Q3 2024 Local Bounti Corp Earnings Call

Good morning, and welcome to local bounties third 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 note today's event is being recorded.

Speaker Change: At this time I'd like to turn the call over to Jeff Sonic Investor Relations at ICR. Please go ahead.

Speaker Change: Thank you and good morning, today's presentation will be hosted by local Bonnie's, Chief Executive Officer, Craig Hurlbert, and President and Chief Financial Officer, Kathleen Dallas Suck.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC.

Speaker Change: We will also refer to certain non-GAAP financial measures today.

Speaker Change: Please refer to the press release, which can be found on our Investor Relations website investors dot local bounty dot com.

Speaker Change: Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures and with that I'd now like to turn the call over to Craig Craig.

Craig Craig: Thank you, Jeff and good morning, everyone in.

Craig Craig: In the third quarter, we delivered sales of $10 2 million, an increase of approximately 50% year over year. However.

Craig Craig: These results fell short of our expectations, but this was for good reason, which I'll describe in a moment.

Craig Craig: With our expanded scale afforded to us with the completion of our new facilities and drilling customer reach we've been particularly active with customer engagement to determine how we can work together to optimize our capacity to meet specific retailer demand.

During the third quarter, we made the strategic decision to reconfigure our growing plans to align with current customer preferences more specifically, we are seeing heightened demand for our specialty products, such as arugula and spinach among others.

Craig Craig: Our reworking our growing mix to meet this demand.

Craig Craig: Although we are continuing to grow our living lettuce product at the Texas facility. We are working on implementing plans to broaden our capabilities in this section of the facility to meet the demand from customers for our new higher value products.

This dynamic caused the shortfall relative to our anticipated ramp in the third quarter and shifted our expected timeline for achieving positive adjusted EBITDA into the second quarter of 2025. However, we continue to believe this evolution positions us to deliver improved performance over the long term.

Craig Craig: By focusing on high velocity higher value products that our customers are looking for.

Craig Craig: These learnings to the led us to adopt a more measured approach to our next phase of expansion ensuring that each investment decision aligns with specific customer demand and distribution strategies.

Craig Craig: Our ongoing philosophy of driving capital efficiency is evident in how we're optimizing capacity utilization across our existing network. Our Washington facility is serving growing demand in the Pacific northwest with a targeted product mix that matches the regional preferences, while our Montana.

Craig Craig: The facility has completed its transition from R&D to commercial production.

Craig Craig: No Montana's contribution to third quarter results was modest as we establish the right commercial processes with the introduction of basal production. The facility is now fully oriented toward commercial operations and is contributing to improved performance starting in the fourth quarter.

Despite these temporary impacts we are pleased with our adjusted gross margin performance, which reached 32% in the third quarter. This improvement reflects our continued focus on driving operational efficiency.

Craig Craig: And combined with our products make up the conversation efforts supports our margin expansion trajectory and broader efforts to achieve positive cash flow.

Craig Craig: The successful execution of our product portfolio expansion was another key highlight in the third quarter, our new high velocity offerings have generated significant customer interest, particularly our arugula and spinach lines, which began shipping to customers towards the end of the third quarter.

Craig Craig: These new product lines have been exceptionally well received by customers validating our strategy of shifting our product mix to drive growth and value, which ultimately drives our efforts to generate superior unit economics.

Craig Craig: Our commercial relationships also continued to strengthen and expand year to date, we have achieved several significant commercial milestones.

Craig Craig: We're shipping to more than 180 Brooks your grocery company locations from our Mount Pleasant, Texas facility with their stores carrying our full lineup produce products across three states.

Craig Craig: We're fulfilling our agreement with Sam's club, where we are shipping to their regional distribution centers from both our Georgia and Texas facilities. We're also having great success, expanding our presence in the Pacific northwest with a large national grocery and mass retailer in the third quarter, both of which are selling.

Craig Craig: All of our new Skus.

