Local Bounti Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Local Bounti produces fresh greens using controlled-environment agriculture (CEA), selling primarily lettuce and packaged salads. The 2022 comparisons include the Pete’s acquisition from April 4, 2022; the Georgia facility began operating in July 2022. Share and per-share data reflect the June 15, 2023 1-for-13 reverse stock split.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Sales | $7.2 million | $6.3 million | $13.9 million | $6.6 million |
| Gross profit (loss) | $0.9 million | $(0.01) million | $1.1 million | $0.03 million |
| Gross margin | 11.9% | (0.2)% | 8.1% | 0.5% |
| Operating loss | $(19.4) million | $(26.2) million | $(38.7) million | $(50.4) million |
| Net loss | $(10.7) million | $(31.7) million | $(34.2) million | $(57.4) million |
| Net loss per share | $(1.35) | $(4.65) | $(4.37) | $(8.80) |
- Q2 sales grew 15% year over year, mainly from the Georgia and Montana facilities. First-half sales increased by $7.3 million, primarily reflecting the Pete’s acquisition and Georgia production.
- Gross profit improved, but costs of goods sold remained high relative to sales. Management cited higher production volume, labor and input costs, California utility-price spikes, and weather-related yield impacts and facility repairs. It said the temporary fixed-cost absorption impact from the California disruption had been resolved.
- Operating losses narrowed as selling, general and administrative expense fell, notably due to lower stock-based compensation and, for the first half, lower prior-year acquisition costs. Research and development expense increased.
- Net loss improvement includes a $15.2 million non-cash gain from remeasuring the Cargill warrant liability; it is not an operating cash inflow. Net interest expense rose to $6.5 million for Q2 and $10.8 million for the first half.
Cash, debt and liquidity
- At June 30, 2023, cash and cash equivalents were $33.9 million, with restricted cash of $6.5 million; combined cash and restricted cash was $40.4 million. The restricted amount includes a $6.5 million letter of credit supporting the Hollandia sale-and-leaseback lease.
- For the six months, operating cash use was $16.1 million, investing cash use was $76.2 million, and financing provided $107.8 million. Investing outflows were mainly facility construction and equipment. Financing included $73.0 million of debt proceeds and $35.0 million from the STORE transaction.
- Reported long-term debt, net of issuance costs, was $179.4 million. The company separately reported $223.2 million of Cargill principal outstanding ($178.0 million senior and $45.2 million subordinated). Debt carrying value and principal differ because of discounts and financing costs. The company also reported a $49.1 million financing obligation.
- Cargill’s facilities were expanded to up to $280 million, subject to conditions and Cargill’s discretion. Interest on the senior facility is SOFR plus a 7.5%–8.5% margin; subordinated interest is 12.5%. Interest payments for the March and June 2023 quarters were permitted to be paid in kind; cash interest payments were to begin October 1, 2023. Principal payments are scheduled to begin in 2025, with remaining balances due in September 2028.
- The company reported compliance with applicable debt covenants at June 30, 2023. It stated that current cash, sales-generated cash, borrowing capacity, expected interest deferrals and potential financing were expected to fund planned operations for 12 months from issuance of the statements, while cautioning that additional financing may not be available on acceptable terms.
Outlook, developments and risks
- Georgia Phase 1-B construction was complete; remaining Phase 1-C Stack zones were expected to be completed in early Q4 2023. Texas was expected to begin operations in Q4 2023, and Washington in early Q1 2024, with Washington timing staggered to accommodate Texas commissioning.
- Management expects price increases implemented in response to cost inflation to benefit sales in 2023 and beyond, and expects cost of goods sold to decline as a percentage of sales over time as the business scales. The filing provides no quantified revenue, earnings or margin guidance.
- The April 2023 STORE transaction provided $35 million but was accounted for as a financing obligation, not a completed sale. The 25-year lease has first-year minimum rent of $3.2 million, with annual 3% increases; the assets remain on the balance sheet.
- Anna Fabrega became CEO effective June 5, 2023. The company also completed the reverse split; it cautioned that the split may not improve share price, marketability or liquidity.
- Key risks include persistent operating losses and negative operating cash flow, reliance on discretionary debt capacity and future financing, construction and commissioning execution, scaling production and reducing unit costs, weather or facility disruptions, and debt covenants and repayment obligations. Management reported no legal matters expected to have a material adverse effect.
Important facts for investors to verify
- Whether the Georgia, Texas and Washington projects meet the stated construction and commissioning timelines, and deliver expected production and revenue capacity.
- Whether gross margins improve after weather-related disruptions and as production scales; the filing still shows substantial operating losses.
- How much Cargill borrowing capacity is actually available under the conditions and lender discretion, and the company’s ability to meet cash interest and future principal obligations.
- Cash runway after construction spending, interest payments and lease obligations, including the distinction between unrestricted and restricted cash.
- The effect of the warrant liability, potential warrant-related dilution, and the reverse split on reported per-share figures and share liquidity.