Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has based these forward-looking statements on the Company’s current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. These risks, uncertainties, assumptions and other important factors, which could cause actual results to differ materially from those described in these forward-looking statements, include: (i) the inability to achieve profitability due to commodity prices, inflation, supply chain interruption, transportation costs and/or labor shortages; (ii) the ability to meet financial and strategic goals, which may be affected by, among other things, competition, supply chain interruptions, the ability to pursue a growth strategy and manage growth profitability, maintain relationships with customers, suppliers and retailers and retain its management and key employees; (iii) the risk that retailers will choose to limit or decrease the number of retail locations in which Stryve’s products are carried or will choose not to carry or not to continue to carry Stryve’s products; (iv) the possibility that Stryve may be adversely affected by other economic, business, and/or competitive factors; (v) the effect of the COVID-19 pandemic on Stryve; (vi) the possibility that Stryve may not achieve its financial outlook (vii) Stryve's ability to maintain its listing on the Nasdaq Capital market; (viii) Stryve's ability to maintain its liquidity position and implement cost savings measures; and (ix) other risks and uncertainties described herein and in other filings with the Securities and Exchange Commission (“SEC”) filings.
Unless the context otherwise requires, all references in this report to “Stryve,” the “Company,” “we,” “us” and “our” herein refer to the parent entity formerly named Andina Acquisition Corp. III, after giving effect to the Business Combination, and as renamed Stryve Foods, Inc., and where appropriate, our consolidated subsidiaries, and references in this report to “Andina” refer to Andina Acquisition Corp. III before giving effect to the Business Combination.
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this report. Due to rounding, certain totals and subtotals may not foot and certain percentages may not reconcile.
Overview
Stryve is an emerging healthy snacking company which manufactures, markets and sells highly differentiated healthy snacking products that Stryve believes can disrupt traditional snacking categories. Stryve’s mission is “to help Americans snack better and live happier, better lives.” Stryve offers convenient snacks that are lower in sugar and carbohydrates and higher in protein than other snacks. Stryve offers all-natural, delicious snacks which it believes are nutritious and offer consumers a convenient healthy snacking option for their on-the-go lives.
Stryve’s current product portfolio consists primarily of air-dried meat snack products marketed under the Stryve®, Kalahari®, Braaitime®, and Vacadillos® brand names. Biltong is a process for preserving meat through air drying that originated centuries ago in South Africa. Unlike beef jerky, Stryve’s all-natural air-dried meat snack products are made of beef and spices, are never cooked, most contain zero grams of sugar, and are free of monosodium glutamate (MSG), gluten, nitrates, nitrites, and preservatives. As a result, Stryve’s products are Keto and Paleo diet friendly. Further, based on protein density and sugar content, Stryve believes that its air-dried meat snack products are some of the healthiest shelf-stable snacks available today.
Stryve distributes its products in major retail channels, primarily in North America, including grocery, club stores, e-retailers, and other retail outlets, as well as directly to consumers through its e-commerce websites.
Stryve believes increased consumer focus in the U.S. on health and wellness will continue to drive growth of the healthy snacking category and increase demand for Stryve’s products. Stryve has shown strong sales growth since its inception in 2017. Stryve has made substantial investments since its inception in product development, establishing its manufacturing facility, and building its marketing, sales and operations infrastructure to grow its business. As a result, Stryve has reported net losses since its inception. Stryve intends to continue to invest in product innovation, improving its supply chain, enhancing and expanding its manufacturing capabilities, and expanding its marketing and sales initiatives to drive continued growth. Additionally, moving forward management anticipates additional expenses not previously experienced related to internal controls, regulatory compliance, and other expenses relating to its go-forward operations as a public company.
21
Comparability of Financial Information
The Company's results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Business Combination and becoming a public company.
January 2022 PIPE Transaction
On January 6, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with select accredited investors (the “2022 PIPE Investors”), relating to the issuance and sale of 2,496,934 shares of the Company’s Class A common stock and, in lieu of Class A Common Stock, pre-funded warrants to purchase 7,797,184 shares of Class A common stock (the “PIPE Pre-Funded Warrants”), and accompanying warrants (the “PIPE Warrants”) to purchase up to 10,294,118 shares of Class A common stock with an exercise price equal to $3.60 and a term of five years (the “Offering”). The Offering closed on January 11, 2022. The Class A common stock and PIPE Warrants were sold at a combined purchase price of $3.40 per share (less $0.0001 per share for PIPE Pre-Funded Warrants). The Company received net proceeds from the Offering of $32.3 million. The securities were issued in reliance on the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.
Business Combination
On July 20, 2021 (the “Closing Date”), Andina completed the business combination (the "Business Combination") pursuant to that certain Business Combination Agreement (the "Business Combination Agreement") by and among the Company, Andina Holdings LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Holdings”), B. Luke Weil, in the capacity from and after the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”) as the representative for the shareholders of the Company (other than the Seller), Stryve Foods, LLC, a Texas limited liability company, Stryve Foods Holdings, LLC, a Texas limited liability company (the “Seller”), and R. Alex Hawkins, in the capacity from and after the Closing as the representative for the members of the Seller.
