Good morning, and welcome to the Local Bounti's first quarter 2023 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. At this time, I'd like to turn the conference over to Jeff Sonnek, Investor Relations at ICR. Please go ahead.
Thank you and good morning. Today's presentation will be hosted by Local Bounti Co-CEOs Craig Hurlbert and Travis Joyner, President Brian Cook, 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.localbounti.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 Hurlbert, Co-CEO. Craig.
Thank you, Jeff. Good morning, everyone. We started 2023 on a strong note with a first quarter performance that was consistent with our plan. As we move into the second quarter, our growing operations are progressing nicely, most recently with the completion of our Georgia 6-acre greenhouse facility in April and the advancement of our new facilities in Texas and Washington. Perhaps most importantly, we put the financial resources in place to support our business for the long term. This was no small feat given the current economic environment. As we communicated on our last earnings call, we expanded our credit facilities with Cargill by up to $110 million, with simultaneously relieving cash needs to fund our operations. Just last week, we built upon that support with the closing of a $35 million sale leaseback transaction.
This cash, combined with the cash available from our Cargill amendment, provides us with approximately $58 million of accessible cash to run our operations and scale up our business with the intent to reach break-even adjusted EBITDA by the end of 2024 or early 2025. Our entire team continues to push our national platform ahead into the future, constantly learning from our own trials and the mistakes of others to become the most capital efficient CEA platform in the industry. Travis will speak to some of the operational gains that we are realizing with our Stack & Flow Technology in Georgia today, and also speak to some additional productivity levers that we will be implementing in the future.
These are extremely exciting advancements, which demonstrate our unique ability to squeeze the most out of our assets to maximize revenue and cash flow while delivering long-lasting delicious and sustainably grown products to over 10,000 locations nationwide. Our Stack & Flow Technology continues to underpin our business model as the optimal capital efficient tool to enhance crop turns and maximize return on investment across a variety of CEA approaches. Beyond our greenfield expansions, the inherent flexibility of our approach also affords us other opportunities to achieve greater scale quickly through strategic acquisitions. We are proving that we can continue to drive top-line growth and simultaneously generate healthy margins as we scale the business in a responsible, capital efficient manner.
This is due in large part to the continued gains we are making with our Stack & Flow Technology to drive improving unit economics, which our Co-CEO, Travis Joyner, will speak to. Our President, Brian Cook, will provide some further commentary around progress on our various construction projects before our CFO, Kathy, concludes with her financial review and financing update. I am so grateful to work with such a committed and talented team here at Local Bounti. Our success is a direct result of their collective efforts, and I'm honored to help lead this business on behalf of our employees and our stakeholders. With that, I'll pass it over to my friend, Travis.
As Craig noted, maximizing our Stack & Flow Technology is foundational to our strategy and will demonstrate the economic advantages of our CEA approach and help us achieve our long-term financial goals. The Stack & Flow is immensely productive, and our relentless focus on optimizing the technology continues to deliver impactful results that will cascade through our facility network. Today, our Stack & Flow-enabled production at our Georgia facility, which at this stage is limited to a single Stack zone, is online and achieving trial production yields 40%-70% higher than the rest of the greenhouse. As we complete the full Stack integration in Georgia, yields will increase over time as we solve to optimize facility output. Our successful integration of Stack with the dynamically indexed gutter system in the Georgia greenhouse will drive enhanced yields with significant automation and labor savings compared to our first facility in Montana.
At scale, we believe that these enhancements allow us to out-compete the best greenhouse growers by approximately 50% and the average greenhouse grower by 75%-100%. Our production statistics are the proof that Stack and Flow generate 1.5x-2x the yield of traditional greenhouse growing methods. We aren't stopping there. While we feel great about the productivity enhancements within the greenhouse, we have similar initiatives in place for our vertical Stack production. Through additional optimization of the vertical growing environment, we see an ability to increase output at the early stage of our system by another 20% beyond what we are currently achieving. This is of critical importance for our business and is foundational to our capital efficiency ethos at Local Bounti.
Not only do we realize the operational benefits of the higher rates of production on our fixed cost base, but these same gains create direct proportionate savings on future capital expenditures. This relationship is highly advantageous and demonstrates our rigorous approach. We do the math on every decision, including the vetting and implementation of technology to improve unit economics. I'll pass it over to Brian for his remarks.
