Filing summary
The supplied filing identifies the registrant as Allbirds, Inc. (Nasdaq: BIRD), not Smartbird, Inc. It is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. Dollar figures below are in millions unless noted.
Business context and reporting period
Allbirds is a lifestyle brand selling footwear and apparel, primarily through its own digital and retail channels. It operated 60 stores at quarter-end. In September, it shifted its South Korean and Canadian businesses to exclusive distributors, who operate the local stores and channels and buy products from Allbirds.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $57.2 | $72.7 | $182.1 | $213.6 |
| Gross profit | $24.9 | $32.5 | $76.9 | $93.3 |
| Gross margin | 43.5% | 44.8% | 42.2% | 43.7% |
| Operating loss | $(30.1) | $(25.5) | $(95.4) | $(74.8) |
| Net loss | $(31.6) | $(25.2) | $(95.7) | $(76.5) |
| Adjusted EBITDA loss | $(19.0) | $(14.8) | $(58.9) | $(47.9) |
- Q3 revenue fell 21.2% year over year; nine-month revenue fell 14.8%. Management attributed the declines mainly to lower average selling prices from promotions and fewer units sold. Q3 revenue also included an estimated $0.8 million negative impact from the distributor transition.
- Gross margin declined as lower selling prices and unit volume outweighed lower inventory write-downs, freight, logistics, and product costs. The company recorded $9.1 million of inventory write-downs in the first nine months.
- Operating expenses for the first nine months rose 2.4% to $172.2 million: lower marketing spend was more than offset by higher SG&A and restructuring costs. The nine-month loss from the Canadian and South Korean business sales was $2.3 million.
- Cash and cash equivalents were $132.5 million at September 30, down from $167.1 million at December 31, 2022. Nine-month operating cash use was $25.5 million, investing cash use was $8.7 million, and financing provided $0.4 million.
- Inventory was $79.9 million, versus $116.8 million at year-end 2022; total current assets were $235.7 million and current liabilities $51.2 million. The company reported no borrowings under its revolving credit facility. It had a $50 million committed facility, with up to $50 million of additional uncommitted borrowing capacity, subject to terms and availability.
- Lease liabilities totaled approximately $107.0 million, including $14.6 million current and $92.4 million noncurrent. No dividends were reported.
Material changes and management outlook
- The March 2023 strategic transformation plan targets renewed growth, capital efficiency, and profitability through product and brand focus, U.S. store optimization, international distributor arrangements, and cost savings. The company said product and brand initiatives are expected to begin affecting results in 2024.
- Management expected soft sales trends to continue through the remainder of 2023, and expected full-year revenue to decline versus 2022. It said promotions would continue and could pressure near-term gross profit. Management expected total SG&A and restructuring expense to increase during 2023.
- Management said it expected the distributor model to reduce revenue and gross profit in the near term but lower operating expenses, improve adjusted EBITDA profitability and inventory efficiency, and reduce business complexity. The company was evaluating similar arrangements elsewhere; after quarter-end it reported non-binding letters of intent for Japan and Australia/New Zealand.
- Cost actions included corporate workforce reductions of approximately 9% in May 2023, slower U.S. store expansion, and a planned transition to a new footwear manufacturing partner by year-end, which management said could accelerate cost and cash savings over the next three years.
- The company stated that cash, operating cash flows, and available credit were expected to meet cash requirements for the next 12 months. It noted that longer-term needs could also require equity or debt financing.
Risks, contingencies, and unusual items
- Allbirds reported continuing significant losses and negative operating cash flow. Key risks include persistent revenue pressure, promotional pricing, demand forecasting and inventory exposure, execution of the transformation and distributor strategy, competition, supplier concentration, and macroeconomic effects on discretionary spending.
- The South Korean and Canadian asset sales generated respective losses of approximately $0.3 million and $2.0 million. Consideration totaling $2.9 million was payable in installments through March 2024.
- Two securities class actions were consolidated; plaintiffs allege misleading statements about the company’s business and prospects and seek unspecified damages. The company filed a motion to dismiss on November 3, 2023 and said it would defend the case. Two related shareholder derivative suits were filed in October 2023.
- The company cited possible further impairment charges if projected cash flows or assumptions change, and risks associated with sustainability commitments, foreign exchange, inflation, and its transition to third-party distributors. It reported no long-lived-asset impairment charge for the quarter.
- Nasdaq’s minimum bid-price requirement is a risk: the filing states the share price first closed below $1 on October 9, 2023. The company described the applicable compliance periods and possible transfer to Nasdaq Capital Market.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2023; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the provided filing is for Allbirds, Inc., despite the request metadata naming Smartbird, Inc.
- Track whether revenue, selling prices, unit volumes, and gross margin stabilize, and whether promotions continue to weigh on profitability.
- Assess cash burn, liquidity, credit-facility availability and covenants, and whether the stated 12-month liquidity expectation remains supportable.
- Monitor execution and financial effects of the distributor transitions, including the proposed Japan and Australia/New Zealand arrangements and installment collections from the asset sales.
- Review restructuring costs, inventory reserves, lease obligations, and progress toward the stated cost savings and 2024 product initiatives.
- Follow the securities and derivative litigation and Nasdaq bid-price compliance status.