As contemplated by the Business Combination Agreement, on or before the Closing Date, the following occurred: (i) the Seller and Stryve Foods, LLC (“Stryve LLC”) conducted a reorganization via a merger pursuant to which the Seller became a holding company for Stryve LLC, the former owners of Stryve LLC became the owners of the Seller, and the former holders of convertible notes of Stryve LLC became holders of convertible notes of the Seller, and pursuant to which Stryve LLC retained all of its subsidiaries, business, assets and liabilities, and became a wholly-owned subsidiary of the Seller (the “Merger”), (ii) the Company was transferred by way of continuation out of the Cayman Islands and domesticated as a corporation in the State of Delaware, (iii) the Seller contributed to Holdings all of the issued and outstanding equity interests of Stryve LLC in exchange for 11,502,355 newly issued non-voting Class B common units of Holdings (the "Seller Consideration Units") and voting (but non-economic) Class V common stock of the Company (that was previously subject to a post-Closing working capital true-up), (iv) the Company contributed all of its cash and cash equivalents to Holdings, approximately $37.9 million, after the payment of approximately $7.8 million to the Company’s shareholders that elected to have their shares redeemed in connection with the Closing (the “Redemption”) and the payment of approximately $10.4 million of the Company’s expenses and other liabilities due at the Closing, in exchange for newly issued voting Class A common units of Holdings and (v) the Company issued $10.9 million of Class A common stock, satisfied by the offset of principal and accrued interest under $10.6 million of outstanding unsecured promissory notes (the "Bridge Notes") issued by Stryve LLC to certain investors in a private placement on the Closing Date (the "Bridge Investors"); and (vi) the Company changed its name to “Stryve Foods, Inc.” In addition, the Company’s ordinary shares converted into shares of Class A common stock, par value of $0.0001 per share, without any action of the holder. On March 25, 2022, the Company finalized the post-closing adjustments under the Business Combination Agreement (the "Post-Closing Adjustment"), which resulted in the release of all 115,023 escrowed shares of Class V common stock, an equal number of Holdings Class B common units, and the net payment of approximately $238,000 by the Company to the Seller. As a result, no additional Post-Closing Adjustment remains outstanding.
Following the consummation of the Business Combination, the combined company is organized in an “Up-C” structure in which the business of Stryve LLC and its subsidiaries is held by Holdings, which is a subsidiary of the Company. By virtue of the “Up-C” structure, the Company’s only direct assets consist of its equity interests in Holdings, an entity of which the Company maintains 100% voting control. As the sole voting member of Holdings, the Company has full, exclusive and complete discretion to manage and control the business of Stryve LLC and to take all action it deems necessary, appropriate, advisable, incidental, or convenient to accomplish the purposes of Stryve LLC and, accordingly, the financial statements are prepared on a consolidated basis.
On July 20, 2021, in connection with the completion of the Business Combination and as contemplated by the Business Combination Agreement, the Company: (i) issued 4,250,000 shares of Class A common stock to private placement investors for aggregate consideration of $42.5 million; and (ii) the Company issued 1,357,372 shares of Class A common stock to the Bridge Investors satisfied by the offset of $10.9 million of principal and accrued interest under outstanding Bridge Notes issued by Stryve LLC, as part of the Business Combination.
22
The Business Combination is accounted for as a reverse capitalization in accordance with generally accepted accounting principles in the United States ("GAAP"). Under this method of accounting, Stryve LLC is treated as the acquirer and Andina is treated as the acquired company for financial statement reporting purposes. Because Stryve LLC was deemed the accounting acquirer, the historical financial statements of Stryve LLC became the historical financial statements of the combined company, upon the consummation of the Business Combination.
23
Supply Chain Challenges & Increased Cost Environment
Through the beginning of the COVID-19 pandemic, we had been successful at avoiding disruptions to our supply chain and operations through these measures and maintained continuity of supply for its customers. However, beginning in the second half of 2021, we experienced certain supply chain challenges that negatively affected our ability to supply the demands to all of our channels of trade and negatively impacted our gross margins. While our efforts to mitigate these challenges are beginning to show positive signs, these challenges nonetheless continued to have an impact on the first three quarters of 2022. We believe that many of the supply chain disruptions we experienced in our operations are temporary but may persist in the near term.
In the first three quarters of 2022, we experienced a more expensive operating environment throughout the business, including higher prices for raw materials, packaging, beef, transportation, storage, services, labor, and advertising than the comparable periods in 2021. We expect these inflationary pressures to continue throughout at least 2022, which may continue to negatively impact our gross margins. We continue to track new developments affecting these inflationary pressures as we execute on our mitigating strategies to lessen the impact of these challenges and cost increases including but not limited to, price increases, improving our manufacturing yields through capacity enhancements, investing in further automation, and rationalizing and optimizing marketing spend to drive greater returns and retail velocities.
Strengthen Liquidity and Investments to Grow Asset Base
During the third quarter of 2022, we strengthened our liquidity position by closing on a combination of debt facilities with $21.0 million of committed capacity at closing and the ability to expand to committed capacity to up to $26.0 million. Not only do we believe these facilities will provide us with the near-term liquidity we need to execute against our plan, we are pleased with the flexibility they offer given their covenant-lite nature and flexible amortization. Since the consummation of the Business Combination in July 2021, we have made considerable investments to strengthen our balance sheet in light of the uncertain macroeconomic environment. Meaningful investments made to reduce debt, grow working capital, acquire capital equipment, and expand facilities. These investments have augmented our capacities so that we can more efficiently flex our run-rate production levels, if needed, to satisfy outsized new distribution lay-in orders and/or national programs without materially straining our ordinary course day-to-day production. Additionally, considerable investments have been made in our inventory and current assets to help service our expanded distribution base moving forward.
Strong Consumption Despite Prior Quarter's Execution Challenges
From a tonnage perspective, the second quarter of 2022 was by far the largest in the Company's history. These outsized production and fulfillment volumes in Q2 2022 were primarily attributable to a limited time retailer specific savings event which placed our products in chain-wide distribution for a limited period of time tied to the event.
We faced several challenges in our execution of this brief, yet outsized, demand spike which led to short-term supply gaps in our wider distribution network which resulted in lower than target in-stock percentages at other retailers. We believe that the out-of-stocks experienced in late Q2 created some delays affecting the ordering patterns of our customers in the third quarter as their distribution pipelines were refilled. While the deleterious effects of these execution challenges have been significant, we believe they are temporary in nature as our consumption data showed strong recovery on-shelf. With the non-normal demand spike behind us, we have been able to quickly return to a more normalized production cadence allowing for improved yields and quickly recovering in-stock percentages at retail.
