Q3 2023 Local Bounti Corp Earnings Call
Greetings and welcome to local boundaries third quarter 2023 earnings conference call.
All participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions.
Also note todays event is being recorded.
At this time I would like to turn the conference call over to Jeff Sonic Investor Relations at ICR. Please go ahead.
Thank you and good afternoon, today's presentation will be hosted by local bodies, Chief Executive Officer, Anna Fob rigor and Chief Financial Officer, Kathleen Val effects.
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 1995.
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 <unk> local bounding 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 Anne go ahead.
Thank you, Josh and welcome to everyone on the call I'd like to start today's call by highlighting some of our recent accomplishments and then I'll share some insight on the operational improvements that we're integrating into our business Cathy will round out the call with a financial discussion before opening the call for your questions.
Continue to see incredible opportunity ahead for local currency, we believe our patent pending stack in cloud technology, which combines the best aspects of traditional greenhouse approaches.
Technology is an efficient solution that can help solve food shortage globally.
In early October we completed the build out of our Georgia facility with the Finalization of the phase one feet. This represents the final phase of construction and let's focus on the integration of our vertical seal incubator, which we call stack. This is a huge milestone for us I think create for the first time a lot.
<unk> scaled growing facility that brings together all the technological advancements that our team has developed at our Hamilton Montana facility.
There's also a model for our facilities in Texas, and Washington, and are expected to open in the coming months and perhaps most importantly, with greater capacity at Georgia will allow us to double our shipment volume to our large club customer under our off take agreement and we expect to see increased deliveries in the coming weeks.
Given the significance of the planned increase in shipment we took the time to thoughtfully calibrate, our workflows and optimize our operations well George as phase one feedstock integration process, well underway to account for the larger footprint and 40% greater capacity generated by the tax system.
This involves taking an intentional look in the mirror and scrutinizing every level of operations to identify points of friction and how best to resolve that this is the natural next step for local bounty following the development and integration of our patent pending stock technology. We are now focused on India.
Opportunity, we have with stock and flow by implementing a production system, which is focused on eliminating waste and.
Some of the key elements that we have put in place as part of our production system, our hiring facility level leadership with operational background at all levels heading benchmark predict could be called implementing standardized workflows for all processes, providing transparency to all associates. So there's a clear view of performance in advance.
Our ability to execute just in time production.
I'd like to emphasize the focus that we're bringing to the organization with respect to operational execution. We have made large commitments with these build out to support retail partners that are key to lean into this category of fresh local and sustainably grown Proteus is absolutely imperative that we identify them.
Implement replicable operating standards across our growing facilities to create the efficiencies and underpins our long term goal. After all it is because of our unique ability to combine sustainability efficiency and quality at scale that we are able to attract leading global retailers like Sam's club to local balance sheet.
In order to achieve our goals of 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 bouncy for success.
As part of this process, we have optimized our organizational structure and you continue to add key talent to help accelerate our strategy.
Most recently, we have appointed BMO could tell as our chief operating officer.
<unk> brings to our team over 30 years of progressive experience and operational leadership at several global Blue chip companies, including Amazon Whirlpool Board and U P. S. P.
Prior to joining our team who worked at Amazon for 11 years as a regional director of operations and most recently served as the worldwide director of Amazon Amazon Logistics planning and engineering.
We are leveraging BMO deep expertise across operations process engineering and logistics to ensure that our organization is optimized to drive efficiencies across all facets of our business, providing us with an opportunity to demonstrate how local bounty is redefining agriculture.
The third quarter marked a transition period for local boundaries. We continue to work hard to perfect. The art and science of our technology and the result is a standardized and hyper efficient manufacturing process, which we can replicate across our growing footprint.
Beginning in the fourth quarter, we enter a new upward trajectory and with the focus we're putting on our operations I am confident that we have an organization that is up to the task of generating financial returns and the quickest and most efficient way possible.
Look forward to demonstrating our progress in the quarters and years to come.
With that I will turn the call over to Kathy.
Thank you Anna I'll begin by providing an update on our facilities scale up before covering our third quarter financial results and full year 2023 guidance at our Georgia facility. We successfully completed the integration of the stack zones that comprise phase one see in early October and immediately commenced operations that.
The seeding of the vertical nursery. This is a significant milestone for local Bonnie that's a model that we are working to replicate at our Texas and Washington facilities.
We continue to make great progress on a six acre facility in Texas in the third quarter, we shifted our focus to installation of the stack zones and greenhouse growing systems. We continue to expect operations at Texas to commence in the fourth quarter of this year the.
The similar design of this facility to that of Georgia will allow for synergistic operations and management of the two facilities, Texas will support production of our packaged leafy green varieties as well as locally grown living lattices and fortify our national distribution network with localized facilities spanning coast to coast.
Across the southern U S. Construction at our Pasco, Washington facility remains on track and we continue to expect operations to commence early in the first quarter of 'twenty 'twenty four when complete the facility will be comprised of three acres of greenhouse, which will be supported by multiple stack zones dislocation will help buoy.
After the company's distribution capabilities in the Pacific Northwest.
As 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.
Now I'll cover our third quarter results third.
Third quarter 2023 sales were $6 8 million as compared to $6 3 million in the prior year period of third quarter results largely reflected production from our California facilities and to a lesser extent, our Georgia and Montana facilities, our sales growth in the quarter was limited by two primary factors first.
The temporary closure of a section of one of our California facilities in order to make necessary repairs.
