Q4 2022 Local Bounti Corp Earnings Call
Good morning, and welcome to the local bounties full year 2022 earnings conference call.
All participants will be in listen only mode.
After today's presentation there'll be an opportunity to ask questions. Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Jeff Sonic Investor Relations at ICR. Please go ahead.
Thank you and good morning, today's presentation will be hosted by local Bonnie co Ceos, Craig Hurlbert and Travis Joyner.
President, Brian Cook, and Chief Financial Officer, Kathleen <unk>. The comments made during today's call contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
All statements other than statements of historical facts are considered forward looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially.
From the results discussed in the forward looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the press release, which can be found on our investor relations website investors that local Bonnie dot com for reconciliations of non <unk>.
<unk> financial measures to their most directly comparable GAAP measures with that I'd now like to turn the call over to Craig Hurlbert co CEO Greg.
Thank you, Jeff and good morning, everyone 2022 marked our first full year as a public company, we made significant advancements in the refinement and productivity of our stock and flow technology, which continues to underpin our business model as the optimal capital efficient too.
To enhance crop turns and maximize return on investment across a variety of approaches.
Beyond our Greenfield expansion this affords us great flexibility to establish greater scale quickly through strategic acquisitions, which we demonstrated with the Peach acquisition last April .
As we approach the anniversary of that transaction. Our team is relentlessly exploring new ways to integrate our technologies to further improve upon the productivity of those assets. While also driving the business forward with new product development.
With our distribution reach which surpassed 10000 doors combined with our growing capacity that is improving by the day, we've attracted new commercial partnerships and expanded upon others, most notably the off take agreement with the Sam's club that we announced in November of 2020.
Two for our leafy Greens production.
Others are taking notice of our rapid scale up and enhanced capabilities to <unk>.
As such our near term focus continues to be on the completion of our ongoing facilities, including the implementation of our stack systems.
This is a critical link in our ability to generate additional capacity, while simultaneously driving yield improvements and it is the basis by which we will be able to meet the pent up demand we are experiencing for fresh sustainable and locally grown produce.
Looking ahead to 2023, we're in a great position to continue advancing our business across all fronts. As you may have seen today, we announced an aggregate of up to $145 million of new financing.
Kathy will speak to this in greater detail, but we are pleased with our strategic financing partnership with Cargill and the sale leaseback transaction, the combination of which are allowing us to execute our growth initiatives. Despite the challenges presented by the current macro economic backdrop.
Moreover, with this additional capital we believe that we have the funding required to drive the business to positive adjusted EBITDA, which will be a major milestone not just for local Bonnie but for the entire <unk> industry.
We are proving that we can continue to drive topline growth and simultaneously generate healthy margins as we scale the business in a responsible capital efficient manner.
This is due in large part by the continued gains we are making with our stack and flow technology to drive improving unit economics, which are co CEO Travis Joyner will speak to and then our president Brian Cook will provide some further commentary around our commercial strategies product development.
And an update on our various construction projects before Cathy concludes with her financial review.
On a personal note I would like to extend a huge thank you to the hard working members of the local battery team. It is an honor to work with each of you such dedicated and passionate professionals with that I'll now pass it over to Travis.
As Craig noted our stock and flow technology is the cornerstone of our business. It is immensely productive and our relentless focus on optimizing the technology continues to deliver impactful results that will cascade through our facility network.
At our Montana facility. For example, we are currently seeing a 25% to 35% yield improvement compared to one year ago, and that's translating to between 17 and a half to 25 pounds of production per square greenhouse, but for our core skus.
These yields or one and a half to two times higher than comparable greenhouse facilities, demonstrating the real and tangible value of our patent pending technology.
Similar to the historic ramp in our Montana facilities yield for our future stack and flow facilities, including our Georgia facility, There's a ramp period for production and sales in Georgia, we are preparing for that ramp as we begin to scale, our bolt ons stacked phase to the existing Georgia greenhouse.
Structure.