Thank you, Travis. In terms of our scale-up, our workflows are focused on completing projects that generate near-term returns. With that in mind, we are working on completing our Georgia build-out, finishing our Texas facility in the fourth quarter of this year and our Washington facility early in the first quarter of 2024. With respect to Georgia, construction of phase I-B was completed and seeding began in April. As a reminder, phase I-A and phase I-B reflects the site's completed 6-acre automated greenhouse footprint. The completion of the 6- acres will effectively drive distribution of Local Bounti products across the Southeast by the end of Q2 through multiple selling channels. While we have a single Stack zone or vertical nursery operating within the facility, it is largely a horizontal greenhouse at the moment.
That will all change once we integrate the rest of the complementary Stack zones that comprise phase I-C. With the additional capacity brought on with the Stack technology, we will have the ability to open up our product suite to new offerings, strengthening our position as the premier partner in the CEA space. We continue to expect this work will be completed and online early in the fourth quarter of 2023, allowing Local Bounti to deepen our roots in the Southeast. Our new 6-acre facility in Texas is advancing nicely with recent completion of the pad and foundations. The similar design of this facility to that of Georgia will allow for synergistic operations and management of the two facilities.
As mentioned, Texas will support production of our packaged leafy green varieties, as well as locally grown living lettuces, and fortify our national distribution network with localized facilities coast to coast across the Southern U.S. We continue to expect operations at Texas to commence in the fourth quarter. The pad and foundation work are also complete at our Pasco facility. True to Local Bounti's mission to deliver superior unit economics, the facility will be comprised of 3 acres of greenhouse that will be supported by multiple Stack zones. The location will help bolster the company's distribution capabilities in the Pacific Northwest and is expected to commence operations in the first quarter of 2024, which continues to reflect our strategy of staggering construction to accommodate the commissioning of our Texas facility in the fourth quarter of 2023.
Commercially, I'm excited to see a 13% increased velocity improvement in our current portfolio from 2022 levels as Local Bounti continues to resonate with consumers over quality and freshness. Our mature regions continue to grow, and timing to scale velocities in new markets has shortened with successful market strategies. On that note, we are thrilled to confirm we have started shipping to two new distribution centers recently from our Georgia facility, with two additional Sam's Club distribution centers set to come online by the end of the second quarter, as mentioned on our last earnings call. These are great wins for Local Bounti and reflect our increasing scale and ability to service large retail customers. Now I'll turn the call over to Kathy for her review of the financials.
Thank you, Brian. I'll cover our first quarter results and provide a review of our recent financing activities. First quarter 2023 sales were $6.7 million, as compared to $0.3 million in the prior year period. Our first quarter results largely reflects production from our California facility and to a lesser extent, our Montana and Georgia phase I-A facilities. As previously discussed, we expect improved revenue run rates in second quarter from Georgia with the recent completion of Georgia phase I-B's additional 3 acres of growing space. With this work now complete, we are beginning to fulfill demand and make preparations for the four additional distribution centers that will fold into our network during second quarter.
Of course, later in the year, our phase I-C will be complete and come online, further increasing the revenue out of that facility. First quarter 2023 adjusted gross margin, excluding depreciation, stock-based comp, and other non-recurring items was approximately 33%. Adjusted gross margin was impacted by persistent heavy rains, which shut down roads at our California facilities and caused temporary production and delivery interruptions. We also saw reduced customer demand in the Western markets we served as customers made fewer shopping trips during this time due to the inclement weather.
First quarter 2023 net loss was $23.5 million, as compared to a net loss of $25.8 million in the prior year period and includes $6 million in stock-based comp, $4.3 million in interest expense, $3.5 million of depreciation and amortization, $1.7 million of business combination and integration costs, and $0.7 million of increased utility costs related to inclement weather. Adjusting for these and other discrete items, adjusted EBITDA loss was $7.4 million as compared to adjusted EBITDA loss of $8.5 million in the prior year period. From a capital structure perspective, we ended the first quarter, March 31st, 2023, with cash and cash equivalents of $7.5 million.