The weather related damage from Q1, which impacted sales by 500000 and has since been repaired and resumed normal operations in early October and.
Second our operations in Georgia experienced some periods of lower utilization during the phase one see integration as we took the opportunity to thoughtfully redesign workflows and optimize our operations to account for the larger footprint and 40% greater capacity generated by the tax system.
This shifted revenue from Georgia into the fourth quarter as we work with our key customer accounts and preparing for a ramp in expanded distribution ahead of the holidays with the phase one C stack integration complete and the facility fully functioning in October we expect to increase the revenue run rate or the Georgia facility and the <unk>.
Fourth quarter of 2023.
Third quarter 'twenty to 'twenty, three adjusted gross margin, excluding depreciation and stock based comp and other nonrecurring items was approximately 25%.
Our adjusted gross margin was constrained in the quarter, primarily by the lower utilization that I mentioned at both California, and Georgia facilities.
G&A was $14 4 million in the third quarter, which was down $5 8 million from the prior year period with the difference largely due to lower stock based comp adjusted SG&A was seven 5 million versus $7 1 million in the prior year period.
Third quarter 2023, net loss was $24 3 million as compared to a net loss of $27 1 million in the prior year period and includes $7 1 million and interest expense $3 3 million in stock based compensation $3 4 million of depreciation and amortization and a gain.
On the change of fair value of a warrant liability of $1 8 million adjusting for these and other nonrecurring items adjusted EBITA loss was $9 million.
From a capital structure perspective for the third quarter ended September 30th 2023 we had cash cash equivalents and restricted cash in the amount of $18 3 million and approximately 38 million of Undrawn capacity on our credit facility with Cargill. Additionally, cargo has agreed to provide local down <unk> 10.
Million in additional working capital subject to certain terms and conditions precedent. We anticipate closing on this transaction in November I also wanted to provide some further context around how we are using our various capital facilities and the timing impact. It has on our cash for example, as we spend.
Cash on Capex traditionally there is a 30 day period before we got reimbursed through our cargo line. We were successful in accelerated that this reimbursement rolling forward to 15 days, which will improve the cash level to operate the business.
We continue to believe that we have the necessary capital to reach breakeven adjusted EBITDA by the end of 'twenty 'twenty four or early 20th 25, 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.
Cargo by up to $110 million or a total of up to $280 million and in April we executed a sale leaseback transaction for $35 million. We continue to advance our work with a licensed U S. D. A lender to reduce our use of construction financing and replace it with lower cost debt.
Local bound he has executed a conditional commitment letter and expects to enter into additional commitment letters from our commercial finance lender for total financing of up to approximately 228 million defined it's 'twenty 'twenty four greenfield build and facility expansions, we expect to close on the financings within.
60 to 75 days.
All of these pieces taking shape. We believe we are on track to have the resources and agreements in place to execute our near term plant. However, I also want to emphasize that we are continuing 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 September 30th 20, twenty-three, we have approximately $8 3 million shares outstanding on a pro forma basis, including warrants and our employees' restricted stock units outstanding we have a fully diluted share count of approximately $15 6 million shares with respect to our outlook and then consideration of ours.
Year to date performance, we are revising our full year 2023 revenue guidance to a range of 30 to 34 million.
As we've mentioned previously we continue to anticipate a more significant revenue acceleration in the fourth quarter of this year, 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% as well as our tech.
This facility coming online in the fourth quarter with respect to our Georgia production, we are preparing to double our shipment volume to our large club customer under our off take agreement and expect to see increased deliveries in the coming weeks the timing of this ramp coupled with our decision to implement some operational improvements during a stack.
Implementation accounts for the change in our guidance in.
In summary, we are working hard to scale the business and have reached a significant milestone with the completion of the Georgia facility.
Despite our ability to secure the funding for our currently planned projects, which we believe will take us to breakeven cash flow. The market is not currently trading on the fundamentals of the business as we work on our operational execution and we believe that our market cap is not reflective of the value of our company.
Such a number of executives intend to look at making open market purchases in the near term to demonstrate our belief in the company's long term strategy and future success. Further we are also implementing a measured stock repurchase authorization of up to 1 million to support shares and take advantage of the market.
That concludes our prepared remarks, operator, please open the call for questions.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
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One moment, please when we poll for questions.
Our first question comes from the line of Christopher Nolan with Oppenheimer. Please proceed.
Great. Thank you for taking the question I wanted to ask about.
Some of the learnings and the Georgia facility you you mentioned this in the prepared remarks and it seems as though you took some opportunity in a quarter or two to implement some of those learnings and can you walk us through or just expand on some examples there and particularly with Texas being more of a greenfield facility versus you know, Georgia, which was.
More of an existing facility.
How we should think about the ramp of Texas as compared with Georgia.
Hey, Chris and thanks for the question.
So recall that Georgia initially started with a three acre facility and we later added one be at and expansions and so on as we have kind of ramped up grow capacity and now with the stock as well and we've had to really take a hard look at kind of the process flow.
Throughout the facility I'm looking at everything from you how how do you move product through equipment like the harvest or the Parkway air them more efficiently. How do you make sure that you have minimal downtime, how do you reduce complexity and so even looking at how much can they are at.
Product go down before it gets put into a package to them how to minimize change overtime and when we're changing pack sizes. For example, so each one of those points has been evaluated and we have created what what is typical of the manufacturing industry standard work so that it's really.
If people can be super fungible within the operation, we can operate with minimal shifts, but still support that 40% increase in yield.
