Local Bounti (LOCL) - 2022 Q4 - Annual Report

Part I Business Local Bounti is a Controlled Environment Agriculture (CEA) company specializing in sustainably grown produce using its proprietary Stack & Flow Technology™, significantly expanding operations and distribution through the April 2022 Pete's acquisition - Local Bounti is a Controlled Environment Agriculture (CEA) company using its patent-pending Stack & Flow Technology™, a hybrid of vertical and greenhouse farming, to grow produce sustainably[22] - On April 4, 2022, the company acquired Pete's, significantly increasing its footprint to four operating facilities (two in CA, one in GA, one in MT) and expanding distribution to over 10,000 retail locations across 35 U.S. states and Canadian provinces[24] - The company's primary products include living butter lettuce, for which it holds an approximate 80% share of the CEA market in the Western U.S., as well as packaged salad and cress[24] - Local Bounti's farming methods use 90% less water and land compared to traditional agriculture and significantly reduce the need for pesticides and herbicides[22][34] Company Overview Local Bounti, founded in 2018, is a CEA company utilizing proprietary Stack & Flow Technology™ for sustainable produce, significantly expanding its operations and distribution network through the April 2022 acquisition of Pete's - Utilizes a patent-pending hybrid process called Stack & Flow Technology™, which combines vertical farming for early plant growth with greenhouse farming for the final grow-out phase[22] - Acquired California-based Pete's on April 4, 2022, adding three greenhouse facilities (two in CA, one in GA) and expanding distribution to over 10,000 retail locations[24] - Key retail partners include Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, and AmazonFresh[24] Market Overview The company operates in a market driven by global food demand, shrinking resources, and consumer preference for sustainable produce, with the U.S. vegetable and herb market projected to reach $75 billion by 2025 - The global population is projected to need 70% more food by 2050, while the world has lost over 30% of its arable land in the last 40 years[36] - The U.S. market for vegetables and fresh-cut herbs is projected to grow 15% annually, reaching $75 billion by 2025[37] - CEA addresses market needs by using up to 90% less water and land, reducing the need for pesticides, and enabling local production to shorten supply chains[41] Our Solution and Facilities Local Bounti's core solution is its Farm of the Future™ utilizing patent-pending Stack & Flow Technology™ to optimize unit economics, operating four facilities and constructing new ones in Texas and Washington - The company's proprietary Stack & Flow Technology™ combines vertical farming in a nursery with hydroponic greenhouses, aiming for lower capex, opex, and higher yields[58] Facility Status | Facility | Location | Status | Notes | | :--- | :--- | :--- | :--- | | Montana Facility | Hamilton, MT | Operational | Expanded in 2021 | | Carpinteria Facility | Carpinteria, CA | Operational | Acquired via Pete's | | Oxnard Facility | Oxnard, CA | Operational | Acquired via Pete's | | Georgia Facility | Byron, GA | Operational | Began operations mid-2022; undergoing expansion and Stack & Flow retrofit | | Texas Facility | Mount Pleasant, TX | Under Construction | Expected completion Q4 2023 | | Washington Facility | Pasco, WA | Under Construction | Expected completion Q1 2024 | Growth Strategies The company's growth strategies focus on improving unit economics, scaling capacity, expanding product lines and sales channels, and investing in R&D, including plant genetics and automation - Improve unit economics through technology, computer vision, AI, and robotics[79] - Scale the platform by building or acquiring new facilities near population centers, using modular designs for rapid deployment[80] - Expand product line beyond the current 25 SKUs to include items like spinach, kale, and arugula[82] - Develop new sales channels, including potential co-location with distributors and international licensing opportunities[83] ESG and Sustainability Sustainability is central to Local Bounti's business, addressing 12 U.N. Sustainable Development Goals through commitments to water stewardship, carbon neutrality by 2050, sustainable packaging, and social and governance initiatives - The company's business model directly addresses 12 of the 17 U.N. Sustainable Development Goals[34][50] - Key ESG commitments approved by the Board include: - Water Stewardship: Monitor, reduce, and reuse water - Climate Protection: Adopt a science-based target (SBT) in 2023 and be carbon neutral by 2050 - Sustainable Packaging: Exceed 30% post-consumer or bio-based content by 2025[92][98] - Identified four primary climate-related issues: Weather (opportunity), Water (risk/opportunity), Energy (risk), and Supply Chain (risk)[99] Competition Local Bounti competes with traditional and high-tech greenhouse operators, as well as vertical farming companies, believing its hybrid Stack & Flow Technology™ provides a competitive yield advantage - Competes with traditional greenhouse operators (e.g., Mastronardi Produce), high-tech greenhouse companies (e.g., AppHarvest, Bright Farms), and vertical farming operators (e.g., AeroFarms, Bowery Farming)[101][102] - Believes its hybrid Stack & Flow Technology™ offers a competitive advantage, yielding 1.5 to 2.0 times more than comparable greenhouse farms[103] Intellectual Property The company holds significant intellectual property, including 18 patents submitted to the USPTO as of December 2022, covering its core Stack & Flow Technology™ and various trademarks - As of December 2022, Local Bounti has 18 total patents submitted to the USPTO, including seven non-provisional and eleven provisional patents[110] - A patent application for its core "Stack & Flow Technology™" was submitted in August 2020[110] Risk Factors The