Craig Craig: Our grab and go salad Kit program also continues to expand most recently with the retailer HEB.

Craig Craig: And we've recently signed a new customer agreement, where we will be utilizing all of our newer facilities to fulfill orders.

Craig Craig: Additionally, we believe recent industry developments have reinforced the value proposition of our controlled environment approach as traditional outdoor agriculture continues to face food safety challenges, resulting in costly recalls and supply disruption.

Craig Craig: Our ability to provide consistently safe high quality produce becomes increasingly important to our retail partners. This advantage combined with our operational improvements and strategic initiatives further strengthens our competitive positioning in the market in.

In closing we are committed to executing our next phase of growth with a sharper focus on aligning production capabilities with verified customer demand positioning local bounty to deliver sustainable profitable growth.

Craig Craig: While this calibration and strategy shifts our timeline for achieving positive adjusted EBITDA out to the second quarter of 2025, we are confident that our disciplined approach to capital allocation and operational excellence will create meaningful long term value for our stakeholders with that.

I will now turn the call over to Kathy.

Kathy: Thank you Craig.

Kathy: I'd like to start by updating you on our strategic initiatives related to how we are thinking about our next phase of growth.

Kathy: As you heard from Craig, we're taking a deliberate approach to further optimize our operations to maximize revenue generating potential in a capital efficient manner. This has been our core strategy since starting the company and is central to our second floor model, we have taken a huge leap forward. This year, we simultaneous.

Kathy: We opened two new facilities in Washington, and Texas.

Kathy: We completed our Georgia, Buildout and transitions, Montana to commercial operations.

Kathy: Also introduced several new products and are working on scaling up their production to meet demand. This was an incredible lift by our entire team and I want to recognize their contributions and thank them in what was a very dynamic period for our business in the industry.

Kathy: With these broader milestones accomplished our team is taking the time to further advance our operational efficiencies, which goes hand in hand with our system.

Network optimization exercise.

Kathy: A clear focus on aligning capacity with specific customer demand similar to the off take agreement, we established with Sam's club. Moreover, as we ramp up our production of new products. There are also new considerations in terms of how best to utilize our capacity to meet customer demand for new products. These are good.

Kathy: It was for us, but it is requiring us to slow down and ensure we are working closely with our retail partners to make the right long term decision to optimize each facility for specific products that align with customer distribution plans in other words, we are looking to maximize synergies across our growing.

Kathy: Trends and customer network to drive our performance accelerate our ability to generate positive cash flow and ultimately improve our capital structure to attract long term shareholders.

Kathy: This strategic approach to capacity expansion planning is exemplified in our designs for a Midwestern market entry, we're working closely with our retail partners to ensure each facility's capabilities are tailored to specific products that complement their regional distribution networks. This is particularly important.

Kathy: As we rollout our broader SKU assortment, which continues to generate strong interest from both new and existing customers.

Kathy: This collaborative approach strengthens our market position, while reinforcing our commitment to delivering fresh high quality produce to sustainable tech enabled farming practices.

Kathy: As we evaluate a variety of financing arrangements with existing and potential new partners. We've adopted a more patient approach to ensure that we are making the time for these important strategic discussions with our customers in line with this approach we have decided not to move forward at this time with clothing that closing the transaction.

<unk> contemplated by the previously disclosed conditional commitment letters with the commercial finance lender, while we undertake this evaluation to best position the company for long term success.

Kathy: These agreements had time bound elements to them that would compromise our efforts to drive capital efficiency in the short run and resulting in media interest expense burden that we believe it's premature relative to our other goals associated with optimizing our growing network. We remain actively engaged with multiple finding.

Kathy: <unk> partners to support our strategic initiatives, while ensuring we have the flexibility to execute on our near term objectives now shifting to our third quarter results third.

Kathy: Third quarter 'twenty 'twenty, four sales increased 50% to $10 2 million as compared to $6 8 million in the prior year and increased 9% compared to $9 4 million in the second quarter 'twenty 'twenty four.

