Local Bounti Corporation Q1 2023 Earnings Call
At this time I'd like to turn the conference over to Jeff Sonic Investor Relations at ICR. Please go ahead.
Thank you and good morning, today's presentation will be hosted by local by <unk> Co Ceos, Craig Hurlbert and Travis Joyner.
President, Brian Cook, and Chief Financial Officer, Kathleen Valla start the <unk>.
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.
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 will also refer to certain non-GAAP financial measures today. Please.
Please refer to the press release, which can be found on our Investor relations website investors that local boundaries dot com.
For reconciliations of non-GAAP 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. We.
We started 2023 on a strong note with the first quarter performance that was consistent with our plan as.
As we move into the second quarter, our growing operations are progressing nicely. Most recently with the completion of our Georgia six acre greenhouse facility in April and the advancement of our new facilities in Texas and Washington.
But perhaps most importantly, we put the financial resources in place to support our business for the long term.
This was no small feat given the current economic environment.
As we communicated on our last earnings call, we expanded our credit facilities with Cargill by up to 110 million.
Which simultaneously relieving cash needs to fund our operations.
Just last week, we built upon that support with the closing of a $35 million sale leaseback transaction. This cash combined with the cash available from our Cargill Amendment provides us with approximately 58 million unacceptable cash to run our operations and scale apart.
Business with the intent to reach breakeven adjusted EBITDA by the end of 'twenty 'twenty four or early 2025.
Our entire team continues to push our national platform.
Head into the future constantly learning from our own trials and the mistakes of others to become the most capital efficient see a platform in the industry.
Travis will speak to some of the operational gains that we're realizing with our stack and flow technology in Georgia today, and also speak to some additional productivity levers that we will be implementing in the future. These are extremely exciting advancements which demonstrate our unique.
Ability to squeeze the most out of our assets to maximize revenue and cash flow, while delivering long lasting delicious and sustainably grown products to over 10000 locations nationwide.
Our stock and flow technology continues to underpin our business model as D optimal capital efficient tool to enhance crop turns and maximize return on investment across a variety of C. A approaches.
Beyond our greenfield expansions the inherent flexibility of our approach also affords us other opportunities to achieve greater scale quickly through strategic acquisitions.
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 to 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 progress on our various construction projects before our CFO Cathy concludes with her financial review and financing update.
I am so grateful to work with such a committed and talented team here at local bounty. Our success is a direct result of their collective efforts and I'm honored to help lead this business on behalf of our employees and our stakeholders.
With that I'll pass it over to my friend Travis.
As Craig noted maximizing our stock and flow technology is foundational to our strategy and will demonstrate the economic advantages are CEO approach and help us achieve our long term financial goals the stock and flow is immensely productive and our relentless focus on optimizing the technology continues to deliver impactful results.
Cascade through our facility network.
Today, our stock and flow enabled production at our Georgia facility, which at this stage is limited to a single stack zone is online and achieving trial production yields 40% to 70% higher than the rest of the greenhouse as.
As we complete the full stack integration in Georgia yields will increase over time as we solve the optimized facility output.
Our successful integration of stack with the dynamically index cutter system, and the Georgia greenhouse will drive enhanced yields with significant automation and labor savings compared to our first facility in Montana.
At scale, we believe that these enhancements allow us to out compete the best greenhouse growers by approximately 50% and the average greenhouse grower by 75% to 100%.
Our production statistics are the proof that stock and flow generate one and a half to two times the yield of traditional greenhouse growing methods.
But we aren't stopping there while we feel great about the productivity enhancements within the greenhouse we have similar initiatives in place for our vertical stack production.
Through additional optimization of the vertical growing environment, we see an ability to increase output at the early stage of our system by another 20% beyond what we're currently achieving.
This is of critical importance for our business and is foundational to our capital efficiency ethos local body not only do we realize the operational benefits of the higher rates of production our fixed cost base, but these same gains create direct proportionate savings on future capital expenditures.
This relationship is highly advantageous and demonstrates our rigorous approach we do the math on every decision, including the vetting and implementation of technology to improve unit economics.
Pass it over to Brian for his remarks.
