Laird Superfood, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. The company makes and markets plant-based and functional foods, including creamers, hydration products, snacks, coffee, tea and hot chocolate. This unaudited report covers the quarter and six months ended June 30, 2021, compared with the same periods in 2020. Laird Superfood operates as one reportable segment.
Financial performance and liquidity
- Revenue: Q2 net sales were $9.20 million, up 64% year over year; first-half sales were $16.62 million, up 50%. Online sales represented 63% of Q2 sales and 61% of first-half sales. Growth reflected online and wholesale expansion, new products and the Picky Bars acquisition.
- Gross profit and margin: Q2 gross profit was $2.20 million, with a 23.9% margin versus 23.6%. First-half gross profit was $4.06 million, but margin fell to 24.4% from 31.0%.
- Operating costs and losses: Q2 operating expenses rose 95% to $8.47 million; operating loss was $6.28 million versus $3.02 million. Net loss was $6.30 million, or $0.70 per share, compared with $3.01 million, or $0.93 per share. First-half operating expenses rose 85% to $15.68 million; operating loss was $11.62 million and net loss was $11.63 million, versus $5.04 million and $5.00 million, respectively. First-half loss per share was $1.30 versus $1.40.
- Cash flow: First-half operating cash use was $10.95 million, versus $4.65 million in 2020. Investing used $11.49 million, primarily reflecting the Picky Bars acquisition; financing provided $0.09 million. Cash and cash equivalents declined $22.35 million to $34.86 million.
- Liquidity and debt: At June 30, cash and cash equivalents were $34.86 million and available-for-sale investments were $8.68 million. Current assets were $57.80 million and current liabilities $3.65 million. The company reported $51,000 of long-term debt and no borrowings under its revolving credit lines; management reported $14.8 million of available line capacity.
Material changes and unusual items
- On May 3, 2021, the company acquired Picky Bars for $11.11 million in cash and 53,133 shares, subject to vesting conditions. Picky Bars contributed $984,433 in sales and a $64,978 net loss from acquisition through June 30. The purchase accounting recorded $6.49 million of goodwill and $4.93 million of acquired intangible assets.
- First-half margin pressure reflected higher outbound shipping costs, a free-shipping initiative, personnel costs, liquid-creamer disposal costs and co-packing costs. Q2 margin improved slightly year over year, which management attributed to shipping-cost optimization and improved liquid-creamer distribution and disposals.
- General and administrative expense increased materially, including higher stock-based compensation, insurance and professional fees. Sales and marketing costs also rose, driven by advertising and marketing spend.
- Inventory increased to $10.78 million from $6.30 million at year-end. The company recorded a $179,000 reserve against prepaid inventory after a supplier delivery became doubtful; it was negotiating a resolution.
Outlook, risks and contingencies
- Management expects additional operating losses and public-company expenses, but believes available cash and cash equivalents will fund operations and capital needs for at least 12 months after the report date. It cautions that assumptions may prove incorrect and additional financing may not be available on acceptable terms.
- Management identified growth and customer retention, marketing efficiency, gross-margin improvement, scaling production, working-capital management and supply-chain execution as important performance factors. A supplier entered voluntary receivership in June 2021; a suitable replacement may not be available on similar terms or at all.
- Other disclosed risks include reliance on third-party suppliers and distributors, competition, product and brand development, key personnel, regulation, international operations, COVID-19 uncertainty and potential dilution. The company reported no material legal proceedings and no material change to its previously disclosed risk factors.
- The company had a full valuation allowance against deferred tax assets due to its cumulative losses. Disclosure controls were assessed as effective at the reasonable-assurance level; management reported no material quarter-specific change in internal control over financial reporting.
Important facts for investors to verify
- Whether the reported sales growth, including the acquired Picky Bars contribution, translates into improving margins and operating performance.
- How quickly cash burn and inventory investment change, and whether the stated 12-month liquidity outlook remains supportable.
- The status of the supplier in receivership and the prepaid-inventory dispute, including any further reserve or supply interruption.
- The terms and availability of the reported $14.8 million in credit capacity and the effect of future financing or equity compensation on dilution.
- Whether Picky Bars performs in line with acquisition assumptions and whether goodwill or acquired intangible assets require impairment or valuation adjustments.