Item 1. Financial Statements
LOCAL BOUNTI CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 7,468 | | | $ | 13,666 | |
Restricted cash and cash equivalents | — | | | 11,272 | |
Accounts receivable, net | 2,610 | | | 2,691 | |
Inventory, net | 3,848 | | | 3,594 | |
Prepaid expenses and other current assets | 3,459 | | | 2,881 | |
Total current assets | 17,385 | | | 34,104 | |
Property and equipment, net | 196,907 | | | 157,844 | |
Operating lease right-of-use assets | 235 | | | 137 | |
Goodwill | 38,481 | | | 38,481 | |
Intangible assets, net | 45,597 | | | 47,273 | |
Other assets | 24 | | | 901 | |
Total assets | $ | 298,629 | | | $ | 278,740 | |
| | | |
Liabilities and stockholders' equity | | | |
Current liabilities | | | |
Accounts payable | $ | 21,849 | | | $ | 13,757 | |
Accrued liabilities | 10,061 | | | 9,426 | |
Operating lease liabilities | 81 | | | 84 | |
Total current liabilities | 31,991 | | | 23,267 | |
Long-term debt, net of debt issuance costs | 122,417 | | | 119,814 | |
Financing obligation | 14,188 | | | 14,139 | |
Operating lease liabilities, noncurrent | 169 | | | 187 | |
Warrant liability | 25,697 | | | — | |
Total liabilities | 194,462 | | | 157,407 | |
| | | |
Commitments and contingencies (Note 10) | | | |
| | | |
Stockholders' equity | | | |
Common stock, 0.0001 par value, 400,000,000 shares authorized, 104,240,153 and 103,700,630 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 10 | | | 10 | |
Additional paid-in capital | 306,997 | | | 300,636 | |
Accumulated deficit | (202,840) | | | (179,313) | |
Total stockholders' equity | 104,167 | | | 121,333 | |
Total liabilities and stockholders' equity | $ | 298,629 | | | $ | 278,740 | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
LOCAL BOUNTI CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Sales | $ | 6,698 | | | $ | 282 | |
Cost of goods sold(1)(2) | 6,419 | | | 234 | |
Gross profit | 279 | | | 48 | |
Operating expenses: | | | |
Research and development(1)(2) | 3,576 | | | 1,948 | |
Selling, general and administrative(1)(2) | 15,981 | | | 22,259 | |
Total operating expenses | 19,557 | | | 24,207 | |
Loss from operations | (19,278) | | | (24,159) | |
Other income (expense): | | | |
Interest expense, net | (4,299) | | | (1,643) | |
Other income | 50 | | | 30 | |
Net loss | $ | (23,527) | | | $ | (25,772) | |
| | | |
Net loss applicable to common stockholders per basic common share: | | | |
Basic and diluted | $ | (0.23) | | | $ | (0.32) | |
Weighted average common shares outstanding: | | | |
Basic and diluted | 100,462,262 | | | 81,009,268 | |
(1) Amounts include stock-based compensation as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cost of goods sold | $ | 87 | | | $ | 5 | |
Research and development | 738 | | | 485 | |
Selling, general and administrative | 5,134 | | | 10,523 | |
Total stock-based compensation expense, net of amounts capitalized | $ | 5,959 | | | $ | 11,013 | |
(2) Amounts include depreciation and amortization as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cost of goods sold | $ | 936 | | | $ | 62 | |
Research and development | 566 | | | 312 | |
Selling, general and administrative | 1,956 | | | 167 | |
Total depreciation and amortization | $ | 3,458 | | | $ | 541 | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
LOCAL BOUNTI CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Voting Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders' Equity |
| Shares | | Amount | | | |
Balance, December 31, 2022 | 103,700,630 | | | $ | 10 | | | $ | 300,636 | | | $ | (179,313) | | | $ | 121,333 | |
Vesting of restricted stock units, net | 539,523 | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 6,361 | | | — | | | 6,361 | |
Net loss | — | | | — | | | — | | | (23,527) | | | (23,527) | |
Balance, March 31, 2023 | 104,240,153 | | | $ | 10 | | | $ | 306,997 | | | $ | (202,840) | | | $ | 104,167 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Voting Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders' Equity |
| Shares | | Amount | | | |
Balance, December 31, 2021 | 86,344,881 | | | $ | 9 | | | $ | 169,916 | | | $ | (68,242) | | | $ | 101,683 | |
Vesting of restricted stock units, net | 120,876 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Stock-based compensation | — | | | — | | | 11,042 | | | — | | | 11,042 | |
Net loss | — | | | — | | | — | | | (25,772) | | | (25,772) | |
Balance, March 31, 2022 | 86,465,757 | | | $ | 9 | | | $ | 180,958 | | | $ | (94,014) | | | $ | 86,953 | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
LOCAL BOUNTI CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Operating Activities: | | | |
Net loss | $ | (23,527) | | | $ | (25,772) | |
Adjustments to reconcile net loss to cash used in operating activities: | | | |
Depreciation | 1,782 | | | 541 | |
Amortization | 1,676 | | | — | |
Reduction of right-of-use assets from operating leases | — | | | 28 | |
Stock-based compensation expense, net of amounts capitalized | 5,959 | | | 11,013 | |
Bad debt allowance | 8 | | | 2 | |
Inventory allowance | 30 | | | — | |
Loss on disposal of property and equipment | — | | | 196 | |
| | | |
Amortization of debt issuance costs | 981 | | | 191 | |
Interest on financing obligation | 50 | | | 71 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 76 | | | 37 | |
Inventory | (284) | | | (341) | |
Prepaid expenses and other current assets | 4 | | | (186) | |
Other assets | — | | | 112 | |
Accounts payable | 571 | | | 2,619 | |
