Local Bounti (LOCL) - 2023 Q2 - Quarterly Report

Part I – FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for the period ended June 30, 2023, show a net loss of $34.2 million, an improvement from $57.4 million in 2022, with total assets increasing to $364.0 million and liabilities to $265.7 million Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $33,946 | $13,666 | | Total current assets | $50,519 | $34,104 | | Property and equipment, net | $230,849 | $157,844 | | Total assets | $364,006 | $278,740 | | Liabilities & Equity | | | | Total current liabilities | $26,479 | $23,267 | | Long-term debt, net | $179,403 | $119,814 | | Financing obligation | $49,146 | $14,139 | | Total liabilities | $265,726 | $157,407 | | Total stockholders' equity | $98,280 | $121,333 | Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales | $7,183 | $6,269 | $13,881 | $6,551 | | Gross profit (loss) | $852 | $(12) | $1,131 | $31 | | Loss from operations | $(19,378) | $(26,226) | $(38,656) | $(50,385) | | Net loss | $(10,676) | $(31,663) | $(34,203) | $(57,435) | | Net loss per share (basic and diluted) | $(1.35) | $(4.65) | $(4.37) | $(8.80) | Unaudited Condensed Consolidated Statements of Cash Flows Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(16,088) | $(26,657) | | Net cash used in investing activities | $(76,187) | $(142,673) | | Net cash provided by financing activities | $107,763 | $109,539 | | Net increase (decrease) in cash | $15,488 | $(59,791) | Notes to Unaudited Condensed Consolidated Financial Statements - The company is a controlled environment agriculture (CEA) producer of lettuce and herbs using its proprietary Stack & Flow Technology™[32] - The company has a history of losses and negative cash flows, with an accumulated deficit of $213.5 million as of June 30, 2023. Management believes current cash and financing will be adequate for the next 12 months[35] - On June 15, 2023, the company effected a 1-for-13 reverse stock split. All share and per-share amounts in the report have been retroactively adjusted[19][36] - The credit facilities with Cargill Financial were expanded from $170.0 million to up to $280.0 million to fund construction. In consideration, Local Bounti issued 5.4 million warrants to Cargill[51] - In April 2023, the company completed a $35.0 million sale and leaseback transaction for its Hollandia Facilities, which was accounted for as a financing obligation[58][63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Sales for the six months ended June 30, 2023, increased by $7.3 million year-over-year, leading to a gross profit of $1.1 million and a narrowed operating loss of $38.7 million, while the company expands facilities and maintains liquidity through expanded debt facilities Company Overview and Expansion - Local Bounti is a CEA company using its patent-pending Stack & Flow Technology™ to grow produce, with distribution to approximately 13,000 retail locations across 35 U.S. states and Canadian provinces[77][79] - The company is expanding its facilities with construction underway in Georgia, Texas, and Washington, with expected completion dates in Q4 2023 and Q1 2024[84][85][86] - Effective June 5, 2023, Anna Fabrega, formerly of Freshly and Amazon, was appointed as the new Chief Executive Officer[87] Results of Operations Comparison of Operating Results (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | $ Change | | :--- | :--- | :--- | :--- | | Sales | $13,881 | $6,551 | $7,330 | | Gross profit | $1,131 | $31 | $1,100 | | Loss from operations | $(38,656) | $(50,385) | $11,729 | | Net loss | $(34,203) | $(57,435) | $23,232 | - Sales for the six months ended June 30, 2023, increased by $7.3 million, primarily due to the Pete's Acquisition in April 2022 and increased sales from the Georgia facility[94] - Cost of goods sold for the six months increased by $6.2 million due to higher production volume and increased utility and labor costs. The prior year's gross margin was negatively impacted by a $1.0 million inventory fair value step-up from the Pete's Acquisition[97] - Selling, general, and administrative expenses for the six months decreased by $11.8 million, mainly driven by a $12.7 million decrease in stock-based compensation expense[103] - Net interest expense for the six months increased by $3.7 million due to a higher principal amount outstanding and higher variable interest rates on the Senior Facility with Cargill[107] Liquidity and Capital Resources - As of June 30, 2023, the company had an accumulated deficit of $213.5 million and cash and cash equivalents of $33.9 million[109] - Primary liquidity sources are cash on hand, sales, and the expanded credit facilities with Cargill Financial, which total up to $280.0 million. Management believes these resources are sufficient to fund operations for the next 12 months[111][112][113] Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(16,088) | $(26,657) | | Net cash used in investing activities | $(76,187) | $(142,673) | | Net cash provided by financing activities | $107,763 | $109,539 | - Net cash used in investing activities was $76.2 million for the first six months of 2023, primarily for construction of the Washington, Georgia, and Texas facilities[120] - Net cash provided by financing activities was $107.8 million, consisting of $73.0 million in debt proceeds and $35.0 million from a sale and leaseback transaction[122] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is classified as a smaller reporting company and is therefore not required to provide the information requested under this item - As a smaller reporting company defined by Rule 12b-2 of the Exchange Act, the company is not required to provide quantitative and qualitative disclosures about market risk[127] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the period - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[129] - There were no changes in internal control over financial reporting during the six months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[130] Part II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently aware of any legal matters that are expected to have a material adverse effect on its financial position, results of operations, or cash flows - Management is not aware of any legal proceedings that it expects will have a material adverse effect on the Company's financial condition or operations[73][133] Item 1A. Risk Factors No material updates to risk factors occurred, except for a new disclosure regarding the 1-for-13 reverse stock split completed on June 15, 2023, with no assurance of increased stock price or liquidity - A new risk factor was added regarding the Reverse Stock Split, stating that there is no assurance it will increase the stock price, marketability, or liquidity, and noting that the market price could decrease due to various factors[134] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of its equity securities during the quarter that were not previously disclosed in a Current Report on Form 8-K - There were no unregistered sales of equity securities during the reporting period that were not previously reported on a Form 8-K[135] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certificates of incorporation, bylaws, material contracts, employment agreements, and required SEC certifications - The report includes a list of exhibits filed, such as the Master Lease Agreement, the new CEO's employment agreement, and Sarbanes-Oxley certifications[137]