Smart for Life, Inc. (NASDAQ:SMFL) is a global holding company engaged in the development, marketing, manufacturing, acquisition, operation, and sale of a broad spectrum of nutraceutical and related products with an emphasis on health and wellness. The company has executed a strategic buy-and-build strategy, making several accretive acquisitions to create a vertically integrated platform.
Financials
In its latest fiscal year, SMFL reported annual revenue of $17,766,361, a decrease from the prior year. The company's net income for the year was a loss of $31,831,256, and its annual operating cash flow was negative $9,377,916, with free cash flow of negative $9,442,372. These financial results reflect the challenges the company has faced in recent periods.
Quarterly Performance
SMFL's quarterly results have been mixed, with the company reporting revenue of $2,750,305 and a net loss of $4,344,107 in the third quarter of 2023. The company's gross profit margin for the quarter was 38.60%, down from 49.14% in the same period of the prior year, as the company grappled with increased costs and supply chain disruptions.
Business Overview
SMFL operates through several key subsidiaries, including Bonne Sante Natural Manufacturing, Inc. (BSNM), Doctors Scientific Organica, LLC (DSO), and Nexus Offers, Inc. (Nexus). BSNM is a nutraceutical contract manufacturer, while DSO manufactures and sells the company's proprietary Smart for Life brand of weight management and wellness products. Nexus operates a cost-per-action/cost-per-acquisition network, connecting digital marketers with product vendors.
The company's strategy is to continue expanding its product portfolio and distribution channels through both organic growth and strategic acquisitions. SMFL has made several key acquisitions in recent years, including Ceautamed Worldwide, LLC in 2022, which added the Greens First line of branded products to the company's offerings.
Geographical Breakdown
SMFL's operations are primarily focused in the United States, with additional international presence through its Canadian subsidiary, Smart for Life Canada Inc. The company's products are sold both domestically and in international markets, including South America, Central America, and Europe.
Revenue Breakdown and Trends
SMFL's revenue is generated from two main business segments: nutraceutical products and digital marketing services. In the latest quarter, product revenue accounted for 99.78% of total revenue, while advertising revenue made up the remaining 0.22%. The decrease in overall revenue was primarily driven by a 39.04% decline in product revenue and a 99.30% decline in advertising revenue, as the company faced cash constraints and supply chain challenges.
Liquidity
As of September 30, 2023, SMFL had cash of $8,890 and total debt of $12,909,530, with $4,404,462 in principal payments due within the next 12 months. The company's working capital deficit of $11.4 million and negative operating and free cash flows raise substantial doubt about its ability to continue as a going concern. SMFL is actively seeking additional financing, both through equity and debt, to fund its operations and growth initiatives.
Risks and Challenges
SMFL faces several key risks and challenges, including its reliance on a limited number of large customers, supply chain disruptions, and the need for ongoing capital to fund its operations and acquisitions. The company's ability to successfully integrate and operate its acquired businesses is also critical to its long-term success.
Outlook
SMFL has not provided any formal guidance or outlook for the upcoming fiscal year. The company's focus remains on executing its buy-and-build strategy, expanding its product offerings, and improving its operational efficiency to drive profitability.
Competitive Landscape
SMFL operates in a highly competitive nutraceutical and digital marketing industry, competing with both large, established players and smaller, specialized competitors. The company's ability to differentiate its products, maintain strong customer relationships, and execute its acquisition strategy will be key to its long-term success.
Financial Ratios and Metrics
SMFL's financial ratios and metrics reflect the challenges the company has faced. As of the latest quarter, the company's current ratio was 0.18, and its quick ratio was 0.04, indicating liquidity concerns. The company's gross profit margin of 38.60% in the third quarter was down from 49.14% in the prior-year period, while its operating profit margin was negative 116.61%.
Valuation and Stock Performance
SMFL's stock has struggled in recent periods, with the share price closing at $0.93 as of the latest quarter. The company's price-to-book ratio of 1.25 and price-to-sales ratio of 0.07 suggest the stock may be undervalued, but the company's financial performance and liquidity challenges have weighed on investor sentiment.
Conclusion
SMFL is a nutraceutical company with a diversified portfolio of products and services, but it has faced significant headwinds in recent periods. The company's ability to navigate supply chain disruptions, improve its operational efficiency, and secure the necessary financing to fund its growth initiatives will be critical to its long-term success. Investors should closely monitor SMFL's progress as the company works to overcome its current challenges and capitalize on the opportunities in the nutraceutical and digital marketing industries.