Ladies and gentlemen, thank you for 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 speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Ms. Ashley DeSimone, Managing Director and 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 whoa [ph], 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 healthy living, as we believe better food lead 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 have 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 in our growth drivers in liquid 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 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 [ph] brands and we're mission-driven with global TAM appeal on trends and 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,…

Thank you, Paul. Three months into this role as Chief Operating Officer, it is so great to be a part of this team that has built an amazing platform and one that has so much potential. I'm grateful to help take this work to new levels of execution and innovation and be given the responsibility to ensure these great products be available to everyone, everywhere, and very fast, safe and delicious. Regarding the fourth quarter, the pandemic presented us the common production supply challenges. Our top priority was and is keeping people safe, securing the timely delivery of equipment and our raw materials and lining up a supply chain to make sure every consumer has access to our products. Very challenging. But despite these pandemic complexities, we are hyper-focused on building a world-class operational business and have been making strides in efficiencies -- something we will never let up on. I'd like to share some specific fourth quarter developments in three key areas including throughput production and direct-to-consumer capacity, parcel cost, and people in talent [ph]. On throughput, our first production line improved significantly Q4 versus 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 our preventive maintenance, and the installation of automated controls creating visibility to real time results. In the midst of all this and something we are very proud of, we install, tested and began ramp up of our second production line. This production line helps us on four critical levels and provides redundancy and more than doubles capacity, it increases our ability to vertically integrate current [indiscernible], and finally provide the critical flexibility by building our inventories in smart ways for new…

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 continued to effectively manage these expenses across the board. General and Administrative expenses were 44% of net sales for Q4 2020, compared to 36% in the prior years, which reflect incremental and expected public company costs. On an apples-to-apples basis, if we excluded both 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. In sales and marketing, expenses were 37% and net sales for Q4 2020 compared to 49% of sales in the prior year period, reflecting continued effectiveness and efficiency of our organic customer acquisition strategy, and the monetary cost [ph] leverage available to us in this category. And now to look ahead to the coming year. Our 2021 net sales goal remained 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. But the slope of the growth curve will be determined by the success of a number of initiatives in the coming year, including our Liquid Creamer packaging revamp in the first half, as well as launching a liquid shelf-stable option in the second half of 2021, timely and innovative new product introductions with continued strong online performance, the addition of wholesale store, specifically for larger teams utilizing our Liquid Creamer as an entry point for these opportunities, and continuing to earn more product placements on shelf at larger partners and increasing the value of each one…

Thanks, Val. We're building Laird Superfood for significant scale. We want to be 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 of infrastructure, topnotch offering talent, strategy and supply chain product segments -- these are all investments in this long term plan. We have the arsenal and team to develop or acquire innovative Better For You products to have large TAM opportunities and we're building an authentic, trusted brand platform with the ability to have massive scale and growth into the future for decades to come. Thanks so much to our team and to our shareholders. Now let's open the call to Q&A. Operator?

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

Hey, everybody. Thanks for taking my questions. Congratulations in the revenue upside and the EBITDA number. Curious, Paul, on -- we talked about M&A and I'm curious, how about partnerships? What are your thoughts there with big CPG, big QSR guys? We've heard announcements from other plant based guys that are partnering with the large players. Any potential there this year?

We're looking at all the opportunities. If there's an opportunity that basically enables us to build this brand, that's what it's all about. We're not making acquisitions in buying other brands that we're going to put a lot of our own marketing efforts into those brands. And it would be sort of the same concept with a partnership. We're not going to spend a lot of energy promoting other brands. But if there is a deal that's just is a win-win for everybody, we'll certainly looking at it and there has been opportunities we've been looking at. So we're excited about these potentials, but I can't say whether something will happen to or not.

Sure. Fair enough. And then just quickly, this is for Valerie, I guess, on the gross margin guidance. You made the comment of a slow slope upward. It seems like it would be more of a step function upward in the second half, unless there's some margin expansion potential here in the first half? Is that fair?

I don't like to speak to it that way too much because like Scott mentioned in his comments, there isn't just one solution to the shipping side of the issues that we're facing today, for example. So yes, when we make an improvement, when we start to see some of those improvements play out. We're going to head in the right direction, but huge steps with every single one of those and I think if you have gotten to know me well enough, that I'd like to be a little bit more conservative than to over-promise on that one.

Sure. I was just thinking about the shape of the year for gross margins, though. You had to get to that kind of 29%. Are you thinking that maybe we get some expansion here in the first half? It's not all kind of a mid-year and then forward improvement?

