LAIRD SUPERFOOD, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K. All references to share and per share data and related information in this Annual Report on Form 10-K have been retroactively adjusted to reflect the two-for-one split of our common stock effected onAugust 19, 2020 .
Overview
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of theLaird Superfood platform are currentlySuperfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, Harvest Snacks and other food items, and roasted and instant coffees, teas and hot chocolate. Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients.Laird Superfood's long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market. We have experienced strong sales growth since inception. Net sales increased to$36.8 million for the year endedDecember 31, 2021 , from$25.8 million for the year endedDecember 31, 2020 , representing net sales growth of 43%. The growth in the year endedDecember 31, 2021 was primarily driven by a significant expansion of our customer base in both online and traditional wholesale channels as we continue to invest in marketing and advertising and continue to expand product offerings to drive sales volume growth. Our omnichannel distribution strategy has three key components: online, wholesale and food service. In aggregate, this omnichannel strategy provides us with a diverse set of customers and wholesale partners, along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com. We believe that, along with a trusted brand name, extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry. Our online business is two pronged and consists of direct-to-consumer sales (lairdsuperfood.com and pickybars.com) and Amazon.com. For the years endedDecember 31, 2021 and 2020, our online business made up 62% and 56% of our net sales, respectively. Lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development, while generating highly attractive margins. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our websites allowsLaird Superfood to educate consumers on the benefits of our products and ingredients, while providing a positive customer experience. We believe this experience leads to higher retention rates among repeat users and subscribers, as evidenced by repeat users and subscribers accounting for almost three-fourths of direct-to-consumer sales for the year endedDecember 31, 2021 . Our wholesale business addresses the$800 billion grocery industry, specifically the$259 billion Natural,Organic and Functional Foods and Beverages sub-segment, which has been increasing its proportion of the grocery industry, as well as many non-grocery retail channels. For the years endedDecember 31, 2021 and 2020, wholesale made up 37% and 42% of our net sales, respectively.Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. We currently estimate our products are in over 8,100 retail door locations with over 36,000 points of distribution and we believe the long-term potential store base exceeds 20,000 retail locations inthe United States . The diversity of our retail channel represents a strong competitive advantage forLaird Superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market. Recent Developments Appointment of new CEO EffectiveJanuary 31, 2022 , the Company's Board of Directors appointedJason Vieth as the Company's President and Chief Executive Officer and electedMr. Vieth as a director of the Company.Mr. Vieth joined the Company from Sovos Brands, Inc., where he most recently served as executive vice president and group general manager of the Breakfast and Snacks segment. Before joining Sovos Brands inJanuary 2020 ,Mr. Vieth served as chief executive officer of Poppi, a producer of prebiotic soda, fromApril 2019 toJanuary 2020 and president ofLife Time Fitness' Life Cafe fromApril 2017 toApril 2019 and held various management positions forWhiteWave Foods Company fromJanuary 2008 toApril 2017 .Mr. Vieth replacedPaul Hodge , who stepped down as President and Chief Executive Officer and a director of the Company uponMr. Vieth's appointment.
Picky Bars Acquisition
OnMay 3, 2021 , the Company acquiredPicky Bars, LLC ("Picky Bars"), an innovator in the healthy snack industry focused on nutritionally balanced, real-food products, for a cash-free, debt free purchase price of$11.1 million , subject to customary working capital adjustments, and 53,133 shares of Company common stock, subject to certain vesting conditions. 38 --------------------------------------------------------------------------------
Revolving Credit Facility
OnSeptember 2, 2021 , the Company entered into a revolving line of credit withWells Fargo Bank National Association in a principal amount not exceeding$9.5 million . The line of credit has a maturity date ofAugust 31, 2022 . The outstanding amounts under the line of credit have an interest rate calculated as Daily Simple Secured Overnight Financing Rate plus 1.5% per annum until paid in full.
Key Factors Affecting our Performance
We believe that our future performance will depend on many factors, including the following:
Ability to Grow Our Customer Base in both Online and Traditional Wholesale Distribution Channels
We are currently growing our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retail distribution channels. Online customer acquisitions typically occur at our direct websites lairdsuperfood.com and pickybars.com, and Amazon.com. Our online customer acquisition program includes paid and unpaid social media, search, display and traditional media. Our products are also sold through a growing number of physical retail channels. Wholesale customers include grocery chains, natural food outlets, club stores, and drug stores, and food service customers include coffee shops, gyms, restaurants, hospitality venues and corporate dining services, among others. Customer acquisition in physical retail channels depends on, among other things, paid promotions through retailers, display and traditional media.