Operator: Greetings and welcome to local bounties 3rd 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. We also know today's event is being recorded.
And you asked about sector.
Texas Wall will ramp up a significantly faster because what.
We have a standardized processes in place, but to do that design for the stock and flow process from the get go and so theres not as much retrofitting and and redesign that we have to be thinking about as we're trying to optimize that that that flow or the greatest amount of efficiency.
Jeff Sonnek: At this time, I would like to turn the conference call over to Jeff Sonnek investor relations at ICR. Please go ahead. Thank you and good afternoon.
Operator: Today's presentation will be hosted by local bounties, chief executive officer. Anna Fabrega and chief financial officer, Kathleen Valiasek.
Okay that makes sense. Thank you Anna so when I when I think about the guidance for Q sales implied about $11 million and you know how should we think about that in terms of the run rate going into 2020 for understanding that Texas there'll be commissioning and so probably not not a big contributor and for Q.
Operator: 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 1995. 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.
Yeah. So I think you know, we we talked about Georgia, as we ramp up one see increasing or doubling our shipments to our club customer and increasing production by about 40%, Texas will be will be ramping up in December and typically it takes it takes some time.
Operator: We'll also refer to certain non-gap financial measures today. Please refer to the press release which can be found on our investor relations website. Investors.localbounting.com for recommendations of non-gap financial measures to their most directly comparable gap measures.
To get the operation fully fully running but we expect to be feeding by the beginning of the year.
And then yeah sorry.
Sorry go ahead, Kevin Yeah, I was just going to throw in in terms of our revenue revenue perspective, Texas as you know less than then we might have thought earlier in the year.
Jeff Sonnek: With that, I'd now like to turn the call over to Anna. Go ahead.
Anna Fabrega: Thank you, Jeff, and welcome to everyone on the call. I'd like to start today's call by highlighting some of our recent accomplishments and then I'll share some insight on the operational improvement that we are integrating into our business. Kathy will round out the call with her financial discussion before opening the call for your questions. I continue to see incredible opportunity ahead for local bounty. We believe our patent pending stack and flow technology, which combines the best aspects of traditional greenhouse approaches with vertical growing technology is an efficient solution that can help solve food shortages globally.
Okay. That's that's helpful and then Kathy that actually a follow up last one for me and to the extent that you're able just anything you can say about the USDA backed construction facility any early indications from those discussions impact to total cost of capital just how to think about that over the next 60 to 75.
Dave.
Yeah sure. So you know as we've said earlier a couple of quarters ago, we restructured our agreement with Cargill, such that they are allowing you know lower cost of capital that's come into the cap stack.
Anna Fabrega: In early October, we completed the build out of our Georgia facility with the finalization of phase one seed. This represents the final phase of construction and would focus on the integration of our vertical plant incubators, which we call stacked. This is a huge milestone for us as it creates for the first time a large scaled growing facility that brings together all the technological advancements that our team has developed at our Hamilton Montana facility.
And we are considering and looking at term sheets actually on on each of the facilities.
For long term T couch of of Cargill for you know long term it much lower USDA rates.
Okay I'll hand, it over thank you.
Okay.
Our next question comes from the go on have been clear with Lake Street Capital markets. Please proceed.
Anna Fabrega: It is also a model for our facility in Texas and Washington that are expected to open in the coming months. And perhaps most importantly, this greater capacity at Georgia will allow us to double our shipment volume to our large club customer under our offtake agreement and we expect to see increased deliveries in the coming weeks. Given the significance of the planned increase in shipment, we took the time to thoughtfully calibrate our workflows and optimize our operations while Georgia stays one seed stack integration process with underway to account for the larger footprint and 40% greater capacity generated by the stack system.
Alright, Thanks for taking my questions first I wanted to ask a question about the conditional commitment waters that you noted in your prepared remarks, I want to make sure I understand this correctly, so the $228 million of of capital.
That you're referring to here is this this is incremental capital above and beyond the existing facilities through Cargill and this is for 2024 Greenfield build an expansion beyond what we already know is in the works in Texas, Georgia, and Washington are those both correct.
Statements yes.
Yeah exactly yeah, okay. Okay yeah.
Anna Fabrega: This involved taking an intentional look in the mirror and scrutinizing every level of operations to identify points of friction and how best to resolve them. This is the natural next step for local bounty following the development and integration of our patent pending stack technology. We are now focused on trusting the opportunity we have with stack and flow by implementing a production system which is focused on eliminating waste. Some of the key elements that we have put in place as part of our production system are hiring facility-level leadership with operational backgrounds at all levels, setting benchmarked productivity goals, implementing standardized workflows for all processes, providing transparency to all associates so there's a clear view of performance, and advancing our ability to execute just-in-time production.
Great.
And then is the and then as the USDA.
Backed loans are part of that 228 or is that separate as well.
It is separate it's above and beyond.
Alright very good.
Thank you.
Wes.
With our fourth quarter outlook, you know I would think at this point you've got a pretty good sense of where you are going to come in on the quarter. So can.
Can you talk about the big drivers between the high and the low end of your range, what what you're you know not sure is going to come through or not in the period.
Yeah, I think Mike I think.
Yeah sure you mean in terms of our the the reset 30 to 34 well.
