Laird Superfood, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The unaudited consolidated statements cover Laird Superfood’s plant-based and functional food business, including coffee creamers, hydration products, snacks, coffee, tea and hot chocolate. The company reports one operating segment.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $8.7 million | $9.2 million | $18.0 million | $16.6 million |
| Gross profit | $1.6 million | $2.2 million | $3.5 million | $4.0 million |
| Gross margin | 18.2% | 23.8% | 19.6% | 24.2% |
| Operating loss | $4.9 million | $6.3 million | $18.9 million | $11.6 million |
| Net loss | $4.9 million | $6.3 million | $19.0 million | $11.6 million |
| Operating cash flow | Not separately stated for Q2 | $(7.5) million | $(11.0) million |
- Liquidity: Cash, cash equivalents and restricted cash were $24.5 million at June 30, 2022. Management reported $9.5 million of available borrowings and no outstanding line-of-credit borrowings or notes payable. Current liabilities were $5.0 million.
- Debt and lease obligations: No outstanding debt was reported. Operating lease liabilities totaled $5.0 million, including $0.7 million due within 12 months.
- Balance sheet: Total assets were $52.2 million and stockholders’ equity was $43.0 million. Accumulated deficit was $74.8 million.
Material changes versus comparable periods
- Q2 net sales declined 6% year over year. Management attributed this mainly to weaker online direct-to-consumer sales, reduced marketing spend, inflation-related consumer pullback and increased discounts. Wholesale sales grew on distribution gains.
- First-half net sales rose 9%, but management said the increase included approximately $1.9 million from the Picky Bars acquisition; excluding that acquisition, sales declined 3%. Online weakness more than offset wholesale growth.
- Gross margin fell 5.6 percentage points in Q2 and 4.6 points for the first half, reflecting promotions and higher raw-material, packaging and freight costs, partly offset by labor efficiencies.
- Q2 net loss improved year over year, partly alongside lower operating expenses and reversals of stock-based compensation related to forfeited executive awards. First-half net loss worsened, principally due to $6.5 million of goodwill impairment and $1.5 million of intangible-asset impairment recorded in Q1.
- First-half operating cash use was lower than in 2021. Investing cash flow was positive $8.9 million, mainly reflecting $8.5 million of proceeds from sales of investment securities and $1.5 million from land sales. Cash increased $1.5 million during the half.
Outlook, commentary and risks
- Management expects operating losses to continue for the foreseeable future, but believes available cash, expected operating cash flow and financing activities will meet working and other capital requirements for the next 12 months and beyond under current plans. The filing gives no quantified revenue, margin or earnings guidance.
- Management said it expects to continue investing in advertising and marketing; it did not expect significant capital expenditures in the remainder of 2022.
- Inflation, promotional intensity, consumer spending, customer acquisition costs and the ability to improve gross margins are key performance factors. The company also cited dependence on third-party suppliers and production, and the need to manage its global supply chain. Three suppliers represented 51% of purchases in Q2 and two represented 64% for the first half; suppliers’ geographic concentration may heighten disruption risk.
- Two customers represented 21% of Q2 sales; one customer represented 12% of first-half sales. Two customers accounted for 43% of accounts receivable at quarter-end.
- The Picky Bars goodwill and related intangible assets were impaired after a sustained share-price decline and changing market conditions. The company also recorded a $0.1 million impairment on an IMF production line held for sale and a $0.6 million gain on the sale of excess land.
- The company sold its available-for-sale securities during the first half and recognized a $0.2 million loss on sale. Its Wells Fargo credit facility, with a $9.5 million limit, was scheduled to mature on August 31, 2022, shortly after quarter-end; verify its subsequent status.
- Leadership changed during the period: Jason Vieth became CEO in January, Andrew Judd became Chief Commercial Officer in April, and Anya Hamill was appointed interim CFO effective July 1 after Valerie Ells’ resignation.
- Management identified a material weakness in internal control over financial reporting related to a formula error in the Q1 basic and diluted loss-per-share calculation. Remediation steps were underway, but controls had not operated long enough to conclude the weakness was remediated. Management separately concluded disclosure controls were effective as of June 30, 2022.
- The filing reports no material change to previously disclosed risk factors and no litigation believed likely to have a material adverse effect. Forward-looking statements are subject to substantial business and market uncertainties.
Most important facts for investors to verify
- Post-quarter status and renewal or replacement of the $9.5 million Wells Fargo credit facility due August 31, 2022.
- Whether margin pressure, discounting and online-channel weakness persisted after Q2, and whether wholesale growth can offset them.
- Cash burn, liquidity runway and management’s assumptions behind its statement that resources should cover requirements for 12 months and beyond.
- Whether the accounting-control material weakness has been remediated and whether any further reporting corrections were needed.
- Actual performance of Picky Bars and whether the impairment assumptions or asset values require further revision.