Local Bounti Corporation quarterly report, Q1 FY2022

Local Bounti Corporation — Q1 2022 Form 10-Q

Business context and reporting period

Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Local Bounti grows and sells fresh greens using controlled-environment agriculture and its Stack & Flow Technology. The quarter’s results do not include Pete’s: the acquisition closed April 4, 2022.

Key financial metrics

At March 31, cash and cash equivalents were $71.974 million and restricted cash was $4.416 million. Total assets were $126.479 million; total liabilities were $39.526 million. Long-term debt carried at $11.110 million, net of deferred financing costs; the subordinated facility had $16.293 million principal outstanding. The company reported $13.982 million in financing obligations. Accumulated deficit was $94.014 million.

Changes versus prior comparable period

• Sales rose by $225,000 as production expanded and Local Bounti products were available at more than 500 retail locations, versus 80 a year earlier.
• Gross margin declined to 17.0% from 21.1%.
• Net loss increased by $16.374 million. SG&A rose $13.965 million, including $6.071 million more stock-based compensation, $3.901 million in Pete’s transaction costs, and $3.060 million in salaries and wages.
• Operating cash use increased by $6.862 million, while property and equipment purchases increased by $13.603 million.
• Cash and restricted cash fell by $24.687 million during the quarter. Financing cash flow was only $71,000, compared with $21.604 million provided in Q1 2021.

Outlook, developments and risks

• Management said cash on hand and borrowing capacity were expected to meet cash requirements for at least the next 12 months, but warned that changed plans or higher-than-expected needs could require additional financing. No specific revenue or profitability guidance was provided.
• On April 4, Local Bounti acquired Pete’s for stated total consideration of $122.5 million, subject to post-closing adjustments. Consideration comprised $92.5 million cash and 5,654,000 shares; the shares’ fair value at closing was $50.9 million, compared with $30.0 million stated when the agreement was signed. Pete’s also acquired leased properties for $25.8 million cash.
• The acquisition was funded under amended Cargill facilities. The aggregate commitment was reduced to $170 million; the minimum-liquidity covenant was reduced from $30 million to $20 million, inclusive of restricted cash; interest rates on both facilities increased by 2%. Local Bounti paid a $2 million amendment fee and issued Cargill 1,932,931 shares. The filing does not provide a clear post-closing debt draw amount.
• The Cargill facilities are secured by substantially all company assets, including intellectual property, and impose financial and operational covenants. The company reported covenant compliance at March 31, before the acquisition closing.
• Management expects continuing losses and substantial spending on facility expansion, production, research and development, sales, and integration. Key risks include Pete’s integration and retrofit costs, construction and supply-chain delays, inflation, limited operating history and facilities, crop and food-safety risks, seasonality, customer concentration, and possible need for further capital.
• Disclosure controls were deemed ineffective because of a continuing material weakness in financial reporting controls related to insufficient finance and accounting personnel. Remediation was ongoing and had not been validated as complete.
• Management said it was not aware of legal matters expected to materially adversely affect financial position, results or cash flows. Non-cancelable purchase commitments totaled $963,000; future operating lease payments totaled $285,000.

Important facts for investors to verify

• Post-acquisition cash, debt drawn, liquidity covenant headroom, interest costs, and compliance with Cargill covenants.
• Final Pete’s purchase-price adjustments, integration and retrofit spending, and progress toward expected operating benefits.
• Whether sales growth and production scale improve gross margin and reduce operating cash burn.
• Remediation and independent testing of the material weakness in internal controls.
• Potential dilution from acquisition and lender-issued shares, equity awards, and outstanding warrants.