Laird Superfood, Inc. — Q3 2020 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2020, with comparisons to the same periods in 2019. Laird Superfood makes and sells plant-based and functional foods, including coffee creamers, hydration products, coffee, tea, and hot chocolate. It sells through online, wholesale, and food-service channels. The company completed its IPO on September 25, 2020.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $7.61 million | $3.49 million | $18.71 million | $8.93 million |
| Gross profit | $1.88 million | $1.46 million | $5.32 million | $3.64 million |
| Gross margin | 24.7% | 41.9% | 28.4% | 40.7% |
| Operating loss | $(3.38) million | $(2.41) million | $(8.42) million | $(6.53) million |
| Net loss | $(3.36) million | $(2.37) million | $(8.36) million | $(6.34) million |
| Net loss attributable to common stockholders | $(4.00) million | $(2.37) million | $(10.01) million | $(6.34) million |
| Basic and diluted loss per share | $(0.86) | $(0.66) | $(2.26) | $(1.79) |
- Growth and expenses: Sales increased 118% in Q3 and 109% for the nine-month period. Total operating expenses rose 36% and 35%, respectively; losses widened as expenses and cost of goods sold grew alongside sales.
- Cash flow: For the first nine months, operating cash outflow was $7.10 million, investing cash inflow was $4.12 million, and financing cash inflow was $74.92 million. Financing was primarily from the IPO.
- Liquidity and debt: At September 30, cash and cash equivalents were $72.95 million, available-for-sale investments were $0.48 million, and current assets totaled $80.36 million. Current liabilities were $3.91 million. The company reported $51,000 of long-term debt and no borrowings under its revolving credit lines; it reported $9.4 million of available line-of-credit borrowing capacity.
- Equity financing: The IPO generated approximately $62.1 million in net proceeds; Danone Manifesto Ventures also bought $2.0 million of common stock in a concurrent private placement. Preferred stock converted to common stock upon the IPO.
Material changes versus prior comparable periods
- Sales gains came from growth in online and wholesale channels, including increased customer volume and products launched after the prior-year periods. Wholesale represented 50% of Q3 sales versus 34% a year earlier; online represented 49% versus 64%.
- Gross margin fell by 17.2 percentage points in Q3 and 12.3 points for the nine months. Management cited early liquid-creamer production waste and disposal costs, higher co-packing costs, and elevated shipping and freight costs, including inbound freight to respond to demand.
- General and administrative costs rose, in part from IPO-related costs, bonuses, professional fees, travel, stock-based compensation, and the nine-month asset impairment. Sales and marketing expense also increased, including advertising and stock-option modification costs.
- The company recorded a $239,734 impairment on its intermittent-motion-form production line, classified as held for sale at $250,000.
Outlook, commentary, and risks
- No specific financial guidance was provided. Management expects operating losses to continue for the foreseeable future and anticipates added costs from operating as a public company. It believes available cash will fund operations and capital needs for at least 12 months after the report date, while cautioning that assumptions may prove incorrect.
- Management said COVID-19 increased demand for shelf-stable products in the first three quarters of 2020, but future effects on demand, supply, and operations remain uncertain. The company cited additional inbound freight costs associated with demand and described health and safety measures at its facility.
- Key risks include reliance on a limited number of suppliers and international sourcing, concentration among customers and vendors, competition, ability to scale production and manage growth, product safety and regulatory compliance, customer retention, and the company’s history of losses. Three customers accounted for 46% of Q3 sales; Costco represented 25% of nine-month 2020 net sales. Three suppliers represented 60% of Q3 raw-material and packaging purchases.
- A $645,939 deemed dividend related to a warrant discount increased the Q3 loss attributable to common stockholders. Nine-month common-stockholder loss also includes $825,366 deemed dividends related to the preferred-stock beneficial conversion feature and warrant discount. These amounts increased loss attributable to common holders but did not represent operating expenses.
- The company reported no material legal proceedings and said disclosure controls were effective at a reasonable-assurance level as of September 30, 2020. A prior-year history of internal-control weaknesses is described in the risk factors.
Important facts for investors to verify
- Reconcile common shares reported at September 30: the balance-sheet text appears to state 9,239,638, while the equity statement reports 8,874,890; the filing also reports 8,874,890 shares outstanding as of November 11, 2020.
- Track whether gross margins recover as liquid-creamer production scales and elevated freight, waste, and co-packing costs change.
- Monitor operating cash use, planned warehouse and manufacturing expansion, and the timing of any need for additional capital.
- Assess customer, supplier, and channel concentration, including the company’s reliance on Costco, Amazon, and international raw-material suppliers.
- Review the subsequent-event disclosure: the Hanalei retail and agricultural licenses were terminated effective October 30, 2020, under an agreement entered November 3.