Laird Superfood, Inc. (LSF) Earnings Call Transcript & Summary

All right. Welcome back, everyone, to the Jefferies Virtual West Coast Consumer Conference. I'm Rob Dickerson, the U.S. food analyst at Jefferies. We have with us today Laird Superfood, an emerging consumer products company founded in 2015 that manufactures and markets highly differentiated, plant-based and functional foods with long-term goal to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality. And the company recently did go public, which is very impressive. We're honored to have joined us today Laird Hamilton and his wife Gabby Reece, both Co-Founders of the company; as well as CEO and Co-Founder, Paul Hodge; and CFO, Valerie Ells. Laird is perhaps the most well-known big wave surfer in the world, pioneer of the world of action water sports and ventured with the foilboard, an author, stuntman, model, producer, TV host, fitness and nutrition expert. And his wife Gabby is known for the international world-class Top Model, world champion volleyball legend, New York Best -- New York Times' best-selling author, TV host, fitness and nutritional innovator and Nike's first-ever female spokesperson -- sorry spokeswoman. So just -- there's a lot of talent at this company, of course, and a lot of well-known talent.

So I guess with that, I'm just going to pass it to Laird to maybe just kind of talk about how this company came about, kind of what you think it stands for and, obviously, why you would be so passionate about it.

Well, I appreciate that. Thank you. And the truth is I'd like to say that, first of all, that this was a plan executed over -- that we devised this whole company and we had a plan and that the company approached us. I get asked that question, how do they find you? And the fact is that really came -- the company was birthed organically from kind of a philosophy and a lifestyle that we were sharing products with friends and actually Paul Hodge, we -- Paul and I were collaborating on another project and he tried one of the recipes that I was making and said, "What is this? What do you got in this? Let me -- let's do something with this." And I think the second or third rendition was the original creamer. And so it really came organically and authentically when we talk about authenticity. This -- the company, Valerie, Paul, Gabby, myself, I mean, we all have the same values and the same philosophies about transparency with the products and the ingredients and just all of the things that the company represents. And so I really say that the company, for me, is an idea. And it's like all great ideas, how -- what's the potential of that idea? How big is that idea? And the idea itself behind the company really is -- people benefit from good food and good ingredients, and they need these ingredients in their lives and they don't have a lot of them. And so we are trying to bridge that gap of knowledge and accessibility and affordability to provide people with nutrients and ingredients that can enhance their lives. That's what we believe. And so that's where -- that's the basis kind of concept.

Yes. And without asking them to really change up their day-to-day habits just to replace it. I would say, Laird has always said, if you do something every day, try to make it the best for you. And then Paul has created a company where we're -- we can manufacture ourselves, we're vertically integrated so we can be conscious on cost. And when you say natural, I think it's also really important that we have bumpers up that we have to have a clean label, which is hard to do and actually hard to do even in the natural food space.

Yes. And I think sometimes people don't -- they -- I mean listen, the amount of effort it would take to actually be exposed to the knowledge that we've had the fortune to be exposed to, it would be too time-consuming for them to do that in their lives. And so we're trying to create a brand that people can trust and rely on. So they just see the thing and they go, "Oh, Laird Superfood, they just grab it. And it doesn't matter. We don't care what it is when it comes out of our factory. And farmers, we want them to trust us. So we're developing a trusted brand and I think that both Gabby and I have tried to do that in their own personal careers. And the irony is that this company is an opportunity that we can connect our brands to a brand which happens to be our brand, too. So in a way -- we could never find companies that really align truly with us. And so ultimately, Paul, Valerie and this company has been built and it aligns directly with our values.

Yes, yes, it's great to hear. And I feel like people just in general might actually trust the brand because they kind of just know the background of the people that are involved, which never hurts because it built up the trust over a long period of time. If you weren't trustworthy from the start, no one would trust your food brand. Look, you discussed a lot, I would come back and say, just for educational purposes, people don't know, I mean, you've gone from 3 SKUs right, product offerings in 2015 to, what, over 30, 34, I think it is, maybe you're getting close to 40 now, which is obviously very impressive in a fairly short period of time. And you do play in a lot of retail doors, right? And we can touch on the online piece later, subscription piece, but you are in a lot of retail locations, but I think there's some new distribution even in Whole Foods and Kroger, right? These are national players. So maybe if you can just kind of speak to what you think the real distribution opportunity is and why you would say, not just the Whole Foods but at Kroger, right, which is more conventional grocer, would say, sure, we would love to put your brand in our store.

