Local Bounti Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Local Bounti produces lettuce, herbs, packaged salads and other greens using controlled-environment agriculture. Its 2022 Pete’s acquisition expanded operations and retail distribution.
Key financial results
Amounts below are in millions of dollars except per-share data. The statements are unaudited.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Sales | $6.70 | $0.28 |
| Cost of goods sold | $6.42 | $0.23 |
| Gross profit / margin | $0.28 / 4.2% | $0.05 / 17.0% |
| Operating expenses | $19.56 | $24.21 |
| Loss from operations | $(19.28) | $(24.16) |
| Interest expense, net | $(4.30) | $(1.64) |
| Net loss | $(23.53) | $(25.77) |
| Basic and diluted loss per share | $(0.23) | $(0.32) |
| Net cash used in operating activities | $(7.83) | $(10.01) |
| Capital spending / investing cash use | $(32.69) | $(14.67) |
Financial position and liquidity
- At March 31, cash and cash equivalents were $7.47 million, with no restricted cash; current assets were $17.39 million and current liabilities were $31.99 million, implying negative working capital of $14.61 million.
- Long-term debt, net of debt issuance costs, was $122.42 million. The company separately reported $168.3 million of principal outstanding under the Cargill facilities. The filing’s debt table also reports $45.8 million of unamortized deferred financing costs.
- Total liabilities were $194.46 million, including a $25.70 million warrant liability; stockholders’ equity was $104.17 million. Accumulated deficit was $202.84 million.
- Cash and restricted cash fell by $17.47 million during the quarter. Operating cash use was $7.83 million, investing cash use was $32.69 million, and debt proceeds provided $23.05 million. Property and equipment purchases included $7.58 million recorded in accounts payable and accrued liabilities.
Changes versus the prior-year quarter
- Sales increased $6.42 million, primarily because Pete’s was acquired in April 2022; the filing does not provide a comparable organic-sales growth measure.
- Gross profit increased by $0.23 million, but gross margin declined to 4.2% from 17.0%. Management attributes higher cost of goods sold mainly to the higher sales volume following the acquisition and expects scale to reduce cost of goods sold as a share of sales over time.
- Operating expenses declined $4.65 million. Lower stock-based compensation and prior-year acquisition costs more than offset increases in amortization, employee costs and professional fees. Research and development expense increased $1.63 million.
- Net loss narrowed by $2.25 million, while net interest expense increased $2.66 million, reflecting higher debt balances and rates. Q1 2023 included $5.96 million of stock-based compensation and $3.46 million of depreciation and amortization.
Financing, outlook and risks
- Amendments to the Cargill credit agreements reduced the minimum liquidity covenant to $1 million and reduced required debt-service reserve cash to zero through March 31, 2025. The March amendment expanded potential facilities to up to $280 million, subject to conditions and Cargill’s discretion, and added a minimum production covenant. The company reported compliance with applicable covenants at quarter-end.
- In exchange for the amended financing terms, Local Bounti issued Cargill 69.6 million five-year warrants exercisable at $1 per share. The warrants were recorded as a $25.7 million derivative liability and debt discount, with subsequent fair-value changes to affect earnings. Senior debt bears SOFR plus a 7.5%–8.5% margin; subordinated debt bears 12.5%. Cash interest payments were scheduled to begin October 1, 2023.
- After quarter-end, the company completed a $35 million sale-and-leaseback of its Carpinteria and Oxnard facilities. The 25-year lease has first-year combined minimum rent of $3.2 million, increasing 3% annually. Management says the leaseback proceeds, cash, operating cash flow and available Cargill borrowing capacity are expected to fund basic cash requirements for 12 months from issuance of the financial statements; it cautions that changed plans or higher cash needs could require curtailing operations.
- Management said Georgia greenhouse Phase 1-B was completed and seeding began in April; remaining Stack zones were targeted for early Q4 2023 completion. Texas was expected to begin operations in Q4 2023, and Washington in early Q1 2024. These are forward-looking targets, not guarantees. The company also cited planned price increases intended to help offset inflation and a Sam’s Club five-year offtake agreement for Georgia production.
- Key risks include continued losses and cash burn, reliance on additional capital and discretionary borrowing, construction and commissioning delays, scaling production and improving unit economics, debt restrictions and repayment, and crop, supply-chain and competitive risks. No legal matter was identified as expected to have a material adverse effect.
- Stockholders approved a reverse-split authorization after quarter-end, allowing the board to choose a ratio from 1-for-2 to 1-for-25 before June 30, 2024. The filing warns that a reverse split may not improve the share price, liquidity or marketability.
Investor verification points
- Track cash use, operating performance and whether the stated 12-month liquidity assessment remains supported by actual cash flows and financing availability.
- Verify how much of the potential Cargill facility is committed and available, its conditions, covenant compliance and the company’s ability to meet interest and principal obligations.
- Assess whether production ramps and facility commissioning meet the stated timelines, and whether added capacity improves gross margin and cash generation.
- Monitor dilution and warrant accounting, including the 69.6 million Cargill warrants, subsequent fair-value adjustments and any reverse-split decision. The filing reported 105.6 million common shares outstanding on May 5, 2023.
- Evaluate the long-term cost and obligations of the sale-and-leaseback, including annual rent escalation and renewal options.