Local Bounti Corporation (NYSE:LOCL) Q4 2023 Results Conference Call March 27, 2024 8:00 AM ET
Company Participants
Jeff Sonnek – Investor Relations, ICR
Craig Hurlbert – Chief Executive Officer
Kathleen Valiasek – Chief Financial Officer
Conference Call Participants
Kristen Owen – Oppenheimer
Ben Klieve – Lake Street Capital Markets
Operator
Good morning, and welcome to Local Bounti’s Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today’s event is being recorded.
At this time, I’d like to turn the conference call over to Jeff Sonnek, Investor Relations at ICR. Please go ahead, sir.
Jeff Sonnek
Thank you, and good afternoon. Today’s presentation will be hosted by Local Bounti’s Chief Executive Officer, Craig Hurlbert; 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-GAAP financial measures today. Please refer to the press release, which can be found on our Investor Relations website, investors.localbouti.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. Craig?
Craig Hurlbert
Thank you, Jeff, and good morning, everyone.
2023 was a defining year for Local Bounti. We completed the stack implementation in our Georgia facility with amazing results. We completed two new major build outs in Texas and Washington that significantly expands our capacity going forward. We advance the development of new products to fill out our offering.
We streamlined our organization and the icing on the cake was being granted a patent for our stack and flow technology, which was a huge endorsement of the innovation that we have brought to the CEA industry. I’ll touch on these accomplishments briefly before passing the call to Kathy for her financial remarks.
First and foremost is the completion of the stack implementation at our Georgia facility, and more importantly, the result, an increase in production that was even better than anticipated. The throughput in the facility reflects the iterative improvements that we’ve been making across our growing operations and highlight the advantages of our efficient and data-driven stack and flow model where we are able to apply learnings rapidly.
I’m excited to share that we increase production by an additional 50% versus the update we provided in December, which equates to production that is approximately three times that of a year ago. Further, this enhanced productivity can also be seen in our first quarter 2024 results as well, which we pre-announced today with a 22% sequential increase to approximately $8.4 million.
This is precisely the sort of result that we were after when conceiving of the hybrid stack and flow model and to see it operating efficiently in a scaled facility like Georgia is extremely rewarding for our entire team.
The great news is that we’ve taken all of these learnings and applied them to both our projects in Texas and Washington, both of which have entered the commissioning process with the first seating in January. We expect to begin shipping product to customers from both facilities in the second quarter, and I look forward to sharing our progress on these units in the future.
I’d add that these are truly purpose-built facilities. While Georgia is a new facility, it is one that was already designed when we acquired Pete’s and required significant retrofitting to meet the needs of our stack and flow strategy.
At our new greenfield build outs, both in Texas and Washington, we have all of our collective learnings implemented from site selection to floor plan layout to operational design to ensure we get the most out of the square footage and ultimately maximize capital efficiency.
These facilities are not only critical to scale up of our growing network to reach more customers, but they’re equally important in providing us the physical space to start growing additional produce types.
Our R&D and product innovation teams have continued to work on new offerings to meet customer and retailer demand. In 2024, we will be expanding our baby leaf product assortment by introducing several high velocity offerings including Spinach, Arugula, 50/50 Blend and Power Greens.
While we aren’t wrapped up across all of these new products quite yet, our spinach initiative is on track and we are pleased to have delivered our first shipment to customers in March out of our Georgia facility. We are also building momentum with our grab and go salad kits.
Starting in the second quarter of 2024 we will expand distribution to several existing and new retail partners throughout the Pacific Northwest, Southern and southeastern United States. The first phase of this expansion will add approximately 700 doors of incremental distribution to our current footprint.
We continue to work closely with our retail partners across the country to expand distribution further, I mentioned these wins as they reflect the incredible response we are seeing, both in terms of cut consumer demand for a better product, as well as retailer demand for consistent national supply. This is why we are so bullish on our own prospects to be the disruptor in the CEA industry.
To keep up with demand today we announced our intent to expand capacity across our network of facilities enabled with our stack and flow technology. We are quite ready to announce the location and the degree of expansion, but we have plans developed and expect construction to begin late in second quarter of 2024.
The planned expansions are designed to provide additional capacity and support our growing product assortment to meet existing demand. In addition to these expansions, we’ve also decided to transition the majority of our one acre Hamilton, Montana facility from its current R&D focus to one that is more commercially oriented and growing produce for sale to customers.
