Q2 2023 Local Bounti Corporation Earnings Call
Good morning, and welcome to local balance sheet second quarter 2023 earnings conference call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event.
We recorded it.
At this time I'd like to turn the conference call over to Jeff Sonic Investor Relations at ICR. Please go ahead Sir.
Thank you and good morning, today's presentation will be hosted by local bounties, Chief Executive Officer, Anna for Breo, 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.
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 doubt local bony 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 Ana go ahead.
Thank you, Jeff and welcome to everyone on the call today.
This is a pivotal time in local bounces journey and I'm thrilled to join you today for my first earnings call as the company's CEO .
I'm proud to be part of this organization and I'm excited to address the opportunities we have ahead of us.
I believe that our stock and flow technology represents the most innovative and economically viable V. A approach for sustainable agriculture.
I was attracted to local boundaries because of its mission.
Thank people behind it agriculture has been a part of my entire life. In fact, my dad still render farm in Panama, where he goes he can coffee.
I have a deep appreciation for the hard work and limitations that conventional farming methods require which traditionally limited producers to specific geography and approaches.
I believe students should be as local and sustainable as possible.
Local bounty represents a long overdue evolution and growing techniques, but not only address environmental and sustainability goals by using a fraction of the water and food miles traveled but it is also assistance it brings pressure higher quality and better tasting products closer to consumers across the country and eventually into work.
I loved your feeding families, while helping the environment.
I've been fortunate to be able to learn from highly regarded business leaders and organizations such as Amazon and apply those skills and young organizations that are in the midst of growing quickly and scaling up.
I believe we are the future of feed production in order to be successful, we need to grow and scale the business in the most efficient way possible optimizing our resources and leveraging our collective talent.
I have deep knowledge of the retail sector and direct experience channel and efficient operational expansion and I am excited to work with this talented team to do just that.
We are still operating in a nascent industry right with innovation and fresh thinking all of the challenges are real the opportunity isn't meant we are simultaneously ramping up our growing capacity at new and existing facilities, establishing consistent and replicable operational protocols.
Spanning our distribution network of approximately 13000 doors and enhancing penetration through a customer focused value added program expansion individually. Each of these represents an opportunity to materially advance our business and collectively our ability to accomplish these goals in a highly disciplined fashion represents.
Massive opportunity to generate significant economic value for our employees and shareholders alike.
In order to achieve these goals scaling the business and delivering the financial returns. We believe are inherent in our model we need to adapt to ensure that we have the right infrastructure and people in place to position local bounty for success.
As part of this process, we have optimized our organizational structure and added key talent in the areas of operations sales and human resources that will accelerate our strategy.
I'm excited to be able to apply my experience as a CEO of freshly and is a longtime executive at Amazon to drive significant company growth.
Team has solidified an attractive model and continues to press forward unlocking exciting advancements in yield to improve the potential of our unit economics.
Really important are the financing vehicles that we have in place today, enabling us to scale up in a capital efficient manner. We continue to have line of sight to breakeven adjusted EBITDA at the end of 'twenty 'twenty four or early 2025, when we will be operating a broad footprint of facilities to serve as an ever growing roster of blue chip.
That spans the country.
With the focus I am putting on our operation I'm confident that we have an organization that is up to the task of generating financial returns and the quickest and most efficient way possible and I look forward to demonstrating our progress in the quarters and years to come.
With that I will now turn the call over to Kathy to provide an update on our facility Buildout review, our second quarter performance and provide some comments on our expectations for the remainder of the year.
Thank you Anna.
I would like to echo many of the themes that Ana spoke to this is a pivotal time for our business and we are fortunate to have the resources in place to fuel our growth ambitions. This includes capital for growth, which we've worked extremely hard to put in place and of course, our people I'd really like to recognize the resolve that our T.
As displayed over the past few years, which included a transformative acquisition the huge scale up our public offering leadership changes and a multitude of daily challenges that have all come together to advance the business and make us stronger I take great pride in working with such a committed group of professionals.
And I'm thrilled to embark on our next phase of growth under and his leadership.
With that I'm pleased to share that our facilities scale up is on track. We are focused on completing projects that generate near term returns.
That in mind, we are working on completing our Georgia Buildout and we are set to complete 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 both phase one a and one b are complete and our focus has shifted to phase.
One thing as a reminder, phase one a and one b reflects the sites completed six acre automated greenhouse footprint all phase one see is focused on the integration of the complementary vertical stack zones.
The structure that houses those stacks zones is approximately 90% and closed we are in great shape for the project to reach completion.
Early in the fourth quarter of 2023.
The completion of the vertical nursery as a critical development in terms of the additional capacity will add we estimate that once fully commissioned and at today's run rate. This will add approximately 40% to the site's current revenue generating capacity.