Obviously, this doesn't reflect the incremental financing transactions that we've put in place, which provided approximately $58 million of accessible cash to our balance sheet to fund our operations. We previously announced on our last call, at the end of March, we amended our agreement with Cargill to expand our existing credit facility by up to $110 million to a total of up to $280 million. This expansion provides capital to fund construction at our facilities in Georgia, Texas, and Washington. Just last week, we closed on the second component of the financing via a sale leaseback of our two facilities located in California for $35 million. This cash, combined with the cash available from our Cargill amendment, provides us with approximately $58 million of available accessible cash to support our operations.
With this cash in place and access to construction financing via our agreement with Cargill, our focus is shifting to optimizing our capital structure, the results of which would reflect our efforts to lower our total cost of capital. We may pursue additional sale leasebacks for our other facilities in addition to utilizing approximately $90 million of debt funding from a licensed USDA lender to reduce our use of construction financing and replace it with lower cost debt. I'd note that we added $10 million from this funding source as compared to our last update with you. We anticipate closing on the first $35 million of this funding in the second quarter, with the remaining $55 million closing to be completed at a future date. Naturally, we are very excited about these developments.
They provide us with the necessary capital to reach break-even cash flow by the end of 2024 or early 2025, which is a very important milestone that we've been working hard to achieve. As of March 31, 2023, we had approximately 104.2 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 197.4 million shares. With respect to our outlook, we are reiterating full year 2023 revenue guidance of between $34 million-$40 million, representing growth of at least 74% as compared to the end of 2022.
In terms of our quarterly cadence, as I mentioned, we expect revenues to build sequentially through the balance of the year as our Georgia production stepped up with the completion of phase I-B in April and the four additional distribution centers we are beginning to serve this quarter. Following this, the next lever will be the impact of Stack phase I-C's completion in the fourth quarter, which will increase production by 40%. This is expected to have a commensurate positive influence on our adjusted EBITDA as well, which should gradually improve through the balance of the year building from the low point we established in the first quarter we reported today. Once again, we believe we have line of sight to positive adjusted EBITDA.
Finally, I'd also note that the impact of any potential acquisitions as part of our build and/or buy strategy for growth could potentially change this expectation. We believe this demonstrates the flexibility of our model and the advantages of our approach, which revolves around capital efficiency. That concludes our prepared remarks. Operator, please open the call for questions.
Thank you. 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 may press star two if you'd like to remove your question from the queue. 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 Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks so much, guys. You know, as you get prepared for phase I-C, later this year in Georgia, can you talk about how mature the conversations are with your customers around the products and your ability to kind of hone the growing process for those products between now and when you start to ramp?
Yeah. Hey, good morning, Colin. Brian, do you wanna maybe tackle that question for Colin?
Yeah, definitely. Hi, Colin. No, we're actually really excited about the extra availability coming online. We do have a lot of demand that has been kind of put at bay as we continue to ramp up our, you know, the construction of phase I-A, phase I-B, phase I-C coming on and then just the full on commissioning of the product. We're really excited about it. We're having a lot of great conversations. We do have more demand than we have availability at this time.
Okay. I'll take the rest of that offline. You know, just Kathy on the sale leaseback and the USDA loan, obviously there's a handful of puts and takes. Can you talk us through your decision-making process and how you're going to look at, you know, what's the optimal source of capital for the company with those facilities, you know, whether you look at a sale leaseback or one of those loans?
Sure. You know, with the advent of the restructure of the Cargill agreement, it's fantastic in the sense that they are allowing other capital providers to come into the cap stack with the goal of long-term, right, reducing our cost of capital. Obviously, the USDA financing, a longer term, a much lower interest rate is fantastic. Also same with sale leaseback, much lower cost of capital, but it also brings cash onto our balance sheet. As we said, right, we recently brought about $58 million onto our balance sheet, which we have for the sole use of operations, right, for the coming quarters, which is fantastic.
You know, again, the lowest cost of capital is, you know, USDA financing and also sale leasebacks, both of which we are considering for our current facilities, but also as we look to the future for the facilities that we'll, you know, be planning to build in the Northeast and other locations throughout the country.