Yes. I know -- I'd like to say that we hope to be on maybe not every but many aisles of the grocery store in 5 years, really leveraging the brand platform that we're building based on trust fueled by the authenticity of Laird and Gabby. But as far as wholesale now, we do feel like we've got a clear line of sight to 20,000 grocery doors. And we're talking with all the customers' need to achieve this and then cue for planogram resets and category review meetings. We're currently in about 7,200 doors. At the end of Q2, we were in 5,400 doors, just to kind of give you a sense of the growth that we've had this past quarter. So yes, the exciting thing on the growth front is also that it's not just street door expansion we're talking about, it's also adding more SKUs to existing doors. So we built this business on the shelf-stable creamer and the way I like to talk about this is for every 10 people that walk into grocery store, 9 people are going to buy the creamer and refrigerate. It's actually one on the shelf-stable side. We built this whole business on that one person. So now with our liquid creamer that's rolled out, we've got -- there's 9 other people that we can start to access. So it's adding SKUs into the existing doors while we're also growing the doors themselves. Now as explosive of an opportunity as that actually sounds like, beyond the creamers, there's the functional coffees, there's hydration products, snacks that we're starting there, whole food, healthy snacks. But as explosive a growth opportunity as that, it's all that sounds in wholesale but the cool thing is that we truly feel, though, we will maintain at least 50% of our revenues from the online channel. So the first half of this year, 57% of our revenues came from online business. And I think we're pretty unique in the food space saying that with that growth, our online business is growing just as fast and we expect 50% of that revenue next year and beyond.

Okay. Cool. I mean that's a good transition. I did want to touch on the online side, right? I mean it seems like not only do you do 50% or half of your revenues are coming from a line. It sounds like there's been good demand coming out of likes of Amazon but then also, you have a fairly substantial direct-to-consumer presence from your website with a large percent of those going to that site stepping into a subscription model, which not every food company does, right? But if you can get the consumer do that, it's obviously great. So maybe if you could just kind of touch on the strength of online, but then also really the success you've already had with the direct-to-consumer model, with the website, and I do point to this kind overall that that's always a challenge for every food company. It's sort of like the lowest probability success rate is going direct-to-consumer because you have to get the person to like the brand and then you got to get them to your site and then it's so many steps. You just click on Amazon, it's easier to go to Kroger. So maybe if you could just kind of talk to why you think it's going so well for you so far, that would be great.

Yes. There's no doubt it can be complex. And so you're [ right ] but yes, I mean, we view the online channel as the crown jewel of the business, I mean, truly. It's -- we love our wholesale customers, don't get me wrong, but the online site is really a great way to have that direct customer relationship to be able to educate them on our total platform of products and what makes it special from a functional standpoint. So that education is important. It is we're basically telling the mom, the corporate warrior like yourself and the athlete, it's like, "Hey, treat yourself like an athlete. And even though you're going to work, it enables you to perform throughout your day and you can get home and still have energy to spend with kids." That's what we really want, we want people to treat themselves like an athlete, where this really originally came from, this whole platform. So getting customers. Now that -- I could talk about this all day because this is the complex piece that what we did is we really took a more organic approach to customer acquisitions starting in 2018. It was really triggered in mid-2018 when we came in and Facebook changed their algorithms overnight and the next day we came in and our ads are like 1/3 is defective. And we're like, okay, we can't be beholden to the large advertising platform to get new customers because then you're just in this constant chain of putting out money to get new customers. So what we did is we really leveraged influencers and word-of-mouth marketing as well as, of course, the unique asset. We're utilizing Laird to Gabby to develop a lot of content that we then served up video, connect to television, other platforms. And a lot of small companies aren't going to do this because it's really complex and it takes years to build. Like in 2018, when we made this switch and we're really relying on just online sales, our sales were flat for 3 quarters. But it takes time to build that traffic and that value. But now 2 years later, we're really starting to reap the rewards from that. Our new customer growth is off the charts and it's working really, really well. So we do still do advertising, paid advertising on areas that have high returns, but those returns diminish quickly typically and rotates quickly. So there is that piece of it. It's not that it's gone, it's just that we don't completely rely on it anymore. So we do sell on Amazon as well. It makes up about 40% of our online revenues or maybe a little less now. And Amazon does well for us for attracting new customers, but we'll always want to get those customers to purchase on a direct site when we can where we have that direct relationship to the customer, the cross-market to other platform products and, of course, educate the customer directly.

All right. No, it's a great tactic so it's going well so far. I guess just to jump back to you, Laird and Gabby. Paul had mentioned the creamers. I realized there are some other products that you sell. I'm just curious like, I don't know, you were standing on your kitchen one day and you put some milk in your coffee and you're like, "I don't really want this. Like, hey, creamers. We're doing creamers. That's what we're going to do." And then this company started. But I'm thinking like, why not have you in some video like, I don't know, eating a health gel -- or there are a lot of ways you could go, like you're saying, "Hey, it's Laird and Gabby. We're starting a food company and this is what we want to do." Obviously, there are a lot of different areas. You have creamers, right? And there are other products that we can get into later. But I'm just curious like, where did that idea come from? And like why that versus other categories?

I mean I...

I can tell you because I observed it, the insanity of Laird first using coffee for performance and then...

Being passionate about coffee from the beginning.

Being passionate about anything that Laird is passionate about.

Obsessed. Yes, obsessed.

Which is a good thing. But then learning about...

Like you.

