Laird Superfood, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. The company sells plant-based and functional foods, including coffee creamers, hydration products, snacks, coffee, tea and hot chocolate. It reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2023 | Comparable period / context |
|---|---|---|
| Net sales | $8.11 million | $9.34 million in Q1 2022, down 13% |
| Gross profit / margin | $1.87 million / 23.1% | $1.95 million / 20.9% in Q1 2022 |
| Operating loss | $4.30 million | $13.95 million in Q1 2022 |
| Net loss | $4.14 million; $0.45 per share | $14.14 million; $1.55 per share in Q1 2022 |
| Operating cash flow | $(6.05) million | $(3.60) million in Q1 2022 |
| Cash, cash equivalents and restricted cash | $11.89 million at March 31 | $17.81 million at December 31, 2022 |
| Debt and available credit | No borrowings outstanding; $5.0 million available under revolving line | Credit line matures August 31, 2023 |
Current assets were $22.90 million and current liabilities were $6.11 million at quarter-end. Cash equivalents of $6.325 million were pledged to secure the revolving line and company credit card limits. The company reported an accumulated deficit of $100.3 million.
Material changes versus Q1 2022
- Net sales fell 13%. E-commerce sales declined 18%, which management attributed to planned lower marketing spend and out-of-stocks following a product quality withdrawal. Wholesale sales declined 6%, reflecting replacement-product discounts and the timing of Club orders; wholesale sales grew 20% sequentially from Q4 2022.
- Gross margin improved to 23.1% from 20.9%, with management citing the shift to outsourced manufacturing. Gross profit dollars declined 4% as sales contracted. Management separately compared the quarter’s margin with 14.5% for full-year 2022.
- Operating expenses declined 61%, principally because Q1 2022 included $8.03 million of goodwill and long-lived asset impairments, and because of lower personnel and marketing costs. The prior-year impairments included $6.49 million of goodwill and $1.54 million of intangible assets.
- Operating cash outflow increased to $6.05 million from $3.60 million. Management cited higher receivables and lower current liabilities, including a $1.0 million lease-exit payment. Receivables rose to $2.91 million from $1.49 million at year-end; management said Club-related collections were substantially received in April.
Outlook, commentary and risks
- Going concern: Management concluded that recurring operating losses, limited cash and reliance on additional financing raise substantial doubt about the company’s ability to continue as a going concern for the 12 months following the report. The filing says additional liquidity will be required absent other actions; no assurance is given that financing will be available on acceptable terms.
- Operating model: The company ended in-house production and fulfillment in 2022 and shifted to third-party co-manufacturing and logistics. Management expects the variable-cost model to reduce overhead and improve margins; it said final transition costs were incurred in Q1 2023 and no further costs were expected.
- Product quality: A coconut milk powder issue from a supplier led to a voluntary product withdrawal in Q1. The company reported $0.4 million of related Q1 costs, including obsolescence, testing, discounts and replacement orders, and implemented additional sensory testing. Out-of-stocks affected sales.
- Outlook: The filing gives no quantified revenue, earnings or cash-flow guidance. Management expects operating losses to continue for the foreseeable future, while seeking further margin improvement and spending efficiencies. It expects to continue investing in advertising and marketing, with a focus on improving customer-acquisition efficiency.
- Other risks: Three customers represented 41% of Q1 sales and 81% of quarter-end trade receivables. Two suppliers represented 42% of Q1 purchases, and key suppliers are geographically concentrated. A product-labeling class action is ongoing; $0.1 million was accrued, and the company cautioned that litigation outcomes remain uncertain.
Important facts for investors to verify
- Cash runway, forecast operating cash needs and whether additional financing is required or obtainable within the going-concern period.
- Whether margin improvements from outsourced production persist after product-quality costs, shipping and promotional activity.
- Recovery of sales and product availability following the withdrawal, especially in e-commerce, and progress on supplier quality controls.
- Collection of major customer receivables and any changes in customer or supplier concentration.
- Renewal, replacement or other arrangements for the $5.0 million revolving credit facility before its August 31, 2023 maturity.
- Developments in the product-labeling litigation and whether potential exposure exceeds the amount accrued.