Laird Superfood, Inc.

Thank you for standing by and welcome to the first quarter 2021 earnings conference call and webcast for Laird Superfood. I would now like to turn the call over to Mr. Reed Anderson of ICR to begin.

Thank you. Good afternoon and welcome to Laird Superfood's first quarter 2021 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 first 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 Paul Hodge, Chief Executive Officer of Laird Superfoods.

Thank you, Reid, and aloha, everybody. It's a pleasure to be speaking with you in regards to our first quarter 2021 earnings report. Let me again start by giving you a brief summary of who we are and what we do, as well as provide a review of Q1 highlights and our key growth drivers. I'll then hand it over to Scott McGuire, our COO, followed by Valerie Els, our CFO, leaving plenty of time for Q&A. Laird Superfood is a mission-driven, high-growth, plant-based natural food manufacturer positioned to be a leader among better-for-you brands in the $759 billion grocery industry. Our business is online channel, but with a best-in-class native online platform. In the first quarter, online accounts for 59% of our net sales, with a balanced spread across wholesale, grocery, mass, drug, and food service accounts. At WERD, we believe better food leads to a better world because when people are healthier and feel good, they make better decisions. Our products provide sustained energy, nutrition, and hydration that we need to perform from sunup to sundown as part of our daily ritual, starting with our superfood coffee and creamer and recently added whole food breakfast products. In addition to delivering great taste and great quality, our products are convenient, easy to use, and affordable, incorporating sustainable and ethical practices through all phases of our supply chain from farm to fork. Now let me hit on some of the Q1 highlights. Improving margins were a key takeaway from Q1 results, as our gross margin reached 25.1%, a 480 basis point sequential increase from the fourth quarter. Margins benefited from several factors, including liquid improvements, strong shelf losses, shipping, and manufacturing efficiencies. Laird has a growth story and driving top line is a primary focus, but we are equally committed to improving profitability. Results in the first quarter demonstrated meaningful progress toward our longer term 40% margin goals, and we expect further gains toward that goal as 2021 unfolds. Scott and Val will expand on this further. First quarter net sales increased 35% over the last year to $7.4 million, and we continue to see broad-based gains across all our key categories. Importantly, we saw momentum build steadily throughout the quarter, and March was a record month with strong run rates across all channels. Despite timing factors pushing some wholesale revenue into Q2, a reminder as to why we guide annually instead of quarterly. Now I'd like to focus on some of the key growth drivers, starting with online. Our online platform continues to be best in class. We believe one of the strongest online food and beverage platforms in the industry. Online sales were up 65% on a year-over-year basis, including DTC growth of 135%. As a percent of the total online account for 59% of Laird's Q1 net sales compared to 48% a year earlier, reinforcing the competitive strength of our brand and digitally native model. During the first quarter, customer acquisition growth was up 29% and new subscriptions grew 153% versus a year ago. Customer retention is also up with repeat purchases of the 2020 cohort being 27% higher in Q1 21 than the 2019 cohort was in Q1 of 20. Our email list continues to aggressively grow with the low industry average turn. Our online conversion rates are twice those of the industry average. and our customer acquisition costs continue to demonstrate the effectiveness and efficiency of our strategy. In the first quarter, we also made strong progress toward balancing the impact of free shipping, and we were happy to announce that we were able to get both our freight expenses as a percentage of DTC sales and average order values to return to their 2020 pre-free shipping levels. Combined with our lowest quarter of discounts since Q1 of 20, our online machine has continued to be an industry-leading example for the CPG space. As far as wholesale growth drivers, although we actually had a strong performance this quarter in wholesale, which I'll explain, the year-over-year metric here doesn't look overly exciting, and not terribly surprising given the timing of COVID and the pantry loading the wholesale world experienced in February and March of 2020. There are three things I'd like to point out here. Q1 of last year was a big wholesale quarter due to COVID stocking. And because we're vertically integrated, we were able to seize the opportunity and meet the elevated demand last year, including a massive quarter, $1.7 million with Costco. And in result, we saw Q1 2020 wholesale grow 48% over Q4 of 2019. When you really break down Q1 of this year, you'll see that the base wholesale non-club sales were actually elevated due to having nearly double the door count. Wholesale base sales last year, excluding Costco, was about $970,000, whereas this year, excluding Costco, was approximately $1.8 million, showing strong 85% growth in our base wholesale sales year over year. We did receive Costco orders in Q1 of this year, but much of it was pushed out to Q2, And this is a perfect example of why we guide annually versus quarterly, as there will be lumpiness from quarter to quarter due to this dynamic. But having said that, we still firmly believe we'll meet or exceed our annual guidance, which means the rest of this year is set for strong revenue growth. And three, we still have never lost a major retail partner in wholesale. And we have an expanding platform of products. that we're just starting to sell into our existing doors, new doors across the country, and most recently, new doors in Canada. We built a very strong base and a much improved base from a year ago, which we expect to see results from the rest of the year. Now to talk about a few wholesale wins this quarter. First, at the end of Q1, we expanded our refrigerated creamers into new doors with key retailer launches at Target, Harris Teeter, and Wake Fern. It's important to note that our refrigerated creamer growth is not solely driven by distribution gains, as we're also increasing velocities at key retailers like Whole Foods, where our weekly non-promoted velocities have increased more than 3x when compared to Q4 of 2020. Second, we're also very excited about our innovative fourth wave functional coffees. That grower coffee business is 156% Q1 of this year versus Q1 of 2020. We feel our coffee products are well