Operating lease liabilities | — | | | (25) | |
Accrued liabilities | 4,844 | | | 1,500 | |
Net cash used in operating activities | (7,830) | | | (10,014) | |
| | | |
Investing Activities: | | | |
Purchases of property and equipment | (32,685) | | | (14,673) | |
Net cash used in investing activities | (32,685) | | | (14,673) | |
| | | |
Financing Activities: | | | |
Proceeds from issuance of debt | 23,045 | | | — | |
Net cash provided by financing activities | 23,045 | | | — | |
Net decrease in cash and cash equivalents and restricted cash | (17,470) | | | (24,687) | |
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period | 24,938 | | | 101,077 | |
Cash and cash equivalents and restricted cash and cash equivalents at end of period | $ | 7,468 | | | $ | 76,390 | |
Reconciliation of cash, cash equivalents, and restricted cash from the Unaudited Condensed Consolidated Balance Sheets to the Unaudited Condensed Consolidated Statements of Cash Flows
| | | | | | | | | | | |
Cash and cash equivalents | $ | 7,468 | | $ | 71,974 | |
Restricted cash and cash equivalents | — | | 4,416 |
Total cash and cash equivalents and restricted cash and cash equivalents as shown in the Unaudited Condensed Consolidated Statements of Cash Flows | $ | 7,468 | | $ | 76,390 |
| | | | | | | | | | | |
Non-cash activities: | | | |
Warrants issued in connection with debt modification | $ | 25,697 | | $ | — |
Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 7,584 | | $ | 8,161 |
Stock-based compensation capitalized to property and equipment, net | $ | 577 | | $ | 29 |
Non-cash equity settlement on employee receivable | $ | 175 | | $ | — |
Non-cash financing obligation activity | $ | — | | $ | 840 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
LOCAL BOUNTI CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business Description
Description of the Business
Local Bounti Corporation ("Local Bounti" or the "Company") was founded in August 2018 and is headquartered in Hamilton, Montana. The Company is a producer of sustainably grown living lettuce, herbs, and loose leaf lettuce. The Company is a controlled environment agriculture ("CEA") company that utilizes patent pending Stack & Flow TechnologyTM, which is a hybrid of vertical and hydroponic greenhouse farming, to grow healthy food sustainably and affordably. Through the Company's CEA process, its goal is to produce environmentally sustainable products in a manner that will increase harvest efficiency, limit water usage, and reduce the carbon footprint of the production and distribution process. The Company's primary products include living butter lettuce as well as packaged salad and cress.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
Management of Local Bounti is responsible for the Unaudited Condensed Consolidated Financial Statements included in this document, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the statements herein.
The Unaudited Condensed Consolidated Financial Statements do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2022 (the "Annual Financial Statements") as filed with the SEC. In the opinion of the Company, the accompanying Unaudited Condensed Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary to fairly present its financial position as of March 31, 2023, its results of operations for the three months ended March 31, 2023 and 2022, its cash flows for the three months ended March 31, 2023 and 2022, and its stockholders' equity for the three months ended March 31, 2023 and 2022. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or any future period. The Unaudited Condensed Consolidated Balance Sheet at December 31, 2022 was derived from the Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
There have been no material changes or updates to the Company’s significant accounting policies from those described in the Annual Financial Statements except for the updates noted below.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which amends the guidance on reporting credit losses for assets held at amortized cost and available for sale debt securities. For assets held at amortized cost, the amendment eliminates the probable initial recognition threshold in current U.S. GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial assets to present the net amount expected to be collected. The Company adopted this guidance on January 1, 2023 using the modified retrospective method. The adoption of this guidance did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity. The standard reduces the number of models used to account for convertible instruments, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and requires the if-converted method for calculation of diluted earnings per share for all convertible instruments. The standard is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.
3. Inventory
Inventory consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Raw materials | $ | 2,217 | | $ | 2,018 |
Production(1) | 2,255 | | 2,213 |
Finished goods(1) | 97 | | 54 |
Inventory allowance | (721) | | (691) |
Total inventory, net | $ | 3,848 | | $ | 3,594 |
_____________________
(1) Approximately $1.8 million of inventory classified as finished goods at December 31, 2022 has been reclassified to the production category at March 31, 2023 to conform the historical presentation to the current period presentation, which reflects the nature and timing of the Company’s current harvesting and cost accumulation processes.