Change in Management and Solidifying Strategy
Earlier this year, Stryve announced a leadership change with Chris Boever stepping in as the new Chief Executive Officer of the Company. With this change in leadership, management has thoughtfully reviewed the business, strategy, near-term prospects, and its previously discussed path to profitability. From this, management has identified certain one-time write-downs for assets that are non-core to the go-forward plan as well as identified necessary accruals related to actions to be taken to reorganize the business and its objectives in line with the strategic direction that Mr. Boever has for the enterprise. These charges began in the second quarter, and we anticipate a tapering effect on these types of charges throughout the balance of the year. For comparability of the financial statements, we have identified many of these charges as non-GAAP pro-forma adjustments in calculating Adjusted EBITDA and Adjusted Earnings per Share, which are reconciled to the nearest GAAP figure below.
24
Optimizing Spend and Reducing Losses
Our third quarter results are a testament to the progress we've made on our cost mitigation strategies. We have examined every area of spending throughout our business and believe we identified ways to drive efficiencies, eliminate unnecessary expense, and focus on the highest and best use of each dollar. The resulting impact is a 46.9% reduction in total operating expenses leading to a $4.5 million improvement in our pre-tax net loss despite lower sales when comparing to the prior year quarter. When compared to our second quarter results, the third quarter shows a $5.4 million reduction in total operating expenses and a $11.4 million improvement in our pre-tax net loss. Moving forward, we believe our optimized spending plan will begin to materially benefit from portfolio-wide price increases and productivity initiatives throughout our supply chain. While we intend to continue to invest to drive meaningful growth in net sales, we are doing so in a more disciplined manner that acknowledges the fundamental changes in direct-to-consumer advertising markets. By monitoring our unit economics closely, maintaining an optimized spending profile, and seeking to meaningfully grow net sales, we believe we will be able to drive further reductions in our net losses moving forward.
Improving Quality of Revenue
As an extension of the restructuring plans, we have closely evaluated our revenue base and have taken steps to improve or eliminate low-quality revenue sources and drive long-term value-creating growth. Key considerations in these rationalization decisions included assessments of strategic alignment, complexity, and profitability. And with respect to assessing the profitability of a particular revenue stream specifically, we evaluated our revenues on a gross margin basis, a net margin basis, and a cash conversion basis. Accordingly, we acknowledge that meaningful portion of net sales in the prior year quarter came from products, customers, and/or channels that have been rationalized. Despite the pullback in net sales as seen on the face of the financials, our most valuable revenues are growing meaningfully, and retail consumption of our products is strong.
Results of Operations –Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
The following table sets forth selected items in our consolidated financial data in dollar amounts and as a percentage of net sales for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
(In thousands) |
|
|
|
|
% of sales |
|
|
|
|
|
% of sales |
|
Net sales |
|
$ |
6,170 |
|
|
|
100.0 |
% |
|
|
9,062 |
|
|
|
100.0 |
% |
Cost of goods sold (exclusive of depreciation shown separately below) |
|
|
4,786 |
|
|
|
77.6 |
% |
|
|
5,808 |
|
|
|
64.1 |
% |
Gross profit (loss) |
|
$ |
1,384 |
|
|
|
22.4 |
% |
|
$ |
3,254 |
|
|
|
35.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses |
|
$ |
2,641 |
|
|
|
42.8 |
% |
|
$ |
5,827 |
|
|
|
64.3 |
% |
Operations expense |
|
|
1,084 |
|
|
|
17.6 |
% |
|
|
1,234 |
|
|
|
13.6 |
% |
Salaries and wages |
|
|
1,940 |
|
|
|
31.4 |
% |
|
|
3,973 |
|
|
|
43.8 |
% |
Depreciation and amortization expense |
|
|
518 |
|
|
|
8.4 |
% |
|
|
402 |
|
|
|
4.4 |
% |
Gain on disposal of fixed assets |
|
|
(50 |
) |
|
|
(0.8 |
)% |
|
|
(13 |
) |
|
|
(0.1 |
)% |
Total operating expenses |
|
|
6,133 |
|
|
|
99.4 |
% |
|
|
11,423 |
|
|
|
126.1 |
% |
Operating loss |
|
|
(4,749 |
) |
|
|
(77.0 |
)% |
|
|
(8,169 |
) |
|
|
(90.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(190 |
) |
|
|
(3.1 |
)% |
|
|
(758 |
) |
|
|
(8.4 |
)% |
Change in fair value of Private Warrants |
|
|
15 |
|
|
|
0.2 |
% |
|
|
213 |
|
|
|
2.4 |
% |
Other income |
|
|
(43 |
) |
|
|
(0.7 |
)% |
|
|
3 |
|
|
|
0.0 |
% |
Total other income (expense) |
|
|
(218 |
) |
|
|
(3.5 |
)% |
|
|
(542 |
) |
|
|
(6.0 |
)% |
Net loss before income taxes |
|
$ |
(4,967 |
) |
|
|
(80.5 |
)% |
|
$ |
(8,711 |
) |
|
|
(96.1 |
)% |
Net sales. Net sales decreased by $2.9 million from $9.1 million during the three months ended September 30, 2021 to $6.2 million during the three months ended September 30, 2022, representing a reduction of 31.9% for the comparable periods. The primary driver of the decrease in net sales was the rationalization of low-quality revenue that occurred in the prior year period.
Cost of Goods Sold. Cost of goods sold decreased by $1.0 million from $5.8 million in the three months ended September 30, 2021 to $4.8 million in the three months ended September 30, 2022, which was driven primarily by decreased sales volume. However, inflationary pressures on inputs, and production yields have negatively affected our cost of goods on a variable basis. Overall commodity
25
beef prices have trended unfavorably throughout the third quarter of 2022, compared to prior recent quarters, but are generally in line with what we experienced the prior year period.
Gross Profit (Loss). Gross profit (loss) decreased $1.9 million from $3.3 million in the three months ended September 30, 2021 to $1.4 million in the three months ended September 30, 2022. As a percent of net sales, gross profit was 22.4% in the third quarter of 2022, compared to 35.9% in the third quarter of 2021. A few primary factors contribute to this performance:
•The pull back in DTC e-commerce paired with greater volume from traditional retail channels than in the prior year has resulted in an unfavorable price mix shift. While we acknowledge the growth prospects of brick and mortar distribution, we recognize that any mix shift away from higher margin DTC e-commerce will likely negatively influence our gross margin profile.
