Tattooed Chef is seeking additional capital as the US plant-based food business falls foul of Nasdaq rules on the timely filing of its accounts.
“The company continues to require additional debt or equity capital and is pursuing multiple paths of opportunity to raise such capital as soon as practicable,” president and CEO Sam Galletti said in a 17 March statement posted on the firm’s website.
Galletti’s comments last week followed a series of announcements dating back to August detailing new financing already secured, delays in filing accounts and reports noting increased operating expenses and a depletion of cash. The California-based business has also posted losses in EBITDA and net income.
The latest was a filing with the US Securities and Exchange Commission (SEC), also on 17 March, in which Tattooed Chef said it was unable to file its annual accounts for the year ended 31 December 2022. The company had also fallen foul of SEC rules in November by not filing its third-quarter accounts on time.
“During the fourth quarter of 2022, the company implemented a new enterprise resource planning system at one of the company’s major subsidiaries, New Mexico Food Distributors, Inc., which resulted in delays with respect to the company’s normal financial closing process including the company’s financial statement preparation and review processes,” the SEC filing read.
“As previously disclosed, the company’s accounting department had been fully occupied with restating its unaudited condensed consolidated financial statements for quarters ended March 31, 2022 and June 30, 2022, and its audited annual consolidated financial statements for the year ended December 31, 2021.”
On 8 August, the branded and private-label supplier said it had increased and extended a revolving credit facility with UMB Bank, a subsidiary of UMB Financial Corp. That was raised to US$40m from $25m, while the terms were extended to September 2025. The credit agreement was previously set to expire this September.
In the SEC filing last week, Tattooed Chef said it expects to report operating expenses of around $82m in the year to 31 December 2022 and “to report cash” of approximately $6m. Based on that preliminary outlook, the company expects revenue of $234m as it noted higher cost of goods sold (COGS) for the year linked to higher material costs, labour and freight.
“Operating expenses for the year ended December 31, 2022 increased as a result of a large increase in sales and marketing expenses, increases in professional expenses, stock compensation expenses and labour expenses,” Tattooed Chef explained in the SEC filing. “The company is evaluating the impact from potential goodwill impairment with a third-party valuation team and is unable to provide a reasonable estimate of net loss at this moment.”
It added: “The cash outflow during 2022 was primarily attributable to continued losses from operating activities, capital expenditures and marketing and promotional spend to raise our brand awareness.
“While the company does not expect any significant changes to the aforementioned preliminary unaudited financial information, such preliminary financial information remains subject to change pending the completion of the company’s financial statements as of and for the year ended December 31, 2022.”
In a statement on 12 October, Tattooed Chef said it had been informed by its former accounting firm BDO USA that results for the first, second and third quarters of fiscal 2021, and the yearly results, had been “materially misstated”.
“[They] should no longer be relied upon and should be restated, because the company incorrectly recorded expenses related to a multi-vendor mailer program with a large customer as operating expenses rather than reduction of revenue, and expenses for advertising placement by a marketing services firm on a straight-line basis over the life of the contract rather than when the services were actually rendered,” Tattooed Chef explained in the October statement.
Tattooed Chef filed its third-quarter 2022 results on 15 November. Revenue fell 6.7% to $54.1m from a year earlier. Operating expenses increased to $31.6m from $12.8m.
Losses in adjusted EBITDA widened to $25.5m from $5.1m, while the company delivered a net loss of $38.5m, more than an $8.2m loss in the corresponding period.
Profitability had turned negative in the previous fiscal 2021 year. Adjusted EBITDA moved to a loss of $26.1m from an $8.5m profit a year earlier. Bottom-line profit turned from a positive $69m to an $87.4m loss.
Galletti noted in the 17 March statement a previously-announced annual cost savings programme initially set at $30m and which, the CEO said “could result in positive adjusted EBITDA and cash flow by or around mid-year 2024”.
He added: “However, based on progress to date, the company now believes that it could achieve annual cost savings of up to $40m or more in 2023, which if achieved, would allow it to reach breakeven adjusted EBITDA and become cash-flow neutral during Q4 2023, approximately six months ahead of its original outlook.”
Galletti explained: “We continue to execute a plan that we believe will reduce cash burn, reduce our annual losses, and strengthen our brand profile and retail presence. Although we still have much work ahead of us, we are seeing early indications of our progress on a sequential quarterly basis, with material improvements expected to manifest beginning in Q1 2023 and continuing throughout the year.”