there's four topics here in growth I'm going to touch on. One, the crown jewel of this business is our online sales. We saw new customer acquisition growth of 192% in 2020 over 2019 and 201% in Q4 alone over Q4 of the prior year. This proves that early 2020 COVID-led pantry stocking was not just a bubble for large superfood. The online growth has been sustained and we don't foresee any slowdown in the near future. Our retention metrics further demonstrate this. We saw a 33% reorder rate increase for our 2020 cohort compared to our 2019 cohort, taking our already strong retention to even greater levels. And our subscription business is strong and increasing as well, continuing to represent a third of our online business. Even more impressive, we grew new subscriptions 184% in 2020 versus 2019, further demonstrating the inherently recurring nature of our revenues and customer loyalty. The list of achievements of our online business is a long one. The health and revenue generation of our email list continues to multiply, our conversion rates are twice those of the industry average, and our customer acquisition costs continue to demonstrate the effectiveness and efficiency of our organic customer acquisition strategy. All in all, our online business is best in class and on fire. We consider ourselves to be leading the way in the food industry and anticipate that our online business will always be more than half of our revenues, which we love as it gives us that direct connection to our customers and provides a highly valuable test platform for new products before we take those products and invest in wholesale rollouts. Second, when it comes to growth drivers, let's look at wholesale. We have a first step goal to get to 20,000 doors and are now a third of the way there. And when you look at all the future opportunities in drug, grocery, masks, convenience stores, the future potential is far larger than that. To help achieve our goal of getting our products in $20,000, we have just finished building out a world-class wholesale sales team with a hire of two sales directors who each bring senior-level CPG experience to our organization. And both individuals have an extensive track record of building emerging brands and accelerating white space closures. We've also just upgraded our broker team by adding a new national broker network to cover natural, conventional, mass, and drug. We've aligned ourselves with the industry's top brokers who bring significant experience building natural food brands, and this network better positions us for long-term growth across all these channels. We're also happy to announce some important recent wholesale wins for March that demonstrate our continued growth momentum. We're launching our liquid creamer in 290 target stores this month, as well as in Harris Teeter and Wakeburn. We're starting to get solid traction for functional coffee and we're launching into 400 new stores this month alone. Additionally, we're discussing our international strategy internally now. And while there remains low hanging fruit in the US, we are aware of international opportunities as well. And recently we launched our superfood shelf stable creamers into 220 Loblaws stores in Canada. There are a lot of grocery resets happening in the back half this year, which we intend to be part of as well. We're very excited about wholesale growth for this year. Next time Growth Drivers would like to talk about platform expansion. As you know, we're building a brand platform, which enables us to continually find innovative products with large TAMs, test online, and take those winners to the wholesale channels. To name a few in testing, functional coffee. I believe this is going to be a multi-billion dollar market in the next five years. In the fourth quarter, we launched our second functional coffee, Boost Coffee, the first ever coffee with vitamin D from plant-based whole food sources. This complimented our initial functional mushroom coffee released mid 2020. And in January of 2021, we further expanded this product set with our third functional coffee focus coffee, which includes functional mushroom extracts and botanical adaptogens for cognitive support. We're working on a deep pipeline of highly innovative functional coffee products, which we will continue to release in the coming quarters. And we're excited to be leading the charge when it comes to innovation and creating functionality in this category. We launched Peeling Nets and Harvest States in Q4, the first test into the massive healthy, better for you, whole food snack category. Peeling Nets, which launched first, was a huge success. We saw impressive immediate demand. And since the launch of Peeling Nets, Himalayan sold with our seventh best-selling SKU and Cacao is our 11th best-selling .com and Amazon SKU. This is especially impressive considering we sold out on day one of inventory on hand and we're out of stock for a full month after launch. Additionally, after spending years of formulating to get it just right, we have launched our newest Activate product, our prebiotic daily greens. This product includes 18 superfoods, functional mushrooms, prebiotics, and shilajit, which is an amazing superfood from high in the Himalayan mountains. This product not only provides your needed daily micronutrients, but also is developed to support your microbiome, which is an incredibly important element for our overall health. that researchers are just beginning to fully understand. And finally on growth drivers, I'd like to touch on M&A. We are seeing a lot of M&A activity in the marketplace and opportunities are coming our way, but we have a deliberate and measured approach here. We look for a number of things that could be innovative products, manufacturing capability, unique talent, or supply chain opportunities. But we're in the early stages of our corporate development strategy and it's our intention to prove out the power of this growth opportunity. We believe we can rapidly plug new products into our platform while not distracting from our current mission and our critical internal growth projects. Now, gross margins in liquid creamer. As everyone knows, as we've been talking about, we are facing some temporary compression of margins due to higher shipping costs in our online channel and due to our new liquid creamer launch, which is due to short shelf life and associated distribution efficiency issues we're dealing with there. Specifically to liquid creamer, we set a goal to have these issues resolved in the first half of this year, and we believe we're still on track to hit that goal. In the meantime, we've started to get some wins by optimizing the supply chain and working to make significant improvements to our fresh products. By midway through the year, we expect to reduce waste issues, which are contributing to margin depression, and will give distributors plenty of time to manage inventories, enabling them to keep larger quantities on hand. This also gives our customers plenty of time to consume, as well as providing additional efficiencies in shipping, logistics, and warehousing. It's taken longer than we would like, and the truth is that we could have had it resolved faster if we were willing to compromise on our values by adding stabilizers and emulsifiers that we don't believe in. But we are taking the longer-term solution, which is doing something new with a completely new, ultra-clean label product, a formula that has never been done before. We're unique in our commitment to authenticity and trust for our brand and will not compromise by simply adding ingredients we don't believe in. Having said that, we believe it's worth the wait. We feel the early launch, even with the packaging challenges, was worth it as we had the time to test the products in the market where we have seen very strong consumer adoption and repeat purchasing where we have been selling liquid creamer. We've seen strong shelf losses we didn't expect to see until the end of this year that's continually growing. And keep in mind, these strong shelf losses are in spite of lower shelf fill rates than we would have liked due to distributor challenges, which we know are artificially lowering these numbers. This is a powerful sign as to how buyers and customers are loving your innovative functional liquid creamers. With the strong sales data emerging, we are also accelerating our efforts for a liquid creamer shelf stable product. We're starting to pilot this product with a new co-packer and expect to have this out in the second half of this year. We're excited for this liquid shelf-stable line to supplement our shelf-stable powder products for the conventional channels, as with the sub-$5 price point, it's a great price fit for many of these more value-conscious grocery chains. And this also opens up the amazing opportunity with Amazon and our DVC channels to sell at full retail, which will balance margins and increase revenues for the entire liquid creamer line. Now I'd like to turn it over to Scott McGuire, our COO, to discuss operations.