Kathy: Results largely reflected the increased production and growth in sales from our GA.

Kathy: 10, and Texas facilities and to a lesser degree sales from our Montana facility following its transition.

Kathy: Due to the decision to realign our production mix to meet demand from our growing customer base and optimize our margin opportunity with differentiated products, our fulfillment of Texas production wasn't fully optimized thus, resulting in revenue contribution that was lower than expected. While this project is underway, we don't anticipate it.

She then optimize run rates in Texas until early in the second quarter of 2020 five.

Kathy: Third quarter, adjusted gross margin, excluding depreciation and stock based comp was approximately 32% while our adjusted gross margin performance continues to reflect costs associated with the ongoing optimization and scaling up of our growing facilities. We were pleased to see a 300 basis points sequential.

Kathy: Our proven and margin from second quarter to third quarter and I'd also note that we expect to see additional margin improvement in the coming quarters. As a result of the mix optimization strategy, we talked about today.

Kathy: Adjusted SG&A for the third quarter was $7 5 million.

Kathy: Our adjusted figures remove the influence of stock based comp depreciation and amortization and other nonrecurring costs.

Kathy: While we expect to continue to benefit from the cost saving actions and the resulting lower cost base through the end of this fiscal year in the third quarter, we observed higher insurance costs that we are working to mitigate further I'd note that we have our transportation and logistics expenses located within SG&A. So as we go.

ROE you can expect to see higher SG&A dollars related to these costs, which we believe will be a source of operating leverage that we can realize longer term as our business scales, and we drive efficiencies and realize synergies.

Kathy: R&D expense was $7 1 million in the third quarter, which increased $2 1 million from the prior year period. However included in these amounts is noncash depreciation and stock comp of $2 9 million in the current year period, and $1 1 million in the prior year period, so on a cash basis.

Kathy: Our R&D spend is up a modest <unk> 2 million year over year, while we've been working hard to reduce our R&D spend with the commercial transition at our Montana facility. This was partially offset by higher R&D spend associated with our scale up of the new products across our facility network.

Kathy: As those products ramp and meet our production thresholds are cash R&D spend associated with their development will conclude and begin to trend down. We expect this dynamic to be visible in our fourth quarter results and support our efforts to achieve positive adjusted EBITDA in the near term.

Kathy: Our year over year, adjusted EBITA loss improved by $600000 to $8 4 million.

Kathy: On a capital structure perspective as of September 30th 'twenty 'twenty, four we had cash cash equivalents and restricted cash in the amount of $6 8 million a lender continues to be supportive of our efforts to reach positive adjusted EBITA and since quarter end has provided an additional 6 million to <unk>.

Kathy: Fund working capital and as of third quarter end, we had approximately $8 7 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.

Our path forward is clear, we're strengthening our business through smarter operations and maintaining a solid financial foundation, we're in discussions with new and existing financial partners about optimizing our capital structure, including a potential sale leaseback arrangements and USDA backed financing options all supporting.

Kathy: A very clear target of achieving positive adjusted EBITDA in Q2 of 2025.

Kathy: Our current capital position supports both ongoing operations and existing capital projects and I'd reemphasize that while we are excited about the many growth opportunities. We have available. We also want to ensure that we are making the best possible decision because you can in the short run to best position the business as we embark on our <unk>.

Kathy: Next phase of growth.

Kathy: Our aim is to grow alongside our customers and by being strategic with our resources, we are well positioned to meet growing market demand, while Simon simultaneously improving our financial metrics every expansion decision, we make directly connects to customer needs and our distribution strategy ensuring sustainable growth.

Kathy: Yeah.

Kathy: With respect to our expectations for the balance of 'twenty 'twenty four we expect to achieve fourth quarter revenues in the range of approximately $11 million, which implies year over year growth of approximately 67%. We expect several key drivers to contribute to this growth.