Thanks. The last one is just really around the acquisition pipeline. You know, obviously with the demonstration of the efficiency of the technology, can you talk about inbounds that you're getting from folks that maybe wanna partner with you, and the, you know, the flexibility or, you know, creativity that you guys might be able to approach some of those deals? You know, you mentioned it earlier in the call. Just wanna get a sense of how we might think about the cadence of that sort of activity.
Yeah. Hey, Colin. I think, you know, it's typically directly tied to their own capital situation. The timing of these is varied a little bit, but the consistency of what's being asked for and what's being looked at is there. We said it in our comments. Our technology gives us the ability to bring on different types of technologies to help us do multiple things, one which would be geography, the other would be talent, et cetera. We're taking these on. We have a team of people that are able to quickly evaluate what each specific opportunity could mean to us. We have a robust way of looking at these. I would just say, it's a very real possibility.
It's something we're looking at, as evidenced by obviously what we did with Pete's and something we're not going to shy away from, but it's gotta be the right opportunity for us and for our shareholders, obviously.
Okay. Thanks, guys. Appreciate it.
Thank you, Colin. Appreciate it.
Thank you. Our next question comes from the line of Ben Klieve with Lake Street Capital. Please proceed with your question.
All right. Thanks for taking my questions. First one on the announcement today that you guys expect capital to be sufficient to get you to EBITDA breakeven. Can you clarify, is that expectation around production solely from the locations that we know about of, you know, California, Georgia, Texas, Washington? Do you include expanded production beyond those locations, either organically or inorganically, to get you to EBITDA breakeven?
Kathy, you wanna take that one?
Yeah, sure. Thanks, Ben. Good morning. It's with the existing planned facilities.
Excellent. I guess one clarifying question on that. Does that include integration of the stack phases into California or not?
It does not.
Okay, great. Thank you. One other one for me. The around the adjusted gross margin, the, you know, line item of a utility price spike, can you elaborate a bit on what this is, you know, and with this now being reported a couple quarters in a row, is there any concern of kind of a more permanent increase in utility costs from certain locations or do we really think this is a, this spike is one time in nature just over a couple of quarters?
I'll go ahead and take that one. It is just, you know, we saw it in Q4 and in Q1. It's already way back down to even prior, you know, more like where we were Q3. We definitely feel it was a one-time hit. In fact, we might even get a credit back from the state.
Okay. Okay, very helpful. Very good. Well, plenty more to talk about, but I'll leave it there. Thanks for taking my questions, and I'll get back in line.
Okay. Thanks, Ben.
Thank you, Ben.
Thank you. Our next question comes from line of Christopher Barnes with Deutsche Bank. Please proceed with your question.
Hi, good morning. I guess I'll just pick up where Ben left off on the gross margin. It contracted meaningfully from what you earned in the fourth quarter. I know you highlighted the heavy rains causing production and delivery interruptions and reduce demand. Is there any way to parse out, like, what your gross margins might have been without these one-time items? I'm just trying to get a sense for how we should think about gross margin from here over the balance of the year and into the future, just as we try to marry that with the expectation or breakeven EBITDA by, like, late in 2024, early 2025. Thanks.
Yeah. Hey, Kathy.
Yeah, sure.
Why don't you take that one?
Yeah, sure. Thanks for, thanks for the question, and it's such an important one, right? We do feel that we will be back to between 35% and 40% consistently each quarter. We had, you know, a lot of one-off things that happened in the Californias. What'll happen, you'll see as we continue to scale with the other facilities, the risk in that one facility that we saw in Q1 is diminished. If you take away the one times for California, we would have been at 38% for the quarter.
Got it. That's helpful. Second, I just wanted to ask for an update on the consumer reception you've seen from your Heat and Eat meal kit products that you launched earlier this year. How has demand performed relative to your expectations? What are you seeing in terms of repeat and have you expanded these products into other Sprouts stores or even into other retail banners, or is it still too early for that? Thanks.
Thanks, Chris. Brian, you wanna take that one?
Yeah. Thanks, Chris. We're actually currently looking at a package redesign right now on the Heat and Eat items. You know, when we did our initial testing, they went and held well through the cycle. As they've kinda gotten to the stores and are merchandised within, you know, kind of regular retail systems, they weren't lasting as long as we had hoped. We're actually taking a step back on the Heat and Eat items specifically to take a look at the packaging that we have it in now and looking to relaunch it in the near future.
