Ladies and gentlemen, thank you for being here, and welcome to the Laird Superfood Inc. Fourth Quarter and Full Year 2020 Financial Results Conference Call. All participants are currently in a listen-only mode. After the presentations, we will have a question-and-answer session. I would now like to turn the conference over to Ms. Ashley DeSimone, Managing Director at ICR, to begin.

Thank you. Good afternoon and welcome to Laird Superfood's Fourth Quarter and Full Year 2020 Earnings Conference Call and Webcast. On today's call are Paul Hodge, Chief Executive Officer; Valerie Ells, 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 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 Superfood. Paul?

Thank you, Ashley, and hello, everybody. It's a pleasure to be speaking with you regarding 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, executed a successful IPO, and launched innovative new products and entered new categories including our liquid creamer, several snack products, our functional coffees, as well as activate and renew products to round out our daily ritual of healthy living. We believe better food leads to a better world. 2020 was truly an epic and amazing year, and I trust that this team is committed to working hard every day to make 2021 another amazing year. On today's call, I'm going to cover the main drivers of our business we think you will 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 in liquid creamer, before handing over to Scott McGuire, our COO, to discuss his work on operational efficiencies, followed by Valerie Ells, our CFO, discussing the financials. As always, we want to ensure plenty of time for Q&A. So to start off for 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-for-you brands, and we're mission-driven with global TAM appeal on trends, with an outsized ecommerce 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 sun up to sun down. 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 provide 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 accomplish this by vertically integrating, self-manufacturing, and direct sourcing whenever possible to eliminate the middleman, and 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 omni-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're in the early innings, but our products are a natural fit and we see tremendous long-term opportunity. Overall sales remained very strong in 2020. We saw a 98% net sales growth year-over-year, including 108% growth in wholesale and 90% growth in online sales. So there are four topics here on 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-related stocking was not just a bubble for Laird 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 the 2020 cohort compared to our 2019 cohort, taking our already-strong retention to even greater levels. Our subscription business is strong and increasing, continuing to represent a third of our online business. Even more impressive, we grew new subscriptions to 184% in 2020 versus 2019, further demonstrating the inherently recurring nature of our revenues in customer loyalty. The list of achievements of our online business is long. The health and revenue generation of our email list continues to multiply, our conversion rates are twice the industry average, and our customer acquisition cost continues to demonstrate the effectiveness and efficiency of our organic customer acquisition strategy. All-in-all, our online business is best in class and thriving. 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 to invest in wholesale roll-outs. 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. When you consider all the future opportunities in drug, grocery, mass, and convenience stores, the future potential is far larger. To help achieve our goal of getting our products in 20,000 doors, we have just finished building out a world-class wholesale sales team with several experienced sales directors who each bring senior-level CPG experience to our organization. Both individuals have an extensive track record of building emerging brands and accelerating growth. We've also upgraded our broker team by adding a new national broker network to cover natural, conventional, mass, drug, and food service channels. 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 are launching our Liquid Creamer in 290 targets this month, as well as seeing solid traction for functional coffee, which we are launching in 400 new stores this month alone. Additionally, we are discussing our international strategy internally now, and while it remains a low-hanging fruit, we're aware of international opportunities as well. Recently, we launched our Superfood shelf-stable creamers into 220 Loblaw stores in Canada. There are a lot of grocery opportunities to tap into in the back half of this year, which we intend to be a part of. We are very excited about wholesale growth for this year. Next on growth drivers, I'd like to talk about platform expansion. We are building a brand platform that enables us to continually find innovative products that can lift our brand recognition and take those winners to the wholesale channels. To name a few currently in testing, functional coffee is believed to become 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 complemented 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 are working on an extensive pipeline of highly innovative functional coffee products, which we will continue to release in the coming quarters. We're excited to be leading the charge when it comes to innovation in creating functionality in this category. We also launched Pili Nuts in Q4, testing into the massive healthy 'better for you' Whole Foods snack category. The initial launch was a huge success. We saw impressive immediate demand, and since the launch of Pili Nuts, our Himalaya Salt SKU has become the seventh best-selling SKU. This was especially impressive considering we sold out on Day One of inventory on hand and were out of stock for a full month after launch. Additionally, after spending years formulating 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 the needed daily micronutrients, but it has been developed to support your microbiome, an incredibly important aspect of our overall health that researchers are just beginning to fully understand. Lastly, regarding growth drivers, I would like to touch on M&A. We're 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 several factors including innovative products, manufacturing capability, and unique talent for supply chain opportunities. 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 without distracting from our current mission and critical internal growth projects. Now, let's talk about gross margins in Liquid Creamer. As everyone knows, we are facing some temporary compression due to higher shipping costs in our online channel and the launch of our new Liquid Creamer, which has a short shelf life and associated distribution efficiency issues. Specifically with Liquid Creamer, we set a goal to have these issues resolved in the first half of this year, and we believe we are still on track to hit that goal. In the meantime, we have started to get some wins by optimizing the supply chain and working to make significant improvements on our fresh product. By midway through the year, we expect to reduce waste issues which are impacting margin compression. This will allow distributors plenty of time to manage inventories, enabling them to keep larger quantities on hand. This will also give our customers ample opportunity 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 resolved it faster if we were willing to compromise on our values by adding stabilizers and emulsifiers that we don't believe in. We are committed to authenticity and trust as a brand, and will not compromise by simply adding ingredients we don't stand behind. Having said that, we believe it's worth the wait. We feel that the early launch, even with packaging challenges, was worth it as we have the time to test the products in the market where we have seen strong consumer adoption and repeat purchasing. We've seen strong shelf velocity that we didn't expect to see until the end of this year, that is continually growing. And keep in mind that this strong shelf performance is occurring despite lower flow rates than we would have liked, due to distributor challenges that are artificially lowering these numbers. This is a powerful sign of how buyers and customers are loving our innovative Functional Liquid Creamers. With strong sales data emerging, we're also accelerating our efforts to develop our shelf-stable Liquid Creamer product. We're starting to pilot this product with a new co-packer and expect to have it out in the second half of this year. We're excited for this liquid shelf-stable line to supplement our shelf-stable powder products in conventional channels. With the sub-$5 price point, it is a great fit for many value-conscious grocery chains. Now, I'd like to turn it over to Scott McGuire, our COO, to discuss operations.