Kathy: First our Washington, and Texas facilities continued to ramp production with Texas is expected to ramp further following its optimized product mix.

And we anticipate meaningful contributions from our expanded assortment of new products supported by new customer resets and strong customer acceptance.

Kathy: Third our focus on operating efficiency is expected to continue yielding margin improvement in <unk>.

Kathy: Finally, our Montana facility successful transition to commercial production provides additional capacity to meet growing customer demand.

Kathy: These factors position us well to deliver sequential improvement in both revenue and adjusted EBITDA performance in the fourth quarter.

Kathy: In closing I really want to recognize our team's efforts and also thank our customers who continue to help us deliver on our mission of bringing locally grown produce to more consumers. We remain extremely focused on our path to positive adjusted EBITDA and look forward to demonstrating progress in the fourth quarter, we could.

Kathy: Be prouder of our organization. Thank you.

That concludes our prepared remarks, operator, please open the call for questions.

Speaker Change: Thank you at this time well be conducting a question and answer session. If you'd 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 you.

Speaker Change: You May press star two if you'd like to remove your question from me Kim for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Christian <unk> with Oppenheimer and company. Please proceed with your question.

Hi, Good morning, Thank you for taking the questions.

Speaker Change: Good morning Kristen.

Speaker Change: Hey, great and Cathy I wanted to pick up on some of your remarks towards the end of the prepared discussion and just in terms of how we should think about the drivers of that revenue ramp whether it <unk> into 2020 five and you know this.

Speaker Change: Uh-huh ramping production and throughput is it pricing is it this new skus.

Speaker Change: SKU mix from specialty just how how we should think about the big buckets of that revenue growth ramp.

Speaker Change: Yeah, Yeah, Great question and good morning Kristen.

Speaker Change: Great to hear your voice. So I wanted to just sort of start off a little bit and just level set and just sort of say, let's let's just take a step back and frame that conversation. This morning, right and some of this is iterative of our recorded comments, but just to frame. It so keep in mind in the last six months, we brought up.

Two new state of the art facilities in Texas, and Washington, So now we have three at scale large stack himself facilities for our customers to buy out of right and in the last six months, we scaled the real glut Spanish power glands et cetera. These are the skus that are the Holy Grail, so to speak for our customers.

Speaker Change: Right.

And who are our customers almost all big box retail at Albertsons, Walmart Sam's Safeway HEB Amazon Brook stars et cetera, all of our customers are already either buying these new skus from us or they are sampling and considering buying right. So these things take time.

Speaker Change: You know when when we built these facilities are you know, it's just six six months ago, even we didn't know that we would be able to scale. These amazing skus, but we have right, but what I wanted to say is these things take a little time right. So we are already selling these skus these new skus out of Washington.

Speaker Change: <unk> to Walmart and Albertsons right, we scaled these products in Texas, a little bit later than we did in Washington, we scaled them in Q3, and when we scale them right. We we grow them, which takes time then we shipped the sample to the customers and they say they like or they don't like they were you know they they make does.

Speaker Change: And all of these things you know it takes 60 to 90 days, Texas was a little bit later than Washington, REIT and so we're starting to sell the new skus, even in December but much more so to more customers in Q1, okay. So that.

Speaker Change: That's a little bit of what kind of goes has it been going on and we when we built the Texas facility right. We didn't realize that we were going to have a rule out it's all about SKU optimization right saving capacity for skus that customers value more right. So.

Speaker Change: Texas again, what they they sort of a later facility to come up so it's really the that the decision to save some capacity for those new Skus in a section of the Texas facility, it's like literally so the Texas facility and six acres.

Speaker Change: Three that that is impacted by you know the decision to grow the that's different is the new skus.

Christy: Okay Christy.

I think just one add on Kathy said that very well one other thing to keep in mind is with these skus that are very sought after arugula and spinach and also allows us in places, where we're not able to sell our current products you know, maybe our standard products, having those more specialty products.

