Thank you for standing by and welcome to the Second Quarter 2021 Earnings Conference Call and Webcast for Laird Superfood, Inc. 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 second quarter 2021 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 second quarter earnings press release filed 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 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 Superfood.

Thank you, Reed, and aloha everybody. It's a pleasure to be speaking with you in regards to our second quarter. Before we begin the discussion of second quarter results, I'd like to start by taking a few minutes to address the upcoming leadership transition that was announced incurring with the earnings release this afternoon. After careful consideration, I've decided now is the appropriate time for the company, my family and me, for me to start transitioning to a non-executive role. And I will be stepping down as President and CEO once we have identified my successor. After the transition, I'll remain on the Board of Directors and remain a major shareholder keeping me closely involved in realizing our long-term vision for the company. Most of you know my deep unwavering passion and commitment to making Laird Superfood successful for everyone involved; shareholders, employees, friends, including my close and friends and co-Founders Laird and Gabrielle, my family and a ton of Sisters Oregon where we become an integral part of the local economy. There's been a privilege to lead this company for the past six years and I'm extremely proud of all we've accomplished together and such a short period of time. By bolstering the expertise of our team, it only enhances our competitive decision and makes the long trip potential even more compelling and mightier. Okay. So, now I'll start with a brief summary of who we are and what we do as well as provide a review Q2 highlights or key growth drivers. I'll then turn the call over to Scott McGuire our Chief Operating Officer; and Valerie Ells, 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…

Thanks, Paul. Our top priorities remain people safety, keeping customers' orders filled and position ourselves to handle greater complexity and greater revenues. Without taking an eye off of those who make great strides in our Picky integration and we execute flawlessly on nine new products. We have a great process for getting all those done and as I shared last couple of quarters the forums are our approach. Manufacture more ourselves, make them more efficiently, move it smarter and faster in my company. I will briefly touch on each of those. Manufacture more ourselves. We do this to control cost and quality and to create flexibility to respond to our customer's growth, request and ever-changing supply chains. I'm so proud of every person on our team who rally to produce in-house six new [indiscernible] score. That's what we call going vertical and one vertical in other areas too which I will mention in a moment. Make it more efficiently, while focusing on several key automation projects for the third and fourth quarters we continue to implement inflation offsets through continuous implement projects. Additionally, with so many companies struggling with raw materials and transportation, our yearlong strategy to build inventories during pandemic uncertainties has paid off and positioned us well and finished good in raw material safety stocks. For the second quarter in a row, this was demonstrated by achieving nearly perfect customer order compliance. Move it smart and faster. The tactics we spoke to the first quarter led to a 33% extension in our fresh liquid shelf life. And as you would expect, we reduced manufacture rates and spoils by 50%. Additionally, in May, we implemented a form of going vertical in the balance of our liquid distribution logistics and take over delivery to the distribution centers. This nearly eliminated…

Thanks, Scott. Growth in online in wholesale channels are key factors in our second quarter performance, driving and 64% year -over-year increase in net sales to $9.2 million. As Paul highlighted metrics in our DTC business remain very strong and continue to compare very favorably to peers and related companies delivering 94% growth via both core and new products we are very pleased with our continued improvements from already strong retention, subscription and AOV performance, among others. In wholesale, we continue to broaden your customer base and are seeing continued traction in grocery. Well, brand and quality are key factors helping to grow our door count and points of distribution in grocery. It's also important to note that we've made significant progress improving results within existing customers. For example, velocities and our liquid skews for foods have improved significantly over the past several months nearly doubling since the beginning of the year. At the same time, we have greatly reduced our liquid creamer related chargebacks stemming from shelf life issues by both achieving and extended shelf life and significant operational and logistical improvements late in the second quarter. air : On a sequential basis, Q2 gross margin was down 120 basis points, primarily reflecting elevated wholesale freight expenses. While the margin benefits of an optimized DTC shipping expense in reduced liquid creamer related chargebacks were largely offset by the sell-through higher cost of inventory. Operating expenses were $8.5 million for the second quarter or 92% of net sales compared to $4.3 million or 77% of net sales in the same period last year prior to becoming a public company. General and administrative costs represented 45% of net sales in the current quarter compared to 33% a year prior with over 70% of the incremental expenses being attributable to public company…

Thanks everybody for your time today. As you can see from a recent growth Laird Superfood remains on track to become a leading player in the food and beverage industry as we continue leveraging our powerful omni-channel platform. Thanks for your support. And we are now ready to take your questions. Operator?

Thank you. [Operator Instructions] We have our first question from the line of Bobby Burleson from Canaccord. Your line is now often.

Good morning and best wishes, Paul for your next endeavor. So a couple of questions here. The guidance obviously coming in, including gross margin guidance. Can you just clarify how these unforeseen changes impacted the gross margin guidance in particular, is it simply just a question of the last fall got some sensitive state, you're obviously not going to be seeing the same kind of volumes in your internal production in the back half of the year, and that's the primary driver, or is there anything else that work there?