Ability to Acquire and Retain Customers at a Reasonable Cost
We believe an ability to consistently acquire and retain customers at a reasonable cost relative to projected life-time value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as balancing more targeted and measurable "direct response" marketing spend with advertising focused on increasing our long-term brand recognition, where success attribution is less directly measurable on a near-term basis.
Ability to Drive Repeat Usage of Our Products
We accrue substantial economic value from repeat users of our products who consistently re-order our products. The pace of our growth will be affected by the repeat usage dynamics of existing and newly acquired customers.
Ability to Expand Our Product Line
Our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.
Ability to Expand Gross Margins
Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials, controlling labor and shipping costs, as well as spreading other production-related costs over greater manufacturing volumes.
Ability to Expand Operating Margins
Our ability to expand operating margins will be impacted by our ability to cover
fixed general and administrative costs and variable sales and marketing costs
with higher revenues and gross profit dollars.
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Ability to Manage Our Global Supply Chain and Expand Production In-line with Demand
Our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers located inside and outsidethe United States . We may encounter difficulties in sourcing products. As an example, one of our suppliers entered voluntary receivership inJune 2021 , and we may be unable to find a suitable replacement supplier on substantially similar terms or at all.
Ability to Optimize Key Components of Working Capital
Our ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by our ability to effectively manage all the key working capital components that could influence our cash conversion cycle.
Components of Results of Operations
Sales, net
We sell our products indirectly to consumers through a broad set of physical wholesale channels. We also derive revenue from the sale of our products directly to consumers through our direct websites, as well as third-party online channels. Cost of Goods Sold
Our cost of goods sold consists primarily of raw material costs, labor costs directly related to producing our products, including wages and benefits, shipping costs, lease expenses and other factory overhead costs related to various aspects of production, warehousing and shipping.
Operating Expenses
Our operating expenses consist of general and administrative, research and product development, and sales and marketing expenses.
We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC and higher expenses for insurance, investor relations and professional services. We expect our general and administrative expenses will increase as our business grows. Income Taxes
Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses and benefits for the foreseeable future.
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--------------------------------------------------------------------------------Results of Operations
Comparison of the years ended
The following table summarizes our results of operations for the periods
indicated:
For the Years Ended
December 31, $ %
2021 2020 Change Change
Sales, net $ 36,810,953 $ 25,783,226 $ 11,027,727 43 %
Cost of goods sold (27,379,082 ) (19,204,642 ) (8,174,440 ) 43 %
Gross profit 9,431,871 6,578,584 2,853,287 43 %
Gross margin 25.6 % 25.5 %
General and administrative 16,459,262 8,828,279 7,630,983 86 %
Research and product
development 1,030,127 508,170 521,957 103 %
Sales and marketing 15,894,898 10,171,306 5,723,592 56 %
Total expenses 33,384,287 19,507,755 13,876,532 71 %
Operating loss (23,952,416 ) (12,929,171 ) (11,023,245 ) 85 %
Total other income 99,704 78,870 20,834 26 %
Loss before income taxes (23,852,712 ) (12,850,301 ) (11,002,411 ) 86 %
Income tax expense (17,834 ) - (17,834 ) 100 %
Net loss (23,870,546 ) (12,850,301 ) (11,020,245 ) 86 %
Less deemed dividend of
beneficial conversion
feature - (825,366 ) 825,366 (100 )%
Less deemed dividend of
warrants - (825,366 ) 825,366 (100 )%
Net loss attributable to Laird
Superfood, Inc.
common stockholders $ (23,870,546 ) $ (14,501,033 ) $ (9,369,513 ) 65 %
Sales, Net
For the Years Ended December 31, 2021 v. 2020 Change
2021 2020 $ %
Sales, net $ 36,810,953 $ 25,783,226 $ 11,027,727 43 %
Net sales increased to $36.8 million FY2021, compared to $25.8 million in
FY2020. This increase was due to growth in our online and wholesale channels,
primarily caused by an increase in sales volume, as well as the acquisition of
Picky Bars. Products introduced after FY2020, including Activate Immune Support,
Aloha Plant Milk , Baking Mixes, Mushroom Botanicals, OatMac Superfood Creamers,
Picky Bars products, Renew Protein, and Renew Rest & Recover, and additional
Liquid Creamer flavors, accounted for $5.1 million of sales in FY2021.
Year-over-year sales growth in existing products accounted for $5.7 million of
the increase in net sales in FY2021 over FY2020. During FY2021, 38% of all
direct online orders were repeat orders, compared to 36% in FY2020, and 39% of
our direct online net sales came from subscription programs, compared to 30% in
FY2020.
