Q4 2024 Local Bounti Corp Earnings Call
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Speaker Change: At this time, we'll participate in listening only mode. If anyone would require operator assistance, please press star zero under telephone keypad. A question and answer session will follow the formal presentation and you may press star one at any time to be placed into question Q.
Speaker Change: As a reminder, this conference is being recorded. It's not my pleasure to turn the call over to Jeff Sonnek, Invest Relations. Jeff, please go ahead. Thank you and good afternoon.
Speaker Change: Today's presentation will be hosted by Locobowni's Executive Chairman, Craig Hurlbert and President, Chief Executive Officer, and Chief Financial Officer, Kathleen Valiasek.
Speaker Change: The comments made during today's call contain four looking statements within the meaning of the safe harbor provisions of the private security's litigation reform act of 1995.
Speaker Change: All statements other than statements of historical facts are considered poor looking statements.
Speaker Change: These statements are based on management's current expectations and beliefs, as well as the 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: for Reconciliation of non-GAAP financial Measures to their most directly comparable GAAP measures .
Craig Hurlbert: And with that, I now like to turn the call over to Craig, Craig, please go ahead.
Thank you, Jeff, and good afternoon, everyone.
Craig Hurlbert: Today marks an important transition for local bounty as I step into the role of executive chairman and we welcome Kathy Valiasek as our new Chief Executive Officer.
Craig Hurlbert: After co-founding this company and serving as its CEO through our formative years, I believe this is the right time for this next step in our leadership evolution.
Craig Hurlbert: Kathy has been instrumental in driving our organization forward as the president and CFO , demonstrating exceptional leadership and strengthening our commercial and financial relationships.
Craig Hurlbert: Kathy Strategic Vision, Operational Expertise, and Financial Acumen make her the ideal person to lead local bounty forward.
Speaker Change: I look forward to continuing my support of the company Strategic Initiatives and Commercial Efforts. I'm incredibly confident that with her guidance, we will continue to innovate, optimize our observations and create meaningful long-term value for our stakeholders.
Speaker Change: We believe we are at a true inflection point for local bounty marked by the transformative financing we secured and the restructuring of our balance sheet. These achievements position us well for the next chapter of growth under Kathy's leadership.
Speaker Change: Before I continue, I'd like to take a moment to express my sincere gratitude to our exiting board members.
Ed Forrest, and Jennifer Karsmith [inaudible]
Speaker Change: for their dedicated service to local bounty particularly Ed's guidance and expertise were invaluable during our restructuring process and I'm personally grateful for his contributions during this critical period.
Speaker Change: What's particularly encouraging is the strong pull we're seeing from our customers.
Speaker Change: They're increasing desire to purchase more CEA products, validates our mission, and reinforces the market opportunity ahead of us.
Speaker Change: We're committed to meeting this growing demand with our sustainable locally grown produce.
Speaker Change: None of our progress would be possible without the remarkable team we built here at local Bounty.
Speaker Change: I'm constantly inspired by the passion and dedication of our employees. Their commitment to our vision has been the driving force behind our achievements.
Kathy Valisek: and we truly have a tremendous team that will continue to propel us forward. With that, I'll now turn the call over to Kathy.
Kathy Valisek: Thank you, Craig, and good afternoon, everyone. I'll begin with our recent financing and debt restructuring announcements, then review our commercial and operational progress and conclude with some brief financial remarks.
Speaker Change: Let me start by saying that I'm honored and thrilled to step into the role of CEO at this transformative moment for local bounty following this past year as President leading our focus on operational improvement.
Speaker Change: 2024 was a pivotal year for our company with significant achievements across multiple fronts. We simultaneously opened two new facilities in Washington and Texas, completed our Georgia build-out and transitioned Montana to commercial operations. We also introduced several new products that our customers love.
Speaker Change: We have a strong and growing customer base who are ecstatic with our products and with our newly strengthened financial position. We are poised for tremendous success.
Speaker Change: I truly look forward to working with our team and our board to build on the foundation and already establish and drive value for all of our stakeholders.
Speaker Change: Moving on to the transactions we announced today, we're pleased to have secured 27.5 million of new funding, including 25 million of equity from new and existing investors. We also entered into a term sheet with a commercial finance lender for approximately two and a half million in CapEx financing.
Speaker Change: In tandem with this new funding, we completed the restructuring of our existing credit agreement with our lender.