This will allow us to open up our product suite to new offerings strengthening our position as a premier partner in the C E O space and deepening our roots in the southeast.
Our new six acre facility in Texas is advancing rapidly in the greenhouse structure is largely complete.
Similar to Georgia, we are shifting focus to the stack installation and we continue to expect operations at Texas to commence in the fourth quarter. This year. The similar design of this facility to that of Georgia will allow for synergistic operations and management of the two facilities.
You mentioned, Texas will support production of our packaged leafy green varieties as well as locally grown living letter says and fortify our national distribution network with localized facilities spanning coast to coast across the Southern U S.
At our Pasco, Washington facility, the structural steelwork for the greenhouses is now complete and glass installation is progressing when complete the facility will be comprised of three acres of greenhouses that will be supported by multiple stack zones. The location will help bolster the company's distribution capabilities in the.
The Pacific Northwest and is expected to commence operations in the first quarter of 'twenty 'twenty four as it were.
A reminder, we've been consciously staggering construction to accommodate the commissioning of our Texas facility in the fourth quarter of 2023 to maximize the efficiency of our team.
I'll cover our second quarter results second quarter, 2023 sales were 7.2 million as compared to $6 3 million in the prior year period, our second quarter results largely reflected production from our California facilities and to a lesser extent, our Montana and Georgia is one a and one b.
Facilities with the phase one b expansion now complete in the second quarter, we are ramping up service and improving our fill rates for our customers' distribution centers that we added to our network during the quarter, we expect momentum to continue improving in the second half of this year as our operational protocols drive enhanced productivity.
<unk> and look forward to the completion of phase one sees back implementation later this year, which we anticipate will further increase the revenue run rate out of the Georgia facility.
Quarter 2023, adjusted gross margin, excluding depreciation and stock based compensation and other nonrecurring items was approximately 28% or.
Our adjusted gross margin continued to be constrained in the quarter by weather related variables at our California facilities. As you may recall, we experienced excessive precipitation in abnormally cool temperatures. This spring, which continued through June the extreme weather created some unique growing challenges that were.
Exacerbated by facility damage that required repairs and maintenance. This resulted in lower production, which led to a temporary decrease in fixed cost absorption.
We are pleased with the team's response and ability to navigate the complex environments and have since resolved. These issues. This experience demonstrates the value of a diversified facility footprint and gives us greater conviction in our local approach with current and future build out further.
Further I'd remind you of the differences in the legacy pizza facilities in California versus the new Greenfield facilities that we are building with the completion of each of our new facilities in Georgia, Texas, and Washington, the mix of our production with the shift towards sites with significantly higher and in fact, environmental controls which will.
Insulate us from the weather anomalies that we have been dealing with this year in California.
SG&A was $16 7 million in the second quarter, which was down $6 4 million from the prior year period with the difference largely due to lower stock based compensation expense adjusted SG&A was $7 8 million versus $8 million in the prior year period.
Second quarter 2023, net loss was $10 7 million as compared to a net loss of $31 7 million in the prior year period and includes $6 5 million and interest expense $4 4 million in stock based comp $3 3 million of depreciation and amortization and a gain on a change of <unk>.
The value of a warrant liability of $15 2 million adjusting for these and other nonrecurring items adjusted EBITDA loss was $8 3 million.
From a capital structure perspective for the second quarter ended June 30th 2023 we had cash cash equivalents and restricted cash in the amount of $40 4 million and approximately $67 million of undrawn capacity on our credit facility with Cargill.
We continue to believe that we have the necessary capital to reach breakeven adjusted EBITDA by the end of 'twenty 'twenty four or early 2025, which is a very important milestone that our entire organization has been working hard to achieve as previously announced at the end of the first quarter, we expanded our construction financing.
Agreement with Cargill by up to 110 million for a total of up to 280 million. Then in April we executed a sale leaseback transaction for $35 million.
We continue to advance our work with a licensed U S. T a lender to reduce our cost of construction financing and lower our cost of debt.
Taken together, we are on sound financial footing with resources and agreements in place to execute our near term plan. However, I also want to emphasize that we continue to work on additional strategies to lower our cost of capital.
While preserving the flexibility that our current agreements allow for.
While we remain cognizant of our near term capital requirements, our strategic philosophy is longer term in nature, and we are constantly preparing for future growth.
Opportunities.
As of June 30th 2023, we had approximately $8 2 million shares outstanding on a pro forma basis, including warrants in our employees' restricted stock units outstanding we have a fully diluted share count of approximately $15 5 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 full year 2022.
In terms of our quarterly cadence, we continue to expect revenues to build sequentially through the back half of the year due to our GA GA production expansion with the completion of phase one b and our improved service to the distribution centers that we brought online in second quarter, we've only just realize the higher throughput other Georgia.