Exactly. 25 years later and you think that. It is -- we -- he was introduced to using a healthy fat source to sustain the energy. So for Laird, it's all about, "Oh, so now I could go surf for 5 or 6 hours and feel like completely bulletproof as far as energetically." Obviously, there's always safety elements. And so we started tinkering with that, and then in Laird fashion just sharing it with his friends that he was training with and one of them was Paul. So like when Laird says it wasn't strategic, it was only strategic for Laird's personal use. And also, quite frankly, if you get into gels and things like that, this is fake food. And so the more we learn in the self-care space, the more it's like, hey, how do we get these whole food ingredients? And everyone wants to hack everything and do all this stuff but at the end of the day, our physical biology is still as primal as it's always been. And if we can get real nutrients, in the long run, that's going to be better.

And I think after kind of being exposed to a lot of different in-sports supplementation and all this other stuff, you'll realize that nature has done it already perfectly, right? So why change that? And the fact is, is that I heard a statistic at one point that one of the healthiest things that Americans were doing were drinking coffee. And I thought, well if that's true and they're drinking battery acid coffee with a bunch of chemicals in it, this is not good. Like this is -- and so in a way, it was an opportunity to meet people with where they were. They're already there. They're already consuming it. The fact actually that we came in with creamers and the timing and everything about our creamers, it was kind of, I would say, a little bit of fairy dust. We've had some fairy dust along the way with this business every time we see the need, somebody or something and we seem to get it. And I've been involved in a lot of projects, I know Paul has been involved with even more of those that just where you're banging your head against the wall and you can never get a break and it's just everything -- and you're just always working. And this one, creamers, in a way was an incredible place to start because it was -- and we were just doing it organically. So purely genuine, completely authentic but yet the exact perfect place to be. And then from there, we can expand. But we're -- Gabby never drank coffee, right? So she still doesn't now. She just drinks a mocha which has espresso in it and it's actually hot chocolate, but it has expresso, but -- so that's what I do for her. But these are all organic like authentic to us.

I think it's important to remind people, the one thing about the brand is one of our many pillars besides -- it starts with this top-quality ingredients but right behind that, this has to be such a delicious and enjoyable experience because what everybody knows is it doesn't matter how good it is for you, you're not going to do it or use it if you don't thoroughly enjoy it as much or more than what you're already doing. So even though we're committed to these ingredients, I think it's also really important that everything has to kind of blow your socks off when you use it. And Paul can speak to everything has a function. And what we're -- we're not suggesting that people who have to use these are athletes, we're actually more interested in getting everyone else who is grinding it out through their day, can't process and figure out what to use, support them where they're at and make this something that could be for a householder, which the majority of our customers, that's what's happening.

Yes. And what's interesting about the -- one of the things about the subscription model, that the reason why we have a lot of traction is because a lot of the products that we use are daily use. These are daily-use products. So it's not just like get a subscription to some peanuts that you might have once-a-week. No, this is a reoccurring thing so you're like, hey, I need my creamers, I need my coffee, I need my protein bar, I need my -- I need these products that we're using. So we have the whole daily ritual, which is kind of the products that will supply you with your daily needs. And so that really fits well into a subscription model because this is daily need. So at the end of 2 weeks, you're like, "Hey, I'm out of such and such. I don't want to have to go back to the store and buy that, let's just have that arrive." And so that's where we have a lot out of traction with those models where other companies might not because they don't have products that are daily use.

And Paul and Valerie and the whole team, they'll also use online for testing. So if we have unique and new products, maybe because of cost, we can only offer them online or it's a way to go, "Hey, this thing is really showing up. Now Paul is comfortable offering it to the grocery stores and such." So it's also using online for that as well.

Yes. We have a loyal following online that really will help us kind of vet our products without trying to test it and align to grocery stores. That could be so expensive. That could just derail your business.

So look, I mean, it seems like -- just going back to the daily routine, right? I mean, one, I would say, I don't know if they were accidental or maybe partially accidental that it started with creamers. There haven't been a lot -- there's not a lot of innovation, right, within creamers. Or you can talk about proliferation of all these different coffee brands or snack bars, what have you, but you stepped into coffees, you stepped into these other areas where they're kind of more daily usage. Obviously, the frequency rate is higher and over time, companies knowing that obviously start to lean into those categories as categories become big, and then big categories lead, obviously, to a massive TAM, an addressable market, right? So I mean, one, it seems like the addressable market as is, kind of where you play, is obviously immaterial, right? And you're still very small. But at the same time, if I go back to that daily routine, I don't know if that becomes like the company theme, especially given a subscription model that, hey, yes, you can have your creamer, you can have your coffee. But if we think about innovation going forward, what else fits into that daily routine? We don't want the one-off bespoke product that you consume once every 3 weeks. We kind of want the -- if we're going to put the capital in, we want to be in products that people can eat or drink every day. So does that -- yes, I don't even know if I have a question. It just sounds like there's a large market and you're going to continue to think about what that daily routine is and how you can infill over time and leverage the power of the brand. Is that kind of a it?