Anna Fabrega: I'd like to emphasize the focus that we are bringing to the organization with respect to operational execution. We have made large commitments with these build-outs to support regional partners that are key to lean into this category of fresh, local, and sustainably grown produce. It is absolutely imperative that we identify and implement replicable operating standards across our growing facilities to create the efficiency that underpins our long-term goals. After all, it is because of our unique ability to combine sustainability, efficiency, and quality at scale that we are able to attract leading global retailers like Sam's Club to local bounty.
Well, yeah, I mean, what what needs to happen to hit 34 versus versus 30.
Yeah. So great question just the.
Bead with which you know, we get stack up and running as is.
As a as a piece of it we we did say that we seeded early in October but it's you know it's a it's a a large number of.
Stacks right in in the facility and so it's just that the ramp and the speed with which we can get.
Get that up and running so to speak and as we we did mention that the California.
Anna Fabrega: In order to achieve our goals of 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 continue to add key talent to help accelerate our strategy.
Had an issue in Q3, but that the that one section is back up and running so should we should be great. There and then also just any timing for Texas coming online.
Okay. Okay, Great and then last one for me I'll get back in line with regard in California for several periods in a row now theres been some some shelves did you guys have thought through there can you talk about kind of your view on the you know the long term outlook for those facilities are these are these are these two facilities one but you know.
Anna Fabrega: Most recently, we've appointed Beamel Patel as our Chief Operating Officer. Beamel brings to our team over 30 years of progressive experience in operational leadership at several global Bluetooth companies including Amazon, Whirlpool, Ford, and UPS. Prior to joining us, Beamel worked at Amazon for 11 years as its Regional Director of Operations and most recently served as the Worldwide Director of Amazon Logistics Planning and Engineering. We are leveraging Beamel's deep expertise across operations, process engineering, and logistics to ensure that our organization is optimized to drive efficiencies across all facets of our business, providing us with an opportunity to demonstrate how local bounty is redefining agriculture.
Do you think are going to be.
B in your in your business for you know for the foreseeable future or are you considering any kind of strategic initiatives around these given the challenges that you've had here for several periods in a row.
Yeah.
Go ahead go ahead.
Sure.
I mean, it is still so much about this the crazy weather that we saw in Q1 in California, and you know one of the things that I'll say right next to the facility for literally 20 years worth of dry Lake bed, Okay, and the rains were so strong.
In Q1 that there's now actually a lake there right and I'm, just saying that the level of rain was so significant that it was a you know it just.
Anna Fabrega: The third quarter marked a transition period for local bounty. We continue to work hard to perfect the art and science of our technology, and the result is a standardized and hyper efficient manufacturing process, which we can replicate across our growing footprint. Beginning in the fourth quarter, we enter a new upward trajectory, and with the focus we are putting on our operations, I am confident that we have an organization that is up to the path of generating financial returns in the quickest and most efficiently possible. I look forward to demonstrating our progress in the quarters and years to come.
How it all sorts of implications to the facility both facilities actually.
But we we definitely feel that both of those facilities are you now.
I mean still right along and we consider them very very important facilities in our outlook rolling forward, but of course also we are looking to expand at some point, possibly on the land of one or other or one or the other or even both of the facilities. So.
Kathleen Valiasek: With that, I will turn the call over to Kathy. Thank you, Anna. I'll begin by providing an update on our facility scale up before covering our third quarter financial results and full-year 2023 guidance. At our Georgia facility, we successfully completed the integration of the stack zones that comprised Phase 1C in early October and immediately commenced operations with the seeding of the vertical nursery. This is a significant milestone for local bounty. It is a model that we are working to replicate at our Texas and Washington facility.
Though we have had issues. This year you know its really just temporary issues. Yeah. Yeah. Yeah, I'll just I'll just add in regards to the section that that we'd be close for repairs. You know, we've been investing quite a bit and and the infrastructure of these facilities and you know we made the decision.
Rather I tried to make repairs and operate in that particular section it it would be better for our employees and better from a safety standpoint too to close it down so that we could really get in there and make the repairs as quickly as possible.
Kathleen Valiasek: We continue to make great progress on our six-acre facility in Texas. In the third quarter, we shifted our focus to installation of the stack zones and greenhouse growing systems. We continue to expect operations at Texas to commence in the fourth quarter of this year. The similar design of the facility to that of Georgia will allow for synergistic operations and management of the two facilities. Texas will support production of our packaged leafy green varieties as well as locally grown living lettuces and fortifier national distribution network with localized facilities spanning close to coast across the southern U.S. Construction at our Pasco, Washington facility remains on track and we continue to expect operations to commence early in the first quarter of 2024.
So you know Kathy side, they're still really important facilities for us and where we're evaluating right now how can you make sure that.
You know we are.
We are fortifying against other events like that going forward.
Got it got it okay. Great I appreciate you taking my questions I'll get back in queue.
Your next question comes from the line of Brian White with Ralph and the cab. Please proceed.
Oh. Thanks, Good afternoon I just wanted to just follow up on the Georgia facility with one C being completed and that the impact to hum too to the yields that that occurred.
Kathleen Valiasek: When complete, the facility will be comprised of three acres of greenhouse, which will be supported by multiple stack zones. This location will help bolster the company's distribution capabilities in the Pacific Northwest. As 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.
Hum.
So so there was more than just you know typical seating.
That's the.
When a and one b that could have occurred whether.
The stack was up or not but for planning purposes.
Kathleen Valiasek: I'll now cover our third quarter results. Third quarter 2023 sales were 6.8 million as compared to 6.3 million in the prior year period. A third quarter results largely reflected production from our California facilities and to a lesser extent are Georgia and Montana facilities. Our sales growth in the quarter was limited by two primary factors. First, the temporary closure of a section of one of our California facilities in order to make necessary repairs following weather-related damage from Q1, which impacted sales by 500,000 and has since been repaired and resumed normal operations in early October.