Thank you, Paul. Three months into this role as Chief Operating Officer, it is fantastic to be part of this team that has built an amazing platform with immense potential. I'm grateful for the opportunity to help elevate this work to new levels of execution and innovation, ensuring these great products are available to everyone quickly, safely, and deliciously. Regarding the fourth quarter, the pandemic presented us with common production and supply challenges. Our top priority was and is keeping people safe, securing timely delivery of equipment and our raw materials, and lining up a supply chain to ensure every consumer has access to our products. Very challenging, yet despite these pandemic complexities, we are hyper-focused on building a world-class operational business and have been advancing in efficiencies—something we will never take lightly. I'd like to share some specific fourth quarter developments in three key areas: throughput, production capacity, and direct-to-consumer capacity; parcel cost; and talent. On throughput, our first production line improved significantly in Q4 compared to Q3. Leveraging a total team effort, these results were driven by the implementation of a new sales and operations planning process, execution of a production master scheduling, and sequencing algorithm, continued enhancements to preventive maintenance, and installation of automated controls creating visibility to real-time results. In the midst of all this—and something we are very proud of—we installed, tested, and began ramping up our second production line. This production line helps us on four critical levels: it provides redundancy, more than doubles capacity, increases our ability to vertically integrate current operations, and offers the critical flexibility needed for managing our inventory for new products, preventative maintenance, and peak revenue timeframes. As a result of this throughput and capacity progress, we achieved our targeted safety stocks two months sooner than anticipated. On parcel costs, we faced challenges directly tied to consumer demand. Freight rate increases from parcel companies have been passed down. It’s a delicate balance and one that requires real-time attention. We saw an instantaneous rate hike in mid-fourth quarter. We are working on several solutions to mitigate this, including subscription consolidations, packaging and mode optimization, and strategic bundling of our offerings. Finally, regarding our people for the fourth quarter, we made investments to strengthen our engineering and procurement teams. This has already paid dividends in automation, reliability, sourcing, and certainty of our raw materials supply. Moving forward, I'd like to share a few key priorities for fiscal year 2021. We have adopted three 'Ms' that provide a template for all we do: Manufacture more ourselves, Make it more efficiently, and Move it smarter and faster. For Manufacturing more ourselves, we have already converted two products this year from our co-packer to our production facility and we will convert more. Making it more efficiently, we will invest in continuous improvement, lean practices, and automation. We strive to provide real-time feedback on efficiency and aim to eliminate tedious, redundant, hard-to-staff tasks. We will do automation right and hope to build flexibility to support the variety of packaging innovations we expect across all channels. Our engineering team is fully engaged in this initiative. As for Moving it smarter and faster, we broke ground last month at our sister campus for a new customer fulfillment center. We aim to optimize the layout for velocity, storage cost reductions, and direct-to-consumer enhancements, ensuring our customers receive products more efficiently.

