LAIRD SUPERFOOD, INC. The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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 "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q and the section titled "Risk Factors" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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. Net sales decreased to$8.7 million for the three months endedJune 30, 2022 from$9.2 million for the three months endedJune 30, 2021 . The decline was driven primarily by challenging results in our online direct to consumer ("DTC") channel as we significantly reduced inefficient marketing spend, spending less on direct media for the DTC channel versus the prior period. These changes allowed us to create a better performing marketing mix across all digital channels and make critical investments in building our brand for future success. Online segment sales were also negatively impacted by a broader pull back in consumer spending due to inflationary concerns. Despite these factors, we saw growth in our Amazon.com sales, reflecting a momentum driven by changes we are making with regard to our approach on Amazon.com, where we saw an increase in new consumers versus the same period a year ago. Our wholesale channel sales also grew year over year driven by new distribution gains across several key retailers in natural, conventional, drug, and club channels. Net sales increased to$18.0 million for the six months endedJune 30, 2022 , from$16.6 million for the six months endedJune 30, 2021 , representing net sales growth of 9%. The growth was primarily driven by an expansion of our customer base in DTC channels as well as new distribution gains in wholesale channels combined with new products offerings. 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 and pickybars.com. We believe that, along with trusted brand names, 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 three months endedJune 30, 2022 and 2021, the online business made up 60% and 63% of our net sales, respectively. For the six months endedJune 30, 2022 and 2021, the online business made up 59% and 61% 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. 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 approximately three-fourths of direct-to-consumer sales for the three and six months endedJune 30, 2022 . 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 three and six months endedJune 30, 2022 , wholesale made up 39% and 40% of our net sales, respectively. For the three and six months endedJune 30, 2021 , wholesale made up 35% and 37% 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 approximately 8,000 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
Executive Transitions
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. 31
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OnApril 1, 2022 ,Andrew Judd was appointed as Chief Commercial Officer, responsible for the commercial strategy and the development of the Company.Mr. Judd oversees marketing, sales, product development, and customer experience to drive business growth and expand market share.Mr. Judd is an experienced marketing leader focused on building exceptional teams and go-to-market models that build brands and businesses. He has led teams across brand marketing, insights, and creative services from large strategic CPG enterprises to emerging high-growth brands. Most recently, he was CMO of Yasso. Before that he served as CMO of ONE Brands and VP Marketing for the Boulder Brands business unit ofPinnacle Foods . Previous roles included leading the management of the So Delicious brand at WhiteWave, Category Director for ice cream, iced coffee, blended beverages and value-added milk portfolio atSaputo Dairy Foods , and various roles at Campbell Soup Company. OnMay 13, 2022 ,Valerie Ells notified the Company of her resignation as Chief Financial Officer of the Company, effectiveJune 30, 2022 . In connection withMs. Ells' resignation,Ms. Ells and the Company entered into an independent contractor agreement onMay 17, 2022 pursuant to whichMs. Ells will provide consulting services to the Company as needed and directed effective from the time of her resignation throughAugust 31, 2022 . OnMay 17, 2022 , the Company's Board of Directors appointedAnya Kochetova Hamill as the Company's interim Chief Financial Officer, effectiveJuly 1, 2022 .Ms. Hamill possesses more than 20 years of strategic finance experience in both public consumer packaged goods and private equity backed emerging companies in the natural foods and beverages space.Ms. Hamill joined the Company as Vice President, Financial Planning and Analysis inApril 2022 from Little Secrets Chocolate, where she served as chief financial officer fromSeptember 2018 . Previously,Ms. Hamill served as director, financial planning and analysis at Renewable Energy Systems Americas fromMarch 2018 throughSeptember 2018 , as the senior director of finance, premium yogurt atDanone North America fromMay 2017 throughMarch 2018 , and as senior director of finance, plant based beverage and food and various other finance positions atWhiteWave Foods fromMarch 2003 throughMarch 2018 .Ms. Hamill holds an MBA with a finance concentration fromLeeds School of Business at theUniversity of Colorado and a Bachelor of Arts fromSaint-Petersburg State University of Engineering and Economics.
Proceeds from Insurance Settlement
In 2021, the Company experienced loss of product for which related costs were presented in costs of goods sold and operating losses in the unaudited consolidated statements of operations and cash flows for the year endedDecember 31, 2021 . The Company entered into discussions with the counterparty at that time to seek resolution; however, no amounts to be recovered were reasonably estimable or certain to be collected. InFebruary 2022 , the Company settled with the co-manufacturer and recovered costs of$205 thousand related to lost product, shipping costs, labor, and overhead. These amounts are presented as an offset to costs of goods sold and operating losses in the unaudited consolidated unaudited statements of operations and cash flows for the six months endedJune 30, 2022 .
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 seeking to grow 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, controlling the impacts of inflationary market factors, as well as spreading other production-related costs over greater manufacturing volumes.
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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.
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.
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.
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.