It was a function of this.
Yes.
The stack starting there.
I'm just like I'm.
Logistically struggling with it and I'm sure, there's a simple answer, but just not being there and having a trouble visualizing it.
Visualizing the so the one at the end.
And what happened with the you know.
It seems with the lack of ramp and in the Georgia.
Yeah. So so we operationalized one be and we had to adapt and adjust to having those six acre then and production plan to incremental volume that we had had the three acres.
Kathleen Valiasek: And second, our operations in Georgia experienced some periods of lower utilization during the Phase I C integration as we took the opportunity to properly redesign our workflows and optimize our operations to account for the larger footprint and 40% greater capacity generated by the stack system. The shifted revenue from Georgia into the fourth quarter as we work with our key customer accounts on preparing for a ramp and expanded distribution ahead of the holidays.
One scene was originally planned to go up earlier in the year and it was delayed and as part of bringing up onesie and starting the seeding process. We also take a step back and and from a you know from a production standpoint, so that we could make sure that we had the workflow in place.
To support the incremental volume that would now be coming through as stock was brought on board. So as Kathy mentioned, we started feeding in the beginning of October.
Kathleen Valiasek: With the Phase I C stack integration complete and the facility fully functioning in October, we expect to increase the revenue run rate out of the Georgia facility in the fourth quarter of 2023. Third quarter 2023 adjusted growth margin excluding depreciation, stock based comp and other non-recording items was approximately 25%. Our adjusted growth margin was constrained in the quarter, primarily by the lower utilization that I mentioned at both California and Georgia facilities.
We are now kind of working that product through the system and you know feel really good about about the process and the workflow and the efficiency that we have going through there, but that's that's not reflected in Q3 clearly.
Sorry, I just wanted to follow up the C D and begin either in October or are you, referring to see dean at the stacks K oar.
Correct, Yeah, Yeah, I mean, it was honestly with the advent of our CLO BMO Patel coming on Brian. It was a very very conscious effort and decision the processes that he put in place workflows optimization of the operations we.
Kathleen Valiasek: SGNA was 14.4 million in the third quarter, which was down 5.8 million from the prior year period with the difference largely due to lower stock based comp. Adjusted SGNA was 7.5 million versus 7.1 million in the prior year period. Third quarter 2023 net loss was 24.3 million as compared to a net loss of 27.1 million in the prior year period and includes 7.1 million in interest expense, 3.3 million in stock based compensation, 3.4 million of depreciation and amortization, and again on a change of fair value of a warrant liability of 1.8 million.
<unk>.
You know, we we made a conscious decision here to go slow to go fast is what I would say and it it yeah.
I'll give you. An example, we had in that facility and we have one harvester.
So you know in order to make sure that you can operate that harvester at its maximum speed to run all of those through plus the incremental requires some in process engineering work that we've had our engineering team engaged and for example, you know again, if or mixing salad.
Kathleen Valiasek: Adjusting for these and other non-recording items adjusted even to loss was 9.5 million, from a capital structure perspective for the third quarter ended September 30, 2023. We had cash, cash equivalents and restricted cash in the amount of 18.3 million and approximately 38 million of undrawn capacity on our credit facility with Cargill. Additionally, Cargill has agreed to provide local bounty 10 million in additional working capital subject to certain terms and conditions precedent.
Green those salad Greens go to a mixing out on how can we reduce the amount of time that it takes to get those screens from harvest or too that the packaging machine and potentially you know is there a different way we can makes it that doesn't require it to go to the bell. So it's every single point in the process. We're looking at you know minutes in stack.
Kathleen Valiasek: We anticipate closing on this transaction in November. I also wanted to provide some further context around how we are using our various capital facilities and the timing impact that has on our cash. For example, as we spent cash on CapEx, traditionally there was a 30-day period before we got reimbursed through our Cargill line, we were successful and accelerated this reimbursement rolling forward to 15 days, which will improve the cash level to operate the business.
And trying to optimize that low so that at 40% greater capacity, we're not having any bottlenecks at the end of the process that they are getting away.
Okay, and then just wanted to confirm but yeah. I think you said last quarter, you're yourself whenever saying you're back into us that that's still the silver checks.
Yes.
Great. Thank you so much thank you.
Thank you.
Kathleen Valiasek: We continue to believe that we have the necessary capital to reach break even adjusted EBITDA by the end of 2024 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 or a total of up to 280 million. And in April, we executed a sale lease back transaction for 35 million.
And our next question comes from the line of corresponds with Deutsche Bank. Please proceed.
Hi, good afternoon I guess.
I just wanted to ask on gross margin the 25% this quarter was like noticeably weaker than what like like QQ last quarter, and I know, you're you've decided to weather challenges in California, and startup costs in Georgia, Georgia, but I guess I'm just trying to understand like why.
Corning you said the weather the weather issues were resolved in this quarter they came back so.
Kathleen Valiasek: We continue to advance our work with a licensed USDA lender to reduce our use of construction financing and replace it with lower cost debt. Local bounty has executed a conditional commitment letter and it expects to enter into additional commitment letters from a commercial finance lender for total financing of up to approximately 228 million defined at 2024 Greenfield Build and Facility Expansions. We expect to close on the financing within 60 to 75 days.