Thanks, Scott. To round out our conversation on the P&L. Operating Expenses remained firmly in our control in the fourth quarter and as we have done historically, we effectively managed these expenses across the board. General and Administrative expenses were 44% of net sales for Q4 2020, compared to 36% in the prior year, reflecting incremental and expected public company costs. If we exclude public company costs, our G&A expense would have been only 32% of net sales, down approximately 400 basis points. At 2% of net sales, research and development remains highly efficient with a rapid cash payback. Our sales and marketing expenses were 37% of net sales for Q4 2020 compared to 49% in the prior year period, reflecting continued effectiveness and efficiency of our organic customer acquisition strategy. Now to look ahead to the coming year. Our 2021 net sales goal remains at year-over-year growth of at least 60%. We feel confident in these numbers as our business is inherently set on a path for strong growth with our core product lines and existing direct and wholesale relationships. However, the slope of the growth curve will be determined by the success of various initiatives this year, including our Liquid Creamer packaging revamp in the first half, launching a liquid shelf-stable option in the second half of 2021, timely and innovative new product introductions, maintaining strong online performance, and the addition of wholesale store partnerships, specifically for larger teams utilizing our Liquid Creamer. We also aim to continue increasing product placements on the shelves at larger partners, fostering increased brand awareness. Keep in mind, expectations on the cost side should also consider shipping factors as we navigate the optimal balance of free shipping and increasing shipping expenses for our DTC business, including the higher shipping costs that began in the fourth quarter. Additionally, we need to consider Liquid Creamer spoilage in the first six months of 2021, after which we anticipate our margins to slowly improve. With those first-half headwinds in mind, we expect 2021 margins to be within the range of 28% to 30%. We plan to achieve this goal through the liquid packaging update, optimizing DTC shipping, and maximizing fixed cost leverage available to us via vertical integration. Although similar to top-line expectations, improvements in our margins will depend on executing key initiatives as well. However, we would like to reiterate that this coming year is just the first step toward our long-term target. We came to the public markets with a very clear set of long-term goals and remain confident in our abilities to achieve them. Over the next two to four years, in 2023 to 2025, we believe this business can achieve significant annual revenue growth, with gross margins exceeding 40% and EBITDA margins around 19%. I'll now turn it back to Paul.

Thanks, Val. We're building Laird Superfood for significant scale. We want to become a multi-billion dollar brand platform. We are not making decisions for the quarter or even the year. The decisions we're making now, the investments in infrastructure, top-notch talent, strategy, and supply chain product segments—all these are investments in our long-term plan. We have the capacity and team to develop or acquire innovative better-for-you products with large TAM opportunities, and we are building an authentic, trusted brand platform with the ability for massive scale and growth into the future for decades to come. Thank you so much to our team and to our shareholders. Now let's open the call to Q&A.

Thank you. Your first question will come from Bobby Burleson of Canaccord. Please, go ahead.

Hey, everybody. Thanks for taking my questions and congratulations on the revenue upside and the EBITDA number. Curious, Paul, on the M&A aspect—you mentioned it earlier—what are your thoughts on partnerships, especially with big CPG or QSR companies? We've seen announcements from other plant-based brands partnering with large players. Any potential developments there this year?

We're exploring all opportunities. If there's an opportunity that can help us build this brand, that's what it's all about. We're not pursuing acquisitions in buying other brands that require significant marketing efforts. The same concept applies to partnerships; we're not going to invest our energy into promoting other brands unless there’s a deal that is mutually beneficial. We are excited about the potentials we've been exploring but cannot guarantee anything will happen.

Just quickly, this is for Valerie, regarding the gross margin guidance. You mentioned a slow slope upward. Would you say there’s potential for more of a step function upward in the second half, unless there’s some margin expansion potential in the first half? Is that fair?

I hesitate to speak to it that way because, as Scott mentioned, there isn't just one solution to address the shipping side of the challenges we're facing today. Yes, when we make improvements, we will head in the right direction, but we may not see huge steps with every single change. I prefer to maintain a conservative stance on this.

Sure. I was thinking about the shape of the year for gross margins, though. Are you anticipating some expansion in the first half? It’s not all mid-year onward?

We’ve been pretty explicit regarding the shelf-life improvement for Liquid Creamer, which is anticipated mid-year, and targeting a shelf-stable Liquid Creamer in the second half of the year. Additionally, the free shipping coupled with DTC parcel costs will be a more gradual shift over the year.

