Local Bounti Corporation — 2021 Q3 filing summary
Important entity context: This Form 10-Q is filed by Leo Holdings III Corp, a special purpose acquisition company (SPAC), not by Local Bounti as an operating company. It reports the SPAC’s results for the quarter ended September 30, 2021 and from its January 8, 2021 inception through September 30, 2021. It does not provide Local Bounti’s operating results.
Business context and transaction
Leo Holdings III was formed to complete a business combination and had not commenced operations by September 30, 2021. It had agreed on June 17, 2021 to combine with Local Bounti. The merger registration statement became effective on October 20, 2021; shareholder and warrant-holder meetings were scheduled for November 16, 2021. The transaction was therefore pending at the filing date, November 12, 2021.
The SPAC raised $275.0 million in its March 2021 IPO and placed that amount in trust. It must complete a business combination by March 2, 2023 or redeem public shares and wind up, subject to the filing’s terms.
Financial results and liquidity
| Metric | Three months ended September 30, 2021 | Inception through September 30, 2021 |
|---|---|---|
| Revenue | None; no operating revenue | None; no operating revenue |
| Operating loss | $762,679 | $1.387 million |
| Net income (loss) | $3.469 million | $(836,857) |
| Net income (loss) per share, basic and diluted | $0.10 | $(0.03) |
Third-quarter net income primarily reflected a $4.225 million gain from the change in fair value of warrant liabilities and $6,933 of trust investment gains, partly offset by general and administrative expenses of $716,502 and related-party expenses of $46,177. For the inception-to-date period, expenses included $1.303 million of general and administrative costs, $83,738 of related-party costs and $275,622 of warrant-related offering costs; warrant fair-value gains and trust investment income partly offset these amounts. No comparable prior-year quarter is presented because the SPAC was formed in 2021. Margins are not meaningful because the company reported no revenue.
At September 30, 2021, cash was $188,600, prepaid expenses were $771,931, and trust investments totaled $275.014 million. Working capital was approximately $483,000. Total liabilities were $18.444 million, including $9.625 million of deferred underwriting commissions and $8.342 million of warrant liabilities. The filing presents $275.0 million of redeemable Class A shares as temporary equity, not as debt. No bank borrowings or working-capital loans were outstanding.
From inception through September 30, cash used in operating activities was $1.741 million; cash used in investing activities was $275.0 million, reflecting the trust deposit; and cash provided by financing activities was $276.929 million. The filing reports no off-balance-sheet arrangements.
Material changes, outlook, and risks
- Accounting revision: The SPAC revised its presentation to classify all redeemable Class A shares as temporary equity. This reclassified amounts from permanent equity, including $20.6 million at March 31 and $25.9 million at June 30. The filing says the revision did not affect total assets, total liabilities, cash flows, net income or earnings per share.
- Earnings volatility: Warrant liabilities are remeasured at fair value, with changes recorded in earnings. The third-quarter gain was a non-operating fair-value item, not operating performance or cash generation.
- Management outlook: Management expected available working capital and potential sponsor or affiliate borrowing capacity to be sufficient through the earlier of a business combination or one year from filing. Potential working-capital loans were discretionary, not committed.
- Transaction and redemption risks: The Local Bounti combination remained subject to approvals and other closing conditions. Public shareholders could redeem shares under the stated procedures; if no combination is completed by the deadline, warrants may expire worthless.
- Other risks and controls: Management said COVID-19 could adversely affect the SPAC or its target search, but the impact was not determinable. The filing reports that disclosure controls were effective and that a previously identified material weakness in internal control over financial reporting was remediated during the quarter. No material change in internal control was reported.
The filing provides no operating guidance for Local Bounti. It reports no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the eventual status, terms and closing conditions of the proposed Local Bounti business combination; it had not closed as of this filing.
- Review redemption levels and the resulting cash available to the combined company, along with the deferred underwriting fee payable upon a completed combination.
- Separate noncash warrant fair-value gains from operating results when assessing the SPAC’s reported quarterly profit.
- Check the SPAC’s limited operating cash and the fact that potential sponsor working-capital loans were not committed.
- Use Local Bounti’s own filings for its revenue, margins, cash flows, debt and outlook; this SPAC filing does not report those operating metrics.
- Review the accounting revision and related disclosures when comparing this filing with earlier SPAC financial statements.