What what really is driving the weaker margin and then going forward as revenue scales up at Georgia, and Texas and Washington.
Do you have a line of sight to getting back to like a mid thirties gross margin or is it going to be structurally lower than it was just.
Year to date.
Come in quite a bit in.
Just continues to do so I just thought I'd love your thoughts there. Thanks.
Chris Thanks, so much for the question and I hear you. It is very frustrating for us, but yes, we absolutely have line of sight to get back to where we were and California. You know it was so.
Kathleen Valiasek: With all of these pieces taking shape, we believe we are on track to have the resources and agreements in place to execute our near-term plan. However, I also want to emphasize that we are continuing 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.
So much of getting through the food safety audit the shutting down this the one section of the facility and we had the surge head count and and it was basically a one off and we even this quarter, we will be back up and running at our normal gross margins and I know it was definitely.
Kathleen Valiasek: As of September 30th, 2023, we have approximately 8.3 million shares outstanding on a pro forma basis including warrants and our employees' restricted stock unit self-standing. We have a fully diluted share count of approximately 15.6 million shares.
Disappointing for US also but we won't be back on track this quarter.
And I guess, just what's your confidence level around that like obviously like there are things that.
Come in out of your control.
Yeah, just a little bit more color around it.
Kathleen Valiasek: With respect to our outlook and in consideration of our year-to-date performance, we are revising our full year 2023 revenue guidance to a range of 30 to 34 million. As we've mentioned previously, we continue to anticipate a more significant revenue acceleration in the fourth quarter of this year which will benefit from the improved underlying production and the positive impact from phase one C's stack implementation which is expected to increase production by 40 percent as well as our Texas facility coming online in the fourth quarter.
Yeah I hear you. So my confidence level is very very high and we had to bring in a bunch of temp labor actually at both of the facilities just GA, we resurging head count to be sure that we could get stack up and running and then in California to get through the food safety audit.
And you know certain repair repairs and maintenance around shutting down. This this one section and you know because just the low utilization was lower but for both facilities. The head count is already back to were back to normal.
Kathleen Valiasek: With respect to our Georgia production, we are preparing to double our ship in volume to our large club customer under our off-take agreement and expect to see increased deliveries in the coming weeks. The timing of this ramp coupled with our decision to implement some operational improvements during our stack implementation accounts for the change in our guidance. In summary, we are working hard to scale as the business and have reached a significant milestone with the completion of the Georgia facility.
Got it okay. That's helpful.
And then I.
I had a just a follow up on just capital allocation I know you you noted.
<unk> management and are selectively.
Purchasing shares and you also announced that the like the $1 million repurchase program, but I guess.
Given the level of debt on the balance sheet and like indications.
Funding more growth growth aspirations with new debt.
Kathleen Valiasek: So despite our ability to secure the funding for our currently planned projects, which we believe will take us to break even cash flow, the market is not currently trading on the fundamentals of the business as we work on our operational execution, and we believe that our market cap is not reflective of the value of our company. As such, a number of executives intend to look at making open market purchases in the near term to demonstrate our belief in the company's long-term strategy and future success. Further, we are also implementing a measured stock repurchase authorization of up to 1 million to support shares and take advantage of the market dislocation.
Repurchasing shares and really the best use of capital like I I.
Your points about like the dislocation in the valuation of well well taken but I, just I and I understand that the repurchase program.
Negligible inside but it just is that $1 million going towards my parents isn't really the best use of your capital.
That's great. Thanks.
Sure I'll go ahead and take that one in and then you can add any any comments and Chris I hear you. So there's two things going on right. We we sped up the the earnings release, so that we could you know get information out into the market and also there's certain executives that.
Operator: That concludes our prepared remarks.
Operator: Operator, please open the call for questions. Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad and the confirmation to indicate your lines in the question queue. If you would like to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, or we pull for questions.
Wanted to.
<unk> shares and so there's you don't so there's executives that are buying share and then there's the share repurchase program part of it is as you see the the trading every day. The volume is only 20000 shares right and it's obviously not any institutional.
Activity or insider activity and the I hear you on the million dollars that is over a 12 month period and it's something that we will use if if we feel that its needed.
Christian Owen: Our first question comes from the line of Christian Owen with Alpenheimer. Please proceed. Great. Thank you for taking the question. I wanted to ask about some of the learnings in the Georgia facility. You mentioned this in the prepared remarks and it seems as though you took some opportunity in the quarter to implement some of those learnings.
Yeah.
Got it okay. Thank you very much.
Thanks, Chris.
Thank you.
Anna Fabrega: Can you walk us through or just expand on some examples there and particularly with Texas being more of a green field facility versus Georgia, which was more of an existing facility, just how we should think about the ramp of Texas as compared with Georgia. Hey, Chris and thanks for the question. So recall that Georgia initially started with a three acre facility and we later added 1B as an expansion. And so as we have kind of ramped up growth capacity and now it's back as well.
Ladies and gentlemen, there are no further questions at this time I'd like to hand, the call back over to management for any closing remarks.
I'd like to thank everyone for joining us this afternoon, 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.
This concludes today's conference you may now disconnect your lines at this time. Thank you for your participation.
Anna Fabrega: And we've had to really take a hard look at kind of the process flow throughout the facility, looking at everything from, you know, how how do you move product through equipment like the harvest or the pack layer. More efficiently, how do you make sure that you have minimal downtime, how do you reduce complexity. So even looking at how much conveyer does product go down before it gets put into a package to how to minimize change over time when we're changing tax size, for example.