4. Property and Equipment
Property and equipment consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Machinery, equipment, and vehicles | $ | 33,271 | | $ | 32,774 |
Land | 19,296 | | 19,296 |
Buildings and leasehold improvements | 56,322 | | 55,392 |
Construction-in-progress | 96,171 | | 56,753 |
Less: Accumulated depreciation | (8,153) | | (6,371) |
Property and equipment, net | $ | 196,907 | | $ | 157,844 |
Depreciation expense related to property and equipment was $1.8 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.
5. Accrued Liabilities
Accrued liabilities consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Interest | $ | 4,984 | | | $ | 4,372 | |
Construction | 838 | | | 825 | |
| | | |
Payroll | 960 | | | 1,470 | |
Production | 1,105 | | | 1,438 | |
Professional services | 1,423 | | | 894 | |
Other | 751 | | | 427 | |
Total accrued liabilities | $ | 10,061 | | | $ | 9,426 | |
6. Debt
Debt consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Senior Facility | $ | 124,417 | | $ | 98,442 |
Subordinated Facility | 43,843 | | 42,500 |
Unamortized deferred financing costs | (45,843) | | (21,128) |
Total debt | $ | 122,417 | | $ | 119,814 |
Agreements with Cargill Financial
As previously disclosed in the Company's Annual Financial Statements, Local Bounti Operating Company LLC ("Local Bounti Operating"), the Company and certain subsidiaries entered into with Cargill Financial a First Amendment, a Second Amendment, and a Third Amendment to the Credit Agreement, dated as of September 3, 2021, and the Subordinated Credit Agreement, dated as of September 3, 2021 (the "Original Credit Agreements," and the facilities thereunder, the "Senior Facility" and the "Subordinated Facility," respectively and, collectively, the "Facilities") (which are further described in the Annual Financial Statements) in March 2022, August 2022, and December 2022, respectively. As further described below, Local Bounti Operating, the Company, and certain subsidiaries entered into with Cargill Financial a Fourth Amendment, a Fifth Amendment, and a Sixth Amendment to the Original Credit Agreements (collectively referred to as the "Amended Credit Agreements").
Fourth Amendment to the Original Credit Agreements
On January 6, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Fourth Amendment to the Original Credit Agreements (the "Fourth Amendment") with Cargill Financial. The Fourth Amendment reduced the minimum liquidity covenant in each of the Original Credit Agreements from $20.0 million to $11.0 million.
Fifth Amendment to the Original Credit Agreements
On March 13, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Fifth Amendment to the Original Credit Agreements (the "Fifth Amendment") with Cargill Financial. The Fifth Amendment (i) reduced the amount of cash required to be held in the debt service reserve account by approximately $11.0 million until April 2, 2024, at which time the amount of cash required to be held in the debt service reserve account will be an amount equal to the sum of interest and principal payments that would be required under the Amended Credit Agreements for two calendar quarters; (ii) allowed for the payment in kind of the quarterly interest payment due and payable for the quarter ended March 31, 2023; (iii) allowed for the payment in kind of the unused commitment fee payable for the quarter ended March 31, 2023; and (iv) reduced the minimum liquidity covenant in each of the Amended Credit Agreements from $11.0 million to $1.0 million. The aggregate amount of outstanding loans and undrawn commitments under the Amended Credit Agreements remains at $170.0 million (plus interest and fees paid in kind).
Sixth Amendment to the Original Credit Agreements
On March 28, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Sixth Amendment to the Original Credit Agreements (the "Sixth Amendment") with Cargill Financial. The Sixth Amendment, among other things, (i) expanded the Facilities from $170.0 million to up to $280.0 million (plus, in each case, interest and fees paid in kind), including capital to fund construction at the Company’s facilities in Georgia, Texas, and Washington, subject to certain conditions and at Cargill Financial's discretion; (ii) allowed for the payment in kind of the quarterly interest payment due and payable for the quarter ending June 30, 2023; and (iii) added a minimum production covenant based on a projected production forecast. In consideration for the improved flexibility and the expanded size of the Facilities, Local Bounti issued Cargill Financial 69.6 million warrants with a per share exercise price of $1.00 per share (the "March 2023 Cargill Warrant") and a 5-year term that expires on March 28, 2028.