company faces significant risks including a history of losses, capital intensity, reliance on limited facilities, construction and integration challenges, competition, crop diseases, and debt covenants with Cargill Financial - The company is an early-stage company with a history of losses and expects to incur significant expenses and continuing losses for the foreseeable future[125][129] - The business is capital-intensive and may require additional financing, which, if not obtained, could force the company to delay or reduce operations and growth[125][132] - The company's credit facilities with Cargill Financial are secured by all company assets, including intellectual property, where an uncured event of default could lead to foreclosure on all assets[125][195] - Significant risks are associated with integrating the acquired Pete's business, including assimilating different business strategies, technologies, and personnel, which may divert management attention[126][204] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[273] Properties As of December 31, 2022, Local Bounti owns and leases several production and R&D properties, including facilities in Montana, California, and Georgia, with new construction in Texas and Washington, and a planned $35 million sale-leaseback for California facilities Key Properties as of December 31, 2022 | Facility Type/Use | Location | Owned/Leased | Status | | :--- | :--- | :--- | :--- | | Hamilton Production Facility | Hamilton, MT | Leased | Operational | | Carpinteria Production Facility | Carpinteria, CA | Owned | Operational | | Oxnard Production Facility | Oxnard, CA | Owned | Operational | | Georgia Production Facility | Byron, GA | Owned | Operational | | Texas Production Facility | Mount Pleasant, TX | Owned | Under Construction (Est. Q4 2023) | | Pasco Production Facility | Pasco, WA | Owned | Under Construction (Est. Q1 2024) | - On March 28, 2023, the company entered into a Purchase and Sale Agreement for a $35 million sale and leaseback transaction for its Carpinteria and Oxnard, CA facilities, expected to close in Q2 2023[275] Legal Proceedings The company states that it is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or results of operations - The company is not presently a party to any material legal proceedings[277] Mine Safety Disclosures This item is not applicable to the company - Not applicable[278] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on the NYSE, and it has never paid cash dividends nor intends to, with dividend payments restricted by credit agreements - Common stock trades on the NYSE under the symbol "LOCL"; warrants trade under "LOCL.WS"[281] - The company has never paid cash dividends and does not intend to in the foreseeable future, with its ability to do so also restricted by its debt agreements[283] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, sales surged to $19.5 million due to the Pete's acquisition, though net loss widened to $111.1 million from increased operating expenses, while liquidity is managed through cash, operations, and an expanded Cargill credit facility Financial Highlights (2022 vs 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Sales | $19,474 | $638 | $18,836 | | Gross Profit | $2,215 | $206 | $2,009 | | Loss from Operations | $(94,526) | $(44,717) | $(49,809) | | Net Loss | $(111,071) | $(56,093) | $(54,978) | - The significant increase in sales was primarily due to the acquisition of Pete's in April 2022[311] - The company is expanding its Georgia facility and constructing new facilities in Texas (expected completion Q4 2023) and Washington (expected completion Q1 2024)[298][300][301] - In March 2023, the credit facility with Cargill Financial was expanded from $170 million to up to $280 million, and the company issued Cargill warrants to purchase up to 69.6 million shares at $1.00 per share[302] Results of Operations (FY 2022 vs. FY 2021) For FY2022, sales increased to $19.5 million due to the Pete's acquisition, but operating expenses rose significantly, leading to an operating loss of $94.5 million and a net loss of $111.1 million - Sales: Increased by $18.8 million to $19.5 million, primarily due to the Pete's acquisition[311] - Cost of Goods Sold: Increased by $16.8 million, driven by higher sales volume and a $1.0 million negative impact from the fair value step-up of acquired inventory from Pete's[313] - Research & Development: Increased by $10.6 million due to greater investment in personnel, materials, and facility capacity for product and process development[316] - Selling, General & Administrative: Increased by $41.2 million, primarily due to a $20.2 million increase in stock-based compensation, a $6.2 million increase in employee-related costs, and a $5.0 million increase in amortization of intangibles[318] - Interest Expense, net: Increased by $10.1 million, mainly due to higher principal amounts outstanding on debt facilities with Cargill Financial[323] Liquidity and Capital Resources As of December 31, 2022, the company held $24.9 million in cash with $140.9 million in outstanding debt to Cargill Financial, and management believes current liquidity and expected proceeds are sufficient for the next 12 months Liquidity Position as of Dec 31, 2022 | Metric | Amount (in thousands) | | :--- | :--- | | Cash and cash equivalents | $13,666 | | Restricted cash and cash equivalents | $11,272 | | Total Cash | $24,938 | | Accumulated Deficit | $(179,313) | - As of Dec 31, 2022, the principal amount due under credit facilities with Cargill Financial totaled $140.9 million[326] - Management believes current cash, expected proceeds from a sale-leaseback, and borrowing capacity are sufficient to fund operations for at least 12 months from the financial statement issuance date[328] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is therefore not required to provide the information for this item - As a smaller reporting company, Local Bounti is not required to provide this