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the periods
indicated:
Three Months Ended June 30,
2022 2021 Change Change
Sales, net $ 8,674,006 $ 9,180,586 $ (506,580 ) (6 )%
Cost of goods sold (7,096,068 ) (6,998,695 ) (97,373 ) 1 %
Gross profit 1,577,938 2,181,891 (603,953 ) (28 )%
Gross margin 18.2 % 23.8 %
General and administrative 2,635,525 4,162,911 (1,527,386 ) (37 )%
Research and product development 116,467 374,852 (258,385 ) (69 )%
Sales and marketing 3,753,002 3,921,292 (168,290 ) (4 )%
Total expenses 6,504,994 8,459,055 (1,954,061 ) (23 )%
Operating loss (4,927,056 ) (6,277,164 ) 1,350,108 (22 )%
Total other income (expense) 22,536 11,623 10,913 94 %
Loss before income taxes (4,904,520 ) (6,265,541 ) 1,361,021 (22 )%
Income tax expense - (36,718 ) 36,718 (100 )%
Net loss $ (4,904,520 ) $ (6,302,259 ) $ 1,397,739 (22 )%
Sales, Net
Three Months Ended June 30,
2022 2021 $ %
Sales, net $ 8,674,006 $ 9,180,586 $ (506,580 ) (6 )%
Net sales decreased to $8.7 million in Q2 2022 from $9.2 million in Q2 2021. The
decline was primarily due to elevated level of discounts in our direct to
consumer channel to acquire new and retain existing customers in light of
overall inflation and following the price increase and removal of free shipping
for orders under $40 (forty) dollars. This was in part offset by growth in our
wholesale channel driven by distribution gains in Grocery and Club. New sales
promotions drove an increase in discounts of $0.5 million offsetting net revenue
growth.
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Cost of Goods Sold
Three Months Ended June 30, 2022 v. 2021 Change
2022 2021 $ %
Costs of goods sold $ (7,096,068 ) $ (6,998,695 ) $ (97,373 ) 1 %
Cost of goods sold increased to $7.1 million in Q2 2022 from $7.0 million in Q2
2021, primarily due to inflationary pressures in costs for materials, ocean
freight, inbound and outbound shipping, labor and energy, combined with a higher
overhead cost in anticipation of growth that did not materialize in the quarter.
This was offset in part by a decrease in labor costs due to gained efficiencies
and organizational restructure which took place earlier in the second quarter.
Gross Profit
Three Months Ended June 30, 2022 v. 2021 Change
2022 2021 $ %
Gross Profit $ 1,577,938 $ 2,181,891 $ (603,953 ) (28 )%
Gross profit decreased to $1.6 million in Q2 2022 from $2.2 million in Q2 2021.
Gross margin was 18.2% in Q2 2022 compared to 23.8% in Q2 2021. The margin
decrease was driven primarily by elevated promotional activity in the online
channels, as well as overall inflation in raw materials, packaging, inbound and
outbound freight, partially offset by lower labor costs resulting from
rightsizing of the organization in Q2 2022.
Operating Expenses
Three Months Ended June 30, 2022 v. 2021 Change
2022 2021 $ %
Operating Expenses
General and Administrative $ 2,635,525 $ 4,162,911 $ (1,527,386 ) (37 )%
Research and Product Development 116,467 374,852 (258,385 ) (69 )%
Sales and Marketing 3,753,002 3,921,292 (168,290 ) (4 )%
Total Operating Expenses $ 6,504,994 $ 8,459,055 $ (1,954,061 ) (23 )%
General and administrative expense decreased to $2.6 million in Q2 2022 from
$4.2 million in Q2 2021, primarily due reversals of stock-based compensation as
the result of forfeitures of equity awards by former executive officers ($1.2
million decrease). See Note 12 to our unaudited consolidated financial
statements included elsewhere in this Form 10-Q for more information. This was
in part offset by increases in personnel costs driven primarily by severances of
former executive officers and onboarding costs of new executive officers.
Research and product development expense decreased to
Sales and marketing expense decreased to
Other Income (Expense)
Three Months Ended June 30, 2022 v. 2021 Change
2022 2021 $ %
Other income $ 22,536 $ 11,623 $ 10,913 94 %
Other income is composed of interest income, gains and losses on sales of
equipment, and income and losses related to investment securities
available-for-sale. Other income increased to $22.5 thousand of income in Q2
2022 from $11.6 thousand of income in Q2 2021, primarily due to gains on the
sale of land held-for-sale in Q2 2022.