Since September of 2022, we've commissioned one stock tower in Georgia integrated our technology with the existing greenhouse infrastructure and have run hundreds of recipe trials.
Early trials have consistently demonstrated our stock phase can yield 1.4 to 1.8 X when operated head to head with the traditional greenhouse technology infrastructure that is operational today in Georgia, which is consistent with our expectations.
We are incredibly excited by our ability to drive yield enhancements with the implementation.
Stock and flow at our facilities and reinforce our commitment to implement this technology in future facilities like the one in Texas.
At the end of the day. This is what stock and flow is all about it allows us to make direct iterative improvements on existing greenhouses like in Georgia, or Greenfield infrastructure like in Texas in a manner that drives higher return on investment while minimizing capital needs.
In addition to implementing stack and flow technology across our footprint of leafy Green facilities. We're also working to apply our technology to a variety of other crops and growing environments.
We are in the early trial stages are long term projects for high value crops, such as berries and although it is still very early the initial results are very promising and strongly indicate meaningful improvements in unit level economics.
It is this diversification across crop types that eventually provides us access to a larger share of the global produce market.
We are striving to be the world leader in CEO and these initiatives work hand in hand, with our efforts to translate our innovations into a robust IP portfolio across process improvements genetics computer vision AI and controls.
Formalizing our IP portfolio is an important component of the competitive moat, we are developing around stock and flow and we will ensure that we are well positioned for long term growth.
I'll pass it over to Brian for his remarks.
Thank you Travis I'll start with a quick update on the progress of our facility build out and then speak to some of the new product innovations we are testing.
The emphasis that we placed on bringing additional local capacity online as paramount only matched by our retailer partners who share the same ethos.
This alignment is very powerful driven by shifting consumer preferences and growing demand for better products.
We are excited to announce as of Q1, we are shipping packaged salad products to 18, new distribution centers.
We are pleased to bring our high quality production to new regions and are very pleased by the enthusiastic response from the retail community.
This alignment is best demonstrated in our off take agreement with Sam's club, which will add two new distribution centers serviced by the Georgia facility by the end of the second quarter with early indications are showing strong demand.
Moreover, we expect to begin servicing two additional distribution centers operated by other retailers as well the second quarter.
All of these are examples of the demand we're seeing for reliable availability of locally sourced product and a high velocity category.
So what are we doing to satisfy this demand.
Our Georgia facility is the centerpiece of our near term scale up.
Construction of phase one b is progressing nicely and we expect to reach completion of that facility early in the second quarter of this year.
As a reminder, phase one b will replicate phase one in terms of size and capability essentially doubling our run rate production from that facility.
Following phase one b completion, the site's greenhouse footprint will be established and ready to integrate our complementary backbones that comprise phase one fee.
We expect this work to be completed and online early in the fourth quarter of 2023.
No at this timing reflects a delay in relative to our prior expectation due to excess rainfall and other severe weather that created some issues with the contractors the ability to pour concrete that was specified in the design.
As a reminder, our stack is slow technology is expected to add approximately 40% of incremental revenue generating capacity to the finished Georgia facility, which will be comprised of six acres of greenhouses and multiple climate water and spectrum controlled stack zones.
Importantly, as utilization rates increase we expect to realize cost synergies with each additional pound of production that we have added to that facility.
This speaks directly to the efficacy of our model and we will be visible in our gross margin.
Beyond Georgia, we are also advancing our other build outs.
In early January we broke ground on a new six acre facility in Texas and construction is now well underway.
This facility will eventually support production of our packaged leafy green varieties as well as a locally grown living lattices and fortify our distribution network across markets in the south and Midwest, United States, providing cat capacity that is already earmarked for blue chip retailers throughout the region.
We continue to expect operation at Texas to commence in the fourth quarter of this year and are excited to see this project come to life.
In terms of our project in Pasco, Washington.
Facility continues to progress with anticipated completion in first quarter 2024, which reflects our decision to stagger construction to accommodate the commissioning of our Texas facility in the fourth quarter of 2023.