•As 2021 progressed, we experienced increasing pressure on direct labor wage rates. These inflationary pressures necessitated several increases to our direct labor rates throughout 2021 and again during nine months ended September 30, 2022.
Operating Expenses.
•Selling and marketing expenses. Selling and marketing expenses decreased by $3.2 million from $5.8 million in the three months ended September 30, 2021 to $2.6 million in the three months ended September 30, 2022. Stryve decreased its spend with respect to its marketing efforts including digital media advertising and paid search in the third quarter of 2022 compared to the same period in 2021. We intend to temper this type of marketing spending for the foreseeable future in favor of increasing our focus on strategies to support retail velocities. Further, management anticipates experiencing operating leverage on its marketing expenses as the Company continues to add points of retail distribution, which has the potential to facilitate more efficient marketing spend.
•Operations expenses. Operations expenses decreased by $0.1 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Despite the increase in overall transportation rates, our sales mix in three months ended September 30, 2022 allowed us to utilize more favorable modes of transportation relative to the prior year period.
•Salaries and wages. Salaries and wages decreased $2.1 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, decreasing from $4.0 million to $1.9 million. This decrease is in part attributable to the restructuring and productivity efforts of the Company and the non-recurrence of approximately $1.7 million of non-cash compensation expense that was incurred in the prior year period. Additionally, the Company incurred $0.1 million of non-cash, stock-based compensation expense in the third quarter of 2022 which was not present in the third quarter of 2021.
•Depreciation and amortization. Depreciation and amortization increased $0.1 million from $0.4 million in the three months ended September 30, 2021 to $0.5 million compared to the three months ended September 30, 2022.
Operating Loss. Operating loss decreased by $3.5 million from $8.2 million in the three months ended September 30, 2021 to $4.7 million in the three months ended September 30, 2022 and is primarily attributable to a material decrease in total operating expenses.
Interest Expense. Interest expense decreased by $0.6 million from $0.8 million in the three months ended September 30, 2021 to $0.2 million in the three months ended September 30, 2022. While we relied, in part, on debt capital to support the business throughout 2021, we significantly deleveraged the business in the first half of 2022 as well as upon the consummation of the Business Combination in the third quarter of 2021 thus reducing the overall interest expense of the business year-over-year.
Net Loss. Net loss decreased $3.7 million from $8.7 million in three months ended September 30, 2021 to $5.0 million in the three months ended September 30, 2022, with the decrease primarily attributable to a decrease in operating expenses.
26
Results of Operations –nine months ended September 30, 2022 Compared to nine months ended September 30, 2021
The following table sets forth selected items in our consolidated financial data in dollar amounts and as a percentage of net sales for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
(In thousands) |
|
|
|
|
% of sales |
|
|
|
|
|
% of sales |
|
Net sales |
|
$ |
24,537 |
|
|
|
100.0 |
% |
|
$ |
23,248 |
|
|
|
100.0 |
% |
Cost of goods sold (exclusive of depreciation shown separately below) |
|
|
26,454 |
|
|
|
107.8 |
% |
|
|
13,735 |
|
|
|
59.1 |
% |
Gross profit (loss) |
|
$ |
(1,917 |
) |
|
|
(7.8 |
)% |
|
$ |
9,513 |
|
|
|
40.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses |
|
$ |
12,873 |
|
|
|
52.5 |
% |
|
$ |
17,873 |
|
|
|
76.9 |
% |
Operations expense |
|
|
3,664 |
|
|
|
14.9 |
% |
|
|
3,264 |
|
|
|
14.0 |
% |
Salaries and wages |
|
|
8,035 |
|
|
|
32.7 |
% |
|
|
6,977 |
|
|
|
30.0 |
% |
Depreciation and amortization expense |
|
|
1,466 |
|
|
|
6.0 |
% |
|
|
1,194 |
|
|
|
5.1 |
% |
Gain on disposal of fixed assets |
|
|
(74 |
) |
|
|
(0.3 |
)% |
|
|
(22 |
) |
|
|
(0.1 |
)% |
Total operating expenses |
|
|
25,964 |
|
|
|
105.8 |
% |
|
|
29,286 |
|
|
|
126.0 |
% |
Operating loss |
|
|
(27,881 |
) |
|
|
(113.6 |
)% |
|
|
(19,773 |
) |
|
|
(85.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(559 |
) |
|
|
(2.3 |
)% |
|
|
(2,715 |
) |
|
|
(11.7 |
)% |
PPP loan forgiveness |
|
|
— |
|
|
|
— |
|
|
|
1,670 |
|
|
|
7.2 |
% |
Change in fair value of Private Warrants |
|
|
100 |
|
|
|
0.4 |
% |
|
|
213 |
|
|
|
0.9 |
% |
Gain on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
545 |
|
|
|
2.3 |
% |
Other income |
|
|
(259 |
) |
|
|
(1.1 |
)% |
|
|
27 |
|
|
|
0.1 |
% |
Other income (expense) |
|
|
(718 |
) |
|
|
(2.9 |
)% |
|
|
(260 |
) |
|
|
(1.1 |
)% |
Net loss before income taxes |
|
$ |
(28,599 |
) |
|
|
(116.6 |
)% |
|
$ |
(20,033 |
) |
|
|
(86.2 |
)% |
Net sales. Net sales increased by $1.3 million from $23.2 million during the nine months ended September 30, 2021 to $24.5 million during the nine months ended September 30, 2022 representing growth of 5.5% for the comparable periods. The primary drivers of the increased sales of Stryve’s products to existing accounts, and net new sales related to additional distribution secured by Stryve in 2021 at a number of key retailers. Overall, the largest contributor of growth stems from the limited-time savings event which resulted in significant in-and-out sales volume in the second quarter of 2022. This growth has been partially offset by a pullback in our e-commerce sales stemming from our reduction in digital media spending. Further, supply chain and execution challenges in the first half of 2022 have hindered our ability to effectively service several retail and private label accounts leaving unmet demand in the period.
