Laird Superfood, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Laird Superfood sells plant-based and functional foods, including creamers, hydration products, snacks, coffee, tea and hot chocolate, through online, wholesale and food-service channels.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $8.8 million | $10.9 million | $26.9 million | $27.4 million |
| Gross profit / margin | $2.1 million / 23.4% | $3.2 million / 29.4% | $5.6 million / 20.8% | $7.2 million / 26.3% |
| Operating loss | $5.8 million | $5.3 million | $24.7 million | $16.9 million |
| Net loss | $5.7 million | $5.4 million | $24.8 million | $17.0 million |
Q3 net sales fell 19% year over year; nine-month sales fell 2%. Q3 diluted loss per share was $0.63 versus $0.59; nine-month loss per share was $2.71 versus $1.90. Nine-month results included $6.5 million of goodwill impairment, $1.5 million of intangible-asset impairment and $0.1 million of held-for-sale asset impairment. The Picky Bars acquisition was included in 2021 results from May onward.
Cash flow and liquidity: Operating cash use was $11.1 million for the nine months, versus $14.2 million in 2021. Investing activities provided $9.0 million, mainly from selling investment securities and held-for-sale assets; financing provided $0.1 million. Cash and restricted cash ended at $21.0 million, down from $23.0 million at year-end 2021. The company reported $5.0 million of available credit and no borrowings or notes payable. Lease liabilities totaled $4.9 million, including $0.7 million current. Management said available resources and expected financing and operating cash flows should meet needs for the next 12 months and beyond, while noting expected continued operating losses.
Total assets were $47.6 million and stockholders’ equity was $37.7 million at September 30, 2022, compared with $65.8 million and $62.1 million, respectively, at December 31, 2021. The decrease reflects losses and impairment charges, among other changes.
Material changes and management commentary
- Management attributed weaker sales mainly to reduced marketing and lower direct-to-consumer and club sales, price increases, and ending free shipping on orders under $40. Amazon growth partly offset declines. Wholesale sales were affected by distributor-to-retailer fulfillment problems and shelf out-of-stocks.
- Gross margin contracted due to lower production volumes and fixed-cost deleverage, promotional activity, and inflation in raw materials, packaging and freight. Lower labor costs partly offset these pressures.
- Management reduced marketing investment and organizational costs, and focused on optimizing inventory and current products. Advertising and marketing spending was $8.2 million for the nine months, versus $8.4 million a year earlier.
- On October 12, 2022, the board approved a plan to move substantially all internally manufactured products to third-party co-packers, close the Sisters, Oregon production facilities and reduce headcount by about 46 employees, or 55% of staff. The company expects about $0.5 million of severance and employee-related restructuring charges, largely in Q4 2022, with related cash payments substantially by Q1 2023. Facility-exit costs and potential asset impairments were still under evaluation.
- The Wells Fargo credit facility was renewed through August 31, 2023, with capacity reduced from $9.5 million to $5.0 million; the balance was zero. The East Asset Management credit arrangements closed in May 2022.
Risks, contingencies and other notable items
- The company reported a material weakness in internal control over financial reporting related to a formula error in Q1 basic and diluted loss-per-share calculations, identified by its auditor and corrected before the Q1 filing. Disclosure controls were deemed ineffective as of September 30, 2022. Remediation steps included additional finance staffing and strengthened documented review procedures, but the controls had not operated long enough to conclude the weakness was remediated.
- Customer and supplier concentrations create exposure: two customers accounted for 21% of Q3 sales; three suppliers accounted for 68% of Q3 purchases. Vietnam represented about 41% of raw-material and packaging purchases in Q3, and management noted geographic concentration could increase supply-disruption risk.
- The company recorded a full valuation allowance against deferred tax assets due to its cumulative losses. It had approximately $95.6 million in tax net operating loss carryforwards at September 30, 2022.
- Management cited risks including continued losses, customer acquisition and retention, distributor dependence, competition, inflation, third-party sourcing and production, supply-chain disruption, and potential dilution. No material litigation or changes to previously disclosed risk factors were reported.
- After quarter-end, Anya Hamill became permanent CFO under an employment agreement effective November 4, 2022. The board terminated the employee stock purchase plan on November 7, 2022.
Most important facts for investors to verify
- Whether co-packer transition, plant closure and 55% workforce reduction deliver expected margin benefits, and the final restructuring, lease-exit and impairment costs.
- Whether sales stabilize after marketing cuts, price changes and shipping-policy changes, and whether Amazon growth and wholesale distribution gains continue.
- Cash burn and liquidity runway, including access to the $5.0 million credit facility and the effect of lease and restructuring cash obligations.
- Progress on remediation of the material weakness and effectiveness of financial-reporting controls.
- Gross-margin trends and exposure to concentrated customers, suppliers and sourcing regions.