Thank you Travis in terms of our scale up our workflows are focused on completing projects that generate near term returns with that in mind. We are working on completing our Georgia Buildout, finishing our Texas facility in the fourth quarter of this year and our Washington facility early in the first quarter of 2024.
With respect to Georgia construction of Phase one B was completed and feeding began in April .
As a reminder, phase one <unk> and one b reflects the sites completed six acre automated greenhouse footprint.
The completion of the six acres will effectively drive distribution of local value products across the south east by the end of Q2 through multiple selling channels.
While we have a single stack zone on four vertical nursery operating within the facility. It is largely a horizontal greenhouse at the moment.
That will all change once we integrate the rest of the complementary stag zone that comprise phase one fee would.
With the additional capacity brought on with the stack technology, we will have the ability to open up our product suite through new offerings strengthening our position as the premier partner in the CEO space.
We continue to expect this work will be completed and online early in the fourth quarter of 2023, allowing local bounded to deepen our roots in the southeast.
Our new six acre facility in Texas is advancing nicely with recent completion of a pad and foundation.
The similar design of this facility to that of Georgia will allow for synergistic operations and management of the two facilities.
As mentioned, Texas will support production of our packaged leafy green varieties as well as locally grown living lattices and fortify our national distribution network with local localized facilities coast to coast across the Southern U S.
We continue to expect operations at Texas to commence in the fourth quarter.
The patent Foundation work are also complete at our Pasco facility.
True to a local boundaries mission to deliver superior unit economics. The facility will be comprised of three acres of greenhouse that will be supported by multiple stack zones.
The location will help bolster the company's distribution capabilities in the Pacific Northwest and is expected to commence operations in the first quarter 2024, which continues to reflect our strategy of staggering construction to accommodate the commissioning of our Texas facility in the fourth quarter of 2023.
Commercially I'm excited to see a 13% increase philosophy improvement in our current portfolio from 2022 level as local bounding continues to resonate with consumers over quality and freshness.
Our mature regions continue to grow and tiny scale velocities in new markets has shortened was successful market strategy.
On that note we are thrilled to confirm we have started shipping to two new distribution centers recently from our Georgia facility with two additional Sams clubs and distribution centers set to come online by the end of the second quarter as mentioned on our last earnings call.
These are great wins for local Bonnie and reflect our increasing scale and ability to service large retail customers.
Now I'll turn the call over to Kathy for her review of the financials.
Thank you, Brian I'll cover our first quarter results and provide a review of our recent financing activities first quarter 2023 sales were $6 7 million as compared to <unk> 3 million in the prior year period, our first quarter results largely reflects production from our California.
Facility and to a lesser extent, our Montana in Georgia Phase one a facilities as previously discussed we expect improved revenue run rates in second quarter from Georgia with the recent completion of Georgia Phase one B's additional three acres of growing space with this work now.
Complete we are beginning to fulfill demand and make preparations for the four additional distribution centers that will fold into our network during the second quarter and of course later in the year, our phase one C will be completed and come online for the increasing the revenue out of that facility.
First quarter 2023, adjusted gross margin, excluding depreciation and stock based comp and other nonrecurring items was approximately 33% adjusted gross margin was impacted by persistent heavy rains, which shut down roads at our California facilities and caused temporary production and delivery interruptions.
We also saw reduced customer demand in the western markets. We served as customers made fewer shopping trips. During this time due to the inclement weather first.
First quarter 2023, net loss was $23 5 million as compared to a net loss of $25 8 million in the prior year period and includes 6 million in stock based comp $4 3 million and interest expense $3 5 million of depreciation and amortization $1 7 million as a business combination.
And integration costs and point $7 million of increased utility costs related to inclement weather adjusting for these and other discrete items adjusted EBITA loss was $7 4 million as compared to adjusted EBITDA loss of $8 5 million in the prior year period from a capital structure perspective, we ended the first.
March 31st 2023, with cash and cash equivalents at $7 5 million. However, obviously this doesn't reflect the incremental financing transactions that we've put in place, which provided approximately $58 million of accessible cash to our balance sheet to fund our operations.
As we previously announced on our last call at the end of March we amended our agreement with Cargill to expand our existing credit facility by up to 110 million to a total of up to $280 million. This expansion provides capital to fund construction at our facilities in Georgia, Texas and Washington.