Cost of Goods Sold
For the Years Ended December 31, 2021 v. 2020 Change
2021 2020 $ %
Cost of Goods Sold $ (27,379,082 ) $ (19,204,642 ) $ (8,174,440 ) 43 %
Cost of goods sold increased to $27.4 million in FY2021 from $19.2 million in
FY2020, primarily due to sales growth in the 2021 period and the corresponding
increase in consumables and outbound shipping and freight expenses ($5.9 million
increase), as well as elevated labor costs ($1.1 million increase), increased
co-packing costs primarily associated with our liquid creamer product line ($0.6
million increase), and general inflationary pressures.
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Gross Profit
For the Years Ended December 31, 2021 v. 2020 Change
2021 2020 $ %
Gross Profit $ 9,431,871 $ 6,578,584 $ 2,853,287 43 %
Gross profit increased to $9.4 million in FY2021 from $6.6 million in FY2020.
Gross margin was 25.6% in FY2021 compared to 25.5% in FY2020 with benefits
related to reduced inbound freight costs, labor efficiency, and optimized DTC
parcel cost, offset by elevated outbound wholesale freight expenses, increased
co-packing costs primarily associated with our liquid creamer product line, mix
shift, and general inflationary pressure.
Operating Expenses
For the Years Ended December 31, 2021 v. 2020 Change
2021 2020 $ %
Operating Expenses
General and Administrative $ 16,459,262 $ 8,828,279 $ 7,630,983 86 %
Research and Product Development 1,030,127 508,170 521,957 103 %
Sales and Marketing 15,894,898 10,171,306 5,723,592 56 %
Total Operating Expenses $ 33,384,287 $ 19,507,755 $ 13,876,532 71 %
General and administrative expense increased to $16.5 million in FY2021 from
$8.8 million in FY2020, primarily due to costs of operating as a publicly traded
company. FY2021 included elevated expenses related to stock-based compensation
($2.1 million increase), personnel costs ($1.3 million increase), insurance
expense ($1.5 million increase), professional fees ($1.3 million increase),
reserve against prepaid assets ($0.2 million increase), and amortization of
intangible assets ($0.4 million increase). Nonrecurring expenses related to our
acquisition of Picky Bars and CEO search amounted to $0.4 million .
Research and product development expense increased to
Sales and marketing expense increased to$15.9 million in FY2021 from$10.2 million in FY2020, primarily due to advertising expense and marketing fees ($6.1 million increase), partially offset by decreased stock-based compensation ($0.4 million decrease). Other Income For the Years Ended December 31, 2021 v. 2020 Change 2021 2020 $ % Other income$ 99,704 $ 78,870 $ 20,834 26 % Other income is composed of interest income and dividend income related to investment securities available-for-sale, grant income from the conversation of notes payable, as well as other non-operating costs. Other income increased to$99.7 thousand of income in FY2021 from$78.9 thousand of income in FY2020, primarily the result of long-term notes payable converting to grant income of$51.0 thousand , offset by declining interest rates in FY2021, as well as realized gains on the sale of available for sale securities in FY2020.
Income Tax Expense
For the Years Ended December 31, 2021 v. 2020 Change
2021 2020 $ %
Income tax expense $ (17,834 ) $ - $ (17,834 ) 100 %
Income tax expense increased to $17.8 thousand in FY2021 from $0 in FY2020, due
to a deferred tax liability of $17.8 thousand for the book versus tax basis
difference related to the goodwill intangible asset acquired in the Picky Bars
acquisition, also known as a "naked credit.". We maintain a valuation allowance
related to our net deferred tax assets, primarily due to our historical net loss
position. Due to our history of operating losses and expectation of future
operating losses, we do not expect any significant income tax expenses or
benefits for the foreseeable future.
Liquidity and Capital Resources
As ofDecember 31, 2021 , we had incurred accumulated net losses of$55.8 million , including operating losses of$24.0 million and$12.9 million for FY2021 and FY2020, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, and we expect to incur additional expenses associated with being a public company. We have historically financed our operations and capital expenditures through private placements of our preferred stock and common stock, our initial public offering, as well as lines of credit and term loans.
Our historical uses of cash have primarily consisted of cash used in operating activities to fund our operating losses and working capital needs.
