Q2 2024 Local Bounti Corp Earnings Call
Good morning, and welcome to the local bound <unk> second quarter 2024 earnings Conference call all participants will be in a listen only mode.
Operator: Good morning, and welcome to the Local Bounty Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode.
Operator: After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the call over to Jeff Sonnek with Investor Relations at ICR. Please go ahead, sir.
After today's presentation there'll be an opportunity to ask questions. Please also note today's event is being recorded.
Speaker Change: At this time I'd like to turn the call over to Jeff on it with Investor Relations at ICR. Please go ahead Sir.
Jeff Sonnek: Thank you and good morning. Today's presentation will be hosted by Local Bounties Chief Executive Officer Craig Hurlbert and President and Chief Financial Officer Kathleen Valiasek. 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. Therefore, all statements other than statements of historical facts are considered forward-looking statements.
Speaker Change: Thank you and good morning, today's presentation will be hosted by local Boundings, Chief Executive Officer, Craig Hurlbert, President and Chief Financial Officer, Kathleen Belichick. 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.
Speaker Change: 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.
Jeff Sonnek: 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 those discussed in the forward-looking statement. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC.
Speaker Change: 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.
Jeff Sonnek: We'll also refer to certain non-GAAP financial measures. Please refer to the press release, which can be found on our investor relations website, investors.localbounty.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.
Speaker Change: Well also refer to certain non-GAAP financial measures. Please refer to the press release, which can be found on our Investor Relations website investors got local Bonnie dot com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures with that I would now like to turn the call over to Craig Craig.
Craig Hurlbert: Thank you, Jeff. Good morning, everyone. Before I dive into our operational and financial highlights, I'd like to take a moment to comment on an important leadership change we made in the second quarter. I want to recognize our CFO, Kathy Valiasek, and her role expansion to include President that we implemented in June. Kathy has been instrumental in driving operational efficiencies, building trust with large commercial customers, and developing key financing relationships.
Craig: Thank you, Jeff and good morning, everyone.
Craig Hurlbert: Her expanded role reflects her significant contributions that have reached well beyond the leadership of our finance organization and her unwavering commitment to scaling up our business. Together, we look forward to leading our organization through our next phase of growth. Now turning to our second quarter results. Our sales increased 31% year over year to a record 9.4 million, representing 12% growth on a sequential basis. Our Adjusted Evidon Loss also improved by approximately $800,000 year-over-year to $7.5 million.
Craig: Before I dive into our operational and financial highlights I'd like to take a moment to comment on an important leadership change we made in the second quarter I want to recognize our CFO Cathy Dallas Shack.
Speaker Change: In her role expansion to include President that we implemented and Jan <unk>.
Speaker Change: Cathy has been instrumental in driving operational efficiencies.
Speaker Change: Building trust with large commercial customers and developing key financing relationships.
Speaker Change: Her expanded role reflects her significant contributions that have reached well beyond the leadership of our finance organization and her unwavering commitment to scaling up our business together, we look forward to leading our organization through our next phase of growth.
Now turning to our second quarter results, our sales increased 31% year over year to a record $9 4 million, representing 12% growth honest sequential basis.
Our adjusted EBITDA loss also improved by approximately $800000 year over year to $7.5 million.
Craig Hurlbert: These results demonstrate that we are on the right trajectory to achieve our near-term goal of generating positive adjusted EBITDA in early 2025. I am especially excited to report that we have achieved several key milestones this quarter, which set a strong foundation for accelerated growth in the second half of 2024 and beyond. The most significant highlight of this quarter is the commencement of shipments from our new state-of-the-art facilities in Washington and Texas.
Speaker Change: These results demonstrate that we are on the right trajectory to achieve our near term goal of generating positive adjusted EBITDA in early 2025, I am, especially excited to report that we have achieved several key milestones this quarter, which set a strong foundation for it.
Speaker Change: Celebrated growth in the second half of 'twenty 'twenty four and beyond.
The most significant highlight of this quarter is the commencement of shipments from our new state of the art facilities in Washington, and Texas.
Craig Hurlbert: These purpose-built facilities optimized for our second flow technology are now fully operational and are already contributing to our revenue growth. What's particularly noteworthy is the rapid scaling of operations at these new sites. We've been able to achieve yield levels comparable to our Georgia facility in just one to two months, a process that initially took four to six months in Georgia. This accelerated ramp-up is a testament to the learnings we've applied from our George experience and the inherent advantages of our purpose-built facility.
Speaker Change: These purpose built facilities optimized for our stock and flow technology are now fully operational and already contributing to our revenue growth.
Speaker Change: That's particularly noteworthy.
Speaker Change: As the rapid scaling of operations at these new sites.
Speaker Change: We've been able to achieve yield levels comparable to our Georgia facility in just one to two months a process that initially took four to six months in Georgia.
Speaker Change: This accelerated ramp up is a testament to the learnings we've applied from our GA experience and the inherent advantages of our purpose designed facilities.
Craig Hurlbert: The Georgia Stack and Flow implementation, while very successful, required a more gradual approach to avoid disrupting existing operations. In contrast, our new facilities have allowed us to implement our optimized processes from day one. There are several key advantages inherent in the design of our Washington and Texas facilities that are focused on driving operational efficiency and accelerating our time to market. Both were designed with decoupled harvesting and packing areas along with improved buffer systems allowing for greater flexibility in processing various skews and reducing the Production Bottleneck. Built with expansion in mind, these facilities can support double the current acreage, enabling cost-effective scaling. Advanced climate control systems tailored to local conditions ensure consistent yield and quality year-round.
The Georgia dock and fall implementation, while very successful required a more gradual approach to avoid disrupting existing operations in.
Speaker Change: In contrast, our new facilities have allowed us to implement our optimized processes from day one.
Speaker Change: There are several key advantages inherent in the design of our Washington, and Texas facilities that are focused on driving operational efficiency and accelerating our time to market.
Speaker Change: Both were designed with decoupled harvesting and packing areas, along with improved buffer systems, allowing for greater flexibility in processing, various skus and reducing.
Speaker Change: Production bottlenecks.
Speaker Change: With expansion in mind. These facilities can support double the current acreage enabling cost effective scaling.
Speaker Change: Advanced climate control system tailored to local conditions ensure consistent yield and quality year round well good manufacturing practices lay out with multiple quality control checkpoints uphold our commitment to food safety and product excellence of dish.
Craig Hurlbert: While good manufacturing practices with multiple quality control checkpoints uphold our commitment to food safety and product excellence, additionally, sustainability features like water catchment and recycling systems in our Texas facility align with our environmental focus. These design elements and others collectively contribute to our ability to rapidly scale operations and maintain high quality production from day one. Capitalizing on this new capacity, we've successfully expanded our customer base and distribution network. I'm thrilled to announce that we are now shipping to more than 180 Brooks your grocery company locations from our new Mount Pleasant, Texas facility.
Speaker Change: Kelly sustainability features like water catchment and recycling systems in our Texas facility aligned with our environmental focus.
Speaker Change: These design elements and others collectively contribute to our ability to rapidly scale operations and maintain high quality production from day one.
Speaker Change: Capitalizing on this new capacity, we successfully expanded our customer base and distribution network I'm thrilled to announce that we are now shipping to more than 180 broke your grocery company locations from our new Mount Pleasant, Texas facility broke.
Craig Hurlbert: Brookers is stocking our full line of products across three states in the Southern United States, including our grab-and-go salsas. Additionally, we've expanded our distribution with Sam's Club for our leafy greens production, with service commencing from our new Texas facility.
Speaker Change: Brokers are stocking our full line of products.
Speaker Change: Across three states in the southern United States, including our grab and go salad kits living like lettuce and baby leaf varieties.
Speaker Change: Additionally, we've expanded our distribution with Sam's club for our leafy Greens production with service commencing from our new Texas facility.
Craig Hurlbert: With this added service, we are now fulfilling shipments to six of SAM's regional distribution centers from two of our facilities. Georgia and now Texas. We remain on track with the national expansion of our grab-and-go salad kit. In the second quarter, we rolled out Grab and Go to approximately 200 doors throughout the Pacific Northwest and the Southern United States, and we expect to expand to a total of 700 doors in the second half of 2024.
Speaker Change: With this added service, we're now fulfilling shipments to six of Sam's regional distribution centers from two of our facilities, Georgia and Texas.
Speaker Change: We remain on track with the national expansion of our grab and go salad kits.
In the second quarter, we rolled out grab and go to approximately 200 doors throughout the Pacific Northwest and the southern United States, and we expect to expand to a total of 700 doors in the second half of 'twenty 'twenty four.
Craig Hurlbert: This expansion will be important for driving incremental revenue and introducing more consumers to the local Bounty brand. The response to these convenient, fresh offerings has been overwhelmingly positive, and we are excited about the potential for further growth in this product category. Our stack and flow technology continues to provide opportunities to drive efficiency across our operations. I am pleased to report that the large-scale trial mentioned in our last update has delivered as expected with yield increases of 10% over our current Georgia facility performance. These results are extremely encouraging.
Speaker Change: This expansion will be important for driving incremental revenue and introducing more consumers to the local bally brand.
Speaker Change: The response to these convenient fresh offerings has been overwhelmingly positive and we are excited about the potential for further growth in this product category.
Speaker Change: Our stock and flow technology continues to provide opportunities to drive efficiency across our operations.