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Comparison of the six months ended
The following table summarizes our results of operations for the periods
indicated:
Six Months Ended June 30, $ %
2022 2021 Change Change
Sales, net $ 18,014,019 $ 16,577,479 $ 1,436,540 9 %
Cost of goods sold (14,486,271 ) (12,558,194 ) (1,928,077 ) 15 %
Gross profit 3,527,748 4,019,285 (491,537 ) (12 )%
Gross margin 19.6 % 24.2 %
General and administrative 14,464,169 7,806,305 6,657,864 85 %
Research and product development 220,300 615,539 (395,239 ) (64 )%
Sales and marketing 7,724,642 7,219,011 505,631 7 %
Total expenses 22,409,111 15,640,855 6,768,256 43 %
Operating loss (18,881,363 ) (11,621,570 ) (7,259,793 ) 62 %
Total other income (expense) (156,785 ) 25,525 (182,310 ) (714 )%
Loss before income taxes (19,038,148 ) (11,596,045 ) (7,442,103 ) 64 %
Income tax expense (5,774 ) (36,718 ) 30,944 (84 )%
Net loss $ (19,043,922 ) $ (11,632,763 ) $ (7,411,159 ) 64 %
Sales, Net
Six Months Ended June 30, 2022 v. 2021 Change
2022 2021 $ %
Sales, net
Net sales increased to$18.0 million in YTD 2022 from$16.6 million in YTD 2021. This increase was due to sales attributable to the acquisition of Picky Bars ($1.9 million increase). Excluding Picky acquisition, net sales declined by 3% for the six months endedJune 30, 2022 as the growth in wholesale channel was more than offset by declines in our online business. The decline in online segment was largely attributable to reduced marketing spend, elevated discounts and overall pull back in consumer spending in light of rising inflation. Sales promotions drove an increase in discounts of$1.1 million offsetting net revenue growth. Cost of Goods Sold Six Months Ended June 30, 2022 v. 2021 Change 2022 2021 $ % Costs of goods sold$ (14,486,271 ) $ (12,558,194 ) $ (1,928,077 ) 15 % Cost of goods sold increased to$14.5 million in YTD 2022 from$12.6 million in YTD 2021, primarily due to sales growth and the corresponding increase in consumables ($1.8 million increase) due to inflationary pressures in costs of raw materials and packaging, inbound and outbound freight expenses ($0.6 million increase), offset in part by decrease in labor costs due to gained efficiencies and organizational rightsizing ($0.6 million decrease). Gross Profit Six Months Ended June 30, 2022 v. 2021 Change 2022 2021 $ % Gross Profit$ 3,527,748 $ 4,019,285 $ (491,537 ) (12 )%
Gross profit decreased to
Operating Expenses
Six Months Ended June 30, 2022 v. 2021 Change
2022 2021 $ %
Operating Expenses
General and Administrative $ 14,464,169 $ 7,806,305 $ 6,657,864 85 %
Research and Product Development 220,300 615,539 (395,239 ) (64 )%
Sales and Marketing 7,724,642 7,219,011 505,631 7 %
Total Operating Expenses $ 22,409,111 $ 15,640,855 $ 6,768,256 43 %
General and administrative expense increased to $14.5 million in YTD 2022 from
$7.8 million in YTD 2021, primarily due to impairment of goodwill and intangible
assets recorded in YTD 2022 of $6.5 million and $1.5 million , respectively. See
Note 9 to our unaudited consolidated financial statements included elsewhere in
this Form 10-Q for more information. Excluding, cost of impairment of goodwill
and intangible assets, general and administrative expenses decreased by $0.7
million driven by reduced stock based compensation.
Research and product development expense decreased to
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Sales and marketing expense increased to$7.7 million in YTD 2022 from$7.2 million in YTD 2021, primarily due to advertising expense and marketing fees. Other Income (Expense) Six Months Ended June 30, 2022 v. 2021 Change 2022 2021 $ % Other income (expense)$ (156,785 ) $ 25,525 $ (182,310 ) (714 )% Other income (expense) is composed of interest income, rental income, income and losses related to investment securities available-for-sale, and other non-operating gains and losses. Other income (expense) decreased to$(156.8) thousand of expense in YTD 2022 from$25.5 thousand of income in YTD 2021, primarily due to gain on the sale of land held-for sale in in Q2 2022, offset by realized losses on the sale of available for sale securities in Q1 2022.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had incurred accumulated net losses of$74.8 million , including operating losses of$18.9 million and$11.6 million for YTD 2022 and YTD 2021, respectively. We expect to incur additional operating losses as we continue efforts to grow our business. 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 ofJune 30, 2022 , we had$24.5 million of cash-on-hand and$9.5 million of available borrowings under our lines of credit. 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 ofJune 30, 2022 , andDecember 31, 2021 , we had no outstanding notes payable and no amounts were outstanding under our lines of credit. 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 ofJune 30, 2022 , the Company had fixed lease payment obligations of$5.0 million , with$0.7 million payable within 12 months.
•
As ofJune 30, 2022 ,$5.0 million of current liabilities were accrued related to short term operating activities, short-term lease obligations, and personnel costs.
•
Advertising and marketing expenditures were$5.5 million in YTD 2022 and$5.3 million in YTD 2021. We expect to continue to invest in these activities as part of the strategic expansion of sales volume. 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, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for the next 12 months and beyond based on our current business plans.
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