I think we've been pretty explicit on the shelf-life improvement on Liquid Creamer. Most likely happening mid-year and then targeting a shelf-stable Liquid Creamer to be in the second half of the year. So, I'd say for those two, that's probably the most likely timing to see the improvement. On the free shipping coupled with the DTC parcel costs challenges we're facing. I think that one will be more gradual over the course of the year, yes. Because real time and we're working on a lot of different solutions on that issue, specifically right now and Scott leading the charge there.

That's great. And then just last one for me . If we think about the impact on your shipping costs, or the gross margin impact, is there a split that you can kind of allude to between like the free shipping impact and to higher cost of freight in general, just the higher shipping costs in terms of how they impact your margins in Q4?

No, not a problem. So when we're thinking about the compression related to the free shipping and parking cost challenge, that was actually pretty split down the middle for looking back to Q4 of last year when free shipping wasn't in play. So that's about 900 basis points from Q4 of last year to Q4 of this year, and again, pretty split evenly down the middle there. And then the remainder of the compression we're seeing from Q4 of 2019 is Liquid Creamer and that's the other 500 basis points right now.

Great. Well, thanks for taking all the questions, guys. Yes, Paul?

I was just going to add a little bit onto the free shipping, as we're talking about that. There's a discovery reminder, you know, the free shipping is one of the most powerful use of capital investments we've ever seen. When we look at 2020 our new customer cohort three year LTVs 17.37 million versus our 2019 three year, new customer LTV of 8.78 million. So we've increased our LTV value 8.5million, while we sacrifice basically 100,000 shipping income. So it's just an incredible investment. When we look at you know that spend makes everything more efficient. As we've doubled our conversion rates on the website. So that means that all the ads and all the other traffic that we're bringing to the site can be more effective. So where we're at this stage in the game, it’s just a really, really powerful tool that we need to keep going on.

Fantastic. Appreciate that additional color.

Your next question come from Alex [ph] of Craig Hill. Please go ahead.

Thanks very much for taking my question. And congratulations on a very nice quarter and a very nice year. Wanted to ask about the long term strategy in terms of grocery stores and other opportunities in food, mass and drug? Because it certainly sounds like you're continuing to pursue grocery and making some nice hires on the sales side of things there. Just wanted to ask Paul about your comment that you envision Laird Superfood, always having more than 50% of its sales coming online is that kind of suggest that you know, as you look out over the next couple of years, maybe they'll be you know, a little bit of a less emphasis on traditional grocery? Or is it just that your online business is growing so fast that that grocery will never really have the chance to fully catch up.

It's the latter [ph]. We are a true online channel sales company. So we're not putting a huge emphasis on one or the other. We love our wholesale customers, we love the wholesale business. We are, of course take a very methodical approach to the wholesale business, we're going to test our products online to make sure that we've got those blockbuster products picked out that we're going to make that bigger investment into the wholesale channels. Just because you're dealing with lower margins, you're dealing with a costume on the shelves, you don't want to miss there's as far as getting products on the shelf that aren't really turning. Our wholesale business is growing incredibly well. I mean, we doubled our door count last year. And you know, we're over a third of our way to the goal that we set 20,000 doors, and we think we're actually starting to rethink that number. You know, we think that's a pretty conservative number, and there is a lot more opportunity when you start looking at drug and other. So we're charging hard, you know, getting an extended kind of shelf life on our Liquid Creamers, an important part of continuing the conventional rollout where a lot of the whitespace lies for us. And our shelf stable Liquid Creamer is an incredibly important tool as well, to get on the shelf table [ph] of those more conventional stores with some $5 price point. So that's all coming this year. And we're just continuing to charge. It's a little bit of a longer lifecycle with grocery you know, when category review meaning now that mean that you can you know, then place your products on the shelf towards the end of the year. So we are really hoping for third fourth quarter…

That's great. Appreciate that Paul. And then more on the online I guess, it sounds like from your comments, and you're getting a really nice pick up from the free shipping promotion in terms of new customers. And, it certainly sounds like you've even more so than that added a whole lot of new subscriptions. Can you talk a little bit about kind of the margin impact of having customers on that subscription model, as opposed to just buying individually both today, I guess, as long as you're offering free shipping, and then you know, the kind of thing to at some point in the future, if you reinstate some type of a minimum purchase for free shipping like you had perhaps before the pandemic. I mean, what is the profitability of a subscription customer compared to just getting similar orders from customers just on their own?

I may let, Vale talk to a couple of those points, but I will say, when you get somebody on a subscription, the lifetime value of that customer is incredible, we have very low churn, so getting on that program, they do get a slight discount to encourage them to get on subscription. But we've been doing a lot of work lately to really look at those subscriptions. And we've been condensing subscriptions, we've been talking about programs like, hey, cut your carbon footprint in half, and we've got an 18 month shelf life in this Braxton's. Instead of getting every month, one day a month, let's get two bags every two months and to make some more efficiencies on the shipping side. So, we're doing a lot of work to really make those efficient, but those are very profitable, some of our most profitable business that we have.