Speaker Change: I am pleased to report that our large scale trial mentioned in our last update has delivered as expected with yield increases of 10% over our current Georgia facility performance.
Speaker Change: These results are extremely encouraging.
Craig Hurlbert: We are now developing a comprehensive rollout strategy to implement these improvements across our Georgia, Washington, and Texas facilities. We look forward to sharing more details about this exciting development in future updates. Additionally, we've made significant strides in optimizing our seed costs. We achieved this through two main approaches. First, by reducing overall seed usage, using fewer seeds per plant site while maintaining or even increasing total yield. And second, by lowering our cost per seed.
Speaker Change: And we are now developing a comprehensive rollout strategy to implement these improvements across our Georgia, Washington, and Texas facilities, we look forward to sharing more details about this exciting development in future updates.
Speaker Change: Additionally, we've made significant strides in optimizing our seed costs.
Speaker Change: We've achieved this through two main approaches.
Speaker Change: By reducing overall seed usage using fewer seats per plant site, well maintained or even increasing total yield.
Speaker Change: And second by lowering our cost to proceed.
Craig Hurlbert: This latter improvement comes from both negotiating cost reductions with excellent suppliers, given our growing scale, and identifying alternate seeds that offer lower costs without compromising on yield, taste, texture, or flavor. As a result of these combined efforts, we've been able to reduce our seed costs by approximately 20 percent.
Speaker Change: This latter improvement comes from both negotiating cost reductions with excellent suppliers, given our growing scale and identifying alternate seeds that offer lower cost without compromising on yield taste texture or flavor.
Speaker Change: From these combined efforts, we've been able to reduce our seed costs by approximately 20% diesel.
Craig Hurlbert: These advancements in yield and cost efficiency further strengthen our competitive position and contribute to our path towards profitability. In summary, we achieved significant milestones this quarter, from record sales to the successful launch of our new facilities and expanded retail distribution. This is a direct reflection of the great work our team is doing every day.
Speaker Change: These advancements in yield and cost efficiency further strengthen our competitive position and contribute to our path towards profitability.
Speaker Change: In summary.
Speaker Change: We achieved significant milestones this quarter.
Speaker Change: From record sales to the successful launch of our new facilities and expanded retail distribution.
Speaker Change: This is a direct reflection of the great work our team is doing every day.
Craig Hurlbert: Our commitment to innovation continues to drive operational efficiencies and product improvement. Looking ahead, we remain focused on meeting increasing demand for sustainable, locally grown produce while steadily progressing towards our goal of achieving positive adjusted EBITDA in early 2025. We're confident in our path forward, and we're excited about the opportunities that lie ahead for local bounty. With that, I'll turn the call over to Kathy. Thank you, Craig.
Speaker Change: Our commitment to innovation continues to drive operational efficiencies and product improvements.
Speaker Change: Looking ahead, we remain focused on meeting increasing demand for sustainable locally grown produce well steadily progressing towards our goal of achieving positive adjusted EBITDA in early 2025.
Speaker Change: We're confident in our path forward.
Speaker Change: And we're excited about the opportunities that lie ahead for local body.
With that I'll turn the call over to Kathy.
Kathy: Thank you Craig.
Kathleen Valiasek: I want to start off by saying that I am truly honored to take on the role of President of Lopa Bounty, in addition to my responsibilities as CFO. I look forward to bringing a deep understanding of our financial fundamentals to a broader operational role. This unique perspective will help us further align our fiscal strategy with our growth initiatives, ensuring we maximize value creation and capital efficiency across all aspects of our business.
Kathy: I wanted to start off by saying that I'm truly honored to take on the role of President of local County. In addition to my responsibilities as CFO I look forward to bringing a deep understanding of our financial fundamentals to a broader operational role. This unique perspective will help us further align our physical strategy with their growth.
Kathy: Initiatives, ensuring we maximize value creation and capital efficiency across all aspects of our business now.
Kathleen Valiasek: Now, I'd like to update you on our ongoing capacity expansion initiatives and a couple financial developments. First, we entered into negotiations for an additional 175 million of financing via another conditional commitment letter from the same commercial lender we have been working with.
Kathy: Now I'd like to update you on our ongoing capacity expansion initiatives and a couple of financial developments first we entered into negotiations for an additional 175 million of financing via another conditional commitment letter from the same commercial lender, we have been working with if we enter into this.
Kathleen Valiasek: If we enter into this additional CCL, it would bring our total committed future capital to approximately $400 million, subject to completing definitive documentation. This substantial funding would support our strategic growth plans, including expanding capacity across our stack and flow facilities to meet growing demand, provide working capital, and strategic growth capital. Second, we also entered into a non-binding letter of intent for a $55 million sale lease back of our Georgia facility, which will be used to pay down our existing construction financing and add additional working capital to our balance sheet.
Kathy: Additional CCL it would bring our total committed future capital to approximately 400 million subject to completing definitive documentation did substantial funding would support our strategic growth plans, including expanding capacity across our stack themselves facilities to meet growing demand provide working capital.
Kathy: Oh and strategic growth capital second we also entered into a nonbinding letter of intent for a $55 million sale leaseback of our Georgia facility, which will be used to pay down our existing construction financing and add additional working capital to our balance sheet.
Kathy: Alongside the advancement of these incremental financings our plans to increase capacity across our network of facilities are progressing well. These expansions are strategically designed to increase our production capabilities and accommodate a growing product assortment as we advance our plans, including our.
Kathleen Valiasek: Alongside the advancement of these incremental financings, our plans to increase capacity across our network of facilities are progressing well. These expansions are strategically designed to increase our production capabilities and accommodate our growing product assortment. As we advance our plans, including our anticipated entry into the Midwest market, we're taking a measured and collaborative approach. We are actively engaging with our retail partners to optimize each facility for specific products that align with their distribution strategy.
Did the entry into the Midwest market, we're taking a measured and collaborative approach we're actively engaging with our retail partners to optimize each facility for specific products that align with their distribution strategies.
Kathleen Valiasek: And this is of particular importance right now as we roll out our broader SKU assortment, which is of great interest to new and existing customers. This approach not only strengthens our market position, but also reinforces our commitment to delivering fresh high quality produce through sustainable tech enabled farming practices across the nation.
Kathy: And this is of particular importance right now as we rollout our broader SKU assortment, which is of great interest to new and existing customers. This approach not only strengthens our market position, but also reinforces our commitment to delivering fresh high quality produce to sustainable tech enabled farming.
Kathy: Practices across the nation I'm also pleased to report that we have nearly completed the transition of the Hamilton, Montana facility from its previous R&D focus to a commercial oriented facility. The Montana facilities, New commercial focus is expected to contribute meaningfully to our product output.
Kathleen Valiasek: I'm also pleased to report that we have nearly completed the transition of the Hamilton Montana Facility from its previous R&D focus to a commercial-oriented facility. The Montana Facility's new commercial focus is expected to contribute meaningfully to our product output. Furthermore, this shift is generating a material improvement in our facility-level EBITDA contribution. In fact, we are already seeing that we've improved by approximately 1 million compared to Q2 last year. Once we have ramped up sales out of that facility and in Q3 and Q4 this year, that facility will be near cash flow break even, driving us closer to achieving our near-term financial goals. Now shifting to our second quarter results, second quarter 2024 sales increased 31% to 9.4 million as compared to 7.2 million in the prior year and increased 12% compared to 8.4 million in the first quarter 2024.
Kathy: Are there more the shift is generating a material improvement in our facility level EBITDA contribution in fact, we are already seeing that we've improved by approximately 1 million compared to Q2 last year. Once we have ramped up sales out of that facility in Q3 and Q4. This year that facility will be near cash flow.
Speaker Change: He then and drives us closer to achieving our near term financial goals now shifting to our second quarter results second quarter 'twenty 'twenty four sales increased 31% to $9 4 million as compared to $7 2 million in the prior year and increased 12% compared to eight point for me.
Kathleen Valiasek: Our results largely reflect the increased production and growth and sales for my Georgia facility and, to a lesser extent, the partial quarter contribution from our Washington and Texas facilities. I'd also point out that revenue contribution out of Montana was impacted due to the temporary shutdown associated with the transition to different SKUs for commercial production, which should reverse and be a tailwind for us in the second half of the year. The second quarter adjusted gross margin, excluding depreciation and stock-based compensation, was approximately 29%. While our adjusted gross margin performance continues to reflect costs associated with the ongoing optimization and scaling up of our growth facilities, we were pleased to see a five percentage point improvement in margin from Q1 to Q3.
Speaker Change: In the first quarter 'twenty 'twenty four.
Speaker Change: Our results largely reflect the increased production and growth in sales from my Georgia facility and to a lesser extent the partial quarter contribution from our Washington, and Texas facilities. I'd also point out that revenue contribution out of Montana was impacted due to the temporary shutdown associated with the transition.
Speaker Change: The different skus for commercial production, which should reverse and be a tailwind for us in the second half of the year.
Kathleen Valiasek: We continue to expect our adjusted gross margin to increase in the common quarters and sales ramp and parallel with our capacity scale-up this year. Beyond the scale-related benefits, as Craig mentioned, we continue to make good progress with other initiatives that we expect to further support margin improvement, such as improvements in our seed costs. SG&A for the second quarter decreased $6 million as compared to the prior year to $10.7 million, driven by cost-saving actions we took in the fourth quarter of 2023 and first quarter 2024 to streamline our organizational structure as well as lower stock-based compensation expense.