Just last week, we closed on the second component of the financing the sale leaseback of our two facilities located in California for $35 million. This cash combined with the cash available from our cargo Amendment provides us with approximately 58 million of available accessible cash to support our.
<unk>.
With this cash in place and access to construction financing via our agreement with Cargill, our focus is shifting to optimizing our capital structure the results of which would reflect our efforts to lower our total cost of capital.
We may pursue additional sale leaseback for other facilities. In addition to utilizing approximately $90 million of that funding from our licensed USDA lender to reduce our use of construction financing and replace it with lower cost debt I'd note that we added 10 million from this funding source as compared to our last.
Update with you we anticipate closing on the first $35 million of debt funding in the second quarter with the remaining 55 million clothing to be completed at a future date.
Naturally we are very excited about these developments they provide us with the necessary capital to reach breakeven cash flow by the end of 2024 or early twenties 25, which is a very important milestone that we've been working hard to achieve as of March 31st 2023, we had approximately 104.
One 2 million shares outstanding.
A pro forma basis, including warrants and our employees' restricted stock units outstanding we have a fully diluted share count of approximately 197 4 million shares.
With respect to our outlook, we are reiterating full year 2023 revenue guidance of between 34 and $40 million representing growth of at least 74% as compared to the end of 'twenty to 'twenty two.
In terms of quarterly cadence as I mentioned, we expect revenues to build sequentially through the balance of the year as our Georgia production stepped up with the completion of phase one be in April and the four additional distribution centers. We are beginning to serve this quarter.
Following this the next lever will be the impact of stacked phase one sees completion in the fourth quarter, which will increase production by 40%. This is expected to have a commensurate positive influence in our adjusted EBITDA as well, which should gradually improve through the balance of the year building from the low point we.
In the first quarter, we reported today.
Once again, we believe we have line of sight to positive adjusted EBITDA and finally I'd also note that the impact of any potential acquisitions as part of our belt enterprise strategy for growth could potentially change this expectation.
We believe this demonstrates the flexibility of our model and the advantages of our approach which revolves around capital efficiency.
That concludes our prepared remarks, operator, please open the call for questions.
Thank you.
You'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question. Kim you May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question. Thanks.
Thanks, So much guys you know as you get prepared for phase one see later this year in Georgia can you talk about how mature the conversations are with your customers around the products and your ability to kind of hone the growing process for those products right now and when you start to ramp.
Yeah, Hey, Hey, good morning, Colin Brian do you want to maybe tackle that question for Colin.
Yeah definitely hi, Colin.
We're actually really excited about the extra availability availability coming online.
We do have a lot of demand that has been kind of put at may and we continue to ramp up our.
The construction of one a one b one fee coming on and then just.
The full on commissioning of the product. So we're really excited about it we're having a lot of great conversations.
And we do have more demand than we have availability at this time.
Okay, well I'll take the rest of that offline.
You know just Kathy on the sale leaseback and the USDA loan, obviously theres a handful of puts and takes can you talk us through your decision, making process and how you're going to look at you know, what's the optimal source of capital.
For the company with with those facilities you know, whether you look at a sale leaseback or one of those loans.
Yeah sure so.
With the advent of the restructure of the cargo agreement, it's fantastic in the sense that they are allowing other capital providers to come into the cap stack with the goal of long term right, reducing our cost of capital obviously, the U S D a financing.
Hum along our term a much lower interest rate is fantastic, but also same with sale leaseback much lower cost of capital, but it also brings cash onto our balance sheet as as we said right. We we.
Recently brought about 58 million onto our balance sheet, which we have for the sole use of our operations right for for the coming quarters, which is fantastic, but you know again the lowest cost of capital is you know U S. D. A financing and also sell leasebacks are both of which we are considering for our COO.
Facilities, but also as we look to the future for the facilities that will be be planning to build in the northeast and other locations throughout the country.
Thanks, and then the last one is just really around the.
The acquisition pipeline.
Obviously with the demonstration of the efficiency of the technology can you talk about inbounds that you're getting from folks that maybe you want to partner with you and the you have the flexibility or criteria that you guys might be a little person of those deals.
