Allbirds, Inc. — Q1 2023 Form 10-Q Summary
Reporting period: Three months ended March 31, 2023. The filing identifies the registrant as Allbirds, Inc. (Nasdaq: BIRD), not Smartbird, Inc.; confirm the intended company. Financial statements are unaudited and amounts below are in U.S. dollars.
Business context and performance
Allbirds is a global footwear and apparel brand using naturally derived materials. It sells primarily through its digital channels and stores, with wholesale partnerships. It operated 59 stores at quarter-end. Net revenue fell 13.4% year over year, mainly because promotional activity and a higher wholesale mix reduced average selling price by 14%; units sold increased 4%. U.S. revenue declined to $40.8 million from $48.9 million, while international revenue was $13.5 million versus $13.8 million.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $54.4 million | $62.8 million |
| Gross profit / margin | $21.8 million / 40.1% | $32.6 million / 51.9% |
| Operating expenses | $57.5 million | $52.6 million |
| Operating loss | $35.7 million | $20.0 million |
| Net loss | $35.2 million; $0.23 per share | $21.9 million; $0.15 per share |
| Adjusted EBITDA loss (non-GAAP) | $21.7 million; 39.8% of revenue | $12.2 million; 19.5% of revenue |
| Cash used in operating activities | $20.9 million | $40.5 million |
| Cash used in investing activities | $3.1 million | $8.4 million |
Gross margin contracted 11.8 percentage points. Management attributed the decline to promotions, inventory write-downs and adjustments, manufacturer-transition costs, and higher third-party sales mix. SG&A rose 10.3% to $42.8 million, including higher depreciation, stock-based compensation, and store rent and utilities; marketing expense decreased 16.9% to $11.5 million. Q1 included $3.2 million of restructuring expense.
Liquidity, debt, and cash flows
Cash and cash equivalents were $143.3 million at March 31, 2023, down from $167.1 million at December 31, 2022. Cash, cash equivalents, and restricted cash decreased $23.8 million during the quarter to $143.9 million. Current assets were $274.1 million and current liabilities were $43.2 million. Inventory was $109.5 million, including a $9.5 million reserve; the company recorded $2.4 million of inventory write-downs in operating cash-flow adjustments.
No borrowings were outstanding under the $40 million revolving credit facility at quarter-end. On April 17, 2023, the facility was amended: commitments increased to $50 million, additional uncommitted borrowing capacity increased to $50 million, maturity was extended to April 17, 2026, and the interest-rate margin increased by 0.50 percentage points. The amended terms also provide for a Dominion Event Date if availability falls below 25% of commitments. Operating lease liabilities totaled $110.2 million.
Management stated that existing cash, operating cash flows, and available borrowing capacity should meet cash requirements over the next 12 months. The company has a history of losses and negative operating cash flows, and says longer-term needs may require cash on hand, operations, borrowing, or equity or debt financing.
Outlook, actions, and risks
- Management expected soft sales trends to continue in Q2 2023 and contribute to lower full-year revenue than in 2022. It also expected gross margin to be negatively affected for the remainder of 2023. Promotions were expected to continue and may further pressure gross profit.
- The March 2023 strategic transformation plan targets renewed growth, improved capital efficiency, and profitability. Priorities include refocusing on core products, optimizing U.S. stores and slowing new openings, expanding selected wholesale partnerships, evaluating international distribution options, and pursuing cost and cash savings.
- The company planned to transition fully to a new footwear manufacturing partner by year-end 2023, which may create near-term costs but is expected to support savings over time. In May 2023, it terminated 21 corporate employees, about 9% of its global corporate workforce; related costs were expected to be immaterial and recognized mainly in Q2.
- Significant risks include continued losses, weaker discretionary consumer demand, competition and promotional pressure, inventory forecasting and valuation, reliance on a concentrated supplier base, execution of the transformation and manufacturer transition, store lease commitments, and the cost and credibility of sustainability commitments.
- A securities class action was filed on April 13, 2023 against the company and certain executives and directors, alleging materially false or misleading statements about the business and prospects. Plaintiffs seek unspecified damages; the company said it intends to defend the case. Management did not expect ordinary-course legal matters outstanding at March 31 to materially affect financial position or operations.
- The company reported disclosure controls and procedures were effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Confirm that Allbirds, Inc. (BIRD), rather than the metadata-listed Smartbird, Inc., is the intended filer.
- Review the drivers and sustainability of the sharp gross-margin decline, including promotions, inventory reserves, wholesale mix, and transition costs.
- Assess revenue trends against management’s stated Q2 and full-year expectations and the impact of store optimization and wholesale or distributor expansion.
- Monitor cash burn, inventory levels, and liquidity, including availability and covenant implications under the amended credit facility.
- Track whether the new manufacturing arrangement and workforce actions deliver expected savings without disrupting product supply, quality, or sales.
- Follow developments in the securities class action and assess potential financial, legal, and reputational consequences.