Speaker Change: Second quarter, adjusted gross margin, excluding depreciation and stock based compensation was approximately 29%.
Speaker Change: Our adjusted gross margin performance continues to reflect costs associated with the ongoing optimization and scaling up of our grow facilities. We were pleased to see a five percentage point improvement in margin from Q1 to Q2, we continue to expect our adjusted gross margin to increase in the coming quarters and see.
Speaker Change: <unk> ramp in parallel with our capacity to scale up this year.
Speaker Change: And the scale related benefits as Craig mentioned, we continued to make good progress with other initiatives that we expect to further support margin improvement such as improvements in our seed costs.
Speaker Change: SG&A for the second quarter decreased 6 million as compared to the prior year to $10 7 million driven by cost saving actions. We took in the fourth quarter of 2023, and first quarter 'twenty 'twenty four to streamline our org structure as well as lower stock based compensation expense, we expect to continue to.
Kathleen Valiasek: We expect to continue to benefit from the cost-saving actions and the resulting lower cost base through the end of 2024. As a result of our year-over-year improvement in sales and cost savings, our operating loss improved by $5.5 million in the second quarter as compared to the prior year. Net loss was $25.3 million in the second quarter of 2024 as compared to a net loss of $10.7 million in the prior year period.
Speaker Change: The benefit from the cost saving actions and the resulting lower cost base through the end of 'twenty 'twenty four.
Operator: Good morning, and welcome to the local bounty second quarter, 2024 earnings conference call. All participants will be in a listen only mode. After today's presentation, there'll be an opportunity to ask questions. Please also note, today's event is being recorded.
As a result of our year over year improvement in sales and cost savings or operating loss improved by $5 5 million in the second quarter as compared to the prior year net loss was $25 3 million in the second quarter of 2024 as compared to a net loss of $10 7 million in the.
Jeff Sonnek: At this time, I'd like to turn the call over to Jeff Sonnek with investor relations at ICR. Please go ahead, sir. Thank you and good morning.
Prior year period I'd note that the second quarter of 2023 was positively influenced by a 15.2 million noncash mark to market gain in the fair value of our warrant liability, which helps explain the variance year over year adjusted EBITDA loss improved to $7 5 million as compared to.
Kathleen Valiasek: I'd note that the second quarter of 2023 was positively influenced by a $15.2 million non-cash mark-to-market gain in the fair value of a warrant liability, which helps explain the variance year-over-year. Adjusted EBITDA loss improved to $7.5 million as compared to a loss of $8.3 million in the prior year period.
Craig Hurlbert: Today's presentation will be hosted by local boundings chief executive officer, Craig Hurlbert.
Kathleen Valiasek: And president and chief financial officer, Kathleen Valiasek. 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. We'll also refer to certain non-gap financial measures.
Operator: Please refer to the press release, which can be found on our investor relations website, investors.localbony.com.
Speaker Change: A loss of $8 3 million in the prior year period.
Kathleen Valiasek: From a capital structure perspective, as of June 30, 2024, we had cash, Cash Equivalence, and Restricted Cash in the amount of $16.2 million. And as of the second quarter, we had approximately $8.6 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 16.1 million shares.
Speaker Change: From a capital structure perspective as of June 30th 'twenty 'twenty, four we had cash.
Speaker Change: Cash equivalents and restricted cash in the amount of $16 2 million and as the second quarter, we had approximately $8 6 million shares outstanding.
Speaker Change: On a pro forma basis, including warrants and our employees' restricted stock units outstanding we have the fully diluted share count of approximately $16 1 million shares.
Kathleen Valiasek: We're encouraged by the increasing support for Local Bounties' innovative CEA approach. Our financial position remains solid, with sufficient capital to fund operations, complete ongoing construction projects, and achieve our critical milestone of positive adjusted EBITDA in early 2025. This target will be reached through a combination of increased revenue from our new facilities, reduced SG&A expenses, and decreased R&D costs as we shift our Montana facility towards more commercial activities. Moreover, we're actively pursuing strategies to lower our cost of capital and refinance our construction debt, including potential sale lease deck transactions and collaborations with USDA license lenders.
We're encouraged by the increasing support for local boundaries innovative C. A approach our financial position remains solid with sufficient capital to fund operations complete ongoing construction projects and achieve a critical milestone of positive adjusted EBITDA in early twenties 25. This target will be reached.
Jeff Sonnek: For conciliations of non-gap financial measures to their most directly comparable gap measures with that, I now like to turn the call over to Craig. Craig. Thank you, Jeff.
Craig Hurlbert: And good morning, everyone. Before I dive into our operational and financial highlights, I'd like to take a moment to comment on an important leadership change we made in the past. I want to recognize our CFO, Kathy Balasek, and her role expansion to include president that we implemented in June. Kathy has been instrumental in driving operational efficiencies, building trust with large commercial customers, and developing key financing relationships. Her expanded role reflects her significant contributions that have reached well beyond the leadership of our finance organization and her unwavering commitment to scaling up our business. Together, we look forward to leading our organization through our next phase of growth.
Speaker Change: Through a combination of increased revenue from our new facilities reduced SG&A expenses and decreased R&D costs as we shift our Montana facility towards more commercial activities. Moreover, we're actively pursuing strategies to lower our cost of capital and refinance our construction debt.
Speaker Change: Including potential sale leaseback transactions and collaborations with the U S. D. A licensed lenders. These efforts underscore our commitment to optimizing our financial structure.
Kathleen Valiasek: These efforts underscore our commitment to optimizing our financial structure while driving operational growth. With respect to our outlook and in consideration of our year-to-date performance, we are reiterating our full year 2024 sales guidance of 50 to 60 million. This guidance continues to reflect expected production out of our Georgia, California, and Montana facilities and, to a lesser extent, the partial year contribution from production ramping up at our Texas and Washington facilities. In terms of how to think about the balance of the year, we expect a significant step up in revenue growth for the back half compared to the first half as Washington and Texas production ramps up, as well as significantly increased revenue from our grab-and-go rollout, both The fourth quarter is expected to be larger than the third quarter to meet our full-year guidance.
Riding operational growth.
Speaker Change: With respect to our outlook and in consideration of our year to date performance. We are reiterating our full year 'twenty 'twenty four sales guidance of 50 to 60 million. This guidance continues to reflect the expected production out of our Georgia, California, and Montana facilities and to a lesser extent the partial year.
Craig Hurlbert: Now, turning to our second quarter results, our sales increased 31% year-over-year to a record 9.4 million, representing 12% growth on a sequential basis. Our adjusted EBITDA loss also improved by approximately $800,000 year-over-year to $7.5 million. These results demonstrate that we are on the right trajectory to achieve our near-term goal of generating positive adjusted EBITDA in early 2025.
Speaker Change: Your contribution from production ramping up at our Texas and Washington facilities.
Speaker Change: In terms of how to think about the balance of the year, we expect a significant step up in revenue growth for the back half compared to the first half as Washington, and Texas production ramps as well as significantly increased revenue from our grab and go rollout both in terms of higher volumes associated with that.
Speaker Change: Placement and many of our customers, new resets and a higher average selling price, which helps our overall mix fourth quarter is expected to be larger than the third quarter to meet our full year guidance.
Craig Hurlbert: I am especially excited to report that we have achieved several key milestones this quarter, which set a strong foundation for accelerated growth in the second half of 2024 and beyond. The most significant highlight of this quarter is the commencement of shipments from our new state-of-the-art facilities in Washington and Texas. These purpose-built facilities optimized for our second flow technology are now fully operational and already contributing to our revenue growth. What's particularly noteworthy is the rapid scaling of operations at these new sites.
Kathleen Valiasek: In closing, I really want to express my gratitude for our team's focus this year and also extend that gratitude to our customers who are supporting our efforts to bring locally grown produce to more consumers. As you've heard today, we've been incredibly busy making progress on all fronts, including scaling up our operations with the opening of two new greenfield facilities, the transition of Montana to commercial operations, building out our product assortment, and expanding our distribution with new and existing customers. We couldn't be prouder of our organization.
Speaker Change: In closing I really want to express my gratitude for our team's focus this year and also extend that gratitude to our customers who are supporting our efforts to bring locally grown produce to more consumers as you've heard today, we've been incredibly busy making progress on all fronts, including scaling up our operations.
Speaker Change: With the opening up of two new Greenfield facilities, the transition of Montana to commercial operations building out our product assortment and expanding our distribution with new and existing customers, we couldn't be prouder of the organization. Thank you.
Craig Hurlbert: We've been able to achieve yield levels comparable to our Georgia facility in just one to two months, a process that initially took four to six months in Georgia. This accelerated ramp-up is a testament to the learnings we've applied from our Georgia experience and the inherent advantages of our purpose-designed facilities. The Georgia stack-and-flow implementation, while very successful, required a more gradual approach to avoid disrupting existing operations. In contrast, our new facilities have allowed us to implement our optimized processes from day one.
Speaker Change: That concludes our prepared remarks, operator, please open the call for questions.
Kathleen Valiasek: Thank you. That concludes our prepared remarks. Operator, please open the call for questions. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you 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, a confirmation tone will indicate your line is in the question queue.
Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for a question. Our first question comes from Kristen Owen with Oppenheimer and Company. Please proceed with your question. Hi, good morning.
Vince: Vince using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Christian Landi with Oppenheimer and company. Please proceed with your question.