The Washington facility will be comprised of multiple stack zones and three acres of greenhouse.
Beyond our existing facility network. Our team continues to evaluate location in the northeastern United States as a potential home for one of our next regional expansion.
Finally, I'm excited to share some updates with you on the commercial front.
We have been working diligently to emerge the legacy piece branding into local boundaries branding, creating one cohesive brand with strong roots.
This includes the consolidation of our existing E piece website into the local bound <unk> corporate website as well as the phased rebranding of our butter lettuce products.
Across our integrated business, we're seeing significant momentum for our product and we're pleased to report that in the fourth quarter local bounty and pizza units per store sales velocities increased 16% and 20% on a dollar basis versus the same period last year.
On the innovation front, we have been busy bringing new products to market in January we launched our chef inspired Asian style chicken lettuce wrapped yet a restaurant quality meal solution that is prepared at home in about five minutes and 194 sprouts farmers market's locations in California and Arizona.
This represents our first entry into the heat and eat category and we're really excited to see customers enjoying this product.
Our grab and go program is going through a package design and we'll be expanding to four skus in may.
Now I'll turn the call to Cathy for her review of the financials.
Thank you Brian .
I'll now cover our fourth quarter and full year results.
Fourth quarter 2022 sales were $6 6 million as compared to <unk> 3 million in the prior year period quarterly recurring revenue from the company's California facilities was down slightly on a sequential basis versus the third quarter of 2022 due to an isolated delivery interruption with the logistics.
As a result of the storms in California in the quarter, Although our Georgia facility opened in third quarter of 2022 and <unk>.
<unk> has been shipping out of that facility fourth quarter operations were still in the commissioning phase to prepare fulfilling demand we expect a more pronounced lift in second quarter of 2023, once Georgia phase one B comes online and the four additional distribution centers.
Ryan mentioned fourth quarter 2022, adjusted gross margin, excluding depreciation and stock based compensation and other nonrecurring items was approximately 39%. We were pleased to see another quarter of continued sequential improvement in our adjusted gross margin we continue to see opera.
<unk> to capture the Cogs synergies between local bounty and pizza operations, and we are making great progress. Despite the inflationary pressure in fact, comparing our per unit cost prior to the pizza acquisition to our actual performance since it closed we've reduced packaging costs by 40% and <unk>.
Seed costs as well.
Fourth quarter 2022, net loss was $26 5 million as compared to a net loss of $28 3 million in the prior year period and includes $5 6 million in stock based compensation $4 5 billion in interest expense $3 6 million of depreciation and amortization.
$2 9 million of business combination and integration cost <unk>.
4 million of restructuring and point 4 million of costs related to inclement weather adjusting for these and other discrete items adjusted EBITDA loss was $7 million as compared to adjusted EBIT loss of $5 1 million in the prior year period briefly looking at full year 2022 results.
Sales were $19 5 million as compared to <unk> 6 million in the prior year period, and adjusted gross margin was approximately 38% compared to 43% last year adjusted EBITDA loss was $29 8 million as compared to adjusted EBIT loss of $17 8 million last.
We are.
From a capital structure perspective, we ended the full year December 31, 2022 with cash cash equivalents and restricted cash of $24 9 million and had approximately $29 1 million of undrawn capacity on our credit facility with Cargill.
We announced today, we secured up to $145 million of new financing from two sources to support our current growth plans.
First component of this financing is an agreement to expand our existing credit facility with cargill by up to $110 million to a total of $280 million.
This expansion provides capital to fund construction at our facilities in Georgia, Texas, and Washington in exchange for the improved flexibility and expanded size of the facility, we issued cargill $69 6 million warrants with an exercise price of one dollar per share representing more than a 100.
Percent premium to our current stock price.
The second component of the financing is an agreement for the sale leaseback of our two facilities located in California for approximately 35 million.
Following this additional amendment and the closing of the sale leaseback transaction, which is subject to customary closing conditions and is expected to close in the second quarter of 2023, the company expects to add approximately 50 million to its balance sheet to use for operations.
