Local Bounti Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Local Bounti is a controlled-environment agriculture producer focused on living and loose-leaf lettuce and other greens. It reported results for six facilities, including newly completed Texas and Washington facilities that began operations and test seeding in January.
Financial results
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Sales | $8.383 | $6.698 |
| Gross profit / margin | $0.786 / 9.4% | $0.279 / 4.2% |
| Operating expenses | $11.085 | $19.557 |
| Operating loss | $(10.299) | $(19.278) |
| Net loss | $(24.050) | $(23.527) |
| Net loss per share, basic and diluted | $(2.89) | $(3.04) |
| Net cash used in operations | $(7.083) | $(7.830) |
| Capital expenditures / investing cash use | $(34.985) | $(32.685) |
Sales rose 25%, primarily from increased production and sales at the Georgia facility. Gross profit improved, though cost of goods sold remained high at $7.597 million. The lower operating loss principally reflected a $6.2 million reduction in stock-based compensation and lower professional fees and depreciation and amortization. Net loss increased slightly as higher interest expense and a warrant-liability fair-value loss offset much of the operating improvement.
At March 31, cash and cash equivalents were $8.242 million and restricted cash was $6.489 million, or $14.731 million combined. Long-term debt, net of issuance costs, was $329.775 million; senior and subordinated facility balances before those costs were $317.565 million and $49.652 million, respectively. The company also reported approximately $49.4 million of noncurrent financing obligations. Total liabilities were $422.854 million, and stockholders’ equity was a deficit of $9.447 million. Accumulated deficit was $327.4 million.
Material changes, financing and unusual items
- Interest expense, net increased 123% to $9.608 million, mainly due to higher outstanding senior debt and variable rates, plus interest on California facility financing obligations.
- The company recorded a $4.180 million noncash loss from the increase in fair value of its Cargill warrant liability. In January 2024, it amended the warrant exercise price from $13.00 to $6.50; the warrant covers up to 5,353,846 shares.
- Operating cash use improved to $7.083 million, while investing cash use was $34.985 million, primarily for Texas and Washington construction. Debt issuance provided $39.904 million; combined cash and restricted cash declined $2.164 million during the quarter.
- Cargill amendments permit payment-in-kind interest for the March 2024 quarter and, under the Ninth Amendment, the June, September and December 2024 quarters. The Ninth Amendment provides up to $15 million of working capital: $5 million was drawn, leaving $10 million available at quarter-end. The company obtained a permanent waiver for one financial covenant for the quarter; it reported compliance with other applicable covenants.
Outlook, management commentary and risks
- Management expects to close in Q2 2024 on four conditional commitment letters for approximately $228 million of commercial financing, intended to fund 2024 expansions and a Midwest greenfield facility and repay certain construction financing. Funding remains subject to definitive agreements and customary closing conditions.
- Management believes available cash, product-sale proceeds, the remaining Cargill working-capital availability, anticipated financing and interest or principal deferrals will fund planned operations for 12 months from issuance of the financial statements. The filing cautions that additional financing may not be available on acceptable terms.
- Management targets positive adjusted EBITDA in early 2025. This is a target, not a guarantee. It expects to transition the Montana facility toward commercial production by mid-year, begin additional facility construction late in Q2 subject to financing, and target Midwest facility construction in Q3.
- Georgia production increased approximately 50% from December 2023 and was about three times the year-earlier level; first spinach shipments were delivered in March. Texas and Washington began shipping initial products in Q2. Salad-kit distribution expansion is planned from Q2 and additional baby-leaf products from Q3.
- Key risks include continued operating losses and cash burn, substantial debt and interest obligations, dependence on financing and conditional funding, construction and ramp-up execution, scaling production and reducing unit costs, and compliance with debt covenants. The company disclosed no material updates to its prior annual-report risk factors and said it was not aware of legal matters expected to materially adversely affect its financial position, results or cash flows.
Important facts for investors to verify
- Whether the approximately $228 million financing closed, on what terms, and whether all conditions were met.
- Cash runway and liquidity after construction spending, including whether the remaining $10 million Cargill working-capital availability was drawn and whether further interest or principal deferrals were secured.
- Actual ramp-up, yields, utilization and cost of goods sold at Georgia, Texas and Washington, and progress toward positive adjusted EBITDA in early 2025.
- Debt balances, cash interest and payment-in-kind accruals, covenant compliance and the impact of the repriced Cargill warrant, including potential dilution.
- Whether planned facility expansions, the Midwest project and new product distribution proceed on schedule and within available funding.