Speaker Change: The restructural results in a nearly 40% reduction in our debt to a debt extinguishment of approximately 197 million
The Restructured Agreement allows for more favorable terms [inaudible]
Speaker Change: including no cash payments until April 20, 27, an extended maturity date to 2035, and a significantly reduced interest rate to approximately 6 percent today, which I'd add is approximately half of what the rate was previously.
Speaker Change: The updated agreement also allows for additional non-delutive working capital financing of up to 10 million.
The significance of this capital transformation cannot be overstated.
Speaker Change: Not only do we now have enough capital available to get us to positive adjusted EBITDA and more, we now have a right-sized balance sheet.
Speaker Change: and Capitol Structure that we believe provides us a flexibility to attract future Capitol unimproved terms to support our growth.
Speaker Change: We cannot thank our lender enough for working with us on this transformation as well as our investors that supported local bounty and provided the equity capital.
Speaker Change: These transactions, when combined with their focused efforts to improve operational efficiency, result in a significantly strengthened financial foundation, allowing us the flexibility to execute the next phase of our growth strategy.
Speaker Change: It really represents the culmination of our slow down to speed up approach that we discussed during our third quarter update. After softly recalibrating our expansion strategy, we've now established the Financial Foundation necessary to support our past of profitability.
Speaker Change: With this strength and position, we can fully implement our optimized product mix with high value special degrees while directly supporting our broader strategy of aligning production capabilities with specific customer needs.
Speaker Change: The patient's deliberate approach we took to address the balance sheet as yielded an improved capital structure that provides us the runway to achieve positive adjusted EBITDA, insustainable profitability over the long run.
Speaker Change: Further, our focus on operational excellence extends to how we approach expansion. With this new capital structure in place and other expansion strategy evolves, we're taking a strategic approach that balances build versus by consideration.
with a renewed focus on advantageous acquisition opportunities.
Speaker Change: We believe there's significant value in evaluating opportunities that accelerate our market entry and customer reach while also offering potential capital savings in repurposing existing infrastructure.
Speaker Change: Acquisitions enable us to rapidly access established distribution networks, leverage existing customer relationships, and apply our operational expertise to improve underutilized assets without the extended timelines required of Greenfield development.
Speaker Change: Disapproach aligns with our disciplined capital allocation philosophy. We're prioritizing investments that deliver the fastest path to positive returns.
Speaker Change: With that, I'll now switch gears and turn to our 2024 commercial and operational
Speaker Change: Our commitment to operational excellence has translated into strengthened commercial relationships in the fourth quarter, continuing the strong momentum we have experienced throughout the year. We expanded our high-value specialty greens distribution in the fourth quarter of 2024, bringing products like Arugula and PowerQuest to several Pacific Northwest retailers.
Speaker Change: We also expanded our Texas Crown Arugula offering with bookshires in approximately 80 stores in the first quarter and began distributing organic living butter lettuce from California to HB, strategically leveraging regional production to align with specific customer needs.
Speaker Change: Additionally, we started shipping living basil to an existing large retail customer across approximately 60 stores and secured distribution with several other wholesalers for our basil products.
Speaker Change: We further strengthened our distribution network by establishing a new partnership with a prominent Midwest Wholesaler and also significantly expanding our relationship with Walmart, now serving 191 stores with premium baby leaf varieties.
Speaker Change: We also secured an additional commitment to serve 13 Walmart Distribution Centers with our conventional living butter lettuce worshipments commencing in late April 25th from both our California and Texas facilities.
Speaker Change: Building on a grab-and-go salad kit rollout in 24, we have evolved this offering to better serve retail partners and consumer trends.
Speaker Change: This evolution includes the launch of new salad kits in the first quarter 2025.
Speaker Change: with additional flavors expected to be introduced in the third quarter as well as the creation of a new product line that meets the needs of today's value-oriented consumer. These developments reflect our strategy of matching our product assortment to production capabilities earmarked to specific customer needs.
Speaker Change: Additionally, we believe recent industry developments have reinforced the value proposition of our controlled environment approach.
Speaker Change: As traditional outdoor agriculture continues to face food safety challenges, resulting in costly recalls and supply disruptions, 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.
Turning briefly to our results [inaudible]
Speaker Change: Sales for the full year increased 38% to 38.1 million compared to 27.6 million in 2023. This growth was driven by the increased production from our Georgia facility, and the partial year contribution from our new facilities in Texas in Washington, which began shipping products in the second quarter of 2024.
Speaker Change: However, our fourth quarter results fell short of our expectations due to the ongoing product mix recalibration work at our Texas facility.