This shift is expected to be implemented this summer and will help us quickly bolster our capacity to ship to customers in the surrounding regions. In turn, improving our overall profitability of that facility to help drive the company towards our goals of achieving positive adjusted EBITDA in early 2025.
Finally, we are also really excited to announce our next greenfield facility in the Midwest. We chose this region because of its close proximity to our existing customer’s distribution networks, which will help serve the growing retail demand we are seeing for our products across the Midwest with the added benefit of improving our access to the North East.
The facility will be comprised of a six acre greenhouse that is supported by multiple stack zones, and we expect to name the future location following completion of negotiations. We are targeting construction to begin in the third quarter of 2024. None of this was possible without the hard work and focus of our entire team, and I’d like to thank our group of talented individuals who have each contributed to our success this past year.
Moreover, these projects also require capital for investment, and on this front I would like to recognize our CFO, Kathy Valiasek for tireless focus on ensuring that we have the access and flexibility with our lending partners to continue scaling up this amazing business so that we can reach our near term goal of achieving positive cash flow.
With that in mind, I will turn the call over to Kathy for her review of the financials.
Kathleen Valiasek
Thank you, Craig.
I’ll start by reviewing our full year 2023 results then provide an update on our capital structure before finishing with an update on our year to date progress in 2024.
Full year 2023 sales increased 42% to $27.6 million as compared to $19.5 million in the prior year. Our results largely reflected the inclusion of the Pete’s acquisition for the full 12 months and revenue growth from our Georgia and Montana facilities. Full year 2023 adjusted gross margin, excluding depreciation, stock-based comp, and other non-reoccurring items was approximately 27%.
Our adjusted gross margin performance was driven by weather related variables at our California facilities that temporarily impacted yields lower utilization at our Georgia facility due to the implementation of the stack towers and general cost inflation, we continue to expect that over time our adjusted gross margin will increase as a percentage of sales as a result of the continued scaling of our business and ongoing efforts to optimize production costs.
SG&A for the full year decreased $18.1 million to $64.6 million driven by lower stock based comp and lower transaction related. As a result of our recent actions to streamline our org structure, we expect to realize incremental savings of approximately $5 million on an annualized basis.
Net loss was $124 million in 2023 as compared to a net loss of $111.1 million in the prior year with the vast majority of the difference attributed to a non-cash goodwill impairment charge of $38.5 million. Adjusted EBITDA loss was $34.1 million as compared to a loss of $29.8 million last year.
From a capital structure perspective, as of December 31, 2023, we had cash, cash equivalents and restricted cash in the amount of $16.9 million. We expect to close on four conditional commitment letters from a commercial finance lender in the second quarter of 2024, subject to finalizing documentation and customary closing conditions.
Together, the CCLs provide for total financing of approximately $228 million to fund our 2024 facility expansions, our new Greenfield facility in the Midwest, and to repay certain existing construction financing, which will lower our cost of capital.
We are very pleased with the growing support for Local Bounti unique CEA approach from these combined sources, we continue to believe that we have access to the necessary capital to fund our operations, complete the construction of our ongoing projects and reach breakeven adjusted EBITDA in early 2025.
This is a very important milestone that our entire organization has been working hard to achieve. We expect that the combination of increased revenue contribution from our new facilities decreased SG&A costs of $5 million and decreased R&D costs from shifting our Montana facility toward more commercial activities are what will get us there in early 2025.
Additionally, we continue to pursue opportunities to lower our cost of capital and replace our construction financing, including sale leaseback transactions, and our work with a licensed USDA lender.
As of December 31, 2023, we had approximately 8.3 million shares outstanding on a pro forma basis, including warrants and our employees restricted stock units outstanding. We have a fully diluted share count of approximately 15.2 million shares. With respect to our outlook, we are waiting until our first quarter reporting cycle to provide full year 2024 guidance.
With the recent completion of growing operations at our new Texas and Washington facilities, we are now moving through the commissioning process, which will provide us with greater visibility on their contributions this year. We would really like to have that completed before providing the market with an estimate of our 2024 revenues.
Nonetheless, as Craig mentioned, we are off to a very strong start in 2024 with revenue expected to be approximately $8.4 million for the first quarter of 2024, which represents a sequential increase of approximately 22% and demonstrates the enhanced productivity that we are realizing at our Georgia facility.
That concludes our prepared remarks. Operator, please open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is coming from Kristen Owen from Oppenheimer.