We are very pleased with the outcome of these transactions and the growing support.
For local boundaries unique C. A approach I'd also reiterate craig's message on the broader importance of these developments they provide us with the necessary capital to reach breakeven cash flow, which is a very important milestone that we've been working hard to achieve.
We believe we will be in a position to share some greater precision in terms of timing during our first quarter 2023 earnings call.
As of December 31st 2022, we had approximately 103 7 million shares outstanding on a pro forma basis, including the existing and new cargo warrants and our employees' restricted stock units outstanding as of March 29, 2023, we have a fully diluted share count.
Approximately 194 million shares with respect to our outlook. We are providing full year 2023 revenue guidance of between 34 and $40 million representing growth of at least 74%.
In terms of our quarterly cadence, we expect that first quarter will look similar to our fourth quarter 2022 results as we work through the commissioning of the Georgia facility and improve production and ahead of the opening of phase one be in a couple of weeks. The addition of the four distribution centers in the second quarter and stack phase one.
See completion in the fourth quarter.
Those elements come online over the course of the year, we'd expect sequential revenue improvement to follow this is expected to have a commensurate positive influence on our adjusted EBITDA as well, which should gradually improve through the balance of the year building from the low point in first quarter. Once again, we believe we have line of sight to pause.
<unk> adjusted EBITDA, well update the market on timing during our next conference call and finally I'd also note that the impact of any potential acquisitions as part of our build and or by strategy for growth could potentially change this expectation.
We believe this demonstrates the flexibility of our model and the advantages are of our approach which revolves around capital efficiency that concludes our prepared remarks operator. Please open the call for questions.
Thank you at this time, we'll now be conducting a question and answer session.
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One moment. Please so we pull for questions. Thank you.
Thank you and our first question today comes from the line of Ben <unk> with Lake Street Capital markets. Please proceed with your questions.
Alright, thanks for taking my questions, but congratulations on the news you were able to announce this morning on my.
First question on the quarter itself.
The R&D line item, specifically, Kathy would you mind kind of getting into the drivers behind the sequential growth in R&D over the second half of 'twenty, two and your expectations for that line item specifically in 'twenty three.
Hey, guys.
Yeah, Hey, Good morning, then go ahead sorry.
Yeah, [laughter] nowhere its good morning, Ben.
Yeah. So what we anticipate into later in 2023 is the R&D line is probably going to stay around that per quarter. Once the the other facility is coming online end of this year and in Q.
Early 'twenty 'twenty four we anticipate that that R&D line will it will come down significantly.
Okay I got it now.
Yeah, Yeah got it.
Yeah No. That's that's helpful. And then the the next question I have is is.
There's so many moving pieces in terms of construction and I get that this is a difficult difficult you don't seem to come out a lot of at this point given all the variables around construction, but the.
No the pushback in the timing of the you know of the Washington facility by a quarter or two and in phase one see how how comfortable are you really with the timeline that you've laid out for all of these facilities at this point.
Sure.
What real risk do you see still remaining that could push out. The this expansion plan you know further into 'twenty four.
Yeah.
Kathy do you want to just continue with that and maybe yeah.
Yeah sure that's such a great question, Ben I mean.
What ended up happening was.
For various reasons when we broke ground and so the original plan was task I was going to come first and then Texas second what happened was we broke ground for Texas in January and everything went so well we realized that we could actually almost get that facility up in September .
Which is of 2023 and we realized that was almost the exact same timeframe that pasco, what's coming up okay, and so trying to commission two brand new facilities at the same time was just going to be too too too much for us. So we purposefully we didn't slow up Pascal, but we we were re.
Missing to get pass go up and running quickly and so what we did was we got it back to a regular construction timeline. So that we could parse that the two openings by two to three months to get starting to commission two facilities at the same time was too much and really to answer your your overarching question.
Which is hey, or are you going to meet these timelines I mean, our construction team every single day I'm amazed at how they meet their targets both timeline and budget wise. They have done an amazing job and we feel very comfortable with the timelines that we set for it it isn't.
