Laird Superfood, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; comparison is with Q1 2021 unless otherwise noted. Laird Superfood develops and sells plant-based and functional foods through online, wholesale, and food-service channels.
Financial performance and liquidity
| Metric | Q1 2022 / March 31, 2022 | Prior comparable period / December 31, 2021 |
|---|---|---|
| Net sales | $9.34 million | $7.40 million; Q1 growth of 26% |
| Gross profit and margin | $1.95 million; 20.9% | $1.84 million; 24.8% |
| Operating loss | $13.95 million | $5.34 million |
| Net loss | $14.14 million; $1.55 per share | $5.33 million; $0.60 per share |
| Operating cash flow | $(3.60) million | $(5.14) million |
| Cash, cash equivalents and restricted cash | $27.27 million | $23.05 million |
| Current assets / current liabilities | $41.73 million / $5.32 million | $47.68 million / $3.79 million |
| Debt and credit facilities | No amounts drawn on lines of credit; no notes payable. Management reported $19.7 million of available borrowings. | No amounts drawn at December 31, 2021. |
Investing cash flow was $7.81 million, mainly reflecting proceeds from selling available-for-sale securities; financing cash flow was $14,000. Capital expenditures were $702,000. The company reported $5.15 million of operating lease liabilities, including $742,000 current, and $5.3 million of accrued current liabilities. Cash and cash equivalents included $112,000 of restricted cash.
Material changes and operating drivers
- Sales increased by $1.94 million, driven by online and wholesale growth, higher sales volume, Picky Bars, and products launched since Q1 2021. Newer products contributed $2.5 million of Q1 2022 sales. Online represented 58% of sales and wholesale 41%; food service represented 1%.
- Gross profit rose only 6% as cost of goods sold increased 33%. Gross margin fell 3.9 percentage points. Management cited inflation, elevated promotional activity and inventory costs; optimized direct-to-consumer parcel costs and lower liquid-creamer production waste partly offset these pressures.
- General and administrative expense rose to $11.83 million, including $6.49 million of goodwill impairment and $1.54 million of impairment of long-lived intangible assets. The impairments followed a sustained share-price decline and changes in market conditions and related to the 2021 Picky Bars acquisition.
- Sales and marketing expense increased 20% to $3.97 million, including higher advertising and marketing fees. Research and product development expense declined to $104,000.
- Cash from operations improved year over year, while cash increased in the quarter primarily because the company sold $8.51 million of investment securities. The securities had been pledged to secure a revolving credit line at year-end 2021; none remained at March 31, 2022.
Outlook, commentary and risks
- Management expects operating losses to continue for the foreseeable future and says cash, expected operating cash flow and financing activities should meet working and other capital needs for the next 12 months and beyond. No quantitative revenue, earnings or margin guidance was provided.
- Management expects continued investment in advertising and marketing. It said most fiscal 2022 capital expenditures occurred in Q1 and significant additional capital expenditures were not expected for the rest of the year.
- A March 2022 agreement provides for the sale of excess Sisters, Oregon land for $1.57 million. The company had not received proceeds by March 31 and expected closing by May 15, 2022.
- Management reported that the company recovered $205,000 in February 2022 from a co-manufacturer settlement related to product losses incurred in 2021; the recovery reduced Q1 cost of goods sold and operating losses.
- Supply concentration is notable: two suppliers accounted for 75% of purchases in Q1 2022, and approximately 75% of raw-material and packaging purchases were sourced from Indonesia and Vietnam. Two customers accounted for 22% of sales. Management also cited reliance on third-party production and distributors, customer acquisition and retention, inflation, competition, and the need for additional capital as risks.
- Jason Vieth became CEO on January 31, 2022. Andrew Judd was appointed Chief Commercial Officer effective April 1; COO James Scott McGuire announced his resignation effective April 30 and agreed to provide consulting services through November 16.
- Disclosure controls and internal control over financial reporting were deemed ineffective as of March 31 because of a material weakness in management review controls: an EPS formula error was identified by the auditor and corrected before filing. Management began remediation, including plans for additional finance staff and documented review procedures; remediation was not yet established.
Most important facts for investors to verify
- Whether Q1 sales growth can be sustained while gross margin remains under pressure from promotions, inflation and costs.
- The valuation assumptions behind the full $6.49 million goodwill impairment and $1.54 million intangible-asset impairment, and any further impairment risk.
- The accuracy of the reported $19.7 million of available credit, facility terms and maturities, and the company’s ability to fund continuing losses.
- Progress in remediating the disclosed financial-reporting material weakness and the reliability of future reporting controls.
- Whether the land sale closed on the expected terms and timing, and the implications of concentrated suppliers, sourcing regions and customers.