Speaker Change: As we discussed during our last call, we made this strategic decision to reconfigure approximately three acres of our six-acre Texas facility to align with evolving customer preferences.
Speaker Change: specifically focusing on specialty products such as Arugula and Power of Chris.
Speaker Change: This reconfiguration transformed space originally designed for headlattice production into a flexible growing environment capable of producing both headlattice and cut products based on cost-a-bird man
Speaker Change: While this purposeful design approach temporarily impacted the full utilization of the facility in the second half of 2024 and first quarter of 2025, it underscores our commitment to adaptability and customer-centric operations.
Speaker Change: Adjusted growth margin for the full year was consistent with the prior year at approximately 27%
excluding depreciation and stack-based comp
Speaker Change: This reflects the continued production ramp up at our new Texas and Washington facilities as well as increased production at our Georgia facilities.
Speaker Change: More specifically, our fourth quarter adjusted gross margin, which improved 200 basis points year over year, was impacted by increased labor costs associated with the Texas and Washington production rampups. We continue to expect that over time, our adjusted gross margin will increase as the percentage of sales, as a result of the continued scaling of the business and ongoing efforts to optimize our production costs.
Speaker Change: As such we now anticipate achieving positive adjusted EBITDA in the third quarter, when we will be able to showcase the full potential of our optimized product mix and maximize the efficiency of our operations across all facilities.
Speaker Change: I want to emphasize that with the new capital infusion and debt restructuring our top priority as an organization is reaching positive adjusted EBITDA and we are centered around that goal at all levels of the company. This focus permeates every operational decisions, we make and to that end in the first quarter of 2025.
Speaker Change: Reduced annualized expenses by another 3 million. This is on top of all the reductions we have realized since the fourth quarter of 2023, we continue to further advance efficiencies throughout our operations driving us closer to sustainable profitability, we believe our strengthened balance sheet expanded product mix growing.
Speaker Change: Some of our relationships and commitment to operational excellence position us well to capture the increasing market demand for fresh sustainable produce as we progress towards profitability.
Speaker Change: In closing I 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 first quarter, we couldn't be prouder of our organization.
Speaker Change: Thank you.
Speaker Change: That concludes our prepared remarks, operator, please open the call for questions.
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Speaker Change: First question is coming from Christopher <unk> from Oppenheimer. Your line is now live.
Speaker Change: Hey, guys. This is collin filling in for Kristen.
Speaker Change: So can you talk a little bit about the changes you've made in your your Georgia and Texas production.
How that's impacting overall unit economics.
Speaker Change: And then I have a quick follow up around price and mix.
Collin: Yeah, sure Hey, Collin how are you.
Collin: Good to hear your voice.
Speaker Change: So I don't yeah.
Speaker Change: We've not really changed what we're doing in Georgia, It's primarily Texas, where half of the facility is shipped primarily to say EMS right. It's it's not cut product and that's under our long term off take agreement with them and then the second three acres in that facility at <unk>.
Speaker Change: The acres in total we are you know.
Speaker Change: Basically converting it so it can do both living had products and also cut product and basically that the cut product you know we talked about in our earnings release that I'm I mean, we're selling and obviously already and also in April we will start shipping that product to Walmart, but we also have quite a.
Speaker Change: Demand for our product.
Speaker Change: Including arugula et cetera out of that side of the facility.
Speaker Change: And I guess, how much pricing power do you have right now and how should we think about volume.
Speaker Change: We're getting price and mix are you guys going forward.
Speaker Change: Yeah.
Speaker Change: So pricing power you know it's for US, it's primarily you know either retail or club and what I would say in terms of our ability to negotiate pricing is that as our customers become more and more familiar with our products. It gives us more.
Speaker Change: Leverage to negotiate better pricing.
Speaker Change: In fact, one of our retailers, we implemented a price increase that that well I'm going to go into effect in April.
Speaker Change: Okay and just the last one for me is just the relationship with Walmart and getting shelf space with some of these larger retailers can you talk about the dynamics with industry really getting its footing in a little bit more substantial way with the.
Speaker Change: The balance sheet restructuring and how you think that will impact your ability to drive sales and shelf space with some of these customers.
Speaker Change: Yeah.
Speaker Change: Yeah go ahead, Greg Kathy maybe I can take that one real quick and then you can jump in Colin how are you doing good good to hear your voice.
Speaker Change: I think what we're seeing from the major retailers is.
Speaker Change: A definite interest in more and more and more <unk> products. They are seeing the benefits from it.