Kristen Owen: Thank you for taking the question, and congratulations on all the progress made this quarter. Kathy, I was wondering if you gave some great color on sort of how to think about the back half of the year. Maybe help us with some of those on-the-ground milestones, how to think about the contribution of Texas and Tesco in the back half, you know, when we really start to see Montana get up and running. And just as it relates to some of the commercial agreements that you announced or some of the commercial shipments that you announced in the quarter, how we should think about maybe capacity utilization or run rate of revenue on those facilities as we think about that bridge now into 20 Thanks, Kristen, and good morning. I love the question.
Craig Hurlbert: There are several key advantages inherent in the design of our Washington and Texas facilities that are focused on driving operational efficiency and accelerating our time to market. Both were designed with decoupled harvesting and packing areas, along with improved buffer systems, allowing for greater flexibility in processing various skews and reducing production bottlenecks. Built with expansion in mind, these facilities can support double the current acreage, enabling cost-effective scaling. Advanced climate control systems tailored to local conditions ensure consistent yield and quality year-round, while good manufacturing practices lay out with multiple quality control checkpoints uphold our commitment to food safety and product excellence.
Christian Landi: Hi, Good morning, Thank you for taking the question and congrats on all the progress made this quarter.
Christian Landi: Kathy I was I was wondering you gave some great color on sort of how to think about the back half of the year and maybe help US My son is on the ground milestone how to think about the contribution of Texas and Tesco in the back half you know when we really start to see Montana, and get up and running and and just as it relates to.
Speaker Change: She is kind of the commercial agreements that you announced or are some of the commercial shipments that you announced in the quarter and how we should think about maybe capacity utilization or run rate revenue on those facilities as we think about that branch now into 2020 five.
Speaker Change: Okay.
Kathleen Valiasek: Many multifaceted questions. It's pretty amazing, as we said in our paired remarks, how far a local bounty has come just even in the last three to four months. And, as Craig and I have said, we are just so incredibly proud of all of our teams and how far we've come.
Speaker Change: Thanks, Kristen and good morning loved the question. Many multifaceted question, it's a pretty amazing as we said in our prepared remarks, how far a local boundary has come just even in the last three to four months and and as Craig and I have said, we are just so incredibly proud of all of our teams and how far.
Craig Hurlbert: Additionally, sustainability features like water catchment and recycling systems in our Texas facility align with our environmental focus. These design elements and others collectively contribute to our ability to rapidly scale operations and maintain high quality production from day one.
Speaker Change: Hum.
Speaker Change: So many things it has to update on I would say since our last call. When you think about even even the new facilities right. The new customers on coming on line. The capacity that we are providing to Sam's in Texas and also the Brooks Yours right and then also all of the new Skus that are coming online.
Kathleen Valiasek: So many things have to be updated on, I would say, since our last call when you think about even the new facility. It's right, the new customers are coming online, the capacity that we are providing to see them in Texas, and also the brochures, right, and then also all of the new skews that are coming online that we've talked about in the past, but, you know, it's very significant in the sense that, you know, Arugula, spinach, basil, power blends, they all have higher price points than the spring mix, which So that's kind of one of the things that will make a significant difference to us in the second half.
Craig Hurlbert: Capitalizing on this new capacity, we've successfully expanded our customer base and distribution network. I'm thrilled to announce that we are now shipping to more than 180 brookshire grocery company locations from our new Mount Pleasant Texas facility. Brookshers is stocking our full line of products across three states in the southern United States, including our grab-and-go-salikets, living lettuce and daily leaf varieties. Additionally, we've expanded our distribution with Sam's Club for our leafy greens production, with service commencing from our new Texas facility. With this added service, we are now fulfilling shipments to six of Sam's regional distribution centers from two of our facilities, Georgia and now Texas. We remain on track with the national expansion of our grab-and-go-salikets.
Line that we've we've talked about in the past, but you know it's very significant in the sense that you know arugula spinach Basil.
Speaker Change: Power blends right they all have higher price.
Speaker Change: Price points than our you know are the the spring mix, which is kind of our bread and butter. So that's kind of one of the things that all that will make a significant difference to us in the second half and when we did the the Q1 call. We didn't have that great visibility as we currently due to the impact that those skus.
Kathleen Valiasek: And when we did the Q1 call, we didn't have as much visibility as we currently do to the impact that those SKUs will have on top line revenue and also, you know, margin contribution, right? And then we also talked about the grab-and-goes. We did have one or two large customers that started up a month or two late with the grab-and-goes. In other words, they started in Q3 versus Q
Speaker Change: Well have on topline revenue and also you know.
Margin contribution right and then also we talked about the Graben goes we did have one or two large customers that started up a month or two late with the grabbing goes in other words. They started in Q3 versus Q2. So the there was a little bit of a shift there I'm just logistically no big deal.
Craig Hurlbert: In the second quarter, we rolled out grab and go to approximately 200 doors throughout the Pacific Northwest and the Southern United States, and we expect to expand to a total of 700 doors in the second half of 2024. This expansion will be important for driving incremental revenue and introducing more consumers to the local bounty brand. The response to the convenient, fresh offerings has been overwhelmingly positive and we are excited about the potential for further growth in this product category.
Kathleen Valiasek: So there was a little bit of a shift there, just logistically no big deal, just a timing situation. And then we also in my prepared comments talked about Montana, the revenue out of Montana in Q2 was probably a little bit less than we had anticipated, partially because we realized that we wanted to bring in live and cut basil, living head basil, sorry, and cut basil out of Montana, which was, you know, likewise two SKUs which are a higher margin than our spring mix, which is great, but it took a little bit more time to get those SKUs kind of up and running.
Speaker Change: It's just a timing situation and then we also in my prepared comments talked about Montana on the revenue out of Montana, and Q2 was probably a little bit less than what you had anticipated partially because we realized that we wanted to bring in wise and cut days of living had basal theory and.
Speaker Change: Cut basal out of Montana, which was likewise Q2, skus, which are higher.
Speaker Change: Higher margin than our spring mix, which is great, but it took a little bit more time to get those skus kind of up and running.
Craig Hurlbert: Our stack and flow technology continues to provide opportunities to drive efficiency across our operations. I am pleased to report that our large scale trial mentioned in our last update has delivered as expected with yield increases of 10% over our current Georgia facility performance. These results are extremely encouraging and we are now developing a comprehensive roll out strategy to implement these improvements across our Georgia, Washington and Texas facilities.
Speaker Change: Let's say capacity wise are you know we are very.
Kathleen Valiasek: Let's see, capacity-wise, you know, we are very much sold out for the most part in our facilities. Washington is a little bit different in the sense that we didn't have Sam's buying out that facility right away and Brookshire's, etc.
Speaker Change: Very much sold out for the most part in our facilities, Washington is a little bit different in the sense that we didn't have sam's buying out of that facility right away and and brochures et cetera, but it's a coming along very very quickly and as we alluded also when I recorded content we are talking.
Kathleen Valiasek: But it's coming along very, very quickly. And as we alluded to in our recorded comment, we are talking very closely with all of our customers. And why is that, right?
Speaker Change: Very closely with all of our customers and why is that right. They all see now that we actually can provide the scale and the volume that's needed in these products right and so very closely we're talking with them about hey, what are that they all want the new skus, but also what does that mean for the expansion than that.
Kathleen Valiasek: They all see now that we actually can provide the scale and the volume that's needed in these products, right? And so, very closely, we're talking with them about, hey, what are the, they all want the new SKUs, but also what does that mean for the expansions and the 2024 builds? Let's be sure that you get the capacity you want in those new builds, right? So I hope that answered most of your questions, but let's follow up with that. And Craig, sorry.
Craig Hurlbert: We look forward to sharing more details about this exciting development in future updates.
Craig Hurlbert: Additionally, we have made significant strides in optimizing our seed costs. We have achieved this through two main approaches, first, by reducing overall seed usage, using fewer seeds per plant site while maintaining or even increasing total yield. Second, by lowering our costs per seed, this latter improvement comes from both negotiating cost reductions with excellent suppliers given our growing scale and identifying alternate seeds that offer lower costs without compromising on yield, paste, texture or flavor. From these combined efforts, we have been able to reduce our seed costs by approximately 20%. These advancements in yield and cost efficiency further strengthen our competitive position and contribute to our path towards profitability.
Speaker Change: 'twenty 'twenty four builds let's be sure that you've got the capacity you want and those new builds right. So I hope that answered most of your questions, but let me follow up with that.
Craig: And Craig.
Craig: That's helpful.
Speaker Change: [laughter] sorry [laughter].
Craig Hurlbert: We love Kristen's questions because they're always detailed. So yeah. Yeah, they're great.
Speaker Change: We love Christian's questions because there are always detailed so yeah, yeah, that'd be great everything there Christian.
Kristen Owen: Did we get everything there, Kristen? Yes, you're getting the Kristen Owen special here. The only one I would ask maybe just a little bit of a double click on because of the new SKUs and how you're seeing these customers come on, the sort of exit revenue rate. I mean, if I think about your second half guidance, what's implied in the back half of the year, how do we think about that as a starting point for 2025?
Speaker Change: Yes, youre getting the Christian on special here.
Speaker Change: The only way that I would ask maybe just a little bit of a double click on because of the new used and how you're seeing these customers come on but the sort of exit revenue right. I mean, if I if I think about your second half guidance, what's implied in the back half of the year, how do we go about that as a store.
<unk> point for 2020 five.