positioned to disrupt the vast coffee sea of sameness by introducing added functional benefits to this daily ritual enjoyed by over 200 million people in the U.S. every day. At the end of Q1 and then the Q2, we finalize our wholesale packaging for new functional coffees Focus and Boost, and we place our functional coffees into more than 500 existing doors with key retail launches at Sprouts and Natural Grocers. The Safeway Seattle division will be adding our whole line of functional coffees to their 200-plus stores in Q2. We've secured a major cost reduction in our coffee cogs since May 1st, reduced our functional coffee line pricing to $12.95 in wholesale, which we believe positions us for mass market adoption on these innovative products. And finally, in addition to our progress in the U.S., we officially entered the Canadian market as we launched three items – so it's two self-stable creamers and one instant fuel into 150 Loblaws stores in late January. They've already confirmed expansion into an additional 120 stores in June. As we think about the future growth opportunities, this was a great initial step with strong acceptance that we hope to build upon in the future. Additionally, in growth drivers, on May 4th, we announced the acquisition of Vicki Bars, an important strategic milestone complementing our strong organic growth. Picky had revenues of approximately $4 million in 2020 and has been growing rapidly. The deal is materially additive to revenue and supports our pursuit of an improving margin profile. We built the way our business to be a powerful brand platform that can support multiple growth drivers, and the Picky acquisition is an ideal transaction for us to prove our M&A capabilities. We believe we can drive revenue synergies under our platform in 2022 to at least $10 million, which would prove the value in finding these unique and complimentary M&A opportunities. From an organizational standpoint, the two companies are closely aligned philosophically as it pertains to products and market opportunities, as well as culturally. PICCI is also founder-led, and we've known the principles for many years and have a high degree of respect for their business, for them personally, and their athletic accomplishments. Their core product is a functional bar, uniquely positioned to provide balanced fuel for sustained energy and performance, one that we consider to be the best whole food bar in the world. Picky also has several performance granola products and a line of performance oatmeal products, a perfect supplement to our already strong daily morning ritual routine. The Picky Bar products are an amazing incremental, non-cannibalistic addition to our catalog, They offer new ready-to-eat options for customers, which we know they love from the early success of our Harvest Peewee Nuts, and a new layer of price points to enhance our cart bundling opportunities and wholesale expansion opportunities. While both companies are targeting similar customers and markets, we have less than 1% of existing customer overlap. The addition to PICCI definitely provides Laird with broader exposure to mixed-diet customers, as well as looking at delicious, functional, ready-to-eat products for their daily ritual. The synergy here is tremendous when we think about the sales targets these products can achieve when layered onto the Laird Superfood online channel platform. The picky customer is online, loyal, and highly recurring, very similar to ours. We know they are highly engaged, and we know their repeat rates are exceptional. So with shared priorities on functional foods and the highest quality ingredients, we believe these products will resonate strongly with the Laird Superfood audience. The distribution and reach will be accelerated under our brand platform, our online business, which comparatively is best in class in the CPG industry. And of course, under our marketing leadership, which quarter after quarter demonstrates the leadership and results in the form of D2C revenue contribution, customer value, repeat rates, and retention. And finally, regarding key growth drivers, I'd like to discuss new product launches. While there are limited new product launches in Q1, We did see continued strong performance online from new products introducing Q4, including our Activate Prebiotic Greens, Renew Protein, and Functional Coffees. In Q2, we are very excited for the launch of Oat Mac Creamer, which will be rolling out online starting in June. Within the plant-based beverage ecosystem, oat is the fastest growing probably by a factor of 5X. Our product will be unique, hitting on the strengths of oat and macadamia milks combined, plus including the functional benefits of avocado, and Aquaman. This is our first creamer product that falls outside our core coconut base, and we feel it will be an accretive addition to our product lineup targeting non-coconut consumers. In addition to expanding our product offering and growing sales, the addition of the Oatmac Creamer also serves to advance other core strategies, including manufacturing efficiency, as it will be produced under existing production lines, which have ample capacity, and also supply chain diversification. Before I hand off to Scott, I'd like to share two great ESG cause initiatives that we've recently kicked off. First, we're working with Feeding America to donate 1.5 million meals to help fight food insecurity. During the past year, over 42 million Americans have lived life not knowing where or when their next meal will come from, 13 million of them being children. Second, we've set the foundation for what we're calling our carbon-neutral last mile, ensuring that orders placed at LairdsFuture.com have their greenhouse gas impact offset. It's been a great year for online business, and we want to be mindful of what that means to the world around us. We've enlisted First Environment to provide comprehensive, transparent audits for our last-mile e-commerce impact, and we're working with Eden Reforestation Projects as our tree-planting partner. These are two new initiatives that we are excited to add to our existing efforts for a very minimal cost, and we look forward to expanding and discussing more in the future. To summarize, in Q1, we again demonstrate our ability to continue executing across all of our strategic priorities. While driving top-line growth perhaps gets the most attention from investors, we equally prioritize profitability as a core element in our mission of building a sustainable business for the long term. To that end, efficiency gains in Q1 that manifested in improving gross margins should serve as a clear indicator of our level of commitment as well as optimism for the future. Now I'd like to hand off to Scott to talk about our stellar operational performance this quarter.