As ofDecember 31, 2021 , we had$31.7 million of cash-on-hand and investments and$19.7 million of available borrowings under our lines of credit. As ofDecember 31, 2020 , we had$65.9 million of cash-on-hand and investments and$11.0 million of available borrowings under our lines of credit. As ofDecember 31, 2021 , andDecember 31, 2020 , we had$0 and$51.0 thousand outstanding under our forgivable loan with theCity of Sisters, Oregon , respectively, and no amounts were outstanding under our lines of credit. 42 -------------------------------------------------------------------------------- We have purchased five adjoining lots providing opportunity for expansion of our campus if needed. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the enhancement of our product platforms, the introduction of new products and acquisition activity. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
•
Cash outflows for capital expenditures were
•
The Company has lease arrangements for certain equipment and facilities,
including corporate and manufacturing space. As of
•
As of
•
Advertising and marketing expenditures were
We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. We believe our cash, cash equivalents and marketable securities, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans.
Comparison of the years ended
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
For the Years Ended
December 31,
2021 2020
Cash flows used in operating activities
576,247 75,168,930
Net change in cash $ (34,158,846 ) $ 56,203,971 Cash Flows used in Operating Activities
Cash used in operating activities was$22.1 million for FY2021 as compared to$14.7 million in FY2020, both of which are primarily the result of the operating losses for the periods as well as increasing inventory levels.
Cash Flows used in Investing Activities
Cash used in investing activities was$12.6 million in FY2021 as compared to$4.3 million in FY2020. The change is primarily due to the acquisition of Picky Bars in FY2021 and net purchases of available-for-sale investments in FY2020.
Cash Flows from Financing Activities
Cash provided by financing activities was$0.6 million in FY2021 compared to$75.2 million in FY2020. Cash provided for FY2021 primarily related to stock option exercises, partially offset by payroll tax payments withheld from stock-based compensation and common stock issuance costs, while cash provided for FY2020 primarily related to our initial public offering.
Segment Information
We have one operating segment and one reportable segment, as our Chief Executive Officer reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Critical Accounting Estimates
The preparation of consolidated financial statements and related disclosures in conformity withU.S. generally accepted accounting principles ("GAAP") and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. 43 --------------------------------------------------------------------------------
Revenue Recognition
We recognize revenue for the sale of our product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale. Revenue is measured by the transaction price, which is defined as the amount of consideration we expect to receive in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes consumer incentives, trade promotions, and allowances, such as coupons, discounts, rebates, incentives, cooperative advertising, and other programs. Variable consideration related to these programs is recorded as a reduction to revenue based on amounts we expect to pay.
The transaction price contains estimates of known or expected variable consideration. We base these estimates on current performance, historical utilization, and projected redemption rates of each program. We review and update these estimates regularly until the incentives or product returns are realized and the impact of any adjustments are recognized in the period the adjustments are identified.
We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize revenue. As noted above, estimates are made based on historical experience and other factors. Typically, programs that are offered have a short duration and, historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual consolidated financial statements. However, if the level of redemption rates or performance were to vary significantly from estimates, we may be exposed to gains or losses that could be material. We have not made any material changes in the accounting methodology used to recognize revenue during the past three fiscal years.
Business Combinations
We account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. We use various models to determine the value of assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market approach to value property, and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill.
For significant acquisitions we may use independent third-party valuation specialists to assist us in determining the fair value of assets acquired and liabilities assumed.
Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed, particularly intangible assets. We make estimates and assumptions about projected future cash flows including sales growth, operating margins, attrition rates, and discount rates based on historical results, business plans, expected synergies, perceived risk and marketplace data considering the perspective of marketplace participants. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may be considered to have indefinite useful lives. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions, which could result in subsequent impairments. During the year endedDecember 31, 2021 , we had a material business combination with Picky Bars. See Note 2 to our audited consolidated financial statements included elsewhere in this Form 10-K for more information.
Impairment of
Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than not less than its carrying amount or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The quantitative test compares the fair value of a reporting unit with its carrying amount. Upon performing the quantitative test, if the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. 44 -------------------------------------------------------------------------------- Long-lived assets and definite life intangibles are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset, a change in its physical condition, or an unexpected change in financial performance. When evaluating long-lived assets and definite life intangibles for impairment, we compare the carrying value of the asset to the asset's estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. For assets held for sale, we compare the carrying value of the disposal group to fair value. The impairment is the excess of the carrying value over the fair value of the asset. During the years endedDecember 31, 2021 and 2020, impairment charges for long-lived assets were$8,317 and$239,734 , respectively.
Stock Incentive Plan
Compensation cost relating to share-based payment transactions is measured based on the grant date fair value of the equity or liability instruments issued. The fair value of the compensation is estimated utilizing valuation methods including Black-Scholes andMonte Carlo , and is calculated and recognized over the employees' service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. While there is inherent uncertainty in the estimated fair value of the awards, management believes that the expectations and assumptions are reasonable.
Recent Accounting Pronouncements
See Recently Issued Accounting Pronouncements in Note 1 to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information.
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