|
|
|
|
|
|
|
|
|
|
|
|
Nine Month
Period Ended |
|
|
Nine Month
Period Ended |
|
|
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(In thousands) |
|
|
|
|
|
|
|
Gross Sales |
|
$ |
30,697 |
|
|
$ |
25,332 |
|
|
Trade Promotions/Discounts & Credits |
|
|
(6,159 |
) |
|
|
(2,084 |
) |
|
Net Sales |
|
|
24,538 |
|
|
$ |
23,248 |
|
|
27
Cost of Goods Sold. Cost of goods sold increased by $12.8 million from $13.7 million in the nine months ended September 30, 2021, to $26.5 million in the nine months ended September 30, 2022, which was primarily driven by increased sales volume followed by increased direct labor and commodity input costs, primarily beef. On the whole, overall commodity beef prices have increased significantly year-over-year. However, in the aggregate we have experienced favorable meat prices in the nine-month period ending September 30, 2022, relative to their peak in the second half of 2021. Notwithstanding this trend in beef pricing, the aforementioned execution related yield challenges largely muted the impact of this improvement.
Gross Profit (Loss). Gross profit (loss) fell $11.4 million from a $9.5 million profit in the nine months of 2021 to a $(1.9) million loss in the first nine months of 2022. As a percent of net sales, gross profit (loss) for the first nine months of 2022 was (7.8)% which represents a significant decline from 40.9% in the first nine months of 2021. A few primary factors contribute to this performance:
•The pull back in DTC e-commerce paired with greater volume from other channels, particularly to club retailers, than in the prior year has resulted in an unfavorable mix shift. While we acknowledge the growth prospects of brick-and-mortar distribution, we recognize that any mix shift away from DTC e-commerce will likely negatively influence our gross margin profile.
•As 2021 progressed, we experienced increasing pressure on direct labor wage rates. These inflationary pressures necessitated several increases to our direct labor rates throughout 2021 and again during nine months ended September 30, 2022. We are hopeful that our investments in automation and process improvements will help to offset some of these pressures moving forward.
•The inflationary pressures in the commodity markets were significant in 2021 reaching their peak for the year during the second half of 2021. While we experienced considerable relief in beef input prices during the first half of 2022 relative to the prior year peaks, in the third quarter of 2022 we are seeing a return to rising prices.
•There were over $6.2 million in coupons, promotions, deductions, and credits incurred in the first half of 2022. This gross-to-net dilution of 20.1% exceeds the prior year period's dilution of 8.2%. This increase is primarily attributable to the limited-time event which led to over $3.0 million in coupons and deductions alone in the first half of 2022 which negatively influenced the average net price of our products.
Operating Expenses.
•Selling expenses. Selling and marketing expenses fell by $5.0 million from $17.9 million in the nine months ended September 30, 2021, to $12.9 million in the nine months ended September 30, 2022. Stryve decreased its spend with respect to its marketing efforts including digital media, advertising, and paid search in the first nine months of 2022 compared to the same period in 2021. We intend to temper this type of marketing spending for the foreseeable future in favor of increasing our focus on strategies to support retail velocities. Further, management anticipates experiencing operating leverage on these expenses as the Company continues to add points of retail distribution, which has the potential to facilitate more efficient marketing spend.
•Operations expenses. Operations expenses increased by $0.4 million from the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2022. The primary driver of this was increased fulfillment and logistics expense due to the increased volumes in the first nine months of 2022 as compared to the first nine months of 2021.
•Salaries and wages. Salaries and wages increased $1.0 million from the nine months ended September 30, 2021, compared to the nine months ended September 30, 2022, increasing from $7.0 million to $8.0 million. This increase is in part attributable to certain non-recurring retention bonus compensation related to a prior acquisition as well as to key contributors within the organization incurred in the first half of 2022. Further, the second quarter results include an accrual of approximately $1.0 million of non-recurring compensation expense that relate to the Company's Business Combination. Additionally, the Company incurred $0.8 million of non-cash, stock-based compensation expense in the nine months ended September 30, 2022 which wasn't present in the comparable period of 2021 when Stryve was still a private company. Despite these increases year-over-year, through our restructuring efforts under new leadership, we anticipate that these expenses will be further optimized to align with the Company's go forward strategy to maximize productivity.
•Depreciation and amortization. Depreciation and amortization increased $0.3 million from the nine months ended September 30, 2021, compared to the nine months ended September 30, 2022 and is primarily attributable to the timing of capital expenditures and dispositions of assets.
•Prepaid media reserve. As part of management's go-forward plan, certain non-core assets have been written down or reserved against. This includes fully reserving against approximately $1.5 million of prepaid media assets on the balance sheet.
28
Operating Loss. Operating loss increased by $8.1 million from ($19.8) million through the first nine months of 2021 to ($27.9) million through the first nine months of 2022 and is primarily attributable to decreased gross profit on sales and certain significant one-time restructuring charges occurring in the first half of 2022, as described above.
Interest Expense. Interest expense decreased by $2.1 million from ($2.7) million through the first nine months of 2021 to ($0.6) million through the first nine months of 2022. While we relied, in part, on debt capital to support the business throughout 2021, we significantly deleveraged the business in the first quarter of 2022 as well as upon the consummation of the Business Combination in the third quarter of 2021 thus reducing the overall interest expense of the business year-over-year for the comparable periods.
Net Loss. Net loss increased $8.6 million from $20.0 million in the nine months ended September 30, 2021 to $28.6 million in the nine months ended September 30, 2022 and is primarily attributable to a decrease in gross profit on sales and certain significant one-time restructuring charges occurring in the first half of 2022, as described above.