Okay, great. That's very helpful. Pass it on. Thanks.
Thank you, Chris.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes from line of Brian Wright with ROTH MKM. Please proceed with your question.
Thanks. Good morning. Just wanted to question about kind of future facility costs, kind of given, you know, commodity pricing has started coming in this year and just kinda how to think about that kinda going forward. Is that something that's a potential longer term benefit if commodities kinda keep going what they've been doing in the past six months?
Good morning, Brian. Thank you. Kathy, Brian, do you two want to maybe tackle that question? It's a good one.
Yeah, sure. In terms of facility build, I mean, we're on budget for the facilities that we have, coming online in 2023 and in 2024, frankly, we're just not seeing a lot of impact one way or the other. That's the, those are my sentiments. Brian, do you have anything to add?
No, I don't have anything to add. I think that's the proper way to what we're seeing out there right now.
Okay. You've quantified the incremental, the inclement weather impact on the gross margin in California in the quarter. But you did kinda, you know, indicate that there was an impact on sales as well. Is there any way to kind of size that for us?
I don't know if I can actually. Well, go ahead. Brian, do you wanna go for it?
Yeah, yeah. I mean, I think just from an overall demand perspective, you know, everything has brought, you know, has leveled back up. You know, we had seen some, you know, continued operational levers that we had to update in April as part of this. You know, to kinda get things and get demand or, you know, our supply back up. As far as the demand looks, everything is back on track. Customers are putting in full orders and actually increasing to get, you know, to get volumes back to what they, you know, to traditional supply members or what they usually have in stock.
Yeah. I'll just add to that. I mean, just even being a consumer, so I've lived in, you know, Northern California for 25 years. This Q1 of 2023, the level of rains were so strong and so prolonged, I've just never experienced anything like it in the years that I've been here. It rained, you know, frankly, like a Northeast heavy rain for days and days and days straight on. And it was just a complete anomaly. What it drove was even myself, personally, my family, you know, we didn't wanna leave the house because the rains were so bad that it was actually dangerous, to a certain degree, to actually be out on the streets.
I mean, I'll sort of say it and Maybe I shouldn't say this, but like even Kevin Costner announced that he couldn't make it to the awards ceremony because he couldn't leave his house because the roads were shut down. It just was a complete anomaly and folks, you know, just weren't shopping as much because they weren't leaving their house.
Okay, great. Then lastly, is there a way because like now that we've gotten, you know, in Georgia, significant presence in the distribution centers, is it like how do we think about like metrics going forward as far as penetration within, like how many stores from those are being served or store penetration at the stores? Is there some sort of metric we can kinda think about going forward to, you know, maybe not exactly model, but give us some indications as far as, you know, share gains within those DCs?
Yeah. Thanks, Brian. Good question. Brian Cook, you may wanna tackle that one.
Yeah, I could jump in on that one. The big thing right now, Brian, around the Georgia penetration at is that we are first and foremost, you know, taking care of, you know, our contractual obligations with the Sam's Club, which, as you know, has now kind of gone out, is the full southeast. We do have customers outside of that as well. We haven't put an official like, "Okay, here's how many doors we're in officially across the southeast." But we could start looking at it, and you kinda report that out as from a, you know, a total door count for the southeast coming out of that Georgia facility moving forward.
We haven't really looked at it too much yet because we've really been focusing on getting all the Sam's Club DCs onboarded, up until this, you know, the end of the Q2. Then we'll be moving on with I-B now coming online, which again, you know, we said we're, you know, we seeded, right? So we're not gonna have product availability till late May for that product. So what that will do is give us the availability to go out into multiple more doors, that we have kinda waiting in the in the wings here, that where people are excited to get our product in the stores.
Yeah, great. Thank you so much, and congrats on the quarter.
Thank you, Brian.
Thanks, Brian.
Thank you. Ladies and gentlemen, there are no further questions. This concludes our Q&A session. I'll turn the floor back to Mr. Hurlbert for any final comments.
Thank you so much. I would just like to thank everybody for joining us this morning, and we sincerely look forward to speaking with you all again. In the meantime, we're back at it. Everybody, have a great day. Thank you.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.