Laird Superfood, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company makes and markets plant-based and functional foods and beverages, selling through online, wholesale, and food-service channels. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $10.9 million | $7.5 million | $27.4 million | $18.5 million |
| Gross profit | $3.2 million | $1.8 million | $7.2 million | $5.1 million |
| Gross margin | 29.4% | 23.4% | 26.3% | 27.6% |
| Operating loss | $5.3 million | $3.4 million | $16.9 million | $8.4 million |
| Net loss | $5.4 million | $3.4 million | $17.0 million | $8.4 million |
| Operating cash flow | Not separately reported for the quarter | $(14.2) million | $(7.1) million |
- Q3 diluted and basic loss per share was $0.59, versus $0.86 in Q3 2020; nine-month loss per share was $1.90, versus $2.26. The prior-year per-share amounts reflect deemed dividends to preferred stockholders.
- At September 30, cash and cash equivalents were $31.1 million, with $8.7 million of available-for-sale investments. Total current assets were $53.4 million and current liabilities $3.5 million.
- Total liabilities were $3.7 million, including a $51,000 City of Sisters loan. No line-of-credit balances were outstanding. The company reported $15.1 million of available borrowings; however, the new Wells Fargo facility was not drawable until collateral was transferred.
- Cash declined $26.2 million over the nine months. Investing activities used $12.1 million, including $10.4 million net cash for the Picky Bars acquisition. Stockholders’ equity was $67.7 million; accumulated deficit was $48.9 million.
Material changes versus the prior comparable period
- Net sales rose 45% in Q3 and 48% for the nine-month period, driven by online and wholesale growth, new products, and the Picky Bars acquisition. Online sales increased to 58% of Q3 sales from 50%; wholesale fell to 41% from 49%.
- Q3 gross margin expanded to 29.4% from 23.4%, which management attributed to improved direct-to-consumer shipping economics, liquid-creamer distribution and disposal improvements, and operational efficiencies. Nine-month gross margin declined to 26.3% from 27.6%, reflecting free shipping and higher co-packing and distribution costs, partly offset by shipping optimization.
- Operating expenses increased 66% in Q3 and 78% year to date. General and administrative expense growth included higher stock compensation, personnel, insurance, professional fees, and acquired-intangible amortization; sales and marketing increases were driven mainly by advertising and marketing spend.
- Q3 net loss widened 60% to $5.4 million; nine-month net loss more than doubled to $17.0 million. Operating cash use also doubled year over year to $14.2 million for the nine months, with higher losses and inventory investment contributing.
Outlook, commentary, and risks
- Management expects continued operating losses and public-company expenses, but stated that cash and cash equivalents were expected to fund operations and capital requirements for at least 12 months following the report date. This depends on assumptions that may prove incorrect; additional financing may not be available on acceptable terms.
- The May 2021 Picky Bars acquisition had a debt-free purchase price of $11.1 million cash plus 53,133 shares, subject to conditions. It contributed $1.3 million of Q3 sales and $95,000 of Q3 net income. The company recorded $6.5 million of goodwill and $4.9 million of acquired intangible assets. Management expects the acquisition to support growth and improve gross margin.
- CEO Paul Hodge announced he intended to transition to a non-executive role and step down as CEO and president after a successor is identified; the board began a search.
- Management cited supply-chain and scaling risks, including a supplier entering voluntary receivership in June 2021. Purchases were concentrated: one supplier represented 47% of nine-month purchases, and key suppliers were geographically clustered. One customer represented 28% of nine-month sales. Three customers accounted for 53% of receivables at quarter-end.
- COVID-19’s future business impact was described as uncertain. The company reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Confirm the availability and collateral conditions of the reported $15.1 million in borrowing capacity, particularly the undrawn Wells Fargo facility.
- Track cash burn, inventory growth, and whether management’s 12-month liquidity assessment remains supportable.
- Assess whether revenue growth and the Q3 margin improvement persist despite higher operating costs and weaker nine-month gross margin.
- Monitor Picky Bars’ integration, contribution to sales and profitability, and the assumptions underlying goodwill and intangible-asset valuations.
- Follow the CEO succession process, supplier replacement and concentration exposure, and customer concentration.