Speaker Change: And their customers are seeing the benefits from it the challenge that they've had is each of them have to some degree or another.
Speaker Change: Taken on certain relationships that have to some degree or another left them unsatisfied and I think what we've been telling them is we're here for the long haul.
Speaker Change: And so I think they are desirous of finding a partner that they know they can count on and secure their supply chain Accordingly, and I think that wind is blowing and the sale of the <unk> industry at large but the industry. As you know is wildly kind of under performed and has left many.
Speaker Change: Of these retailers wanting for something they can't have so today are announcing this restructuring really puts local bounty.
Speaker Change: And you know very what I'll call rare air as it relate as it relates to other providers and I think it only really helps so it's going to help us solidify even further our relationships with all of our customers.
That's super helpful guys I'll hop back in queue I appreciate it.
Speaker Change: Thanks, Paul.
Speaker Change: Colin thank.
Speaker Change: The next question is coming from Bank Levy from Lake Street Capital markets. Your line is now live.
bank Levy: Alright, Thanks for taking my questions and congrats to both of you personally on the.
Speaker Change: I'm, the chairman and CEO.
First question on the.
Speaker Change: Georgia facility, maybe most specifically it sounds like that's still a location that's had the most kind of consistent.
Speaker Change: Utilization relative to I think tenant footprint at first can you talk about the variable cost structure of <unk>.
Tony: Tony specifically.
Tony: The kind of major buckets of variable Cosby.
Tony: <unk> labor.
Speaker Change: Seed and fertilizer inputs, how are those variable costs and meeting your expectations now that that facility is up and running.
Tony: Yeah.
Speaker Change: Yeah. Thanks, Ben for the question Great question, So, what we're seeing especially and in the Georgia facility. Because it is a facility that's been up and running the longest is that we are absolutely able to reduced seed costs and also primarily I would say.
Tony: Labor.
Tony: Our our in terms of our seed costs. Our innovation team is constantly focused on reducing seed costs, but also collectively our G. M N. Our our head of operations is dialing in the labor costs significantly. So we were seeing that actually across all of the facilities.
Tony: But even more so I would say in Georgia, because again, that's the one that's been up and running the longest.
Tony: Got it got it thanks Cathy.
Speaker Change: And then on your expansion update did you mentioned in your.
Tony: Prior.
Speaker Change: You have to expand it in the Midwest at all on this call and I missed it.
Tony: Yeah.
Tony: Can you give us an update there has that been been scrapping of all these various you know.
Tony: Ongoing initiatives or is that still an intention of yours.
Tony: I know, it's it has absolutely not been scrapped at all and its definitely a and intention of ours along with the expansion of the existing facilities. In fact, you know we are probably having meetings every other day of the week with our retailers about the Midwest facility and we're just you know again, what we're trying to do.
Tony: Do is listen and listen hard to each of the retailers and what they want because each of them one different product different skus.
Tony: And we wanted to be sure that we know the design of the building before we break ground.
Tony: Got it and then that leads into my last question what is the.
Tony: The.
Tony: Ongoing challenges throughout the industry.
Tony: Both canceling housing vertical side.
Tony: As you said you wanted to be.
Tony: You know build versus buy dynamic do you have any kind of bias for.
Tony: Before buying a modern but underperforming greenhouse versus a.
Tony: Vertical.
Tony: Vertical farmland second greenhouse on top of that is there one or the other than you would particularly find appropriate or does it just really depends.
Tony: Yeah sure so I.
Tony:
Speaker Change: We've looked at many many many vertical standalone farms and have passed on on on them right. We definitely very easily can consider existing greenhouses that are relatively new that we can acquire start selling out of them immediately and then implement.
Speaker Change: Are the stack seed to the facility, it's and in fact, that's exactly what we did with Georgia right. We built the first three acres started selling out of it built the second three acres selling out of the full six acres and then we implemented the stack on slow or you know the stack to the greenhouse and that increase productivity by like 40 per.
Speaker Change: That 30% to 40%. So that's really if we buy an existing greenhouse facility. That's what we would do.
Speaker Change: Got it okay.
Speaker Change: Very good well, congratulations, especially on the capital structure.
Speaker Change: Thanks for taking my questions and I'll get back to you.
Speaker Change: Okay. Thank you that's bad.
Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Yeah.
Speaker Change: Well, Craig and I would love to thank everyone for joining us today, and we look forward to updating you on our progress as we further scale and grow local boundaries business in the coming quarters. Thank you.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.