The Company evaluated the before and after cash flow changes resulting from the Fourth, Fifth and Sixth Amendments and concluded the change in cash flows underlying these cumulative amendments were not significantly different from the cash flows underlying the terms in the Original Credit Agreements; therefore, the Company accounted for these amendments as a modification rather than as an extinguishment. Consequently, the $25.7 million fair value of the March 2023 Cargill Warrant was recorded as an additional debt discount that will amortized to interest expense over the remaining term of the Amended Credit Agreements. Fees paid to non-lender third parties as a result of the modification have been expensed as incurred. The Company determined the fair value of the March 2023 Cargill Warrant using a Black-Scholes-Merton option pricing model with the following input assumptions: (i) $1.00 exercise price, (ii) $0.45 stock price, (iii) 5-year expected term, (iv) 135% volatility, (v) 3.63% risk free rate, and (vi) 0% dividend yield. The Company also evaluated the March 2023 Cargill Warrant for derivative liability accounting treatment and concluded the instrument was a free-standing derivative instrument that did not meet the fixed-for-fixed equity indexation criteria necessary to be accounted for as equity. As such, the $25.7 million fair value of the March 2023 Cargill Warrant was recorded as additional debt discount and a derivative liability in the "Warrant Liability" line item of Company's Unaudited Condensed Consolidated Balance Sheets. The fair value of the warrant will be remeasured each quarter until the instrument is settled or expires with changes in fair value recorded in "Other income (expense)" in the Company's Unaudited Condensed Consolidated Statements of Operations.
Subsequent to the Sixth Amendment, the interest rate on the Subordinated Facility is 12.5% per annum and the interest rate on the Senior Facility is equal to SOFR plus a margin (which varies between 7.5% to 8.5% depending on the Senior Facility net leverage ratio) per annum, with accrued interest paid quarterly in arrears on the first business day of the subsequent quarter (and paid in cash beginning October 1, 2023) through the maturity date on September 3, 2028.
Principal payments under the Senior Facility are payable quarterly, beginning April 1, 2025, based on a 10-year straight line amortization schedule, with the remaining unpaid balance under both the Senior Facility and the Subordinated Facility due on the September 3, 2028 maturity date.
In accordance with the Original Credit Agreements, the Company is required to have a debt service reserve account which is shown as restricted cash and cash equivalents on the Company's Consolidated Balance Sheets. The Fifth Amendment and Sixth Amendment, taken together, reduced the minimum balance to maintain in the debt service reserve account to $0 through March 31, 2025. From and after April 1, 2025, the minimum balance to maintain in the debt service reserve account will be increased to two quarters of scheduled interest payments and two quarters of scheduled amortization payments.
The Amended Credit Agreements also contain certain financial covenants that become measurable and effective beginning in the third quarter of 2025, including debt coverage, net leverage, and interest coverage ratios. Additional covenants and other provisions exist that may limit or affect the timing of the Company's ability, among other things, to undergo a merger or consolidation, sell certain assets, create liens, guarantee certain obligations of third parties, make certain investments or acquisitions, and declare dividends or make distributions. The Facilities are secured with a first-priority lien against substantially all of the assets of the Company and its subsidiaries, including their intellectual property. The Company was in compliance with all applicable covenants as of March 31, 2023.
7. Fair Value Measurements
The following table sets forth, by level within the fair value hierarchy, the accounting of the Company’s financial assets and liabilities at fair value on a recurring and nonrecurring basis according to the valuation techniques the Company uses to determine their fair value:
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) |
Recurring fair value measurements | | | | | | |
Assets: | | | | | | |
Money market funds | | $ | 7,375 | | $ | — | | $ | — |
Total | | $ | 7,375 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) |
Recurring fair value measurements | | | | | | |
Assets: | | | | | | |
Money market funds | | $ | 13,997 | | $ | — | | $ | — |
Total | | $ | 13,997 | | $ | — | | $ | — |
The fair value of the Company's money market funds is determined using quoted market prices in active markets for identical assets.
As of March 31, 2023 and December 31, 2022, the carrying value of the Company's cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximated their respective fair values due to their short-term maturities. Therefore, no unrealized gains or losses were recorded during the periods presented. There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.
8. Stock-Based Compensation
Restricted Common Stock Awards
A summary of the restricted common stock awards ("RSAs") for three months ended March 31, 2023 is as follows:
| | | | | | | | | | | |
| Number of Shares of Restricted Common Stock Awards | |
Average Grant-Date Fair Value |
Unvested at December 31, 2022 | 3,754,496 | | $ | 1.85 |
Forfeited | (249,269) | | $ | 2.79 |
Vested | (610,191) | | $ | 2.63 |
Unvested at March 31, 2023 | 2,895,036 | | $ | 1.00 |
Total expense of RSAs was $0.2 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the total compensation cost related to unvested RSAs not yet recognized is $1.6 million. Unvested RSA expense not yet recognized is expected to be recognized over a weighted average period of 1.48 years.
Restricted Stock Units
A summary of the restricted stock units ("RSUs") activity for the three months ended March 31, 2023 is as follows:
| | | | | | | | | | | |
| Number of RSUs | | Average Grant-Date Fair Value |
Unvested at December 31, 2022 | 9,456,513 | | $ | 6.27 |
Granted | 3,495,788 | | $ | 1.33 |
Forfeited | (95,391) | | $ | 7.59 |
Vested | (2,873,058) | | $ | 5.93 |
Vested, unsettled | 2,084,266 | | $ | 5.98 |
Unvested and outstanding at March 31, 2023 | 12,068,118 | | $ | 1.00 |
Total expense of RSUs, net of amounts capitalized, was $5.8 million and $10.1 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the total compensation cost related to unvested RSUs not yet recognized is $23.3 million. Unvested RSU expense not yet recognized is expected to be recognized over a weighted average period of 2.16 years.
9. Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average number of common stock outstanding during the period. In computing net loss per share, the Company's unvested restricted common stock and warrants are not considered participating securities. Diluted loss per common share is the same as basic loss per common share for all periods presented because the effects of potentially dilutive items were anti-dilutive given the Company's net loss. Diluted net loss per common share adjusts basic net loss per share attributable to ordinary stockholders to give effect to all potential ordinary shares that were dilutive and outstanding during the period. For the three months ended March 31, 2023 and 2022, no instrument was determined to have a dilutive effect.
The following table sets forth the computation of the Company's net loss per share attributable to stockholders:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| (in thousands, except share and per share data) |
| 2023 | | 2022 |
Net loss | $ | (23,527) | | | $ | (25,772) | |
Weighted average common stock outstanding, basic and diluted | 100,462,262 | | | 81,009,268 | |
Net loss per common share, basic and diluted | $ | (0.23) | | | $ | (0.32) | |
The following table discloses the weighted-average shares outstanding of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share as the impact would be anti-dilutive:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Restricted Stock | 3,244,350 | | | 5,395,590 | |
Warrants | 14,632,512 | | | 11,539,306 | |
10. Commitments and Contingencies
Legal Matters
The Company has and may become party to various legal proceedings and other claims that arise in the ordinary course of business. The Company records a liability when it believes that it is probable that a loss will be incurred, and the amount of loss or range of loss can be reasonably estimated. Management is currently not aware of any matters that it expects will have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
11. Subsequent Events
Reverse Stock Split Stockholder Approval
On April 3, 2023, Local Bounti's board of directors authorized an amendment to the Certificate of Incorporation to, at the discretion of Local Bounti’s board of directors, effect a reverse stock split of the shares of Local Bounti's common stock, at any time prior to June 30, 2024, at a ratio within a range of 1-for-2 to 1-for-25, with the exact ratio and effective time of the reverse stock split to be determined at the discretion of the board of directors without further approval or authorization of our stockholders. The amendment was approved by stockholders at a Special Meeting of Stockholders (the "Special Meeting") held on April 26, 2023. If the Reverse Stock Split is effected, between every 2 to 25 outstanding shares of Common Stock would be combined and reclassified into one share of Common Stock. The Company will pay cash in lieu of fractional shares resulting from the Reverse Stock Split, if any.
Following approval of this proposal by our stockholders, the board of directors has the sole authority to elect whether or not and when to amend the Certificate of Incorporation to effect the Reverse Stock Split. As such, the actual timing for implementation of the Reverse Stock Split would be determined by the board of directors, in its sole discretion. The actual number of authorized shares of Common Stock after giving effect to the Reverse Stock Split, if and when effected, will depend on the Reverse Stock Split ratio that is ultimately determined by the board of directors.
Sale and Leaseback Transaction
On April 27, 2023, Hollandia Real Estate, LLC ("Hollandia"), a wholly-owned subsidiary of the Company, and STORE Master Funding XXXI, LLC ("STORE") consummated a $35 million multi-site sale and leaseback transaction relating to the Carpinteria Facility and the Oxnard Facility (collectively, the "Hollandia Facilities").
In connection with the sale and leaseback transaction, Hollandia and STORE entered into a Master Lease Agreement (the "Lease"), dated April 27, 2023 (the "Effective Date"). Pursuant to the Lease, Hollandia will lease the Hollandia Facilities from STORE, subject to the terms and conditions of the Lease.
The Lease provides for a 25-year term (the "Initial Term"), commencing on the Effective Date and expiring on April 30, 2048. Hollandia has four options to extend the Initial Term for separate renewal terms of five years each (each an "Extension Term" and, together with the Initial Term, the "Lease Term"). If Hollandia exercises all of the extension options, then the Lease will expire on April 30, 2068. Hollandia is required to give written notice to STORE not later than 120 days before the end of the then current Initial Term or Extension Term, as applicable, if Hollandia desires to exercise its option to extend the Lease Term.
Subject to adjustment as set forth in the Lease, the combined annual minimum rent payable to STORE during the first year of the Lease Term is an amount equal to $3.2 million (the "Base Annual Rent"), payable in equal monthly installments. On May 1, 2024 and each anniversary of such date thereafter during the Lease Term (the "Adjustment Date"), the Base Annual Rent will increase by three percent (3%) of the Base Annual Rent in effect immediately prior to the applicable Adjustment Date.
The Lease contains certain representations, warranties, covenants, obligations, conditions, indemnification provisions and termination provisions customary for sale and leaseback transactions.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements, including the Notes to those statements, included elsewhere in this Quarterly Report on Form 10-Q, and the section entitled "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. As discussed in more detail in the section entitled "Cautionary Note Regarding Forward-Looking Statements," this discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.