Craig Hurlbert: In summary, we achieved significant milestones this quarter, from record sales to the successful launch of our new facilities and expanded retail distribution. This is a direct reflection of the great work our team is doing every day. Our commitment to innovation continues to drive operational efficiencies and product improvements. Looking ahead, we remain focused on meeting, increasing demand for sustainable, locally grown produce while steadily progressing towards our goal of achieving positive adjusted EBITDA in early 2025.
Speaker Change: And what what are sort of the their ranges on that when we think about like that skews max or that customer mix.
Kristen Owen: And what are sort of the ranges on that when we think about like that skew mix or that customer mix? Yeah, I mean, it's such a great question. I mean, when we think about 2025, just the level of...
Speaker Change: Yeah I.
Speaker Change: I mean, it's such a great question I mean, when we think about 2020 five just the level of.
Kathleen Valiasek: These new skus are definitely going to very much impact our revenue and our margin, okay? And then also, I should highlight the R&D team project that we ran out of Georgia to increase the yields. We will also be blowing that out into all of our facilities in Q2, Q3, sorry, Q3, Q4, and that will also impact revenue when we think about it for next year. Significantly. I think I think Chris will be honing in on this over the next, you know, couple of months in 2025.
Speaker Change: You know it well at these new Skus are definitely going to very much impacts our revenue and our margin. Okay. And then also I also should highlight the the.
Speaker Change: The R&D.
Speaker Change: Project that we ran out of Georgia to increase the yields we will also be blowing that out into all of our facilities.
Speaker Change: In Q2, Q3, sorry, Q3, Q4 and that will also impact the revenue when we when we think about it for next year.
Craig Hurlbert: We're confident in our path forward and we're excited about the opportunities that lie ahead for local bounty.
Kathleen Valiasek: With that, I'll turn the call over to Kathy. Thank you, Craig.
Speaker Change: Yeah.
Speaker Change: Significantly.
Kristen Owen: It's a great question, and it's one that's on our minds every day. In the interest of time and sparing everybody else, I will leave it there and take the rest of my questions offline. Thank you, guys. Thanks, Kristen.
Speaker Change: I think.
Speaker Change: It will be honing in on this over the next you know couple of months on 2025, it's a great question and it's one that's on our minds everyday.
Kathleen Valiasek: I want to start off by saying that I am truly honored to take on the role of President of local bounty in addition to my responsibilities as CSO. I look forward to bringing a deep understanding of our financial fundamentals to a broader operational role. This unique perspective will help us further align our fiscal strategy with our growth initiatives. Ensuring we maximize value creation and capital efficiency across all aspects of our business.
Speaker Change: In the interest of time and sparing everybody else I will leave it there and take the rest of my questions offline. Thank you guys.
Scott: Thanks Scott.
Scott: Yeah.
Speaker Change: Our next question comes from Ben cleaning with Lake Street Capital markets. Please proceed with your question.
Ben Klieve: Our next question comes from Ben Klieve with Lake Street Capital Market. Please proceed with your question. All right, thanks for taking my questions. The first is around the sale-leaseback of the Georgia facility. Kathy, I'm wondering if you could just give us any additional detail on that, be it the cap rate, the degree to which this is going to be an EBITA headwind given the addition of a lease expense, or the impact on cash flow given that you're replacing higher cost construction financing with lower cost rent payments.
Kathleen Valiasek: So any details you can provide on that would be great, yeah difficult to share a ton of details at this point what we I think we've we said sort of consistently this is you know the strategy right for each of the facilities after they get to a certain level of profitability bring bring them bring a sale lease back into the facility and take up the construction financing right and so I would anticipate you know the similar similar situation is going to happen with with Texas and Washington and what I would say especially for those two facilities Craig mentioned it in his comments you know our teams brought those facilities to be you know up and running in such an impressive short period of time that those those facilities we will be able to flip them to sell these back much sooner than we were able to with Georgia I I can't at this point kind of give the rate on the sale lease back but I just wanted to give the color around you know this strategy that we've always been going for and it's great with Texas and Washington because we'll be able to flip them to sell it lease back sooner because you know significantly sold out to a certain degree and just they came up and running very very quickly, Got it. Okay. No, fair enough.
Kathleen Valiasek: Now I'd like to update you on our ongoing capacity, expansion initiatives and a couple of financial developments. First, we enter into negotiations for an additional 175 million of financing via another conditional commitment letter from the same commercial lender we have been working with. If we enter into this additional CCL, it would bring our total committed future capital to approximately 400 million, subject to completing definitive documentation. This substantial funding would support our strategic growth plans, including expanding capacity across our stackable facilities to meet growing demand, provide working capital and strategic growth capital.
Ben cleaning: Alright, Thanks for taking my questions first is around the sale leaseback of the Georgia facility. Kathy I'm wondering if you could just give us any additional detail on that would be at the cap rate the degree to which isn't going to be an EBITDA headwind. Given the addition of a lease expense or the impact on cash flows given that you're replacing higher cost construction financing with lower cost run payments on.
Ben cleaning: Any details you can quite on that would be great.
Kathy: Yeah difficult to share a ton of details at this point, what we I think we've said sort of consistently this is.
Speaker Change: You know the strategy right for each of the facilities after they get to a certain level of profitability.
Speaker Change: Bring them bring a sale lease back into the facility and take up the construction financing right and so I would anticipate a similar similar situations, it's going to happen with with Texas, and Washington, and what I would say, especially for those two facilities Craig mentioned it in his comments you know our teams brought those facilities to be up in <unk>.
Kathleen Valiasek: Second, we also entered into a non-binding letter of intent for a $55 million sale lease back of our Georgia facility, which will be used to pay down our existing construction financing and add additional working capital to our balance sheet. Alongside the advancement of these incremental financing, our plans to increase capacity across our network of facilities are progressing well. These expansions are strategically designed to increase our production capabilities and accommodate our growing product assortment.
Speaker Change: Running in such an impressive short period of time that those those facilities, we will be able to flip them to sell lease back much sooner than we were able to with Georgia I I can't at this point kind of give the rate on the sale leaseback, but I just wanted to give the color around you know this is a strategy that we have.
Kathleen Valiasek: As we advance our plans, including our anticipated entry into the Midwest market, we're taking a measured and collaborative approach. We're actively engaging with our retail partners to optimize each facility for specific products that align with their distribution strategies. And this is a particular importance right now as we roll out our broader skew assortment, which is of great interest to new and existing customers. This approach not only strengthens our market position, but also reinforces our commitment to delivering fresh, high-quality produce through sustainable tech-enabled farming practices across the nation.
Speaker Change: I always think going forward, it's great with Texas, and Washington, because we'll be able to flip them to sell leaseback sooner because you know significantly sold out to a certain degree and just they they came up and running very very quickly.
Speaker Change: Got it Okay fair enough and we'll stay tuned for details on that one when you are able to provide them.
Ben Klieve: We'll stay tuned for details on that one when you're able to provide them. On the EBITDA ramp, I'm wondering if you can kind of walk me through a bit of the sequential shift from Q1 to Q2 on EBITDA. So that burn rate ticked up a little bit from $6.9 million to $7.5 million. It sounds like you had some expenses in Montana associated with the transition, probably some elevated costs for Washington and Texas that they turned on.
Speaker Change: On the EBITDA ramp I'm wondering if you can kind of walk me through a bit of the the sequential shift from Q1 to Q2 on EBITDA, so that burn rate ticked up a little bit from $6 9 million to $7 5 million. It sounds like you had some expenses in Montana associated with the transition probably some elevated cost in Washington.
Kathleen Valiasek: I'm also pleased to report that we have nearly completed the transition of the Hamilton Montana facility from its previous R&D focus to a commercial-oriented facility. The Montana facility's new commercial focus is expected to contribute meaningfully to our product output. Furthermore, this shift is generating a material improvement in our facility level, even though a contribution. In fact, we are already seeing that we've improved by approximately 1 million compared to Q2 last year. Once we have ramped up sales out of that facility in Q3 and Q4 this year, that facility will be near cash flow break even and drives us closer to achieving our near-term financial goals.
Speaker Change: And in Texas. They turned on can you talk about kind of the drivers of that EBIT line from the first quarter to the second quarter and then the degree to which any of those are contributing factors are.
Kathleen Valiasek: Can you talk about the drivers of that EBITDA line from the first quarter to the second quarter and then the degree to which any of those contributing factors are going to be getting turned off here in the third quarter to allow for an EBITDA improvement here in the current quarter? Yeah, thank you. I'm so glad you asked that question because it's constantly on my mind, and I watch it every single day.
Speaker Change: Gonna be getting turned off here in the third quarter to allow for that to allow for an EBITDA improvement here.
Speaker Change: In the current quarter.
Speaker Change: Yeah. Thank you I I I'm. So glad you asked that question because it's constantly on my.
And I watch it every single day.
Kathleen Valiasek: So one of the points I talked about in my script was Montana being less of a revenue contributor, and we really honestly weren't planning for that when we did our Q1 call. But the change that we made to bring BASEL into that facility is really the right thing long-term because we will be doing a spring mix SKU out of there, but adding BASEL will increase the profitability of that facility.
Speaker Change: One of the points I did talk about it in my script was Montana being less of a revenue contributor and we really honestly weren't planning for that when we did our Q1 call and but we did it the change that we made to bring basal into that facility is really the right thing long term because we.