Cody, which tempers our anticipated sequential growth for the third quarter. However, we continue to expect a more pronounced lift in fourth quarter, which will benefit from the improved underlying production and the positive impact from phase one sees stack implementation, which is expected to increase production by 40%.
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 and also in fourth quarter, our Texas facility will be coming online.
That concludes our prepared remarks, operator, please open the call for questions.
Thank you.
We will now be conducting a question and answer session.
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Our first question comes from Christian No-win missiles Manheimer. Please go ahead.
Great. Thank you for taking the question and congratulations on the nice results and Anna welcome you've been in the seat now for a few weeks. So just curious as my first question on what first impressions are where you see the opportunities and just in the context of the scale of what you all are trying to accomplish over the next 12 to 18.
Months, how you end and Travis and Craig are spending your time to maximize sends efforts.
Sure and thank you for the question Kristen.
You know I would say at a high level my focus with the team has been on.
Driving revenue growth.
But at the same time, making sure that we have an efficient cost structure because.
Because I don't think it's ever too early in our company's lifecycle to be focused on cost out and maximizing efficiencies. So part of that has been making sure that we have the right skill sets in the right places.
And putting a really really strong focus on our operational production and processes. Because if you think about these facilities, Georgia out of new facilities coming up there, they're far more similar to the manufacturing operation than than to a standard now art Roe agricultural.
Facility and so we really need to be focused on operational efficiencies, putting the right processes in place and making sure that we have the right mechanisms to be driving our yield efficiencies as quickly as possible.
So what are we.
Really focused on ramping up Georgia as Kathy mentioned, one a and B are now online and we're focused on transitioning to one see in and ramping those up and then on completing our.
Texas in Pasco locations and getting those ramped as well.
Great. Thank you so much. So then on on some of those cost initiatives.
Really describe them as optimization initiatives and it seems to me that the opex level that you guys have been running at about $60 million on a cash basis run rate them annually based on some of them is a realignment that you made how should we be thinking about that that cash cost.
Going forward, just given the the optimization efforts that you're making.
Yeah, I mean, I would say with with any bring up operation. There is there are tweaks and there are adjustments that are constantly being made them that we are that that will continue to lower our cost structure at a facility level I would also say that with Wisconsin. The organizational changes that we've been making we don't expect.
There to be an impact on G&A.
Because where we're making moves in making sure that we have the team focused on the right initiatives I think that's one of the key is just making sure that the across the board. We are focused on an operating on driving higher yields and on controlling our cost structure. So I don't expect there to be any any negative impact there.
Great. Thank you so much I'll take the rest offline.
Our next question comes from Ben <unk> with Lake Street Capital markets. Please go ahead.
Alright, Thanks for taking my questions and I Echo Christmas Huntsman, Anna welcome aboard have a couple of questions on the quarter specifically.
First of all on the gross margins.
Kathy you talked about the pressure out of the California locations from weather related issues. I'm wondering if you can can elaborate on that a bit you'll talk about the magnitude of that pressure.
On gross margins and then also the degree to which those were between kind of the two buckets that you outlined.
Outlined so it sounds like there was some damage to the facility and also just a facility that was unprepared for for.
For adverse weather for growing conditions. So can you talk about how much of the margin pressure was driven by either of those two variables.
A copy to you.
Oh, Yeah sure Thanks, Anna and good morning, Ben Thanks for the question so.
You know, we we talked about it even when we gave our Q1 results right severe rains like March the greater ratings. You know first time in 40 years that California seed rains at that level and what it did for our facilities, just heavy wind and rain right and lack of Sun.
And so what that does is it impacts the gross flows up the production a little bit and there were instances, where you know the product was out of spec and incredibly important to us to provide our customers with you know what standard of product that they love right, especially out of the California's because they've been buying them.
For 10 to 15 years right. So lack of Sun flows up production out of stack.
And the level of damage to the facilities was not catastrophic at all it was it was small I mean, but you know over the level of years cheats historically didn't do a lot of repairs and maintenance and so now when we once we saw what happened you know, but again nothing catastrophic.
We've put in place protocols for repairs and maintenance. So I'd say the topline revenue was you know we fell short by 500000 because of the out of spec product.
Okay. That's very helpful. Thank you Cathy and then on.
My other question Kelly.
Can you just also quickly just comment I'm, so sorry Ben.
We are the when I think about those facilities they've been around you know one of them has been around for 20 years, but they just keep ticking again, it's like we had our food safety audits in July and we scored like 90, 899% on our food safety safety audit so let's.
That's good just wanted to add that.
Yeah no. Thank you I appreciate that.
My other question you commented on keeping your eyes open for future growth.