Non-GAAP Financial Measures
We use non-GAAP financial measures and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in operating results, and provide additional insight on how the management team evaluates the business. Our management team uses EBITDA, Adjusted EBITDA, and Adjusted Earnings per Share to make operating and strategic decisions, evaluate performance and comply with indebtedness related reporting requirements. Below are details on these non-GAAP measures and the non-GAAP adjustments that the management team makes in the definition of EBITDA, Adjusted EBITDA, and Adjusted Earnings per Share. We believe these non-GAAP measure should be considered along with net income (loss), the most closely related GAAP financial measure. Reconciliations between EBITDA, Adjusted EBITDA, Adjusted Earnings per Share, and net income (loss) are below, and discussion regarding underlying GAAP results throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
EBITDA. Stryve defines EBITDA as net income (loss) before interest expense, income tax expense (benefit), and depreciation and amortization.
Adjusted EBITDA. Stryve defines Adjusted EBITDA as EBITDA adjusted as necessary for certain items listed below in the table.
The table below provides a reconciliation of EBITDA and Adjusted EBITDA to their most directly comparable GAAP measure, which is net income (loss) before taxes, for the three and nine months ended September 30, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month
Period Ended |
|
|
Three Month
Period Ended |
|
|
Nine Month
Period Ended |
|
|
Nine Month
Period Ended |
|
|
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes |
|
$ |
(4,967 |
) |
|
$ |
(8,711 |
) |
|
$ |
(28,599 |
) |
|
$ |
(20,033 |
) |
|
Interest expense |
|
|
190 |
|
|
|
758 |
|
|
|
559 |
|
|
|
2,715 |
|
|
Depreciation and amortization |
|
|
518 |
|
|
|
402 |
|
|
|
1,466 |
|
|
|
1,194 |
|
|
EBITDA |
|
$ |
(4,259 |
) |
|
$ |
(7,551 |
) |
|
$ |
(26,574 |
) |
|
$ |
(16,124 |
) |
|
Additional Adjustments*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
PPP loan forgiveness |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,670 |
) |
|
Severances and One-Time Employee Related Costs |
|
|
285 |
|
|
|
— |
|
|
|
1,631 |
|
|
|
— |
|
|
One-Time Reserves and Write Downs |
|
|
— |
|
|
|
— |
|
|
|
2,562 |
|
|
|
— |
|
|
Business combination expenses |
|
|
— |
|
|
|
(1,077 |
) |
|
|
— |
|
|
|
— |
|
|
Stock based compensation expense |
|
|
98 |
|
|
|
— |
|
|
|
810 |
|
|
|
— |
|
|
Non-cash compensation expense |
|
|
— |
|
|
|
1,701 |
|
|
|
— |
|
|
|
1,701 |
|
|
Comparability adjustment - Public vs. Private |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,049 |
) |
|
Adjusted EBITDA |
|
$ |
(3,876 |
) |
|
$ |
(6,926 |
) |
|
$ |
(21,572 |
) |
|
$ |
(17,142 |
) |
|
Adjusted EBITDA. The Company reduced its negative Adjusted EBITDA by 44% when comparing the three months ended September 30, 2022 and 2021 with a $3.1 million improvement year-over-year driving by the Company's improved gross margins and rationalized spending. Stryve increased its negative Adjusted EBITDA during the nine months ended September 30, 2022. from $(17.1) million to $(21.6) million. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
29
*Additional Adjustments to EBITDA:
PPP Loan Forgiveness: The Company secured a Paycheck Protection Program loan in April of 2020 which was fully forgiven in the first quarter of 2021. The forgiveness of $1.6 million of principal and interest resulted in a gain during the nine months ended September 30, 2021. This item is one-time and has been adjusted out of Other Income (Expense) to provide better comparability of results.
Severances and One-Time Employee Related Costs: The Company incurred certain one-time charges related to employees, including severances, one-time payments, and recruiting fees, in the second and third quarters of 2022.
One-Time Reserves and Write Downs: As part of management's go-forward plan, certain non-core assets have been written down or reserved against. This includes the write down of approximately $1.5M of pre-paid media, reserves for non-core SKUs, and other non-recurring items. These non-recurring expenses have been adjusted out to provide better comparability of results.
Business Combination Expenses: The Company signed the Business Combination Agreement on January 28, 2021. and prepared an S-4 and S-1 filing in furtherance of the Business Combination. In doing so, the Company incurred significant legal and professional services fees over the course of the year which were later capitalized to Additional Paid-in Capital upon the consummation of the Business Combination which was reflected in the three months ended September 30, 2021 financial results. The impact on the statement of operations that the capitalization of these expenses had during the three months ended September 30, 2021 has been adjusted out to show better comparability with the current year quarter.
Non-Cash Compensation Expense: The Company incurred significant one-time non-cash compensation expense in the three and nine months ended September 30, 2021 stemming from notes receivable which were forgiven in conjunction with the Business Combination. These charges have been adjusted out of the comparable periods to improve the comparability of results.
Comparability Adjustment - Public vs Private: For the duration of the six-month period ended June 30, 2021, Stryve was a private company. The Company consummated the Business Combination on July 20, 2021. As a public company, the Company incurs significant expenses by virtue of being public. These public company expenses affect the comparability of results between the periods shown. Accordingly, these public company expenses have been added to the nine months ended September 30, 2021, to adjust for comparative purposes. These expenses include public filing fees and preparation services, the extra cost of directors & officers insurance for public companies, and board fees.
Adjusted Earnings per Share. Stryve defines Adjusted Earnings per Share as its Basic/Diluted Net Income (Loss) per Share adjusted as necessary for certain items listed below in the table.