No, I think you've covered it, probably the only real difference is that a subscriber will earn a discount, and it comes in this year but that's the major differentiating factor there?

That's terrific. Thanks very much.

[Operator Instructions] Your next question comes from George Kelly of ROTH Capital. Please go ahead.

Hey everybody thanks for taking my questions. So maybe just to start, curious about this, so the shelf stable Liquid Creamer that's launching in the back half of this year? When I think about that, I mean, you launching that through your own e-commerce and Amazon and other online channels. Seems to me like that could be a huge deal but I don't know if that's a big product category online, or I don't have a lot of kind of industry data behind that. But could you help maybe just size, how excited you are about that? Is that a big potential product category?

It's a big potential product category for a couple reasons. It's not just the online Amazon. I'll talk about in a second. The real driver with this was to really fill the white space with conventional for that sub $5 price point, which is really important in many of those conventional stores to have an overall lower cost product. Yes, the powder product is actually a better value when you break it down on a serve per serving basis. But the higher overall price point when you're not looking at per serving the product 999, just doesn't do as well and more kind of conscious minded, value minded, I guess, conventional store. So it opens up 10s of 1000s of doors for us to get into with a product and so we really initially started for that. Having said that, you know Liquid Creamer can do very well on Amazon. Amazon, of course is so efficient with their shipping methods that we're really, really excited about that channel for the product and also for our D2C. What we have found on the stores that are carrying both Liquid Creamer and our shelf stable creamer is we haven't been seeing any sort of cannibalization today, we've got still strong shelf velocities in the stores for both products and both categories. So you know, we kind of view as a different consumer. But we are excited; it's going to definitely move the needle. And so, we were telling people, or we're telling you guys, you know, end of the year, and we're now really making a real concerted effort to accelerate that and try and get that done as quickly as we possibly can this year. There's a few challenges, we're getting some new things here. So we can't say exactly when how it's going to happen is, most of the shelf stable products have ingredients in those that were not good with and when you go to the co-packers to manufacture this product, that's automatic. Oh, yes, let's just put this in this in there. We're not good with that. But we have done pilots that prove that our formula does work. And we're now working towards commercializing that product. And we're going to move as quickly as we possibly can. So we'll certainly give you updates every quarter as far as how we're progressing.

Okay, great, that's helpful. And then maybe shifting a bit different topic. But with your online business, what is it, have you seen much change in places that have opened up maybe soon -- I'm talking about COVID kind of reopening sooner than others. I'm thinking some states in particular. Are you seeing much of a change in the growth rate or any of the kind of repeat buying or any of those things in those various states?

No. We're not seeing any sort of downside in the online business. We believe that people are still gravitating towards online and the people that move there are going to stay there. And we're actually still seeing growth in the whole online category and even proven KPIs. So we really haven't seen any of that sort of change. If there is a shift, of course, that's the beauty with his business as an online channel platform, will be where they are. So if they want to buy any grocery store, we'll be there. If they're going to go back to the office and start drinking coffee there, we've got our food service program in play and are making moves to start to bolster that side of the business. But we don't think the online business is going away. Because of our position, the strength that we have, how we're capitalized, we're now able to really start to reach out the top of the funnel and do some incredible activations such as the U.S. Ski and Snowboard team among a host of other really strong top of the funnel activations that are really, really looking like strong performers, bringing more people into the funnel. And we just don't see an end to it. We still think we're just scratching the surface. And of course, when you look at the continuing sort of broadening of the platform, outside of just coffee and creamers into healthy snack products and other categories that were now in development, it's just going to continue. We don't see an end to it.

That's excellent. And then maybe last question for me. The Functional Coffees that you've launched, the comments in your prepared remarks, you seem really amped up about that whole category in general. So I guess the question is, could that be -- do you think longer term that could be as big as creamer for you? Is that sort of a five-year growth path or longer? Can you help sort of size again an opportunity?