information[341] Financial Statements and Supplementary Data Audited consolidated financial statements for FY2022 and FY2021 show total assets increased to $278.7 million and a net loss of $111.1 million in 2022, with notes detailing key policies, the Pete's acquisition, debt, and related party transactions Report of Independent Registered Public Accounting Firm The independent registered public accounting firm, WithumSmith+Brown, PC, issued an unqualified opinion on the company's consolidated financial statements for the years ended December 31, 2022 and 2021 - WithumSmith+Brown, PC issued an unqualified audit opinion on the company's consolidated financial statements for the years ended December 31, 2022 and 2021[345] Consolidated Balance Sheets As of December 31, 2022, total assets increased to $278.7 million from $143.9 million in 2021, driven by the Pete's acquisition, while total liabilities rose to $157.4 million and stockholders' equity to $121.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $34,104 | $105,508 | | Property and equipment, net | $157,844 | $37,350 | | Goodwill | $38,481 | $0 | | Total Assets | $278,740 | $143,930 | | Total Current Liabilities | $23,267 | $17,968 | | Long-term debt, net | $119,814 | $11,199 | | Total Liabilities | $157,407 | $42,247 | | Total Stockholders' Equity | $121,333 | $101,683 | Consolidated Statements of Operations For FY2022, sales were $19.5 million, resulting in a gross profit of $2.2 million, an operating loss of $94.5 million, and a net loss of $111.1 million, or ($1.27) per share Consolidated Statement of Operations (in thousands) | Account | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Sales | $19,474 | $638 | | Gross Profit | $2,215 | $206 | | Loss from Operations | $(94,526) | $(44,717) | | Net Loss | $(111,071) | $(56,093) | | Net Loss per Share (Basic & Diluted) | $(1.27) | $(1.06) | - Stock-based compensation expense was $39.2 million in 2022, compared to $17.9 million in 2021[354] Notes to Consolidated Financial Statements Notes detail accounting policies, confirm going concern, outline the Pete's acquisition for $92.5 million cash and 5.65 million shares, describe Cargill debt amendments, stock-based compensation, related party transactions, and subsequent events including a $35.0 million sale-leaseback - Going Concern (Note 2): Management concluded that its plans, including cash on hand, expected proceeds from a sale-leaseback, and the amended credit facility, are sufficient to fund operations for at least twelve months, alleviating substantial doubt about its ability to continue as a going concern[368] - Pete's Acquisition (Note 3): The acquisition on April 4, 2022, involved $92.5 million in cash and 5,654,600 shares of common stock, with preliminary allocation resulting in $38.5 million of goodwill and $52.3 million of intangible assets (customer relationships, trade name, non-compete agreements)[418][421] - Debt (Note 7): The company amended its credit agreements with Cargill Financial multiple times in 2022, resulting in a reduced total facility of $170.0 million and an increased interest rate, with $140.9 million outstanding as of Dec 31, 2022[438][440] - Subsequent Events (Note 17): In March 2023, the company expanded its credit facility with Cargill to up to $280 million and entered into an agreement for a ~$35.0 million sale-leaseback of its two California facilities[497][498] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[500] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, having remediated a previously identified material weakness related to accounting personnel - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[502] - A material weakness identified in 2021, related to a lack of sufficient qualified accounting personnel and segregation of duties, was remediated as of December 31, 2022[507][509] - Remediation actions included hiring additional accounting and finance personnel with public company experience and implementing a more robust review and monitoring process for financial reporting[509] Other Information On March 28, 2023, the company amended its Cargill Financial credit agreements for up to an additional $110 million in financing and issued warrants to purchase up to 69.6 million shares at $1.00 per share - On March 28, 2023, the company amended its credit agreements with Cargill Financial, providing for up to an additional $110 million in financing[511] - As part of the amendment, the company issued warrants to Cargill to purchase up to 69.6 million shares of common stock at an exercise price of $1.00 per share[512] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Required information is incorporated by reference from the forthcoming 2023 Proxy Statement[516] - The Board has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees[517] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Required information is incorporated by reference from the forthcoming 2023 Proxy Statement[519] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and related stockholder matters is incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Required information is incorporated by reference from the forthcoming 2023 Proxy Statement[520] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Required information is incorporated by reference from the forthcoming 2023 Proxy Statement[521] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement for its 2023 annual meeting of stockholders - Required information is incorporated by reference from the forthcoming 2023 Proxy Statement[522] Part IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Annual Report on Form 10-K, including financial statements and an index of all exhibits such as merger and credit agreements - This section provides an index of all exhibits filed with the Form 10-K, including key agreements related to mergers, debt, and equity plans[526][528] Form 10-K Summary The company indicates that there is no Form 10-K summary provided - None[533]