30
The table below provides a reconciliation of Adjusted Earnings per Share to its most directly comparable GAAP measure, which is Basic/Diluted Net Income (Loss) per Share, for the three and nine months ended September 30, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month
Period Ended |
|
|
Three Month
Period Ended |
|
|
Nine Month
Period Ended |
|
|
Nine Month
Period Ended |
|
|
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(In thousands except share and per share information) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,968 |
) |
|
$ |
(8,711 |
) |
|
$ |
(28,636 |
) |
|
$ |
(20,033 |
) |
|
Weighted average shares outstanding |
|
|
30,991,943 |
|
|
|
18,263,099 |
|
|
|
30,568,431 |
|
|
|
12,878,733 |
|
|
Basic & Diluted Net Loss per Share |
|
$ |
(0.16 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.94 |
) |
|
$ |
(1.56 |
) |
|
Additional Adjustments*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
PPP loan forgiveness |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.13 |
) |
|
Severances and One-Time Employee Related Costs |
|
|
0.01 |
|
|
|
— |
|
|
|
0.05 |
|
|
|
— |
|
|
One-Time Reserves and Write Downs |
|
|
— |
|
|
|
— |
|
|
|
0.08 |
|
|
|
— |
|
|
Business combination expenses |
|
|
— |
|
|
|
(0.06 |
) |
|
|
— |
|
|
|
— |
|
|
Stock based compensation expense |
|
|
0.00 |
|
|
|
— |
|
|
|
0.03 |
|
|
|
— |
|
|
Non-cash compensation expense |
|
|
— |
|
|
|
0.09 |
|
|
|
— |
|
|
|
0.13 |
|
|
Comparability adjustment - Public vs. Private |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.08 |
) |
|
Adjusted Earnings per Share |
|
$ |
(0.15 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.77 |
) |
|
$ |
(1.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Information regarding these adjustments can be found in the Additional Adjustments to EBITDA section above. |
|
|
Liquidity and Capital Resources
Overview. We have historically funded our operations with cash flow from operations, equity capital raises, and note payable agreements from shareholders and private investors, in addition to bank loans. Our principal uses of cash have been debt service, capital expenditures, net losses and investment in working capital. For the nine months ended September 30, 2022, we incurred an operating loss of $27.9 million and used cash in operations of $25.5 million. As of September 30, 2022, we have working capital of $10.9 million which compares favorably to the $3.2 million working capital we maintained as of December 31, 2021, and have only approximately $5.2 million of indebtedness.
Late in the third quarter of 2022, we secured $21 million of non-dilutive, committed borrowing capacity through a combination of facilities to augment our liquidity, as needed, through the execution of management's plan of which $4.3 million had been drawn upon as of September 30th, 2022.
We have examined every area of spending throughout our business and believe we identified ways to drive efficiencies, eliminate unnecessary expense, and focus on the highest and best use of each dollar. The resulting impact is a 46.9% reduction in total operating expenses leading to a $4.5 million improvement in our pre-tax net loss despite lower sales when comparing to the prior year quarter. Further, we have instituted a continuous price action review process in which we look to protect our unit economics in light of the inflationary environment. This process has already resulted in two meaningful price increases this year. We have also sought to optimize our channel strategy and rationalize our customer and product portfolio to eliminate sales that detract from our profitability goals.
In the third quarter of 2022, we invested more heavily into our inventories than our sales volumes would indicate as being required. Given that prevailing beef prices are rising, this investment in inventory was driven in part by opportunistic commodity beef purchases made towards the end of the quarter to secure attractive pricing. We anticipate drawing down on these inventory levels in the coming quarters which would be a near-term source of liquidity.
The Company believes that cash from operations, our working capital, and our borrowing ability should be sufficient to fund the Company’s base projections for at least the next twelve months from the date these financial statements are made available.
31
Cash Flows. The following tables show summary cash flows information for the nine months ended September 30, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ending |
|
|
Nine Months
Ending |
|
|
|
Sept 30, 2022 |
|
|
Sept 30, 2021 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
(In thousands) |
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(25,534 |
) |
|
$ |
(27,624 |
) |
Net cash used in investing activities |
|
|
(2,281 |
) |
|
|
(833 |
) |
Net cash provided by financing activities |
|
|
29,952 |
|
|
|
41,254 |
|
Net increase in cash and cash equivalents |
|
$ |
2,137 |
|
|
$ |
12,797 |
|
Net Cash used in Operating Activities. Net cash used in operating activities increased $(2.1) million from $27.6 million through the nine months ended September 30, 2021 compared to $25.5 million through the nine months ended September 30, 2022. This increase is primarily attributable to the increase in net losses paired with an investment in net working capital during the nine months ended September 30, 2022 ,as compared to the prior year period.
Net Cash used in Investing Activities. Net cash used in investing activities increased from $0.8 million in the nine months ended September 30, 2021, to $2.3 million in the nine months ended September 30, 2022, representing a $1.5 million increase when comparing the same period year over year. We anticipate increased investment in manufacturing and fulfillment assets moving forward, in order to ensure we have adequate run rate capacities to meet the potential demand for our products.
Net Cash provided by Financing Activities. Net cash provided by financing activities generated $(11.3) million more cash for the Company in the nine months ended September 30, 2022, compared to the comparable period a year ago. In the nine months ended September 30, 2022, we generated cash from financing activities of $30.0 million.
Debt and credit facilities. The information below represents an overview of the Company’s debt and prior credit facilities. The Company’s outstanding indebtedness as of September 30, 2022, and December 31, 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of Sept 30, |
|
|
As of
December 31, |
|
(In thousands) |
|
2022 |
|
|
2021 |
|
Long term debt |
|
$ |
4,077 |
|
|
$ |
1,567 |
|
Short term debt |
|
|
1,013 |
|
|
|
2,000 |
|
Line of credit (Note 5) |
|
|
272 |
|
|
|
3,500 |
|
Total notes payable |
|
|
5,362 |
|
|
|
7,067 |
|
Less: current portion |
|
|
(1,559 |
) |
|
|
(3,447 |
) |
Less: debt issuance costs |
|
|
(209 |
) |
|
|
— |
|
Less: line of credit |
|
|
(123 |
) |
|
|
— |
|
Total notes payable, net of current portion |
|
$ |
3,471 |
|
|
$ |
3,620 |
|
Future minimum principal payments on the notes payable as of September 30, 2022, are as follows:
|
|
|
|
|
(In thousands) |
|
|
|
2022 (for the remainder of) |
|
$ |
413 |
|
2023 |
|
|
1,533 |
|
2024 |
|
|
730 |
|
2025 |
|
|
1,062 |
|
2026 |
|
|
1,624 |
|
|
|
$ |
5,362 |
|
On January 28, 2022, we paid off approximately $6.8 million of outstanding principal and interest owed to Origin.