Kathleen Valiasek: Now shifting to our second quarter results, second quarter 2024 sales increased 31 percent to 9.4 million as compared to 7.2 million in the prior year and increased 12 percent compared to 8.4 million in the first quarter 2024. Our results largely reflect the increased production and growth in sales from our Georgia facility and to a lesser extent the partial quarter contribution from our Washington and Texas facilities. I'd also point out that revenue contribution out of Montana was impacted due to the temporary shutdown associated with the transition to different skews for commercial production, which should reverse and be a tailwind for us in the second half of the year.
Speaker Change: Will they be doing a spring mix skew out of there, but adding and Basil will increase the profitability out of that facility, but it meant a little less revenue in Q2, Okay. And then there were a couple of other things from a timing perspective I already mentioned the grab and go we had two customers that came in you know that started to buy that.
Kathleen Valiasek: But it meant a little less revenue in Q2. And then there were a couple of other things from a timing perspective. I already mentioned the grab-and-go. A lot of customers that came in that started to buy that product; we had planned for a Q2 start. It was a Q3 start, just a month or two difference, no big deal there.
Speaker Change: We had planned for a Q2 started was in Q3, you start to see a month or two difference no big deal. There and then the other thing that I would note is that our our construction team all of those costs are typically capitalized. Okay didn't include this in my in my recorded comments that all of those costs are typically capitalize.
Kathleen Valiasek: And then the other thing that I would note is that our construction team, all of those costs are typically capitalized. Okay, I didn't include this in my recorded comments, but all of those costs are typically capitalized. Those poor guys finally were able to actually take the needed vacation in Q2.
Kathleen Valiasek: The second quarter adjusted growth margin, excluding depreciation and stock based compensation, was approximately 29 percent. While our adjusted growth margin performance continues to reflect costs associated with the ongoing optimization and scaling up of our growth facilities, we were pleased to see a 5 percentage point improvement in margin from Q1 to Q2. We continue to expect our adjusted growth margin to increase in the coming quarters as sales ramp in parallel with our capacity scale up this year.
Speaker Change: Those poor guys. Finally in Q2, we're able to actually all take you know the the needed vacation. These guys for two years didn't take any vacation at all and we had.
Kathleen Valiasek: These guys for two years didn't take any vacation at all, and we had just a couple of reasons that we had some of the construction guys costing $400,000 or $500,000 that hit the P&L, and FG&A in Q2, and that will go away in Q3. So those are kind of the three or four factors. Got it. That's all very helpful. I do really quickly want to say we are really tracking to Q1, even to positive, and I'm thrilled to see the progress.
Speaker Change: You know just a couple of reasons that we had some some of the construction guys costs for you know I Wanna say four or 500000 that hit the P&L SG&A in Q2, and then it'll go away in Q3.
Speaker Change: So those.
Speaker Change: Those are kind of the three or four factors.
Kathleen Valiasek: Beyond the scale related benefits, as Craig mentioned, we continue to make good progress with other initiatives that we expect to further support margin improvement such as improvements in our seed costs. SGNA for the second quarter decreased 6 million as compared to the prior year to 10.7 million driven by cost-saving actions we took in the fourth quarter of 2023 and first quarter 2024 to streamline our org structure as well as lower stock based compensation expense.
Speaker Change: Got it got it no that's all helpful.
Speaker Change: We are in I do want to really quickly I want to say, we are really tracking to Q1, EBIT positive and I'm I'm thrilled to see the progress that I talked about it you know in terms of just even the the loss out of Montana, we've already improved quarter over quarter a million dollars, which is just fantastic also.
Speaker Change: Very good.
And then I have one more.
Speaker Change: Either for you Kathy or Craig as you guys. He says about Craig's opening comments noted.
Kathleen Valiasek: I talked about it, you know, in terms of just even the loss out of Montana, we've already improved quarter over quarter by a million dollars, which is just fantastic also. Very good. And then I have one more, either for you, Kathy, or Craig, as you guys see fit. But Craig's opening comments noted that the expectation is that the Texas and Washington facilities can double. I'm wondering if you can elaborate a bit on the context behind that.
Kathleen Valiasek: We expect to continue to benefit from the cost-saving actions and the resulting lower cost-space through the end of 2024. As a result of our year-over-year improvement in sales and cost savings, our operating loss improved by $5.5 million in the second quarter as compared to the prior year. Net loss was $25.3 million in the second quarter of 2024 as compared to a net loss of $10.7 million in the prior year period. I'd note that the second quarter of 2023 was positively influenced by a $15.2 million non-cash mark-to-market gain in the fair value of a warrant liability which helps explain the variance year-over-year. Adjusted EBITDA loss improved to $7.5 million as compared to the loss of $8.3 million in the prior year period.
Speaker Change: The expectations are that the Texas, and Washington facilities and double wondering if you can elaborate a bit on the context behind that does that imply that the land is secure for doubling does that imply that the infrastructure is in place such that you can double with.
Ben Klieve: Does that imply that the land is secure for a doubling? Does that imply that the infrastructure is in place such that you can double with just a greenhouse addition? Really, what does that doubling potential look like in Texas and Washington?
Speaker Change: Just a greenhouse edition.
Speaker Change: What does that doubling our potential look like out of Texas and Washington.
Craig Hurlbert: Yeah. Hey, Ben. Great question.
Speaker Change: Yeah, Hey, Ben Great question and the answer is the land has been secure and we purchased the property with this in mind under the anticipation that our customers would want more product and that's pretty much what's happening to our significant scale and so we went about the construction to do a lot.
Craig Hurlbert: And the answer is, the land has been secured. And we purchased the property with this in mind under the anticipation that our customers would want more product. And that's pretty much what's happening on a significant scale.
Craig Hurlbert: And so we went about the construction of doing a lot of stuff we could do in the first round that would benefit the second expansion round of construction. So you can think of it kind of as a greenhouse only, but there will be some other things that go along with it, but it should go up relatively easily without any interaction or much disruption at all, if any, with our current operations. And we'll be in a position to deepen those relationships with our customers as we're able to provide not only more products but also more math as well.
Speaker Change: Stuff, we could do in the first round of.
Speaker Change: That would benefit the second expansion round of construction. So you can think of it kind of is in our greenhouse only but there will be some other things that go along but it should it should go up a relatively easy without interaction much disruption at all if any with our our current operations and will be.
Kathleen Valiasek: From a capital structure perspective, as of June 30th, 2024, we had cash, cash equivalence, and restricted cash in the amount of $16.2 million. And as the second quarter, we had approximately $8.6 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 $16.1 million shares.
Speaker Change: In a position to.
Speaker Change: Deepen those relationships with our customers as we're able to provide not only more products.
Speaker Change: But also just more you know more mass as well so yes, it's very exciting and the feedback from the customers has been very positive copier.
Kathleen Valiasek: We're encouraged by the increasing support for local bounties' innovative CEA approach. Our financial position remains solid with sufficient capital to fund operations, complete ongoing construction projects, and achieve our critical milestone of positive adjusted EBITDA in early 2025. This target will be reached through a combination of increased revenue from our new facilities, reduced S-TNA expenses, and decreased R&D costs as we shift our Montana facility towards more commercial activities. Moreover, we're actively pursuing strategies to lower our cost of capital, and refinance our construction debt, including potential sale lease deck transactions, and collaborations with USDA license lenders. These efforts underscore commitment to optimizing our financial structure, while driving operational growth.
Craig Hurlbert: So yeah, it's very exciting, and the feedback from the customers has been very positive. Kathy? Yeah, the strategy always is, Ben, to buy enough land so that we can double the capacity, right? We did that with the property in Georgia at some point.
Speaker Change: Yeah, I mean, the strategy always has been to buy enough land. So that we can double the capacity right. We did that with the property in Georgia at some point I'm sure. We're gonna have to double the capacity there also.
Kathleen Valiasek: I'm sure we're going to have to double the capacity there also. Got it. Very good. Well, exciting stuff. Congratulations on a good first half of the year. Looking forward to what comes here in the second half, and I'll get back in queue.
Speaker Change: Got it very good.
Speaker Change: Once having stuff.
Speaker Change: Gratulation something good first half of the year looking forward to what comes through in the second half and I'll get back in queue.
Dan: Thanks, Dan.
Ben Klieve: Thanks, Ben. Our next question comes from Scott Fortune with Roth Capital Markets. Please proceed with your question. Yeah, good morning.
Ben cleaning: Thanks Ben.
Yeah.
Speaker Change: Our next question comes from Scott Fortune with Roth Capital markets. Please proceed with your question.
Scott Fortune: Yeah, good morning, and thanks for the questions.
Scott Fortune: And thanks for the questions. Great progress going forward. Just any updates on the Midwest and kind of timing there? Kind of where are you looking from that standpoint? Is that based on kind of building it or getting kind of customer feedback and kind of almost like supplier agreements or offtake agreements ahead of time to really build that out? Just kind of a little more color on the Midwest build.
Scott Fortune: Great progress going forward, just any updates on the Midwest.
Scott Fortune: The timing, there and kind of where where are you looking at from that standpoint. It is that based on time building at all or getting times customer feedback and kind of almost like supply agreements or off take agreements ahead of time to really build that out just kind of a little more color on the Midwest still.