Yeah.
It earlier in the call just wanted to get a sense of how we might think about the cadence of that sort of activity.
Yeah, Hey, Collin.
I think.
No.
It's typically directly tied to their own capital situation.
And so it's the timing of these is varied a little bit, but the the consistency of whats.
What's being asked for and what's being looked at is is there and I think we said it in the in our comments our technology gives us.
The ability to bring on different types of technologies to help us do multiple things one would you be geography, the other would be talent excel.
Et cetera. So we're taking these on we have a team of people that are able to quickly evaluate.
What each specific opportunity could mean to us we have a robust way of looking at these and I I would just say.
It's a very real possibility its something were looking at as evidenced by obviously, what we did with Peach and something where we're not going to shy away from but it's it's it's got to be the right opportunity for us and for our shareholders. Obviously.
Okay. Thanks, guys I appreciate it.
Thank you Colin appreciate it.
Thank you. Our next question comes from the line of Ben claims with Lake Street Capital. Please proceed with your question.
Alright, Thanks for taking my questions first one on the.
Announcements today that you guys expect capital to be sufficient to get you to EBITDA breakeven can you clarify is that expectation around production solely from the locations that we know about those you know, California, Georgia, Texas, Washington, or do you include expanded production beyond those locations either org.
We are in there and you're likely to get you to EBITDA breakeven.
Kathy you want to take that one.
Yeah sure. It's thanks, Ben Good morning, it's with the existing plant facilities.
Excellent and then I guess, one clarifying question on that does that include integration of.
It does not.
Okay, great. Thank you and then one other one for me.
As you know line item of a utility price spike.
To elaborate a bit on what this is and what is now being reported a couple of quarters in a row is there is there any concern of kind of a more permanent increase in utility costs are from certain locations or or do we really think the spike is onetime in nature just over a couple of quarters.
I'll go ahead and take that one it's it is just you know we we saw it in Q4 and in Q1, and it's already way back down to even prior you know more like where we were at Q3. So we definitely feel it was a one time hit and in fact, we might even get a credit back.
From the states.
Okay, Okay very helpful very.
Very good old plenty more to talk about but I'll leave it there. Thanks for taking my questions and then I'll get back in line.
Okay. Thanks, Dan.
Thank you Ben.
Thank you. Our next question comes from the line of Chris Barnes with Deutsche Bank. Please proceed with your question.
Hi, Good morning, I guess I'll, just pick up where Ben left off on the gross margin. It contracted meaningfully from what you earned in the fourth quarter. I know you highlighted the heavy rain, causing production and delivery interruptions and reduced demand, but is there any way to parse out like what your gross margin might have been with.
These one time items I'm, just trying to get a sense for how.
We should think about gross margin from here over the balance of the year and into the future just as we try to marry that with the expectation of breakeven EBITDA by like waiting 24 early 'twenty five thing.
Yeah sure.
That one yeah, yeah sure sure. Thanks, Thanks for the question and it's such an important one right, but it is.
We do feel that we will be back to between 35 and 40 consistently each quarter. We we had you know a lot of one off things that happened in the California's but what will happen you'll see as we continue to scale with the other facilities.
The risk in that one facility that we saw in Q1 is is diminished. So if you if you take away the one times for California, we would've been at 38% for the quarter.
Got it that's helpful. And then second I just wanted to ask for an update on the consumer reception you've seen from your heat and eat meal kit products that you wants to earlier this year like how is demand performed relative to your expectations and what are you seeing in terms of repeat them.
Have you have you expanded these products into other sprouts stores or even into other retail banners or is it still too early for that right.
Thanks, Chris Brian you want to take that one.
Okay.
Yeah. Thanks, Chris.
So we're actually currently looking at a package redesign right now on the key items.
When we did our initial testing they win and held well through the cycle, but as they've kind of gotten to the stores and our merchandise within.
Regular retail systems.
They werent lasting as long as we had hoped and so we're actually taking a step back on the heat and eat items, specifically to take a look at the packaging that we have it in now and looking to re launch it in the near future.
Okay, Great that's very helpful.
That's what I'm, saying.
