Local Bounti Corporation — Q3 2023 Form 10-Q
Business and period: Local Bounti operates controlled-environment agriculture facilities, producing living and loose-leaf lettuce and other greens. This unaudited report covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Share and per-share figures reflect the June 2023 1-for-13 reverse stock split.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales | $6.8 million | $6.3 million | $20.7 million | $12.8 million |
| Gross profit | $0.4 million | $1.3 million | $1.5 million | $1.3 million |
| Gross margin | 5.9% | 20.2% | 7.4% | 10.1% |
| Operating loss | $(19.0) million | $(22.0) million | $(57.7) million | $(72.4) million |
| Net loss | $(24.3) million | $(27.1) million | $(58.5) million | $(84.5) million |
| Net loss per share | $(3.02) | $(3.95) | $(7.41) | $(12.73) |
Q3 sales rose modestly, while gross profit and margin declined as production costs increased and output was affected by California weather-related facility repairs and lower Georgia utilization during Stack-system implementation. Nine-month sales growth primarily reflected the 2022 Pete’s acquisition, along with higher Georgia and Montana sales. Lower selling, general and administrative expense—especially stock compensation and prior-year acquisition costs—helped reduce operating and net losses. The nine-month net loss also benefited from a $16.9 million noncash gain from revaluing the warrant liability; interest expense increased.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $11.8 million and restricted cash was $6.5 million, totaling $18.3 million. Total current assets were $27.8 million and current liabilities were $24.8 million.
- Nine-month operating cash use was $26.0 million; investing cash use was $117.2 million, mainly for facility construction and equipment; financing provided $136.6 million. Cash and restricted cash decreased $6.6 million from year-end 2022.
- Long-term debt, net of issuance costs, was $217.0 million; the stated principal outstanding under Cargill Financial facilities was $258.6 million. The facilities carry 12.5% interest on subordinated debt and SOFR-based interest on senior debt; remaining balances mature September 3, 2028. Accrued interest and payment-in-kind interest are material.
- Financing obligations totaled $49.1 million on the balance sheet, including a $35 million Hollandia sale-and-leaseback transaction accounted for as financing. The Hollandia lease has a 25-year initial term and $3.2 million first-year minimum annual rent.
- Management says expected funding—including a prospective $10 million Cargill working-capital advance, up to approximately $230 million in conditional commercial-finance commitments, current cash, sales proceeds, and anticipated interest deferrals—should fund planned operations for 12 months. These funding sources are not all finalized or unconditional.
Outlook, developments, and risks
- Georgia Phase 1-C Stack-zone integration was completed in early October 2023. Texas operations were expected to begin later in Q4 2023; Washington was expected to commence early in Q1 2024.
- The company anticipates contractually permitted price increases to benefit results, and expects cost of goods sold as a percentage of sales to decline over time with scale. No specific revenue, margin, or profitability guidance is provided.
- On October 2, Cargill permitted payment-in-kind of interest due for the September and December 2023 quarters. On October 31, Cargill waived a financial covenant for the quarter ended September 30 and consented, subject to conditions, to a share repurchase program.
- The company reported it was not in compliance with one financial covenant at September 30; the subsequent waiver addressed that covenant for the quarter. Debt includes restrictive covenants and is secured by substantially all company assets. Failure to obtain financing, construction delays, operating costs, yield disruption, and the ability to scale remain significant risks.
- The board authorized up to $1 million of share repurchases through March 31, 2024. The NYSE halted trading in the publicly traded warrants in October and initiated delisting proceedings; common stock trading was unaffected. Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control.
Facts investors should verify
- Whether the $10 million Cargill working-capital funding and conditional financing of up to approximately $230 million close, on what terms, and when.
- Facility commissioning and utilization, particularly Texas and Washington timelines and whether Georgia’s expanded capacity improves margins.
- Cash burn, restricted-cash requirements, accrued interest, payment-in-kind balances, and compliance with debt covenants after the limited waiver.
- Whether revenue growth translates into sustained gross-margin improvement despite labor, utility, weather, and production costs.
- Whether the authorized repurchase is executed and its effect on liquidity, and the final status of the publicly traded warrant delisting.