Okay.
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Anna Fabrega: So each one of those points has been evaluated and we have created what is typical of the manufacturing industry standard work. So that it's really, people can be super fungible within the operation. We can operate with minimal shifts, but still support that 42% increase in yield.
Anna Fabrega: And you asked about Texas. Texas will ramp up. So it's a significant we faster because one, we have the standardized processes in place, but two, we also designed for the stack and flow process from the get go. And so there's not as much retrofitting and redesign that we have to be thinking about as we're trying to optimize that flow for the greatest amount of efficient. Okay, that makes sense. Thank you, Anna.
Christian Owen: So, when I think about the guidance, then 4Q sales implied about $11 million. How should we think about that in terms of the run rate going into 2024, understanding that Texas will be commissioning, and so probably not a big contributor in 4Q? Yeah, so I think we talked about Georgia as we ramp up once the increasing and doubling our shipments to our club customer and increasing production by about 40%. Texas will be ramping up in December, and typically it takes some time just to get the operations fully running but we expect to be seeding by the beginning of the year.
Kathleen Valiasek: And then last one for me out. Sorry, go ahead, Kathy. Yeah, I was just going to throw in terms of revenue perspective. Texas is less than we might have thought earlier in the year. Okay, that's helpful.
Kathleen Valiasek: And then Kathy, actually follow up last one for me. To the extent that you're able, just anything you can say about the USDA bank, construction facility, any early indications from those discussions, impact to total cost of capital, just had to think about that over the next 60 to 75 days. Yeah, sure. So, as we've said earlier, a couple of quarters ago, we structured our agreement with Cargill such that they are allowing lower cost of capital to come into the CAPTAC. And we are considering and looking at term sheets actually on each of the facilities for long-term takeout of Cargill for long-term, much lower USDA rates.
Christian Owen: Great.
Operator: I'll hand it over. Thank you.
Ben Cleve: Our next question comes from the one of Ben Cleve with Lake Street Capital Markets. Please proceed. All right. Thanks for picking my questions. First, I want to ask you a question about the conditional commitment letters that you noted in your prepared remarks. I want to make sure I understand this correctly. So, the $228 million of capital that you're referring to here, this is incremental capital above and beyond the existing facilities through Cargill.
Ben Cleve: And this is for 2024 Greenfield building expansion beyond what we already know is in the works in Texas, Georgia, and Washington. Are those both correct statements? Yeah, exactly. Okay. Yeah. Great. And then is the USDA back loaned a part of that $228 or is that separate as well? It is separate. It's above and beyond. Okay. All right. Very good. Thank you.
Kathleen Valiasek: With with the fourth quarter outlook, you know, I would think you at this point you've got a pretty good sense of where you're going to come in on the quarter. So, you know, can you talk about the big drivers between the high and the well end of your range? What you're, you know, not sure if it's going to come through or not in the period? You want to take a coffee? Yeah, sure.
Kathleen Valiasek: You mean in terms of our, the reset, 30 to 34? Well, yeah. I mean, if what, what needs to happen to, to hit 34 versus versus 30? Yeah, so great question. Just the speed with which, you know, we get stack up and running is a piece of it. We did say that we seeded early in October, but it's, you know, it's a, it's a large number of stacks, right, in the facility.
Kathleen Valiasek: And so it's just the ramp and the speed with which we can get that up and running, so to speak. And as we, we did mention that California, we had an issue in Q3, but that, that one section is back up and running. So we should be great there. And then also just any timing for Texas coming online. Okay, okay, great.
Anna Fabrega: And the last one for me, I'll get back in line with regarding California, you know, for several period than around others, been some, some challenges that you guys have thought through there. Can you talk about kind of your view on the, you know, the long term outlook for those facilities are these, you know, are these two facilities ones that, but, you know, you think are going to be, you know, be in your, in your business for, for, you know, for the foreseeable future.
Anna Fabrega: Or are you considering any kind of, you know, strategic initiatives around these given the challenges that you, you've had here for several periods in a row. Yeah, go ahead, go ahead. Sure. I mean, go ahead. It is still so much about this, the crazy weather that we saw in Q1 in California. And, you know, one of the things that I'll say right next to the facility for literally 20 years was a dry lake bed.
Anna Fabrega: Okay, and the rains were so strong in Q1 that there's now actually a lake there, right? And I'm just saying that the level of rain was so significant that it was, you know, it just had all sorts of implications to the facility. Both facilities actually, but we definitely feel that both of those facilities are, you know, coming still right along. And we consider them very, very important facilities in our outlook rolling forward.
Anna Fabrega: But of course, also we are looking to expand at some point possibly on the land of one or other, or, you know, one of the other or even both of the facilities. So, although we have had issues this year, you know, it's really just temporary issues. Yeah, you know, I'll just add in regards to the section that we close for repairs. You know, we've been investing quite a bit in the infrastructure of these facilities.
Anna Fabrega: And, you know, we made the decision that rather tried to make repairs and operate in that particular section, it would be better for our employees and better from a safety standpoint to close it down so that we could really get in there and make the repairs as quickly as possible. So, you know, Kathy said, they're still really important facilities for us. And we're evaluating right now how can you make sure that, you know, we are fortified again, other events like that going forward. Got it, got it. Okay, great.
Ben Cleve: I appreciate you taking my questions. I'll get back in queue.
Brian Wright: Next question comes from the line of Brian Wright with Roth and the KM. Please proceed. Thanks.