Christy: Allows us to further diversify with those customers that were not in yet as well. So it gets our foot in the door and allows us to get sticky with those new customers. So it has several different benefits to it.

Christy: And to Kathy's point it takes time.

Christy: Right.

Christy: Just let me make a couple of further points right. So that I would say as you know the the revenue was lower in Q3 than we would've thought it's largely because of the second three acres that we're going to better much better utilize than what we had planned right again. It just takes time and then also when we I I want to make sure that I got the statement out.

Christy: Because I don't think I really elucidated it great in that the my prepared.

Script, but the EBITA loss didn't improve as much as we would've thought and it's largely because we were incurring R&D costs to grow the new skus sample and each of the different facilities right because again out of that especially out of the three new state of the art facilities, they want to be able to offer.

Christy: Offer all of the Skus out of each of the facilities with with and so you know like I said, we're already selling out of Washington.

Christy: You know in in December and then even more so in Q1 will be selling out of Texas, Georgia, We're doing Spanish and and we will scale arugula there at a later date.

Speaker Change: I really appreciate that color I'm I'm kind of setting up for this next question, which is you know understanding that there are some.

Speaker Change: Temporary choices you have to make for the long run here Yeah understand what are your goals for 2025, I mean, I I I'm not necessarily looking for you know revenue guidance. Our you know you've already talked about EBITDA timeframe, but just what are the corporate goals for 2025 in the context of this adjustment.

Speaker Change: You know, how you're thinking about capacity expansion now and just.

Speaker Change: Any additional commentary you can provide there. Thank you yeah, yeah. So so obviously with our existing facilities, we want to get our utilization up as much as we possibly can we are you know.

Speaker Change: Very much tightening and working on our operational efficiencies, which you saw in this quarter with the increased gross margin. When we think about next year again, and we said at 20 times and in the recorded comments. We have that goes you know I'll say it quickly you know we'd have to go slow to go fast we have to listen to what our customers are saying because every.

The single thing that they tell us drive the new builds okay.

Speaker Change: So if they like these new Skus, which everyone seems to the these skus the new skus have a different.

Gross cycle, it's much shorter and so what does that do that drives.

Speaker Change: The how how we build the facility it doesn't change it.

Speaker Change: Hugely significantly it changes the equipment within the facility, but it does change it. So basically what we're doing is I wanted to say over the next two to three months listening to what our customers are telling us so that that is and what it does is it drives our decisions around the expansions and the Midwest.

Speaker Change: <unk> right because in other words, I don't I don't want to break ground on it Midwestern facility. When we have customers that say they want increased even you know increase volumes of spring mix right. But then also who's going to want to buy out of that facility in terms of arugula, the news skus et cetera, which drew.

Right, you know kind of a different process than each of the facilities and as we've said Kristen.

Speaker Change: Part of what we're doing also right.

Speaker Change: Listening to our customers, but also because we're able to broaden.

Our SKU set in this way likewise means we're able to broaden our relationships with our customers. Okay. What does that mean.

Speaker Change: It allows us to talk to them about off take agreements like we have with them and then what does that mean for local bounding. It means you know off take agreements garner better construction financing as well as sale leaseback financing right and so that's one of the reasons why we backed off from the sea shells that we had had talked about.

Speaker Change: The past because those seashells and required that the funds were to be deployed within a certain timeframe, but I didnt want to close on that financing because we have to listen to what our customers are saying so that the builds are sold out before we break ground right that was a lot I hope, yeah, Hey, Christa.

Speaker Change: [laughter] golf golf for 2025, I think Cathy just set a lot there and I think it was all right on point operational excellence.

Speaker Change: Which will show up in margin improvement.

Speaker Change: When you operate excellently you get closer to your customers. We just saw what happened to Mcdonalds Taylor farms that hole.

Speaker Change: Problem that hit Ah, that's just not going to happen with local Bonnie So if we can.