Now, I'd say primarily, what we're talking about here is obviously the lower top line. And with the shelf stable liquid creamer, that was a product that we were going to be utilizing on the e-commerce side of the house as well, which would have carried a higher margin profile that had a negative impact. And then the second piece of that is that it's the second piece of the guidance pulled down is just a slightly slower Costco and club business than we were originally anticipating great momentum going into the third quarter. But we can't really make up what we got what we saw slower in the first half. So I would say it's really a combination of those two things. Costco is a great business for us at still very healthy, don't get me wrong, but it's the margin profile that we love as well. It's an efficient product to make, and it moves the needle pretty dramatically on our top line. So nothing else really going on outside of that. There are some really exciting initiatives coming up in the second half of the year that we're confident we're still going to make progress, just not to the same extent that we were previously hoping for.

And then those anticipated resets that now are delayed. Is that for specifically for you? Or is that generally for those partners?

No, that's generally I think, with the year COVID a lot groceries we've been talking to, they've just decided to postpone a lot of their category resets until next year. So some of the larger partners that we're expecting to play with this year have done that. And we're hearing about more and more through the grapevine and this change is happening at that level. So nothing specific to us.

And then just one last quick one. Curious in terms of the competitive landscape there's some large players that are building nice balance sheets here and going after plant based creamers among other categories. Curious how you see the evolving competitive landscape there and how the OatMac creamer is positioned versus some of the other scrapers?

I mean, our product remains unique in the marketplace. And that's the one thing with our company and the innovation profile in our creamers are truly clean label a lot of, there may be a lot of plant based creamers out there but ours definitely stands as a different product functional ingredients. Clean label and we've been innovating and quite frankly that has led to some of the delays is we're just not willing to on the shelf stable liquid to compromise and so the old Mac itself has been a great platform. We've been seeing recently with like pumpkin spice launch reveal Mac has been actually outperforming the coconut base. It's unique. You see a lot of oat out there. You see nut. Our product has a great mouth feel, a great flavor, combining the oat, the Mac, the healthy fats from the Mac Net and having avocado oil and things like that. So it's a great product and definitely differentiated still as things like functional mushrooms, ochman calcified CLG with the 17 minerals. So we're very optimistic. We're seeing the consumer adoption of our fresh packaged liquid creamer. And it's just incredibly well, shelf lawsuits are still growing. And we think we're well positioned to play in the space and be very competitive. And of course, this is one component of our overall brand platform that we're building as well.

Thank you. Our next question comes from the line of Alex Fuhrman from Craig-Hallum Capital. Your line is now open.

Thanks for taking my question. And Paul, congratulations on taking Laird from such a small company and growing it into what it is today getting the company public. Wish you all the best in whatever you have next in store for yourself. I did want to ask a little bit about the guidance for the year. Just my kind of rough math here if you think about how well the online business has been growing and it sounds like there's really no reason to think that business isn't going to continue to perform really well. Rough math would kind of suggest that the wholesale channel for the back half of the year is going to be kind of flattish to where it was last year and in the first half of the year. So can you kind of unpack that a little bit? Obviously, there's a lot of things kind of turning beneath the surface there. How much of the lower guidance would you say is the delay of the shelf stabled liquid product and you know, versus how much might be some of the choppiness you alluded to in the club channel or anything else that might be going on there?

So, in terms of the guidance, the majority of the pull down would be related to the shelf stable liquid creamer. And then I would say the remainder a smaller portion would be related to the club business. But the biggest driver in the second half, you're right on there, it will remain a common more specifically DTC because of that, and we will see the growth spread across multiple product, excuse me categories. In DTC, we just have that much larger customer base than we did years ago, even a quarter ago. Same with a portfolio. We have a lot more products to utilize to drive that growth, and Q3, Q4, I think Paul just mentioned one of them, we have a handful of new products coming out. But Mac pumpkin spice is a great one that is already showing amazing new customer acquisition, like you mentioned. the shelf stable liquid creamer delay, and those grocery resets that we mentioned, it will minimize the growth that we were originally anticipating, but we still expect to see some growth there that we have had, and we will continue to have some steady, smaller door as we're improving the shelf life in that business. We fully expect our refrigerated liquid creamer to continue to grow with dollars contribution. It's doing really well so far. We're really happy with the progress we've made there. I'd say the one thing that could always show up and cause some lumpiness is Costco or club in general performs better than we're taking credit for. And we are expecting continued rotations across various regions. We know we are going to have a decent third quarter of them so far already. But we are being conservative with the level of placements not where we're taking credit for in the fourth quarter. It's a great time for our product to be on shelf there was their new year, new year kind of movement they do every year, but we are not being overly bullish with the assumed placement at that point in time.

