Tattooed Chef to file for bankruptcy, plans to sell assets

Tattooed Chef's stock closed at just 29 cents a share Wednesday, following its announcement Friday that it will be filing for Chapter 11 bankruptcy protection.

Chairman and CEO Sam Galletti said the plant-based food company will continue operations as it solicits bids for its assets; the U.S. Bankruptcy Court will oversee any auction or sale.

For Tattooed Chef, its announcement to sell its assets through a bidding process means the company's time as a standalone entity is limited. The company has provided notice of intended layoffs to its employees in California and New Mexico.

"Despite … our best efforts to maintain the operations of Tattooed Chef, our business has continued to be impacted by a challenging financing environment and an inability to raise additional capital," Galletti said in a released statement. "These factors, among others, in the view of the management team and Board of Directors necessitated the Chapter 11 filing.”

The company will file its case in the Central District of California. Meanwhile, Tattooed Chef is working with its existing secured lender to secure debtor in possession financing, the funds that will allow it to keep operating.

According to the company's June 30 filing with the Securities and Exchange Commission, The Nasdaq Stock Market notified Tattooed Chef on June 28 that its closing stock price had fallen below the required $1 per share minimum for 30 consecutive days. Tattooed Chef has until Dec. 26 to raise the closing stock price to at least $1 per share for 10 consecutive days.

Tattooed Chef, which launched in 2018, has been floundering for some time with declining revenue, inflationary pressure on its business through higher packaging and material costs, mounting competition, a rapidly shrinking cash stockpile and broader challenges in the plant-based sector.

The weight of all these factors contributed to the demise of the California-based private-label and branded food manufacturer that just a year ago had a much more optimistic outlook.

Recent financial news

In its Q1 financial report, released May 15, Tattooed Chef reported a year-over-year decline in revenue of $8.6 million, or 12.7%, due to one customer's reduction of its products; this led to a gross loss of $4.1 million for the quarter, compared with a gross profit of $4.1 million in Q1 of 2022. Net loss for the quarter was $19 million, compared with a net loss of $20.2 million in the comparable quarter.

The company reported in its FY2022 annual report, which was filed with the SEC on May 15, that its "recurring losses and significant accumulated deficit have raised substantial doubt regarding our ability to continue as a going concern."

For the fiscal year ending Dec. 31, 2022, Tattooed Chef reported a gross loss of $13.4 million, compared with a gross profit of $17.1 million for FY2021. The brand's net loss for FY2022 was $141.5 million, compared with a loss of $87 million in fiscal 2021.

As recently as two months ago, Galletti touted the company's focus on growth instead of profitability and noted it expected to reach breakeven adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and become cash flow neutral during the third quarter of 2024.

Tattooed Chef would achieve these goals through cost reductions, efficiency gains, inventory management, rationalization of underperforming products, new product introductions and targeted retail expansion, he said.

Instead, Tattooed Chef, which entered the public markets through a merger with a SPAC in 2020, has succumbed to many of the difficulties facing other plant-based companies: It struggled to raise the cash needed to sustain operations and grow. Tattooed Chef simply ran out of time and failed to adequately separate itself from other companies in a crowded space.

Once a fast-growing food category, the plant-based industry has seen growth slow or decline, especially in meat. It has prompted several major companies to roll back their presence. In 2022, JBS USA abruptly shuttered its Planterra plant-based business, and Beyond Meat, Impossible Foods and Maple Leaf Foods' Greenleaf Foods all cut employees.

Tattooed Chef posted $213 million in revenue during its 2021 fiscal year. That small size likely makes it an ideal addition for a private equity firm or another company with a presence in plant-based CPG.

"We have created a strong brand, a portfolio of frozen plant-based food, a vertically integrated operating infrastructure supported by approximately 400,000 square feet of manufacturing capacity, and extensive branded and private label manufacturing capabilities," Galletti said in the statement. "The actions we are announcing ... are designed to promote a fast, efficient, and value-maximizing sale."

New Hope Network's Victoria A.F. Camron contributed to this story.