New opportunities I'm wondering in the context of this current market environment, where throughout both the vertical and the greenhouse space. There has been just so many of you know.
Bad bad outcomes here for companies with closures or bankruptcies.
How your growth outlook has changed even over the last three months because it seems like this.
These.
These news items are really accelerating over the last few months how is your growth strategy changed.
You know in the context of the macro backdrop or is it really unchanged from where you you know where it was even three months ago.
You want me to grab that firsthand and then you can follow.
Yeah I mean.
Go ahead.
Got it.
When I think about it right and and it's in every podcast that you've ever seen them look a bounty rice.
Craig and Travis did their diligence before they founded local boundary because they were running at P. E assortment and they wanted to invest in controlled environment egg they ran around and they did their diligence and they felt that there wasn't going to you know there weren't a lot of companies out there and see that they viewed as being success.
Festival, largely because they didn't have in place the discipline to develop unit economics, right and that's actually why they founded the company right and so you know with that.
That backdrop when when we look at what's been going on in the news. It's it's you know it's very very difficult of course, but we from the very beginning of had a you know just a mindset of like Hey, you know what we need to be cash flow positive we need to have positive gross margins, we need to have.
The the appropriate capital in place.
For us to get there right, but when I think about our strategy, where it's not I would say with the Ana coming on board.
We think more we have a much greater focus on you know operational excellence.
We do look at on the M&A situations, where it's a build versus buy situation you know, but I would say you know the strategy hasn't changed too too much other than kind of as Ana has set a huge focus on operational excellence you know Matt is that it's like when I think about the Georgia facility.
It's actually now kind of turned the corner and it's running like a manufacturing operation. So.
You know your comments.
Yeah, I mean, I'll just I'll just add you know we continue to have a really solid foundation in terms of cash on the balance sheet.
And you know the availability of financing and so you know where we're going to be really really thoughtful about growth. We're gonna drive we're going to maximize growth out of our existing footprint and beyond that well, we're always looking at where our customers want us to go and where there's market demand.
Okay very good I appreciate the comments from both of you here plenty more to talk about but I'll leave it there. Thanks for taking my questions and I'll get back in line.
Our next question comes from Brian <unk> with <unk>. Please go ahead.
Thanks, Good morning, Congrats on the quarter end and on the progress and Hello Anna.
I Wonder if you just take.
Okay.
Our approach to kind of think about that.
Ram.
As the year progresses, and just wanted to understand now that were introduced your ratio of distribution centers with what with Sam's club.
How do we think about it is it is the focus like the number of stores that are committed through those distribution centers for orders or like how.
How does that process flow just works to get a better sense of.
That you know what's on the come as far as you know that that ramp in the back half of the year that that would be very helpful.
Yeah, I mean, so so remember that we've we've just now brought up one b.
And so we're working through ramping up you know existing production on the greenhouse and then once we bring one C. On will start well will go through a transition period to ramp up our our stock phase and integrate that into the facility and as we're increasing our yields and I was were increasing.
Our production and we will continue to to move into more distribution centers, but.
But the focus is really on the.
The demand is there we need to ramp up the production in and maximize the yields that we're getting out of their <expletive> and you bring up onesie.
Okay.
Mike.
You all see the details right from us for the outside of it it's hard to get a sense for it to basically youre selling what you're producing out of the Georgia facility, whether it be the.
To the Sams distribution.
At work or or other vendors at this point that it's more of a function of production growth as it is that the way to think about it yes that is exactly the way to think about it.
Thank you. So much that was that was that was very helpful clarification. Thanks.
And then just a bigger picture and I know this might be a little early and unfair, but you know that that's our job to be unfair [laughter] sometimes.
Yeah.
When you think about growth opportunities long term you know have you thought about you know.
Licensing technology kind of growths through that through those vehicles. If you thought you know.
Out licensing this back and forward.
Any at all or is that something that's.
You would consider.
Right right now, where we're really wholly focused on on getting Georgia ramped up in on getting these new facilities online and ramped up as well and and meeting the pent up demand that's out there. So that's that's really the focus for for the team at the moment and I'm excited.
Because you know with with Pasco in Washington, coming online, we really have an opportunity to have consistent processes consistent workflow and I'm Super excited to see what efficiencies we gain.
Great. Thank you so much.
Ladies and gentlemen at this time I'm showing no further questions I'd like to end the question and answer session and turn the conference call back over to N. S C.
CEO for any closing remarks.
Thank you I'd like to thank everyone for joining us this morning, and we look forward to updating you on our progress as we further scale and grow local bonnie's business in the coming quarters. Thank you.
Ladies and gentlemen that does conclude local bounteous conference call for today.
Thank you for attending you may now disconnect your lines.
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