Thank you Chris.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question Hugh Please press star one on your telephone keypad. Our next question comes from the line of Brian Wright with Ralph M. Kam. Please proceed with your question.
Thanks, Good morning, just wondering.
Question about kind of future facility costs kind of given commodity pricing is starting to come in.
This year and just kind of how to think about that kind of going forward is that.
Something that's a potential longer term benefit that come up.
All of these kind of keep going on with it.
Yeah.
No.
Good morning, Brian . Thank you Kathy Brian you your two aren't maybe tackle that question. It's a good one.
Okay.
[laughter].
Yeah sure. So in terms of facility build an even worse, we're on budget for the facilities that we have coming online in 'twenty three in <unk> and 'twenty four and we're not seeing frankly, we're just not seeing a lot of the impact one way or the other.
That's the that's those are my sentiments, Brian do you have anything to add.
No I don't have anything yet and I think that's appropriate.
What we're seeing out there right now.
Okay.
Okay and then just is there you can kind of provide the incremental the inclement weather impact on gross.
Gross margin.
California, and then in the quarter.
But you did kind of you know indicate that there was an impact on sales as well is there any way to kind of size that for us.
I don't know if I can actually well, but Brian do you want to go for it.
Yeah, Yeah, I mean, I think just from an overall.
Demand perspective.
You know every everything has brought you know and.
<unk> leveled back up.
We had seen some.
<unk> operational.
Levers that we had to update in April as part of this.
You know just kind of.
Good things and get demand or our supply back up.
But as far as the demand looks everything is is back on track.
Mers are putting in for orders and actually increasing to get.
To get volumes back to what the.
Traditional.
Supply numbers are what they usually have in stock.
Yeah, and I'll, just add to that I mean, just even being a consumer so I've lived in.
You know northern California for 25 years, and this Q1 of 2023 the level of rains.
I, we're so strong and so prolonged I've just never experienced anything like it in the years that I've been here and it was it rained you know.
They like our northeast heavy rain for days and days and days straight on it and it was just a complete anomaly and what it drove was even myself personally my family you know we didn't want to leave the house because the ratings were so bad that it was actually dangerous to a certain.
Great to actually be out on the streets.
Sort of say it.
Maybe I shouldn't say this but like even Kevin Costner announced that he couldn't make it to the awards ceremony, because they couldnt leave us out because the roads were shut down for it. It just was a complete anomaly and folks you know just weren't shopping as much because they weren't leaving their house.
Okay, Great and then.
Is there a way to beat it.
It seems like now that we've gotten.
In Georgia significant presence in the distribution centers is it.
How do we think about like metrics going forward as far as penetration within like how many stores from those are being serviced or penetration at the stores is there some sort of metric. We can kind of think about kind of going forward to say well, maybe not exactly model, but give us some indication as far as.
You know share gains within those D C.
Yeah. Thanks, Brian Good question right.
Brian Cook, you may want to tackle that one.
Yeah, Yeah, I can jump in on that one so.
The Big thing right now Brian around the Georgia penetration is that we are first and foremost taking care of our contractual obligations with the Sam's club, which as.
As you know has now kind of gone out the full south east.
We do have customer.
Customers outside of that as well so we haven't put an official like okay, here's how many doors.
We're in officially across the South east.
And you kind of report that out is from from.
Our total door count for.
For the South east coming out of that Georgia facility moving forward, but we haven't really looked at it too much yet because we've really been focusing on getting all the Sam's club Dcs on boarded up.
Up until this.
The end of the Q2.
And there will be moving on with one being now coming online, which again, we said we seeded right and so we're not going to have product availability Tel.
Late name for that product.
And so that what that will do is give us the availability to go out into multiple more doors that we have kind of waiting.
In the wings here that where people are excited to get our product in the stores.
Okay, great. Thank you so much and congrats on the quarter.
Thank you Brian Thanks, Brian .
Thank you ladies and gentlemen, there are no further questions. This concludes our Q&A session I'll turn the floor back to Mr. Herbert for any final comments.
Thank you so much I would just like to thank everybody for joining us. This morning, and we sincerely look forward to speaking with you all again in the meantime.
We're back at it everybody have a great day. Thank you.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.