Our Mission and Vision
Our mission is to bring our farm to your kitchen. Our vision is to deliver the freshest, locally grown produce over the fewest food miles. We believe that happy plants make happy taste buds and we are committed to reimagining the standards of freshness. We also believe that local is the best kind of business, and we are committed to helping communities thrive for generations to come. We are committed to building empowered local teams. Together, we believe we are capable of extraordinary things.
Company Overview
Local Bounti is a controlled environment agriculture ("CEA") company that produces sustainably grown produce, focused today on living and loose leaf lettuce. Founded in 2018, and headquartered in Hamilton, Montana, Local Bounti utilizes its patent pending Stack & Flow Technology™ to grow healthy food sustainably and affordably. Our proprietary process is a hybrid, utilizing vertical farming in early plant growth, followed by greenhouse farming for final grow out. We designed our Stack & Flow Technology™ to give our products exactly what they need at every step of their growth cycle. Our goal is to grow in an environmentally sustainable manner that not only increases harvest efficiency and enhances unit economics, but also limits water usage and reduces the carbon footprint of the production and distribution process. Controlling the environmental conditions in both the 'Stack' and 'Flow' components of our growing system helps to ensure healthy, nutritious, consistent, and delicious products that are non-genetically modified organisms ("non-GMO"). We use 90% less water, 90% less land, and significantly less pesticides and herbicides than traditional outdoor agriculture operations.
Our first CEA facility in Hamilton, Montana (the "Montana Facility") commenced construction in 2019 and reached full commercial operation by the second half of 2020. In 2021, we successfully completed the expansion of our Montana Facility, more than doubling our production capacity. Immediately after expansion, this facility was dedicated equally to commercial production and research and development that focused on new products, technology and system design. Today, the majority of the Montana Facility is dedicated to commercial production, but we continue to utilize dedicated space for research and development to improve our existing and future facilities.
On April 4, 2022, Local Bounti acquired California-based complementary greenhouse farming company Hollandia Produce Group, Inc. and its subsidiaries (the "Pete's Acquisition"), which operate under the name Pete's ("Pete's"). Through the Pete's acquisition, we significantly increased our growing footprint, now operating three additional greenhouse growing facilities, including two in California and one in Georgia, the latter of which became operational in July 2022. We now have distribution to over 10,000 retail locations across 35 U.S. states and Canadian provinces, primarily through direct relationships with blue-chip retail customers, including Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, and AmazonFresh. Today, our primary products include living butter lettuce – for which we are a leading provider with an approximate 80% share of the CEA market within the Western U.S. – as well as packaged salad and cress.
Local Bounti's founders are Craig M. Hurlbert and Travis M. Joyner, business partners with a track record of building and managing capital-intensive, commodity-based businesses in energy, water, and industrial technology. After initially setting out to invest in a CEA business, Craig and Travis could not find a suitable existing business or technology in which to invest. Instead, they took a clean sheet approach and began to build a business with long-term CEA leadership in mind and a focus on unit economics and sustainability. With this background, we created our high-yield and low-cost Stack & Flow Technology™.
We derive the majority of our revenue from the sale of produce. We grow and package fresh greens that are sold into existing markets and channels such as food retailers and food service distributors from our Montana and two California facilities, and beginning in the third quarter of 2022, from our Georgia facility.
We offer sales incentives to our customers, including temporary price reductions. We anticipate that these promotional activities could impact sales and that changes in such activities could impact period-over-period results. Sales may also vary from period to period depending on the purchase orders we receive, the volume and mix of products sold and the channels through which our products are sold. In response to realized cost inflation, we have implemented contractually allowable price increases which we anticipate to benefit from in 2023 and beyond.
We intend to increase our production capacity and expand our reach to new markets, new geographies, and new customers through either the building of new facilities or through the acquisition of existing greenhouse facilities
which we will update with our Stack & Flow Technology™. We conduct an ongoing build-versus-buy analysis whenever we decide to build a new facility or acquire an existing facility. We also expect to expand our product offering to new varieties of fresh greens, herbs, berries, and other produce. Additionally, we evaluate commercial opportunities as part of these expansion efforts on an ongoing basis.
In October 2022, we signed a five-year offtake agreement with Sam's Club for our leafy greens production starting at our greenhouse facility in Georgia. We continue to advance our expansion of the Georgia facility, which will double the existing footprint and further enhance capacity with the addition of our Stack & Flow TechnologyTM to meet pent up demand for Local Bounti packaged salads to current customers and open the opportunity to earn new business in that region.
Commercial Facility Expansion Update
Byron, Georgia Facility Progress - "Stack" Integration on Track for Fourth Quarter Completion
Construction of the greenhouse Phase 1-B was completed early in the second quarter and seeding began in April 2023. As part of our Stack & Flow TechnologyTM implementation, we completed our first "Stack" zone in the fourth quarter of 2022, with the remaining Stack zones that comprise Phase 1-C to be completed early in the fourth quarter 2023. Our Stack & Flow TechnologyTM is expected to add approximately 40% of incremental revenue generating capacity to the finished Georgia facility, which will be comprised of six acres of greenhouses and multiple climate, water, and spectral controlled Stack zones.