Kristen Owen
I just wanted to ask about given what you have been able to achieve out of the Georgia facility over the last several months, and the learnings of that brownfield strategy over the last year, I’m wondering if you can provide an update in terms of how you think about maybe unity economics or return invested capital as you start to ramp the Washington and Texas sites.
Craig Hurlbert
Yes. Good morning, Kristen. Great to hear your voice. It’s such a great question and I think, we will be providing that in the future. We’re still seeing upside in our Georgia facility, so we would rather give it a little more time. We’re bringing Texas and Pasco up here as we speak. And I think what I would say to you is those numbers are coming, but they keep getting better and better as we tweak little things here and there.
And we’re finding a lot of upside and I’ll note all of the efficiencies are really capital free. These are things that are happening because of the way we designed the system with back and flow, and we’re still learning little things here and there that are helping the yields. So improving yields is a capital free thing, and we want to make sure we’ve got that dialed in before we give you those numbers, Kathy, you may want to comment.
Kathleen Valiasek
Yeah, thanks Greg. And good morning, Kristen. Great to hear your voice. So it’s, you know, we talked about it, the original or when we first implemented stack, right? The impact on production, and then as we continued to tweak the facility, the yields just increased even more.
So what we’re, what we want to do is just wait, now that Texas and Washington are up, we want to wait to see how they also perform, right? Because it just increases, you know, revenue and ROI, so we just wanted, want to wait a little bit before we come out with some numbers on the new facilities and even just how Georgia is performing.
Kristen Owen
Okay. Yeah, I mean, it would be helpful to understand sort of the capital efficiency as you’re thinking about this new facility. But maybe another way that we can sort of get after some of those economics is, if you can talk about the SKU strategy.
So, you know, you’re expanding the value added kits, starting to work with spinach, which, you know, I think we know is a difficult plant to work with. Maybe talk about how you’re thinking about ASPs or price per pound coming out of the facility that seems a little bit more tangible, given what you’ve outlined on the SKU side.
Craig Hurlbert
Kathy, you want to take that one?
Kathleen Valiasek
Yeah, sure. So SKUs, so our commercial team is telling us incredibly important to have grab and GOs, incredibly important to have spinach and arugula. So we really doubled down, especially we already had grab and go out in the northwest.
What we did was, obviously we expanded it throughout the country and shipping to major customers in Q2, but also we really just doubled down on spinach and literally we set a small trial in Georgia and we’re shipping to customers within 60 days.
So that is, you know, it gets us into more doors because we have a broader SKU set to offer. Right. And then we’ll be able to do the spinach and we actually are relatively far along also in developing arugula. We’ll be able to do both of those SKUs out of all of the facilities.
And we are, it’s, I thank you for asking about the ASPs because we are also very focused on, trying to garner as much retail business as we think about, you know, the product mix and the customer mix within each of the facilities.
Craig Hurlbert
Yeah. Hey Kristen. Also, the fact that we have stack and flow with better unit economics allows us to grow other things that can get us into more retail doors that will gradually move that average sales price up.
Having a broader offering makes you more relevant with the customers. I’m actually in Pasco and had dinner with a customer last night, and what they’re talking about are things like what can we do together to develop products and they’re very interested in our new products that are coming, especially as you mentioned, the grab and go, and now potentially spinach as we kind of work our way through that.
You mentioned it’s a difficult plant to grow, but we’re learning things with stack and flow that allow us to have confidence that we can get there. And so, that’s very exciting, not just for us, but for the customers as well. And I think puts us in a really strong place too, on average move that ASP up.
Kristen Owen
One last one for me before I turn it over, just if I can ask you to comment on the goodwill impairment in the quarter. I understand it’s non-cash, but can you just comment on that please?
Craig Hurlbert
It’s really just the share price activity that at year end all companies have to do their impairment analysis and because of the change in the share price year over year, we had to write off the goodwill related to this, the Pete’s acquisition. We still obviously have the assets of the customer list, et cetera. But again, just a onetime non-cash entry.
Operator
Next question is coming from Ben Klieve from Lake Street Capital Markets.
Ben Klieve
First of all, looking back into ‘23, the adjusted gross margin line, I understand that that the contributions on the top line were almost entirely from California and that you had some issues and with weather, but that adjusted gross margin number fell each quarter sequentially.
I’m just wondering if you can talk about the extent to which you have confidence that margins out of that kind of legacy production of stabilized. If you think this is kind of permanently reset downward anything that you can elaborate on that would be great.
Craig Hurlbert
Kathy, why don’t you just start on that one?