Speaker Change: Really deliver consistently across a broad mix of products like we're doing right now and continuing to improve on that and getting the margins up what that's going to really do is get us even closer and closer to our customers. So that kind of late so operational excellence. So many great things happened from that.

Speaker Change: And we have a whole team led by surgery Gil who's our COO he's doing a great job across our whole platform are really pulling all of that together under kathy's leadership and what that does leads the goal number two.

Speaker Change: Is really deepened our relationships with our customers and I think if anything should fall out of this call. We're in some very solid conversations across all of our customer base now our current customer base and new customers around how do we work together more consistently on a longer term.

Speaker Change: Term basis to remove a lot of the transactional nature of the produce business that has been the history of the industry and what that means is is having longer term relationships across a broad SKU level that allows us to deliver well and them to benefit from that.

Speaker Change: Ultimately for their customers to to enjoy great product day in a day a day out and so those things are going to drive us to EBITDA positivity.

Speaker Change: We believe in the second quarter of 2025, so we're very very excited about and the whole team really laser focused on that and it is it seems like when Cathy and I were kind of putting all this together we're like.

It's it's it's a little bit different than what we've been saying, but it's a really positive message that if a customer driven approach. We're gonna help us tighten up our design of our facilities. So we have an even more flexibility and remember why can local Downey girl things that other people can't we have stack in flow.

Some of the products don't have to spend as much time in the greenhouse et cetera et cetera. So we're really taking advantage of our technology to get operational excellence and getting closer to our customers in the process.

I really appreciate all the color this morning, and I'll leave it there.

Speaker Change: Kristin Thank you so much.

Speaker Change: Kristin.

Speaker Change: Thank you. Our next question comes from the line of Ben Cleveland with Lake Street Capital Markets. Please proceed with your question.

Speaker Change: First one Jeff you suggested on your prepared remarks that the Texas facility would hit and optimize the run rate. You said early Q2, 'twenty five I'm wondering where that stands relative to the Georgia and Washington facilities.

Speaker Change: Yeah sure so Joe.

Speaker Change: Georgia is at.

Full capacity full utilization, Washington is at full utilization.

Speaker Change: This quarter.

Speaker Change: Okay, and Oh, Yeah mhm.

Speaker Change: Okay, great. Thanks.

A couple of bigger picture question then.

Speaker Change: First regarding accessing capital.

Speaker Change: Notice that you're actively engaged with multiple potential partners, but it would seem to me that those conversations.

Speaker Change: As more and more early stage than those who were having with suppliers CCL partner so.

Speaker Change: Curious if you can talk about.

Can you just kind of.

Speaker Change: You know where you are in those conversations.

Speaker Change: Your degree of comfort that you have what the ability to secure that capital pretty swiftly once you have.

Speaker Change: No.

Speaker Change: The conversations with the customers and the site location design et cetera.

Speaker Change: What do you think they're going to be able to secure pretty quickly or are you pretty early in those conversations with new capital providers.

Speaker Change: That's such a great question and thank you for asking it I'm constantly talking to these to the.

Speaker Change: Too many capital providers right. There, we don't talk about it to chew off and there was a capital provider that is providing capital under or existing cargo facility that bought into the the Texas facility and they are covering that 30%. They are interested and committed much more capital towards.

Speaker Change: The Midwest facility all of these sale leaseback companies that I talked to I have term sheets from all of them. I mean, we we talked about it a Q2 that I had a term sheet on the Georgia facility for sale leaseback I'm I'm not we're just honestly were just waiting.

Speaker Change: Again to hear all of the feedback from all of the customers because there's certain things that we can't talk about on today's call, we'll be able to update on the Q4 call. We have other large customers that are wanting to come in to each of the facilities, which also kind of drives the the size of the expansions, but I'm I if anything.

Speaker Change: It's it's easier and faster to for me to do the sale leaseback deals. So several of them want to do the construction.

Speaker Change: On top of doing the sale leaseback right and as you know we have a sale leaseback with store.