Fortunate, Georgia once he is going to be a couple of months later than we had anticipated because of severe rains in Georgia, but that being said I think we're good to go with the timelines that we've set forth.
Brian do you have any comments or thoughts you'd like to add.
Yeah.
Yeah, I think maybe just to add a little bit more into that I mean.
Barring the whether the one thing that May have come a question comes to mind is as we got everything back on track and we had these two sites stacking and we made the decision to stagger them a bit.
One of the exciting notes to take away is that the Texas facility, we expect to be.
Much sold out.
As we once we come to fruition now Theres, obviously, the Onboarding time period, and a general ramp that comes along with it but we fully expect.
Texas to be sold out in a very short order.
Got it no that's helpful.
Well. Thank you one more for me and then I'll get back in line.
In the context of the kind of broader dynamics going on in the in the specialty crop space over the last six months.
It's just torrential rains in southern California, you know disease pressure in 'twenty. Two what are you guys seeing from a pricing perspective from.
You know given given these headwinds that the conventional crop market is facing.
Hey, Brian do you want to take that one.
Yeah, I think it's really kind of playing into what <unk> is all about you.
We're obviously a little bit more of an expensive price point that you've seen on shelf historically.
But what it's done is it's really much pretty much.
Made the gap a lot smaller when it comes to what a retailer would see in a consumer would purchase.
At shelf.
And that's always a good thing right because at that point the fee a space has the additional surety of supply the ability to expand.
Our second flow technology allows us to do that in a far.
Better way from a standpoint of capital expenditures and the ability to grow more with less so it isn't really playing into local bounding pan and in many ways and we expect to see more and more.
Room on the shelf with our with our local bounding products moving forward.
Got it very helpful. Thanks.
Thanks for taking my questions I'll get back in line.
Hey, Ben Thank you appreciate it.
Our next question is from the line of Christopher <unk> with Oppenheimer. Please proceed with your questions.
Hi, Thanks, good morning.
I appreciate that you wanted to get some additional color on timing of that that path to positive EBITDA and free cash flow on the next call.
And I'm wondering if you can help and then you get a little preview to the movie or talk us through maybe on a facility basis, what that path looks like for Hamilton given that that's your most mature facility and how do we think about kind of the timing of each of these facilities as he tried to get towards EBITDA positive.
Thanks for that Chris question, Kristen Kathy why don't you start with that one I think that's that that's a good question for you to start with.
Yeah, Yeah sure. Thanks, and thanks Kristen for the question, what we'll see and in Montana on Montana as well as all of US at anxiously awaiting for the Pasco, Washington facility to be up and running currently what we're doing but we're running out of that facility is many many skus okay.
To support the the northwest and what the second that the Pasco facility is up and running we will switch switch out what the Montana facility is doing in and bring it down to one or two skus. So.
Much quicker that will come to that facility will come to profitability. The other facilities, Georgia is ramping incredibly well you know as we've said on other calls that facilities R. R.
There will be cash flow positive the Georgia like any facility when you get them up and running that it takes you know three to six six months for them to start operating profitably.
Those are those are my thoughts and comments Brian Travis.
Yeah.
Well said.
Yeah.
Okay.
[laughter]. So then if we could talk a little bit about what sort of opex you need to support that ramp and you already commented on the R&D expectations for 2020, three but just give us a sense of what kind of Opex you need to support this ramp over say 2023 'twenty 'twenty four when we get to that run rate.
Revenue.
Yeah sure so.
And Craig I'm, sorry, I keep on going on here [laughter], yeah. So so from an opex standpoint, and we will be relatively steady I would say for where our run rate is at Q4 2022.
The significant dropdown will will be the R&D.
Okay, and if I could squeeze just one last one in and Craig I think or maybe it was Travis you talked about institutionalizing. Some of the learning cycles are getting the Ikea in place to protect credit over time I'm. Just wondering you know what your process for institution an institution.