Certain Factors Affecting Our Performance
Stryve’s management believes that the Company’s future performance will depend on many factors, including the following:
32
Ability to Expand Distribution in both Online and Traditional Retail Channels. Stryve is currently growing its consumer base through paid and organic means both online as well as by expanding its presence in a variety of physical retail distribution channels. Online consumer acquisitions typically occur through the Company’s portfolio of DTC e-commerce websites and Amazon.com. The Company’s online consumer acquisition program includes paid and unpaid social media, search, and display media. Stryve’s products are also sold through a growing number of traditional retail channels where the Company has an opportunity to acquire new consumers. Traditional retail channels include grocery chains, natural food outlets, club stores, convenience stores, and drug stores, all either direct or through distribution partners.
Ability to Acquire and Retain Consumers at a Reasonable Cost. Stryve’s management believes an ability to consistently acquire and retain consumers at a reasonable cost relative to projected life-time value will be a key factor affecting future performance. To accomplish this goal, Stryve intends to strategically allocate advertising spend between online and offline channels favoring digital media, as well as emphasizing more targeted and measurable “direct response” digital marketing spend with advertising focused on increasing consumer awareness and driving trial of our products. Further, we acknowledge that changes to third-party algorithms that may be utilized directly, or indirectly, by Stryve in its advertising efforts may impact the effectiveness of Stryve's advertising which may increase its overall cost to acquire and retain consumers.
Ability to Drive Repeat Usage of Our Products. Stryve accrues substantial economic value from repeat consumers who consistently purchase its products either online or in traditional retail. The pace of Stryve’s growth rate will be affected by the repeat usage dynamics of existing and newly acquired customers. The Company utilizes a number of methods to drive repeat behavior including intelligent e-mail and text campaigns, targeted digital media, and subscribe and save incentives.
Ability to Expand Gross Margins. Stryve’s overall profitability will be impacted by its ability to expand gross margins through effective sourcing of raw materials, managing production yields and drying times, controlling labor and shipping costs, as well as spreading other production-related costs over greater manufacturing volumes. Additionally, Stryve's ability to expand gross margins will be influenced by its revenue channel and customer mix as well as by Stryve's ability to pass price increases to its customers.
Ability to Expand Operating Margins. The Company’s ability to expand operating margins will be impacted by its ability to effectively manage its fixed and variable operating expenses as net sales increase.
Ability to Manage Supply Chain and Expand Production In-line with Demand. Stryve’s ability to grow and meet future demand will be affected by its ability to effectively plan for and source inventory from a variety of suppliers located inside and outside the United States. Additionally, efficiently scaling production capacity ahead of growth in net sales will be critical to the Company’s ability to meet future demand without disruption.
Ability to Optimize Key Components of Working Capital. Stryve’s ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by the Company’s ability to effectively manage the key components of working capital which have a direct impact on the cash conversion cycle.
Seasonality. Because Stryve is so early in its lifecycle of growth, it is difficult to discern the exact magnitude of seasonality affecting its business. Any evidence of seasonality is not clearly discernable from the Company’s historical growth. However, understanding potential trends in seasonality will be key in Stryve’s management of its expenses, liquidity, and working capital.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of September 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with GAAP. In preparing our financial statements, we make estimates, assumptions, and judgments that can have a significant impact on our reported revenue, results of operations, and comprehensive net income or loss, as well as on the value of certain assets and liabilities on our balance sheet during, and as of, the reporting periods. These estimates, assumptions, and judgments are necessary and are made based on our historical experience, market trends and on other assumptions and factors that we believe to be reasonable under the circumstances because future events and their effects on our results of operations and value of our assets cannot be determined with certainty. These estimates may change as new events occur or additional information is obtained. We may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for
33
a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates or assumptions.
The critical accounting estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below. Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts, Returns, and Deductions. Accounts receivable are customer obligations due under normal trade terms. The Company records accounts receivable at their net realizable value, which requires management to estimate the collectability of the Company’s receivables. Judgment is required in assessing the realization of these receivables, including the credit worthiness of each counterparty and the related aging of past due balances. Management provides for an allowance for doubtful accounts equal to the estimated uncollectable amounts, in addition to a general provision based on historical experience. Management provides for the customer accommodations based upon a general provision of sales in addition to known deductions. The estimates are based on collection experience and a review of trade accounts. As of September 30, 2022 and December 31, 2021, the allowance for doubtful accounts and returns and deductions totaled $104,815 and $1,236,497, respectively. Total bad debt expense for the three months ended September 30, 2022 and 2021 was $322,946 and $513,661, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Sept 30, |
|
|
As of December 31, |
|
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
Beginning balance |
|
$ |
1,236 |
|
|
$ |
1,603 |
|
|
$ |
1,603 |
|
|
$ |
688 |
|
Provisions |
|
|
703 |
|
|
|
420 |
|
|
$ |
1,154 |
|
|
$ |
915 |
|
Write-offs/ reversals |
|
|
(1,835 |
) |
|
|
(1,087 |
) |
|
$ |
(1,521 |
) |
|
$ |
— |
|
Ending balance |
|
$ |
104 |
|
|
$ |
936 |
|
|
$ |
1,236 |
|
|
$ |
1,603 |
|
34
Reporting Unit Analysis
The Company presents a single segment for purposes of financial reporting and prepared its consolidated financial statements upon that basis. The Company considered ASC 350-20-35-35 related to reporting unit determination and the aggregation of components into one reporting unit.
The economic characteristics considered were whether:
1) The nature of the products and services are similar
2) The type of class of customer for products and services are similar
3) The methods used to distribute the products or provide the services are similar
4) The manner in which an entity operates, and the nature of those operations is similar
Currently, the Company has one reporting unit due to the similarity of its components when evaluated against the aforementioned economic characteristics.