Mount Pleasant, Texas Facility Progress
In early January 2023, we started construction of the six-acre facility and have since completed the pad and foundations. The addition of the new facility in northeast Texas is expected to fortify our distribution in markets across Texas, Oklahoma, Louisiana, Mississippi, Arkansas, Kansas, and Missouri. Further, the facility is designed to provide additional capacity to meet existing demand from our direct relationships with blue-chip retailers and distributors throughout the region. The facility is expected to commence operations in the fourth quarter of 2023.
Pasco, Washington Facility Progress
The Pasco, Washington facility continues to progress with the pad and foundation work now complete. The facility will be comprised of three acres of greenhouse that will be supported by multiple Stack zones. The facility will help bolster our distribution capabilities in the Pacific Northwest and is expected to commence operations early in the first quarter 2024, which reflects our decision to stagger construction to accommodate the commissioning of our Texas facility in the fourth quarter of 2023.
Recent Developments
On March 28, 2023, we entered into the Sixth Amendment to the Original Credit Agreements with Cargill Financial to expand the Facilities from $170 million to up to $280 million (plus, in each case, interest and fees paid in kind) per the terms and conditions of the agreement, including capital to fund construction of our facilities in Georgia, Texas, and Washington, subject to certain conditions. In consideration for the improved flexibility and the expanded size of the Facilities, we issued Cargill Financial 69.6 million warrants with a per share exercise price of $1.00 per share that expire on March 28, 2028.
On April 27, 2023, we consummated with STORE a $35 million multi-site sale and leaseback transaction relating to the Carpinteria Facility and the Oxnard Facility. The Lease provides for a 25-year term with separate renewal terms of five years each. If we exercise all of the extension options, the Lease will expire on April 30, 2068.
The combined financing resulting from the Sixth Amendment and the sale and leaseback transaction with STORE described above provides a total of up to $145 million to support our growth plans and immediate efforts to increase production to meet accelerating demand for our products.
Factors Affecting Our Financial Condition and Results of Operations
We expect to expend substantial resources as we:
•identify and invest in future growth opportunities, including new product lines;
•complete construction and commissioning of new facilities in Pasco, Washington, and Mount Pleasant, Texas;
•integrate Pete's operations into our business;
•invest in product innovation and development;
•invest in sales and marketing efforts to increase brand awareness, engage customers and drive sales of our products; and
•incur additional general administration expenses, including increased finance, legal and accounting expenses associated with being a public company, and growing operations.
Results of Operations
Three Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022
The following table sets forth our historical operating results for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | $ Change |
| (in thousands) | | |
Sales | $ | 6,698 | | | $ | 282 | | | 6,416 |
Cost of goods sold | 6,419 | | | 234 | | | 6,185 |
Gross profit | 279 | | | 48 | | | 231 |
Operating expenses: | | | | | |
Research and development | 3,576 | | | 1,948 | | | 1,628 |
Selling, general and administrative | 15,981 | | | 22,259 | | | (6,278) |
Total operating expenses | 19,557 | | | 24,207 | | | (4,650) |
Loss from operations | (19,278) | | | (24,159) | | | 4,881 |
Other income (expense): | | | | | — |
Interest expense, net | (4,299) | | | (1,643) | | | (2,656) |
Other income | 50 | | | 30 | | | 20 |
Net loss | $ | (23,527) | | | $ | (25,772) | | | 2,245 |
The following sections discuss and analyze the changes in the significant line items in our Unaudited Condensed Consolidated Statements of Operations for the comparative periods in the table above.
Sales
We derive the majority of our revenue from the sale of produce grown at our facilities. In response to realized cost inflation, we have implemented contractually allowable price increases which we anticipate to benefit from in 2023 and beyond.
Sales increased by $6.4 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase was due primarily to the acquisition of Pete's at the beginning of April 2022, which added more than 10,000 retail locations nationwide.
Cost of Goods Sold
Cost of goods sold consists primarily of costs related to growing produce at our greenhouse facilities, including labor costs, which include wages, salaries, benefits, and stock-based compensation, seeds, soil, nutrients and other input supplies, packaging materials, depreciation, utilities and other manufacturing overhead. We expect that, over time, cost of goods sold will decrease as a percentage of sales, as a result of scaling our business.
Cost of goods sold increased by $6.2 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due primarily to increased sales during the three months ended March 31, 2023 driven by the acquisition of Pete's.
Research and Development
Research and development expenses consist primarily of compensation to employees engaged in research and development activities, which include salaries, benefits, and stock-based compensation, overhead (including depreciation, utilities and other related allocated expenses), and supplies and services related to the development of our growing processes. Our research and development efforts are focused on the development of our processes utilizing our CEA facilities, increasing production yields, developing new leafy green SKUs and value-added products such as grab-and-go salads, and exploring new crops, including berries. We focus our research and development efforts on areas that we believe will generate future revenue and grow our intellectual property portfolio across process improvements, genetics, computer, vision, artificial intelligence, and process controls. We expect that, over the long term, research and development will decrease as a percentage of sales, as a result of the establishment of our growing process.