Analyzing those learning cycle is and how you view sort of that ramp up or or closing the gap from the one four to one eight times that you're seeing initially in Georgia to maybe two or more out of the the future facility.
Thank you.
This is a great question Travis.
Yeah, really really great question actually yes, I think the right way to answer that.
Beautiful thing about having stock phase.
As you are able to have a high degree of control of the environment No matter, where you are whether it would be Washington, Montana, Texas, Georgia or Abu Dhabi.
We're able to really replicate the same recipes within our stack pays as they then transition over to the greenhouse so what we're seeing in Georgia and really a very short period of time in September of 2022 reactivated our first stack tower.
And since then we've been executing on literally.
In the hundreds of recipes to optimize that transition from stack into the greenhouse into the flow phase.
And so the great part about where we sit as the Georgia facility is really.
A carbon copy or I guess, I should say, the Texas and Washington facilities are pretty much a carbon copy.
Of the the Georgia facility. So the work that we're doing in Georgia right now is from the playbook from Montana and the playbook from Georgia is going to transition to.
Both Texas, and Washington, and accelerate our learnings and scaling.
Great. Thank you so much.
Christian Thank you.
As a reminder to ask a question today you May press star one from your telephone keypad.
The next question comes from the line of Pam Kaufman with Morgan Stanley . Please proceed with your question.
Hi, This is Jeff Drezner on for Pam Kaufman, just a quick question on Capex and what you anticipate that spend to look like this year.
In support of the expansion projects.
Kathy why don't you take that one.
Yeah, Hi, good morning, and thank you so much for the question so.
So we we typically don't give out our capex numbers kind of per facility or spend per year, we will give a more refined update when you when we do our Q1 earnings call in a few weeks.
We just typically don't don't give the the spend upfront in the beginning of the year, but we will give a more refined.
Our Q1 earnings call.
Okay.
Got it okay. Thanks, and then maybe just an update on how the off take agreement with Sam's club is progressing how many locations you're in and what are you seeing in terms of velocity.
Yeah, Great question, Brian you want to start with that one.
Yeah I can.
Thank you for the question Geoff So the off take agreement is going really well.
The indicators and Kpis that we go over with them.
To be positive.
So we're really happy with.
Where that program is to date.
We're currently in one of their D CS.
And by the end of Q2 will be in all three D. CS in the South East.
Yeah, so that relationship's progressing very nicely and.
A lot more to come there.
Got it got it thanks, and then just if I can squeeze one more in maybe what are some things we're learning or some of the you know from the unexpected.
And then anything you're learning from the integration of the stack and flow technology in the Georgia facility and what maybe has been unexpected.
Yeah, It's it's a great question and maybe Travis you can you could touch on that.
On some of the things we're learning some of the things that are.
Even better than we had anticipated maybe walk us through that please.
Yeah. So I think you know kind of consistent with my remarks, I think what's unique about the Georgia facility is a it's a it's a existing greenhouse facility with a horizontal technology active. So if you think about how a traditional greenhouse tech works.
You drop a seed in the greenhouse and then you know.
Pending on the on the crop 30 to 40 days later you have a finished product on the other side and so as we've gone through these recipe trials.
We have seen is our stock phase outperforms head to head very consistently as we've activated.
That that section of the facility I'd say the other thing is that I touched on the fact that year over year and our Hamilton facility, where we're seeing a very consistent uptake uptick in yield.
So I think the learnings are very consistent with what we've seen in Montana right out of the box a stack wins.
When head to head to a greenhouse.
It's operating on a sole basis with existing horizontal tech.
And we've got lots of upside to go get from where we sit today.
Got it thanks for taking my questions I appreciate that.
Thank you so much for your questions.
Thank you.
Ladies and gentlemen at this time I'd like to end the question and answer session and turn the conference back to management for any closing remarks.
I think management would again like to thank all of the amazing people at local bounty and would just like to thank everyone for joining us. This morning, we look forward to speaking to you soon thank you. So much everybody have a great day.
Ladies and gentlemen that does conclude today's conference call. We do thank you for attending you may now disconnect your lines.