Kathleen Valiasek: With respect to our outlook, and in consideration of our year-to-date performance, we are reiterating our full year 2020-24 sales guidance of 50-60 million. This guidance continues to reflect expected production out of our Georgia, California, and Montana facilities, and to a lesser extent, the partial year contribution from production ramping up at our Texas and Washington facilities. In terms of how to think about the balance of the year, we expect a significant step up in revenue growth for the back half compared to the first half as Washington and Texas production ramps, as well as significantly increased revenue from our grab-and-go rollout, both in terms of higher volumes associated with our placement and many of our customers' new resets and a higher average selling price, which helps our overall mix. Fourth quarter is expected to be larger than the third quarter to meet our full year guidance.
Scott Fortune: Yeah, Hey, Kathy you want to tackle that.
Craig Hurlbert: Yeah. Hey, Kathy, you want to tackle that? Yeah, sure, sure. Hey, Scott. Good morning.
Kathleen Valiasek: Great, great question. So, the Midwest Build is, basically, at this point, I sort of alluded to it in the beginning of my unrecorded comments, all of the customers are seeing how we are able to scale and provide a level of quantity that these retailers need. And so the Midwest facility, we had always planned to put it in a certain part of the country where we could service many DCs out of there.
Kathy: Yeah sure sure Hey, Scott Good morning, Great Great question.
Kathy: So the the Midwest spilled is.
Kathy: Basically at this point I sort of alluded to it in the beginning of my unrecorded comments all of the customers are seeing how we are able to scale and provide the level of quantity that these retailers need and so the Midwest facility, we had always planned.
Kathy: Put it in a certain part of the country, where we can service many D. CS out of there and what's happening with it is we have taken us a little bit longer to buy the land, but that's actually worked out because what's happening is with all of these new skus and with the heightened customer demand at the the.
Kathleen Valiasek: And what's happening with it is we have taken this a little bit longer to buy the land, but that's actually working out because what's happening is with all of these new SKUs and with the heightened customer demand, the new SKUs have a different rhythm in the facility. They require a fewer number of days. They're considered a faster crop.
Kathleen Valiasek: In closing, I really want to express my gratitude for our team's focus this year, and also extend that gratitude to our customers who are supporting our efforts to bring locally grown produce to more consumers. As we've heard today, we've been incredibly busy making progress on all fronts, including scaling up our operations with the opening up of Cune Greenfield facilities, the transition of Montana to commercial operations, building out our product disortment, and expanding our distribution with new and existing customers. We couldn't be proud of our organization.
Speaker Change: New Skus have they have a different tempo in the facility. They require a fewer number of days. They are considered a faster crop, but what it actually means is we're we're tweaking the design a little bit so that we can.
Kathleen Valiasek: Thank you.
Kathleen Valiasek: So what it actually means is we're tweaking the design a little bit so that we can more efficiently run all of these SKUs out of that facility. And, frankly, even because of all the demand from customers, considering a significantly larger build than we might have thought, you know, two quarters ago. Got it. I appreciate that color. And just kind of a CapEx or kind of your needs for expansion, any color on kind of the second half and the, you know, working capital or the CapEx needs as you move forward into the second half? I know you probably didn't give guidance on that, but just kind of the kind of expectations around that and kind of what the CapEx is. Go ahead. Sorry, and Noah Scott.
Speaker Change: More efficiently run all of the Skus out of that facility and frankly, even because of all the demand from customers considering a significantly larger build than we might have thought a you know two quarters ago.
Operator: That concludes our prepared remarks.
Speaker Change: Got it I appreciate that color and just kind of a capex or kind of your needs for expansion any color on kind of the second half of it and are working.
Operator: Operator, please open the call for questions. Thank you. 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. A confirmation tone will indicate that your mind is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for a question.
Speaker Change: Working capital or Capex needs.
Speaker Change: As you move forward into the second half I know you probably didn't give guidance on that but just kind of it kind of expectations around that and kind of what sort of FX is kind of go ahead I'm sorry.
Scott Fortune: And nowhere is Scott so yeah, as we talked about in our prepared comments the does T cells with our finance lender we are working on.
Kathleen Valiasek: So yeah, as we talked about in our prepared comments, the CCLs with our finance calendar, we are working to close as soon as we possibly can. That financing will provide the construction for our 2024 builds plus working capital, plus strategic capital. And then also, as we mentioned, our cell leaseback, we will be using those funds partially to pay down some construction financing, but also using some of that for working capital. We don't actually need a ton of working capital, but both of the financings will provide as much as we need, in effect.
Kristen Owen: Our first question comes from Kristen Owen with Oppenheimer and Company. Please proceed with your question. Hi, good morning. Thank you for taking the question and congrats on all the progress made this quarter. Kathy, I was wondering, you do some great color on how to think about the back half of the year. Maybe help us with some of those on the ground milestones. How to think about the contribution of Texas and TASCO in the back half when we really start to see Montana get up and running and just says it relates to some of the commercial agreements that you announced or some of the commercial shipments that you announced in the quarter.
Scott Fortune: To close as soon as we possibly can that financing will provide you know the construction for 'twenty 'twenty four build plus working capital plus on strategic capital and then also as we mentioned our sell lease back on we will be using that those funds are partially to pay down some construction financing but also.
Scott Fortune: Using some of that for working capital, we don't actually need a ton of working capital, but bolt of the financings provoke we'll provide you know as much as we need an effect.
Speaker Change: Thank you I appreciate the questions. Thanks.
Scott Fortune: Thank you. I appreciate the questions. Thanks. Thanks, guys, and God. Ladies and gentlemen, at this time, I'm not asking any further questions. I'd like to end the question and answer session and turn the conference call back over to management for any closing remarks.
Kristen Owen: How we should think about maybe capacity utilization or run rate of revenue on the facilities as we think about that bridge now into 2025. Thanks, Kristen and good morning. Love the question. Many multi-faceted question. It's pretty amazing. As we said in our paired remarks, how far local bounty has come just even in the last three to four months? As Craig and I have said, we are just so incredibly proud of all of our teams and how far we've come.
Thanks Scott.
Speaker Change: 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 management for any closing remarks.
Cathie: Well. Thank you everyone I'd like to reiterate what both cathie and I touched on this morning, and that is tremendous gratitude to our team to our knowledge no. One else has ever brought up two facilities of this stature in the size in the same quarter and it's a herculean effort by our entire organization and <unk>.
Craig Hurlbert: Well, thank you, everyone. I'd like to reiterate what both Kathy and I touched on this morning, and that is tremendous gratitude for our team. To our knowledge, no one else has ever brought two facilities of this stature and this size in the same quarter, and it's a Herculean effort by our entire organization, and Kathy and I are grateful to every single Local Bounty employee, our board of directors, and everybody involved.
Kristen Owen: So many things have to update on, I would say, since our last call when you think about even the new facilities, right? The new customers on coming online, the capacity that we are providing to see them in Texas and also the brochures, right? And then also all of the new skews that are coming online that we've talked about in the past, but, you know, it's very significant in the sense that, you know, arugula, spinach, basil, power blends, right?
Cathie: We are grateful to every single local bounding employee our board of directors and everybody involved so a huge thank you.
Craig Hurlbert: So, a huge thank you, sincerely, from the bottom of Kathy and my heart for that. I would like to thank everybody for joining us today, and we look forward to updating you on our progress as we further scale and grow Local Bounties in the coming quarter. Thank you so much, everybody. Have a great day! Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your life from the internet.
Speaker Change: Sincerely from the bottom of coffee and ice heart on that I would like to thank everybody for joining us today and we look forward to updating you on our progress as we further scale and grow local baddies business in the coming quarters. Thank you so much everybody and have a great day.
Speaker Change: Ladies and gentlemen that does conclude today's conference call. We do thank you for attending you may now disconnect your lines.
Kristen Owen: They all have higher price points than our, you know, the spring mix, which is kind of our bread and butter. So that's kind of one of the things that will make a significant difference to us in the second half. And when we did the Q1 call, we didn't have this great visibility as we currently do to the impact that those skews will have on, you know, top line revenue and also, you know, margin contribution, right?
Speaker Change: Yes.
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Craig Hurlbert: More information www.mooji.org, END Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Christopher Barnes, Craig Hurlbert, Jeff Sonnek, [music] Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Christopher Barnes, Craig Hurlbert, Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Christopher Barnes, Craig Hurlbert, Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Jeff Sonnek, Craig Hurlbert, Jeff Sonnek, Craig Hurlbert, Jeff Sonnek, Craig Hurlbert, Jeff Sonnek, Craig Hurlbert, Jeff Sonnek, Craig
Kristen Owen: And then also we talked about the grabbing goals. We did have one or two large customers that started up a month or two late with the grabbing goals. In other words, they started in Q3 versus Q2. So there was a little bit of a shift there, just logistically, no big deals, just a timing situation. And then we also, in my prepared comments, talked about Montana, the revenue out of Montana and Q2 was probably a little bit less than we had anticipated partially because we realized that we wanted to bring in lives and cut basil, living head basil, sorry, and cut basil out of Montana, which was, you know, likewise two skews, which are higher margin than our spring mix, which is great, but it took a little bit more time to get those skews kind of up and running.
Speaker Change: Hum.
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Kristen Owen: Let's see, capacity wise, you know, we are very much sold out for the most part in our facilities, Washington is a little bit different in the sense that we didn't have Sam's buying out of that facility right away. And brochures, et cetera, but it's a coming along very, very quickly. And as we alluded also when I recorded content, we are talking very closely with all of our customers. And why is that, right?
Speaker Change: Yeah.
Speaker Change: Okay.