Speaker Change: On the California facilities, and they and others I talked to all the time and I I actually have several term sheets on them I'm not closing on anything until we hear from our customers and you know, we we figure out what size would need the expansion to be as well as the the Midwest facility.

So great question I Hope I hope that Hey, Ben where hey, Ben It's Greg good to hear your voice.

Greg: One other thing to keep in mind too if we just level up.

Greg: At what's happening inside of the industry the controlled environment agriculture industry, obviously, we add Valerie here a couple of weeks ago.

Greg: Going down the customers are really interested in this because they see.

Greg: The way the consumers are reacting to the product.

Greg: There's more and more interest and more and more pull for the product and yet when the customers look at the industry, they're saying Wow.

Greg: Who's going to make and who's not going to make it right. So if you keep that in mind. So so what we've got is concerned around some of the people that aren't making it but yet the customers there's kind of a pull there for the product.

Greg: So as we get further into this what's happening and I'll just keep it at a very high level is the customers are figuring out who's who in the zoo.

Greg: And who's going to be.

Standing and they're more willing to enter into conversations based on that and all of the customers are very very smart almost to a customer I like to say very high IQ in the <unk> space. Almost every large customer is studying the space because they're chasing fresh there.

Greg: Chasing great product right. So as we kind of emerge here over the next couple of quarters.

Speaker Change: Our conversations are getting deeper with the customers and our ability to raise capital will be easier to kathy's point because of that and so we're not.

Speaker Change: You know always it's a concern but I think.

Speaker Change: With what we'll be offering at that point and where the business is at that point knocking on the door.

Speaker Change: Of you know.

Speaker Change: Positive EBITDA I believe you're going to you're going to find our path to raising that capital is going to be easier. This year than it was last year.

Speaker Change: Okay.

Speaker Change: Very helpful and all makes sense.

Speaker Change: Well look forward to more updates there.

Speaker Change: They are in the quarters to come.

Speaker Change: I have one more question around the expansion into the Midwest.

Speaker Change: I think that's a fair characterization here.

Speaker Change: Maybe a little bit.

Speaker Change: Further out today than it was three months ago I'm wondering if you can elaborate a bit on what is the same and what is different about the Midwest expansion.

Speaker Change: As the site changed as the states changed has the size of the facility changed in your mind.

Speaker Change: Yeah.

Internal configuration of the facility.

Speaker Change: The same what's the thinking on what's different.

Speaker Change: Yeah, Yeah. So so the the site is the same.

Speaker Change: We are it's honestly it did take us a little bit of time to find the site. The site we've been narrowed in on the site and working through.

Speaker Change: Finalizing the PSA and starting diligence et cetera, but the the size of the site. Okay is under consideration and the reason being is a couple of our large customers once would like a great amount of capacity at that facility.

Speaker Change: So we have to make the decision.

Speaker Change: Whether or not that works to increase the size of the facility and then how do we design. It we're going to increase for that much more capacity and then Additionally, arugula finish all these other skus drive a faster turn there's more turns of the farm with with those Skus and so yes, that's you know.

Speaker Change: I'd say one of the reasons why we haven't broken ground is because the conversations that we're having we have to decide who the capacity is going to go to and whether or not we need to increase the size.

Speaker Change: Got it okay.

Speaker Change: Very good well best of luck wrapping up the year will tell these ongoing dynamics.

Look forward to updates next next year and I'll get back in queue.

Speaker Change: Thanks, Ben Thank you Ben I appreciate your questions.

Speaker Change: Thank you, ladies and gentlemen at this time I'm showing no further questions I'd like to end the Q&A session and turn the call back to management for any closing comments.

Speaker Change: Thank you Kathy and I'd 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 have a great day, everyone. Thank you.

Speaker Change: Thank you.

Speaker Change: This does conclude today's conference call. We do thank you for your attention.

Speaker Change: You may now disconnect your lines.

Speaker Change: Okay.