That’s great. Lastly, if we consider the impact on your shipping costs or gross margin, can you shed light on the split between free shipping and the higher freight costs in general regarding margin impacts in Q4?

Certainly. Looking back at Q4 last year, the compression related to free shipping and parcel costs is fairly split down the middle. That accounts for about 900 basis points from Q4 last year to this year, with the remaining compression from the introduction of Liquid Creamer representing another 500 basis points.

Great, thanks for answering all the questions, guys.

I wanted to add on free shipping. Just to remind everyone, free shipping is one of the most powerful capital investments we've ever seen. In 2020, our new customer cohort's three-year LTV reached $17.37 million compared to $8.78 million in 2019. We have increased LTV value dramatically while sacrificing about $100,000 in shipping income. This investment is highly effective in improving efficiency and sales conversion rates on our website.

Your next question comes from Alex of Craig Hill. Please go ahead.

Thanks very much for taking my question and congratulations on a very nice quarter and year. I wanted to ask about your long-term strategy regarding grocery stores and other opportunities in food, mass, and drug? It indeed seems like you're continuing to pursue grocery with notable hires on the sales side. Is it fair to ask if the online business is growing so fast that grocery may not really catch up?

That's correct. We are a true online channel sales company. We aren't placing a heavy emphasis on one channel over another. We love our wholesale customers and the wholesale business. However, we take a methodical approach to this space as we want to test our products online to ensure we identify the blockbuster products before investing heavily into wholesale. Our wholesale business is also growing significantly—we doubled our door count last year and are already a third of the way to our goal of 20,000 doors. In fact, we might need to rethink that number since there are more opportunities available across various channels.

I appreciate that insight, Paul. Regarding your online business, have you noticed much change in states that have reopened sooner than others? Are you seeing any shifts in growth rates or repeat buying trends in those locations?

No, we're not seeing any downside in the online business. We believe that those who transitioned to online shopping will remain. We're actively observing continued growth in the entire online category and improved KPIs. Even if there is a shift, our online business's strength means we can pivot where necessary. If consumers choose to buy in grocery stores, we'll be there, and if they return to coffee shops, we have our food service program prepared.

Excellent. Lastly, the Functional Coffees you've launched seem highly promising. Do you believe this category could become as significant as creamer, representing a five-year growth path or longer?

We do believe it can. The size of the coffee market supports that notion. Many adults in the U.S. drink coffee, and rather than telling them to change their habits, we’re suggesting an alternative that provides additional health benefits. We are innovating within this product line and intend to introduce more options in the coming months. It’s a no-brainer for us to enter this market, and we are positioned well to lead this segment.

Your next question comes from Bobby Burleson with Canaccord. Please, go ahead.

Hey, guys. I'm back. Regarding your goal of 20,000 doors—we're encouraged by the potential of expanding that goal. Is the confidence tied to the shelf-stable Liquid Creamer opportunity? Are these entirely new areas of wholesale that you can access, dictating those door counts?

You're spot on. That’s the strategy behind this product. While we’ve established a strong presence in the natural market, we are starting to shift our focus toward conventional channels. We still have a way to go in the natural segment, but the conventional shelf-stable market opens up thousands of doors for us at a more competitive price point, making them accessible to our product lineup. Our shelf-stable product will significantly enhance our reach and add incremental door opportunities.

What is the current mix of direct online sales? Is it growing at a faster pace than overall online sales for you?

Absolutely. Comparing 2019 to 2020, DTC was up 143%, while Amazon was up 40%. Our intention is to encourage consumers to purchase from our platform whenever possible. This creates greater long-term value for our brand while also providing educational opportunities and cross-selling connections.

It seems that online sales account for 61% of your total sales. Is there any reason this couldn’t reach 70%? I know there’s a natural growth trajectory, but do you think it could exceed that mark?

It certainly could. The online business is thriving, but we're also making great strides in wholesale, with new rollouts at retailers like Target and Harris Teeter. As we work to fix the shelf-life issues with our refrigerated creamers, we anticipate more rollouts throughout the year. While online will continue to grow aggressively, wholesale growth will likely keep pace with it. Thank you, everybody, for your support and for sharing our long-term vision. We are in an incredible position to scale this company, and we have an authentic and trusted brand accompanied by a talented management team prepared to propel us forward. We have the online distribution network and marketing expertise to establish Laird Superfood as the fastest-growing platform within the food and beverage industry with a realistic goal of achieving a billion dollars in revenue. We are a very young company, and we encourage investors to adopt a long-term view. We are confident that we will meet or exceed our annual goals.

This concludes today's conference call. Thank you for joining. You may now disconnect.