Thanks, Valerie that makes a lot of sense. And then just thinking about liquid in general. I mean, it seems like over the past year, there have been a number of issues with some of the co-packers and the shelf life and things like that. And yet the demand clearly seems to be there from your retail partners and from your customers. And I'm sure you must have looked at potentially bringing back manufacturing and how can you talk a little bit about what you've seen out there? How much that might cost? If you were to just get around co-packers completely and bring that product development in house?

I mean, that's something that we're constantly looking at, just as our sort of Mo we want to get that leverage and vertical integrate wherever we can. We're looking at all the options. There's this, of course, bring it directly in house manufacturer itself, there's partnerships that can be had. And then I will say on the co-packing, yes, we've been a public company. So people got to see the whole development process of this product, but we are making progress. I know it may not seem like that. But the refrigerated liquid creamer over the course of a year, we've now got it to a great shelf life. We've got a really unique product that's very unique in the marketplace that's getting great traction that people really love. We've solved those problems. We've got rid of the waste issues. We've got the distribution logistics figured out. We've got a really strong partner co-packer on that side. So we're doing great there. And we're taking those lessons learned from that. And we're now going to apply that to the shelf stable aspect of it's a bit of a different process. It's a different partner. But we've now learned the best way to move the product, the best way to make it and we're going to get there. We're going to get there. It's just as a public company versus a private company. Everybody gets to see the whole process and so that's what everybody's been getting this year for the past year, which is a bit unique. But we're confident we're going to get there and feeling like we're making great progress. And then as far as that vertical integration, there's still a lot of unknowns we need to give us some more time and we need to look at all the options like I said the partnerships, vertical integration, and co-packer.

Great, that's really helpful, thanks Paul.

Thank you. [Operator Instructions] Our next question comes from the line of George Kelly from ROTH Capital Partners. Your line is now open.

Hi, everybody, thanks for taking my questions. So just a few to start with the Picky Bars. Expectation for the full year if I remember correctly, when you acquired the brand, it was I think $4 million of expected contribution for this year's Is that still the expectation?

No changes there. And the Picky integration, it's going smoothly, it's going as planned, they made a very solid contribution in the first few months following the acquisition. So very much on track of what we expected no change to the previous estimate on that front. And I would say very early on what we committed to is our priority, there is the seamless integration for the consumer, and the subscription perspective really making sure that we maximize the retention of that group. And so far, that's proving to be true. And also coming up where we're really excited to get the entire line of 50 products on our website in the coming months. And also to start really telling those stories we haven't had our head or major marketing and storytelling, launch was all of that platform yet. So we're excited to get to start with that. And then some early wins coming in on the wholesale side, too. We have some direct wholesale accounts that we're seeing progress with, and we're getting ready to go out and present to a lot of the bigger grocery buyers as well in the coming quarters. So lots of still to come. But so far, really solid progress.

And then next question on a different segment, the coffee business; didn't hear a whole lot of commentary in your prepared remarks just about the coffee opportunity. So he's trying to gauge what is the opportunity? I guess do you think it will take longer to start to show more growth in that category, or what has been your learnings? I guess, in that business.

No, we're excited for the functional copy. And you know, as I said before, I think it's going to be a huge portion of the coffee market next five years. So we're keep in mind, we just got our wholesale packaging, it was really in Q2, when we had that in hand to start selling. So we are now selling into some conventional channels and natural channels. And what we're excited about the coffee is what it, it's one of the few products that really allows us to expand into that larger conventional space. So a lot of our products today they're more on the natural side. We kind of have access as four or 5,000 doors. Well, the excitement around the liquid creamer and why we are working so hard to do that to focus on that product, is that that really serves to open up those 40,000 conventional doors that sub $5 price point, it's really conventional your product, the coffee also fits into that mold where we've got the price point down now for a great organic copy with functional benefits at 12.99 a bag. That's right in line with quality kind of conventional mass market pricing, which gives us the opportunity to open doors, those larger numbers of doors. And then of course, the third item that we're excited about is picky bars, as he just talked about that the reason we went down that path is we can now develop a mass market bar for $99. That gives us that third piece next year to really focus on opening those larger kind of conventional doors to get to that broader base goal. So it's sort of a part of a concerted strategy to have the package of offerings for that larger conventional opportunity.

That's helpful. And then last question for me is just modeling. What was the breakdown within the creamer business? What was the breakdown between powdered and liquid and that's all I had. Thank you.

So in the second quarter, liquid gross sales were just shy of 1.2 million. And then the remainder that obviously will be your shelf stable business, but really, really nice progress on the liquid side. And a lot more to come there we anticipate.

Thank you. And now I will turn the call back to Paul Hodge for closing remarks.

Thanks, everybody. Appreciate your time and I'm still going to be a highly active board member. I'm the one board member that lives in the area and excited for the future of the company on the big shareholder. And we're really bullish about the future of this company. We think there's an incredible opportunity long term. And thanks for your support.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.