Anna Fabrega: Good afternoon. I just wanted to follow up on the Georgia facility with one C being completed and that they impact to the yields that occurred. So there was more than just, you know, typical seating at the 1A and 1B that could have occurred whether the stack was up or not, but for planning purposes it was a function of this of the stack starting. I'm just like, I'm logistically struggling with, and I'm sure there's a simple answer, but just not being there, I'm having the trouble like visualizing it.
Anna Fabrega: Visualizing the, so one is, what happened with the, you know, it's with the lack of ramp in the Georgia. Yeah, so, so we operationalized 1B and we had to adapt and adjust to having those six acres and production plan to incremental volume than what we had had at the three acres. One C was originally planned to go up earlier in the year, and it was delayed. And as part of bringing up 1C and starting the seating process, we also took a setback and from a, you know, from a production standpoint so that we could make sure that we had the workflow in place to support that incremental volume that would now be coming through as stack was brought on board.
Anna Fabrega: So as Kathy mentioned, we started seating in the beginning of October. We are now kind of working that product through the system and, you know, feel really good about about the process and the workflow and the efficiency that we have going through there, but that's not reflected in Q3 clearly. Sorry, I just wanted to follow up with a seeding beginning in October. Are you referring to seeding at the stacks or? Correct.
Anna Fabrega: Yeah. I mean, it was honestly with the advent of our COO BMO Patel coming on Brian, it was a very, very conscious effort and decision. The processes that he put in place workflows, optimization of the operations, we realize, you know, we mean a conscious decision here to go slow to go fast is what I would say. Yeah, I'll get an example. We have in that facility, we have one harvester. So, you know, in order to make sure that you can operate that harvester at its maximum speed to run all of those lines through plus the incremental requires some process engineering work that we've had our engineering team engaged in, for example.
Anna Fabrega: You know, again, for mixing salad greens, those salad greens go to a mixing belt. How can we reduce the amount of time that it takes to get those greens from harvester? To the packaging machine and potentially, you know, is there a different way we can mix it that doesn't require it to go to the belt. So, it's every single point in the process we're looking at, you know, minutes and seconds and trying to optimize that flow so that at 40% greater capacity, we're not reach having any bottlenecks at the end of the process that get in the way. Okay, and then just one of the, yeah, I think you said last quarter, you're, you're still in everything you're making this back, but still the case. Yeah. Great. Thank you so much.
Operator: Thank you.
Christopher Barnes: The next question comes from on a response with Deutsche Bank. Please proceed. Hi, good afternoon. I just wanted to ask on gross margin. The 25% of this quarter was noticeably weaker than like 2Q last quarter. And I know you excited the weather challenges in California and startup costs in Georgia. But I guess I'm just trying to understand like last quarter, you said the weather, the weather issues were resolved in this quarter.
Christopher Barnes: They came back. So what really is driving the weaker margin and then like just going forward as revenue scales up at Georgia and Texas and in Washington. Do you have a line of sight to getting back to like a mid 30s gross margin or like going to be structurally lower than just a year to date it's come in quite a bit and just continues to do so. So I'd love your thoughts there.
Christopher Barnes: Thanks. Yeah, Chris, thanks so much for the question. And I hear you, it is very frustrating for us. But yes, we absolutely have line of sight to get back to where we were. And California, you know, it was so much of getting through the food safety audit, the shutting down this, the one section of the facility. And we had to surge headcount and it was basically a one off and we even this quarter, we will be back up and running at our normal gross margins.
Christopher Barnes: And I know it was definitely disappointing for us also, but we will be back on track this quarter. And I guess just what's your confidence level around that like obviously like there's things that have come in out of your control so like I'm just. Yeah, just a little bit more color around it. Yeah, I hear you so my confidence level is very, very high. We had to bring in a bunch of camp labor actually both of the facilities.
Christopher Barnes: Just in Georgia, we were surging headcount to be sure that we could get stack up and running. And then in California to get through the food safety audit. And you know, certain repairs and maintenance around shutting down this this one section. And you know, because just the low utilization was lower, but for both facilities, the headcount is already back to where back to normal. Got it. Okay, that's helpful. And then I had to just follow up on this capital allocation.
Christopher Barnes: I know you noted management is selectively like repurchasing shares and you also announced this like the $1 million repurchase program. But I guess like given like the level of debt on the balance sheet and like indications to fund more of the growth growth aspirations with new debt is repurchasing shares really the best use of capital. Oh my god. I. You're points about like the dislocation and the valuation are well taken but I just and I understand the repurchase program is like negligible in size but it's just is that $1 million going to a repurchase is really the best use of your capital.
Christopher Barnes: This rate, thanks. Sure, I'll go ahead and take that one in and then you can add any comments and Chris, I hear so there's two things going on, right? We sped up the earnings release so that we could get information out into the market and also there's certain executives that want to buy shares and so there's executives that are buying share and then there's the share repurchase program. Part of it is, as you see, the trading every day, the volume is only 20,000 shares, right?
Christopher Barnes: And it's obviously not any institutional activity or insider activity and I hear you on the million dollars it is over a 12-month period and it's something that we will use if we feel that it's needed. Got it. Okay, thank you very much. Thanks, Chris. Thank you. Asian, there are no further questions at this time.
Operator: I would like to hand the call back over to the management for an acquisition remarks. I'd like to thank everyone for joining us this afternoon and we look forward to updating you on our progress as we further scale and grow local business in the coming quarter. Thank you. This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.