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Kristen Owen: They all see now that we actually can provide the scale and the volume that's needed in these products, right? And so very closely, we're talking with them about, hey, what are that they all want the new skews, but also what does that mean for the expansions and the 2024 builds? Let's be sure that you get the capacity you want in those new builds, right? So I hope that answered most of your questions, but let's follow up this now.
Speaker Change:
Speaker Change: Yeah.
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Kristen Owen: Craig, it's helpful. Sorry. We love Christian's questions because they're always detailed. So yeah. Yeah, they're great. Are we getting everything there? Christian? Yes, you're getting the Christian Owen special here. The only one I would ask maybe just a little bit of a double click on because of the new skews and how you're seeing these customers come on, the sort of exit revenue rate. I mean, if I think about your second half guidance was implied in the back half of the year, how do we think about that as a starting point for 2025?
Kristen Owen: and what are sort of the ranges on that when we think about that skew mix or that customer mix? Yeah, I mean, it's such a great question. I mean, when we think about 2025, just the level of, you know, these new skews are definitely going to very much impact our revenue and our margin. Okay, and then also I also should highlight the R&D project that we ran out of Georgia to increase the yields.
Kristen Owen: We will also be blowing that out into all of our facilities in Q2, Q3, Q3, Q4. And that will also impact the revenue when we think about it for next year. Yeah, significantly. I think I think we will be honing in on this over the next, you know, couple of months on 2025. It's a great question and it's one that's on our minds every day.
Speaker Change: Okay.
Speaker Change: [music].
Kristen Owen: In the interest of time and sparing everybody else, I will leave it there and take the rest of my questions offline. Thank you guys. Thanks, Kristen.
Ben Cleve: Our next question comes from Ben Cleve with Lake Street Capital Market. Please proceed with your question. All right. Thanks for taking my questions. First is around the sale lease back of the Georgia facility. Cassie, I'm wondering if you could just give us any additional detail on that.
Kathleen Valiasek: Be at the cap rates that the degree to which this is going to be an even to have one given the addition of a lease expanse or the impact on cash flow is given that you're replacing higher cost construction financing with lower cost rent payments on any any details in quite on that would be great. Yeah, just to also share a ton of details at this point what we I think we said sort of consistently, this is, you know, the strategy, right for each of the facilities after they get to a certain level of profitability.
Kathleen Valiasek: Bring bring them bring a sell lease back into the facility and take up the construction financing, right? And so I would anticipate, you know, the similar similar situation is going to happen with with Texas and Washington and what I would say, especially for those two facilities, Craig mentioned it in his comment, you know, our teams brought those facilities to be, you know, up and running in such an impressive short period of time.
Kathleen Valiasek: That those those facilities we will be able to flip them to sell lease back much sooner than we were able to with Georgia. I can't at this point kind of give the rate on the sell lease back, but I just wanted to give the color around, you know, this strategy that we've always been going for and it's great with Texas and Washington because we'll be able to flip them to sell lease back sooner because, you know, significantly sold out to a certain degree. And just they came up and running very, very quickly. Got it. Okay, no fair and awesome. We'll stay tuned for details on that one when you're able to provide them on on the EBITR ramp.
Kathleen Valiasek: I'm wondering if you can kind of walk me through a bit of the sequential shift from Q1 to Q2 on EBITR. So that burn rate ticked up a little bit from 6.9 million to 7.5 million. It sounds like you had some expenses in Montana associated with the transition, probably some elevated costs for Washington in Texas, they turned on. Can you talk about kind of the drivers of that EBITR line from the first quarter to the second quarter and then the degree to which any of those contributing factors are going to be getting turned off here in the third quarter to allow for that to allow for an even improvement here. In the current quarter. Thank you.
Kathleen Valiasek: I'm so glad you asked that question because it's constantly on my mind and I watch it every single day. So one of the points I did talk about in my script was Montana being less of a revenue contributor. And we really honestly weren't planning for that when we did our Q1 call. But we did it. The change that we made to bring basil into that facility is really the right thing long term because we will be doing a spring mix skew out of there, but adding in basil will increase the profitability out of that facility.
Kathleen Valiasek: But it meant a little less revenue in Q2. And then there were a couple of other things from a timing perspective. I already mentioned the grab and go. We had two customers that came in that started to buy that product. We had planned for a Q2 start. It was a Q3 start, just a month or two difference, no big deal there. And then the other thing that I would note is that our construction team, all of those costs are typically capitalized.
Kathleen Valiasek: I didn't include this in my recorded comments that all of the costs are typically capitalized. Those poor guys finally in Q2 were able to actually all take the needed vacation. I mentioned these guys for two years didn't take any vacation at all. And we had, you know, just a couple of reasons that we had some of the construction guys costs for, you know, I want to say, four or 500,000 that hit the PNL SGNA in Q2 and that'll go away in Q3.
Kathleen Valiasek: So those are kind of the three or four factors. Got it. That's all helpful. I do want to say we are really tracking to Q1 even to positive. And I'm thrilled to see the progress I talked about it. You know, in terms of just even the loss out of Montana, we've already improved quarter over $4 million, which is just fantastic also. Very good.
Craig Hurlbert: And then I have one more either for you to have your correct as you guys see, but Craig's opening comments noted that the expectation are that the Texas and Washington facilities can double. I wonder if you can elaborate a bit on the context behind that does that imply that the land is secure for doubling that imply that the infrastructure is in place, such that you can double with just a greenhouse addition, you know, really what is that doubling potential look like out of Texas and Washington.
Craig Hurlbert: Yeah, hey, Ben, great question. And the answer is the land has been secure and we purchased the property with this in mind. Under the anticipation that our customers would want more product and that's pretty much what's happening to a significant scale. And so we went about the construction to do a lot of stuff we could do in the first round that would benefit the second expansion round of construction. So you can think of it kind of as in a greenhouse only, but there will be some other things that go along, but it should it should go up relatively easy without interaction much disruption at all with any with our current operations and will be in a position to deepen those relationships with our customers as we're able to provide not only more products, but also just more, you know, more math as well.
Craig Hurlbert: So yeah, it's very exciting and the feedback from the customer has been very positive. Copy it. Yeah, I mean, the strategy always is spend to buy enough land so that we can double the capacity, right? We did that with the property in Georgia at some point, and we're going to have to double the capacity there also. Got it. Very good.
Ben Cleve: Well, it's time to stop. Congratulations. I'm good first half of the year. We'll come turn the second ass and I'll get back into you. Thanks, Ben.
Scott Fortune: Our next question comes from Scott Fortune with Roth Capital Markets. Please proceed with your question. Yeah, good morning and thanks for the questions. Great progress going forward. Just any updates on the Midwest and kind of timing there kind of where are you looking at from that standpoint? Is that based on kind of building it or getting kind of customer feedback and kind of almost like supplier greens or offtake agreements ahead of time to really build that out just kind of a little more color on the Midwest build.
Scott Fortune: Hey, Kathy, you want to tackle that? Yeah, sure, sure. Hey, it's got good morning, great, great question. So the Midwest build is basically at this point, I sort of alluded to it in the beginning of my unrecorded comments. All of the customers are seeing how we are able to scale and provide a level of quantity that these retailers need. And so the Midwest facility we had always planned to put it in a certain part of the country where we can service many disease out of there.
Scott Fortune: What's happening with it is we have taken this a little bit longer to buy the land, but that's actually worked out because what's happening is with all of these new skews and with the heightened customer demand. And the new skews have a different tempo in the facility. They require a fewer number of days. They're considered a faster crop. So what it actually means is we're tweaking the design a little bit so that we can more efficiently run all of these skews out of that facility and frankly even because of all the demand from customers considering significantly larger build.
Scott Fortune: Then we might have thought, you know, two quarters ago. Got it. I appreciate that color. And just kind of a capex or kind of your needs for expansion any color on kind of the second half and the working capital or the capex needs to move forward into second house. I know you probably didn't give guidance on that, but just kind of a kind of expectations around that. And kind of what me as a capex is going to go ahead.
Scott Fortune: Sorry. Yeah, no worries. So yeah, as we talked about in our prepared comments, the CCLs with our finance lender, we are working to close as soon as we possibly can that financing will provide, you know, the construction for a 24 build plus working capital plus strategic capital. And then also, as we mentioned our cell leafback, we will be using that those funds partially to pay down some construction financing, but also using some of that for working capital.
Scott Fortune: We don't actually need a ton of working capital, but both of the financing will provide, you know, as much as we need. In effect. Thank you. I appreciate the questions. Thanks. Thanks Scott. 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 management for closing remarks. Thank you everyone.
Craig Hurlbert: I'd like to reiterate with both Kathy and I touched on this morning and that is tremendous gratitude to our team to to our knowledge. No one else has ever brought up two facilities of this stature and the size in the same quarter and it's a herculean effort by our entire organization and Kathy and I are grateful to everything the local bounty employee are board directors and everybody involved. So a huge thank you sincerely from the bottom of Kathy and I's heart on that.
Craig Hurlbert: I would like to thank everybody for joining us today and we look forward to updating you on our progress as we further scale and grow local bounties business in the coming quarters. Thank you so much. Everybody have a great day. Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lives. Thank you very much.
Operator: Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert Brian Wright, Benjamin Klieve, Christopher Barnes, Craig Hurlbert, Christopher Barnes, Craig Hurlbert, Christopher Barnes Brian Wright, Benjamin Klieve, Christopher Barnes