Local Bounti Corporation annual report, FY2022

Local Bounti Corporation — FY 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. This is an annual report, not a standalone fourth-quarter report. Local Bounti is a controlled-environment agriculture company focused on lettuce, salads and cress, using a combination of vertical nursery and greenhouse growing.

Financial results and liquidity

Metric	FY 2022	FY 2021
Sales	$19.5 million	$0.6 million
Gross profit	$2.2 million; 11.4% gross margin	$0.2 million; 32.3% gross margin
Research and development	$14.1 million	$3.4 million
Selling, general and administrative	$82.7 million	$41.5 million
Operating loss	$94.5 million	$44.7 million
Net loss	$111.1 million	$56.1 million
Net loss per share	$1.27	$1.06
Cash used in operating activities	$48.8 million	$20.1 million
Cash used in investing activities	$172.4 million	$29.7 million

Revenue rose by $18.8 million, primarily because of the April 2022 acquisition of Pete’s, which added two California facilities, a Georgia facility and a broader retail distribution footprint. The periods are not directly comparable because Pete’s contributed for only part of 2022.
Gross margin declined, reflecting the acquired inventory fair-value step-up, which reduced gross profit by approximately $1.0 million, and temporary California supplier challenges that increased order-fulfillment costs. The filing says those supply challenges were resolved.
SG&A growth included a $20.2 million increase in stock-based compensation, higher payroll and public-company costs, acquired-intangible amortization, insurance and professional fees. Total stock-based compensation was $39.2 million in 2022.
At year-end, cash and cash equivalents were $13.7 million and restricted cash was $11.3 million, for $24.9 million combined. Restricted cash was reserved for debt service. Accumulated deficit was $179.3 million.
Cargill debt principal was $140.9 million at year-end; the balance-sheet carrying amount, net of debt issuance costs, was $119.8 million. The facilities are secured by substantially all company assets, including intellectual property. Interest rates were 12.5% on the subordinated facility and SOFR plus a 7.5%–8.5% margin on the senior facility.

Business changes, outlook and material items

The Pete’s acquisition closed April 4, 2022, for $92.5 million cash plus 5,654,600 Local Bounti shares. The company reported $38.5 million of goodwill and $52.3 million of acquired intangible assets. Unaudited pro forma sales were $25.4 million for 2022 and $23.4 million for 2021; pro forma net losses were $112.4 million and $79.9 million, respectively.
Local Bounti reported four operating facilities at year-end and construction underway in Texas and Washington. It expected the Texas facility to begin operations in Q4 2023 and the Washington facility in Q1 2024. Georgia construction and Stack & Flow retrofits were also progressing, with certain phase completion expectations pushed into 2023.
Management said it expected available cash, operating cash flow, anticipated sale-leaseback proceeds and Cargill borrowing capacity to cover basic cash requirements for at least 12 months after the financial statements were issued. The filing notes that expected operating losses and negative operating cash flows initially raised substantial doubt about going concern; management concluded its plans alleviated that doubt. This assessment depends on execution and access to expected funding.
Management provided no clear numerical revenue or earnings guidance. It anticipated benefiting in 2023 and beyond from contractually permitted price increases and expected to reduce cost of goods sold as operations scale. These are forward-looking expectations, not guarantees.
Subsequent financing developments materially affect the capital and dilution picture: amendments in January and March 2023 relaxed liquidity and debt-service-reserve requirements and permitted interest or fees to be paid in kind. On March 28, Cargill agreed to expand the facility from $170 million to up to $280 million, subject to conditions and Cargill’s discretion, and Local Bounti issued warrants for up to 69.6 million shares at $1 per share. The warrants have ownership-exercise limits that may be increased by the holder with notice.
Also on March 28, the company agreed to a roughly $35 million sale-leaseback of its Carpinteria and Oxnard facilities, expected to close in Q2 2023 subject to customary conditions. Proceeds were expected, not yet received as of the filing.
NYSE notified the company on February 28, 2023 that its share price did not meet the $1 minimum-price requirement. The company had six months to regain compliance and said it might consider a reverse stock split; there was no assurance it would regain compliance.

Principal risks and contingencies

Continued losses, negative operating cash flow, substantial expansion capital needs and possible need for additional financing; new financing could impose restrictions or dilute shareholders.
Dependence on Cargill financing, compliance with debt covenants, and the risk that undrawn funding is unavailable if conditions are not met. The secured lender may foreclose following an uncured default.
Execution risks from constructing and commissioning facilities, scaling production, integrating Pete’s, and retrofitting its facilities; cost inflation, supply-chain disruption, energy costs, labor availability and permitting could delay or increase costs.
Operational and agricultural risks include equipment or power failures, crop disease and pests, food-safety incidents, water shortages—particularly in California—and weather events.
Revenue concentration: two customers represented approximately 27% of 2022 sales; the filing says top retail customers represented a majority of revenue. Produce sales generally are not supported by long-term contracts, and demand can be seasonal.
The company reported no material litigation and no income-tax provision for 2022. It had approximately $212.6 million in federal and state net operating losses, whose future use may be limited.
A material weakness in financial-reporting controls identified for 2021 and 2020 was reported as remediated in 2022. Management concluded controls were effective at year-end; the auditor did not attest to internal-control effectiveness because the company is an emerging growth company.

Important facts for investors to verify

Whether the March 2023 Cargill financing conditions were satisfied, how much funding was actually drawn, and the resulting interest, covenant and repayment burden.
Whether the $35 million California sale-leaseback closed, its net proceeds and ongoing lease costs, and how the proceeds were used.
Progress, capital spending and commissioning results for Georgia, Texas and Washington, including realized production, yields, utilization and gross margins.
Whether price increases, supply-chain normalization and scale improved gross margin and operating cash burn after year-end.
Actual dilution and potential resale overhang from the 69.6 million Cargill warrants and other equity awards, and the company’s status under NYSE listing requirements.
Customer concentration, purchase-order trends, and whether new facilities have adequate demand and distribution commitments.