Laird Superfood, Inc. — Q3 2023 Form 10-Q
Business context and period. Laird Superfood sells plant-based and functional foods, including creamers, beverages, supplements and snacks, through e-commerce and wholesale channels. This unaudited report covers the three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $9.18 million | $8.84 million | $25.02 million | $26.86 million |
| Gross profit | $2.85 million | $2.07 million | $6.60 million | $5.60 million |
| Gross margin | 31.0% | 23.4% | 26.4% | 20.8% |
| Operating expenses | $5.63 million | $7.89 million | $17.34 million | $30.30 million |
| Operating loss | $2.79 million | $5.82 million | $10.75 million | $24.70 million |
| Net loss | $2.65 million | $5.74 million | $10.31 million | $24.78 million |
| Loss per share, basic and diluted | $0.28 | $0.63 | $1.11 | $2.71 |
Cash flow and liquidity. Cash used in operating activities was $10.93 million for the first nine months, versus $11.13 million a year earlier. Cash, cash equivalents and restricted cash fell to $7.43 million at September 30, from $17.81 million at December 31, 2022. Current assets were $17.60 million and current liabilities $6.12 million. The company had no outstanding borrowings or notes payable; its $5 million Wells Fargo revolving line expired August 31, 2023 and was not renewed. Lease liabilities totaled approximately $408,000.
Changes and management commentary
- Q3 net sales rose 4%; wholesale sales increased 43%, while e-commerce sales fell 17%. For the first nine months, net sales declined 7%, with wholesale up 11% and e-commerce down 18%.
- Management attributed wholesale growth to distribution gains, expanded club programs, pricing and improved product velocity. E-commerce weakness reflected planned media-spend reductions and product-quality-related out-of-stocks; management said the out-of-stock issue was fully mitigated by quarter-end.
- Gross margin improved in both comparison periods. Management cited the shift to variable-cost third-party manufacturing and pricing, partly offset by promotional spending. Operating expenses declined, including from lower personnel and other costs; the nine-month comparison also benefited from 2022 goodwill and intangible-asset impairments.
- The company recorded $1.26 million of inventory obsolescence and disposal costs in the first nine months, including costs associated with a product-quality issue. It reached a supplier settlement in Q3 and recognized approximately $0.2 million in recoveries.
Outlook, risks and unusual items
The filing provides no specific numerical revenue, earnings or cash-flow guidance. Management expects further gross-margin improvement, marketing optimization and reductions in selling, general and administrative costs, but says additional liquidity will be required to support operations over the 12 months following the report. The filing states that recurring losses, limited cash and dependence on obtaining additional financing raise substantial doubt about the company’s ability to continue as a going concern. Management’s plans include executing its business plan and potentially raising funds; there is no assurance of success.
- All production and logistics are handled by third parties, creating reliance on co-manufacturers, logistics providers and suppliers. Supplier concentration and geographic clustering may increase disruption risk.
- Customer concentration is significant: three customers represented 50% of Q3 sales and 46% of nine-month sales; three customers accounted for 85% of receivables at September 30.
- Inventory reserves were $1.61 million at September 30, including $838,276 specifically identified for disposal related to a product-quality issue.
- Related-party marketing expense for Gabby Reece was $435,084 for the first nine months. The company also warns of possible dilution from future equity issuances.
- Management reported disclosure controls and procedures were effective as of September 30, 2023. The company reported no material litigation and no subsequent events requiring disclosure.
Important facts for investors to verify
- Available liquidity, cash-burn trends and the company’s financing options following expiration of its revolving credit line.
- Whether gross-margin gains and cost reductions can continue while the company remains loss-making.
- Recovery of e-commerce sales, customer retention and the sustainability of wholesale growth, including the impact of promotional spending.
- Resolution and financial effects of the product-quality issue, inventory disposal and supplier recoveries.
- Customer and supplier concentration, third-party manufacturing and logistics performance, and potential equity dilution.