Yes. We believe it is. Just look at the size of the coffee TAM. That's an indicator. There's a massive opportunity here and we're in the belief that people are drinking coffee and basically our theory with all of our products, we want to make people healthier, but we're not telling them, 'Hey, you need to go to the gym and workout for four hours.' We're saying, 'You're drinking coffee? Just drink this coffee instead. Do the same thing that you're doing to make it easy.' And we think this is a really perfect product to paint that sort of scenario. So a lot of coffee drinkers in the U.S., majority of adults and now we're saying, 'Do this and it's going to give you something additional.' So we're excited about the category and we're innovating and we're coming up with new products. We're going to have more releases to give people choices of the things that they feel they need, what type of boost in their body they need, what type of support they need, and they can get it just through drinking their coffee. And so, to me, it's a no-brainer, this is going to be a big category. We think we're really well-positioned as one of the first movers here to innovate, to tie in our functional sort of benefits that we do with all of our products, bring it together and then deliver it to the marketplace. First online and then through the wholesale channels that we're building because we'll have this infrastructure in place to do it. So we think we can be a mover and I don't know how much of that market we're going to get. Nobody knows. But we're going to we're going to give it a go.

Okay, great. Thank you.

You bet.

[Operator Instructions] Your next question will come from Bobby Burleson with Canaccord. Please, go ahead.

Hey, guys. I'm back.

I missed you, Bob.

My kids are misbehaving, so there might be some noise in the background. But, just curious, you're talking about maybe having to revise that 20,000 doors goal, maybe higher. How much of that confidence is coming from that shelf-stable Liquid Creamer opportunity? Is that a big part of it? You know, are these completely new areas of wholesale that you guys can access? And do those doors -- you mentioned 10,000 plus doors -- do those given the price point?

You're absolutely right, that's really the point of this product and as we're starting to understand these markets, we of course, came out strong and natural and we've got a decent ACV [ph]. And now we're starting to set our sights on these conventional channels. We're not done with natural, we've got a lot of new skews to continue to add across the aisles of the grocery store in natural. But, conventional is still the larger number of doors and we're looking at places like drug. And we're seeing just how strong our refrigerated Liquid Creamer is performing. The shelf turns the shelf velocity, the consumer adaption, people love it. And if we can get this sort of high quality product into a lower cost format, into conventional shelf-stable stores, we just feel strongly we can really start to penetrate. And then once we do that, we start to innovate new products. We're building certain products from the ground up, knowing that that's really going to be the destination. We'll still of course test them online. But the lower price point, Better For You products that we think will do well in conventional, we'll continue to follow up so that we can then also add additional skews there in the future and the functional copy being one of them as well. So we are excited we're still thinking that 20,000 number, but when you start to look at the natural stores, you look at the conventional that we're pursuing, you look at the opportunity in drug, there's a much bigger prize, probably closer to 40,000 or 45,000 total that we'd like to build access more often. We think we can. Just renew great product innovation.

Excellent. And then just on the online business, curious what the mix of direct online was there. Is that growing faster than overall online for you?

I'm sorry, Bobby. We broke up this one second. Can you ask the question again?

Oh, yes, sorry. Just curious what the mix of direct was of the total online. Is that growing faster than total online and driving a bigger share of total online?

Definitely yes. So if we look at 2019 to 2020, DTC was up 143%, Amazon was up 40%. And some of that, of course, is very intentional. We want the consumers to be on our platform every time that we can get them there. That's where we create the greatest long term value possible for the brand. It's where we have the ability to continue to engage with them, educate and cross-sell to them. That is a goal that we are seeing that play out as well, yes.

And it seems like online 61% of sales. Is there any reason why this couldn't get to 70%? I know that you don't want to artificially allocate revenue through channels. It won't happen naturally. From what you see and then could this get north of 70%?

Well, it probably could. It's strong, but at the same time, we are really doing well in wholesale. As we mentioned, we just rolled out into Target and Harris Teeter and a bunch of other chains this month, actually. So wholesale is going to be continuing to grow especially as we in the next few months, kind of continue to fix the shelf-life issues with refrigerated creamer. That just means more wholesale roll outs the rest of the year. So yes, online we'll continue to grow and it's going to grow aggressively that we believe we're going to get this wholesale growth to kind of probably keep pace for a while.

Okay, thanks, guys. Sorry for all the questions. I appreciate all the answers.

That's what we're here for. If you have any more, fire away.

[Operator Instructions] There are no further questions at this time. I'll now turn the call back over to Mr. Hodge for closing remarks.

Thank you. So, yes, thanks, everybody. We appreciate your support in sharing our long term vision. Really, we just couldn't be more excited about where we are today. We have the authentic and trusted brand, the ever strengthening management team that's prepared to scale this company, the online channel distribution network with what we believe is the best ecomm platform in the business. And we have the marketing expertise and the capital to make Laird Superfood the strongest and fastest growing platform in the entire food and beverage industry with a realistic goal of achieving a billion dollars revenues. We're a very young company, we don't manage quarter-to-quarter, so I encourage investors to look at the long term. So we firmly believe we will meet or exceed our annual goals. So just thank you, everybody for your support and sharing our long term vision and we're happy to talk. Thank you.

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