Kathleen Valiasek
It’s 2023 was a difficult year out of the California facilities. What I’m happy to say is, I mean, interestingly enough, we did have significant rains out here in California again in Q1, but we actually performed incredibly well. And from a revenue perspective, the company, we’re on budget actually for California.
I’m not going to comment today on the gross margin for Q1 because I don’t have it off the top of my head, but we are on budget in terms of top line revenue out of California, and the facilities are just performing, frankly better than they have since we acquired Pete’s, which is fantastic, and I’ll thank the team out there.
We have increased our operational performance out there, our operational excellence, our operational team has just done a great job and we’re very, very pleased with where we’re sitting in Q1 of 2024.
Ben Klieve
Next question, if this was in the press release, I’m not seeing it, but CapEx in 2023, wondering again, comment on what that number was in ‘23 and then help us understand the degree to which excuse me, if you can quantify the amount of CapEx left on the Georgia, Washington, Texas facilities that’s going to bleed into 2024.
Kathleen Valiasek
Yes, sure. I mean the CapEx on the balance sheet is 313, it looks like. Georgia facility is as a 12.31 had very little left in spend. We did have some finishing things that we’re working on in Q1 that are exterior to the facility. And then in terms of spend left on Texas and Washington likewise, although we are growing in the facilities and shipping in Q2, we still have some construction costs that we’re occurring this quarter.
Ben Klieve
Last one for me, and I’ll get back in line. With these three new facilities coming online in Georgia, Texas and Washington, I’m wondering if you can comment on how much of the production you expect to come out of these facilities this year is already committed with your existing customer base as opposed to your sales force now having to go out and find a home for that production once it becomes available.
Craig Hurlbert
Yes. Hey, Ben, that’s a good question. We don’t have a percentage number. We haven’t shared that number yet. What I will tell you is this industry is very transactional as we look at it today. I think that’s beginning to change over time. What’s happening is, and I’ll give you a good example, in Texas now that the facility has got plants in the facility living and growing, we’ve been able to bring customers there.
We just closed a rather large account based on a site visit from the executive team. They wanted to see it before they really were willing to commit to buying product from us. There’s a little bit of that involved in this space still as a transactional based kind of industry? But with some of our relationships, we’re moving more contractually based customers and because of our great unit economics, there’s a lot of potential there.
So I don’t have a percentage for you on that. I will tell you that, we have a high degree of confidence when we do come out with our revenue forecast for the year, which I believe were Kathy can talk to that, we will have a high degree of confidence, we’re going to hit it, because there are customers there for product.
We know who they are, and we’re in the process of knocking down the rest of that. The team is losing sleep on that as we speak, don’t have a percentage primarily because it’s a transactional based industry, but we’re moving in that direction.
Kathleen Valiasek
And I would just quickly add to it, Ben, obviously we haven’t named the sites, but we are expanding on our existing sites, which is obviously just a great level of confidence that the existing facilities are sold out.
Craig Hurlbert
One thing Ben, I know he is back in queue. I’d like to just comment broadly for all the listeners. The progress we made in 2023 is astounding and is a testament to our team and our stakeholders that are involved. You know who you are all the way from the board, right down the entire organization. The progress we made is absolutely amazing. We’re extremely excited.
And I can tell you the whole team is more focused than we’ve ever been on making Local Bounti, the preeminent CEA business. And, every day I’ve been doing this a long time. Every day I come to work, I’m more and more motivated to be around the people that comprise and really make up Local Bounti. It’s an absolute honor to be able to lead them.
And I just want to say a heartfelt thank you from both Kathy and I to everybody on the team for all of your hard work in 2023. It’s a very tough environment, as many of you know, and we maneuver our way through, and here we are, with a heck of a lot of great news today. And we’re all super excited about it and it couldn’t have happened without our amazing team.
So thank you to everyone and I’ll turn the call back over again.
Operator
We have reached the end of our question and answer session. I would like to turn the floor back over for any further or closing comments.
Craig Hurlbert
Kathy, do you have anything you’d like to close with?
Kathleen Valiasek
I’m good, other than I mimic your thoughts on thanking the team and our strategic partners. It’s just, I am amazed where we’re at. I’m so thrilled. And just thank everyone. Everyone’s been working so hard. I just thank everyone.
Operator
Thank you. That does conclude today’s teleconference and webcast and you may disconnect your lines at this time. And have a wonderful day. We thank you for your participation today.