Research and development costs increased by $1.6 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase was due to increased investment in personnel, materials, supplies, and facility capacity as we continue to expand our product offering and refine our growing process. We incurred costs for research and development of our production, harvesting, and post-harvest packaging techniques and processes, as well as production surplus costs related to the development and testing of our production processes.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses consist of employee compensation, including salaries, benefits, and stock-based compensation for our executive, legal, finance, information technology, human resources and sales and marketing teams, expenses for third-party professional services, Pete's Acquisition related costs, insurance, marketing, advertising, computer hardware and software, and amortization of intangible assets, among others.
Selling, general, and administrative expenses decreased by $6.3 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to a $5.4 million decrease in stock-based compensation expense due to prior year awards that were issued at a higher fair value, as compared to the fair value of awards being expensed in the current period, were fully vested and expensed prior to the current quarter, and a $3.9 million decrease in transaction costs due to the acquisition of Pete's in the prior year. This decrease was partially offset by an increase of $1.7 million in amortization of intangibles acquired as part of the Pete's Acquisition, an increase of $1.4 million in salaries, wages, and benefits due to increased headcount from Company growth and the Pete's Acquisition, and an increase of $0.7 million in professional, legal, accounting, and consulting fees.
Interest Expense, net
Interest expense consists primarily of contractual interest and amortization of debt issuance costs, net of interest capitalized for construction assets, related to the loans with Cargill Financial and also interest recognized per the terms of our financing obligation related to the Montana facility.
Interest expense, net increased by $2.7 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase is primarily due to a $124.4 million increase in the principal amount outstanding on the Senior Facility and a $27.6 million increase in the principal amount outstanding on the Subordinated Facility as well as a variable rate increase on the Senior Facility as compared to the prior year period, which resulted in an increase to interest expense as compared to the prior year period of $2.7 million.
We capitalize interest costs on borrowings during the construction period of major construction projects as part of the cost of the constructed assets. We capitalized $2.1 million of interest during the three months ended March 31, 2023. No interest was capitalized during the three months ended March 31, 2022.
Liquidity and Capital Resources
We have incurred losses and generated negative cash flows from operations since our inception. At March 31, 2023, we had an accumulated deficit of $202.8 million and cash and cash equivalents of $7.5 million.
As of March 31, 2023, the principal amount due under our credit facilities with Cargill Financial totaled $168.3 million, none of which is classified as current. These debt agreements contain various financial and non-financial covenants and certain restrictions on our business, which include restrictions on additional indebtedness and material adverse effects, that could cause us to be at risk of default. A failure to comply with the covenants and other provisions of these debt instruments, including any failure to make payments when required, would generally result in events of default under such instruments, which could result in the acceleration of a substantial portion of such indebtedness.
The CEA business is capital-intensive. Currently, our primary sources of liquidity are cash on hand, cash flows generated from the sale of our products, and a credit facility with Cargill Financial. Cash expenditures over the next 12 months are expected to include interest payments on debt obligations, general operating costs for employee wages and related benefits, outside services for legal, accounting, IT infrastructure, and costs associated with growing, harvesting and selling our products, such as the purchase of seeds, soil, nutrients and other growing supplies, shipping and fulfillment costs, and facility maintenance costs.
We believe that our current cash position, cash flow from operations, the proceeds from the sale leaseback transaction (see Note 11, Subsequent Events, in Notes to the Unaudited Condensed Consolidated Financial Statements) and the borrowing capacity under our credit facility with Cargill Financial are sufficient to fund our basic cash requirements for 12 months from the date of issuance of the Unaudited Condensed Consolidated Financial Statements. Also, while we believe the Cargill Financial credit facility, as most recently amended, provides adequate resources and flexibility to fund our planned construction projects, our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part I, Item 1A of the Company's most recent Annual Report on Form 10-K. In the event that our plans change, or our cash requirements are greater than we anticipate, we may need to curtail operations.
Cargill Loans
In September 2021, the Company and Cargill Financial entered into the Senior Facility and the Subordinated Facility. Subsequent to the amendments described in Note 6, Debt, Cargill Financial may in its discretion provide advances under the Facilities of up to $280.0 million (plus interest and fees paid in kind), including capital to fund construction at the Company’s facilities in Georgia, Texas, and Washington, subject to certain conditions. As of March 31, 2023, a total of $124.4 million and $43.8 million was outstanding on the Senior Facility and the Subordinated Facility, respectively. The Senior Facility and the Subordinated Facility are included in "Long-term debt" on the Unaudited Condensed Consolidated Balance Sheet.
At March 31, 2023, our principal and estimated interest payment obligations for the Senior Facility and the Subordinated Facility are as follows(1):