Laird Superfood, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. The unaudited filing describes a single-segment business making and marketing plant-based functional foods, including creamers, hydration products, coffee, tea and hot chocolate.
Financial performance and liquidity
- Net sales: $7.43 million, up 35% year over year. Online sales were 59% of sales, versus 48% a year earlier; wholesale was 39%, versus 50%. Products launched after Q1 2020 contributed $2.1 million of gross sales.
- Gross profit and margin: $1.87 million, down 12%; gross margin was 25.1%, compared with 38.6%.
- Operating expenses: $7.21 million, up 74%. General and administrative expense rose 128% to $3.64 million, sales and marketing rose 39% to $3.33 million, and research and product development rose 68% to $241,000.
- Operating and net loss: Operating loss was $5.34 million, versus $2.02 million; net loss was $5.33 million, versus $2.00 million. Basic and diluted loss per share was $0.60, versus $0.47.
- Cash flow: Cash used in operating activities was $5.14 million, versus $2.34 million. Investing activities used $200,000; financing activities used $119,000. Cash and cash equivalents declined $5.46 million during the quarter.
- Balance sheet and debt: At March 31, cash and cash equivalents were $51.75 million, available-for-sale investments were $8.69 million, and total current assets were $72.29 million. Total liabilities were $3.52 million, including a $51,000 City of Sisters note. No revolving credit balances were outstanding; management reported $12.7 million of available borrowings.
Material changes and management commentary
- Revenue growth was driven mainly by online-channel volume and a broader customer base. Newer products—including functional coffees, Pili Nuts, Renew Protein and liquid creamers—contributed to sales growth.
- Cost of goods sold grew faster than sales. Management attributed the lower gross margin to higher outbound shipping, the free-shipping initiative for direct website orders, increased personnel and co-packing costs, and disposal costs associated with the liquid creamer launch. The company recorded $103,000 of inventory obsolescence, primarily for liquid creamer.
- Higher general and administrative costs reflected increased stock-based compensation, personnel, insurance and professional fees; higher marketing costs were primarily driven by advertising. Stock-based compensation expense was $1.01 million, compared with $258,000.
- Management expects further operating losses and public-company costs, but stated that cash and cash equivalents were expected to fund operations and capital requirements for at least 12 months after the report date. It cautioned that assumptions may prove inaccurate and external financing may not be available on acceptable terms.
- After quarter-end, on May 3, 2021, the company acquired Picky Bars for $10.05 million in cash, subject to working-capital adjustments, plus 53,133 shares subject to vesting conditions. The acquisition was not included in Q1 results; preliminary purchase-price allocation and pro forma information were not yet available.
Risks, contingencies and unusual items
- Customer and supplier concentration: two customers accounted for 29% of Q1 sales; one supplier accounted for 51% of purchases. Two vendors represented 62% of accounts payable. The filing also notes geographic concentration among suppliers and raw-material sourcing.
- COVID-19 increased demand in 2020 for shelf-stable products, but management said the pandemic’s future business impact remained uncertain.
- The company reported accumulated net losses of $37.3 million and a full valuation allowance against deferred tax assets. It had $32.9 million of federal net operating loss carryforwards at March 31, 2021.
- Operating lease commitments totaled approximately $2.07 million; the separate City of Sisters note was $51,000. The filing reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level; management reported no material changes in internal control over financial reporting during the quarter.
Investor verification points
- Assess whether sales growth can translate into improved gross margin, particularly given shipping, free-shipping, co-packing and liquid-creamer costs.
- Review the drivers and sustainability of elevated operating expenses, including stock-based compensation and advertising.
- Track operating cash burn, inventory growth and the company’s stated 12-month liquidity outlook, including the effect of the Picky Bars acquisition.
- Verify the acquisition’s final purchase-price allocation, vesting terms, integration costs and contribution to results after closing.
- Monitor customer, supplier and geographic concentration, and any resulting supply or collection disruptions.