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Local Bounti Corporation (LOCL): Scaling Up Production and Expanding Reach
Published on September 24, 2024 | Ticker: LOCL

Local Bounti Corporation (LOCL) is a controlled environment agriculture (CEA) company that is revolutionizing the way fresh produce is grown and distributed. With its innovative Stack & Flow Technology®, the company is able to produce sustainably grown lettuce and leafy greens while significantly reducing water usage, land requirements, and environmental impact compared to traditional agriculture.

Business Overview

Founded in 2018 and headquartered in Hamilton, Montana, Local Bounti has rapidly expanded its footprint across the United States. The company currently operates six high-tech facilities, including its original Montana facility, two facilities in California, and new purpose-built facilities in Georgia, Texas, and Washington. These facilities leverage Local Bounti's proprietary technology to grow a variety of leafy greens, herbs, and other produce.

Local Bounti's products are distributed to over 13,000 retail locations across 35 U.S. states, primarily through direct relationships with major retailers such as Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, and AmazonFresh. The company's primary products include living butter lettuce, packaged leafy greens, and cress. It is also expanding its product portfolio to include new offerings like Grab & Go Salad Kits and a variety of baby leaf greens, including spinach, arugula, and power greens.

Financials

In the fiscal year 2023, Local Bounti reported annual revenue of $27.6 million, a 25% increase from the prior year. However, the company continued to operate at a loss, with a net loss of $124.0 million and negative operating cash flow of $33.2 million. Free cash flow for the year was also negative at $195.4 million, as the company invested heavily in the construction and expansion of its production facilities.

For the first quarter of 2024, Local Bounti reported sales of $8.4 million, a 25% increase compared to the same period in the prior year. Gross profit for the quarter was $0.8 million, with an adjusted gross margin of approximately 24%. The company's net loss for the quarter was $24.1 million, while adjusted EBITDA loss was $6.9 million.

Operational Highlights

During the first quarter of 2024, Local Bounti continued to make significant progress in scaling its production capabilities and expanding its geographic reach. The company's facility in Georgia has been operating at heightened levels of production, with a 50% increase in output compared to the previous quarter. The company has also initiated a scaled trial for a differentiated use of its Stack towers, which has the potential to further increase yields by at least 10%.

The new facilities in Texas and Washington have commenced operations and are now shipping their first products to customers. These state-of-the-art facilities, which are optimized for Local Bounti's Stack & Flow Technology®, are expected to bolster the company's distribution capabilities in the Midwest, Texas, and the Pacific Northwest regions.

Looking ahead, Local Bounti is planning additional capacity expansions across its existing network of facilities, as well as the construction of a new high-tech facility in the Midwest. The company is also in the process of transitioning its Montana facility from a research and development focus to a commercially oriented operation, which is expected to be accretive to its overall adjusted gross margin and help drive the company towards its goal of achieving positive adjusted EBITDA in early 2025.

Product Innovation and Distribution

In addition to its operational achievements, Local Bounti has also made significant progress in expanding its product offerings and distribution. The company is set to introduce several new high-velocity baby leaf products, including arugula, baby spinach, and power greens, in the third quarter of 2024. It has also expanded the distribution of its popular Grab & Go Salad Kits to approximately 700 additional doors in the Pacific Northwest and Southern United States.

Liquidity

As of March 31, 2024, Local Bounti had cash, cash equivalents, and restricted cash of $14.7 million. The company has secured financing through a credit facility with Cargill Financial, which provides for up to $343.5 million in capital to fund construction and operations. Additionally, Local Bounti expects to close on four previously disclosed Conditional Commitment Letters from a commercial finance lender in the second quarter of 2024, which will provide approximately $228 million in financing to fund its 2024 facility expansions, the new Midwest facility, and to refinance certain existing construction debt.

Outlook

For the full year 2024, Local Bounti is providing sales guidance of $50 million to $60 million. The company expects sequential revenue growth from the first quarter to the second quarter, driven by the Georgia facility operating at full production and the ramp-up of the Texas and Washington facilities. A significant step-up in revenue growth is anticipated for the second half of the year as the new facilities continue to scale.

The company believes that the combination of increased revenue, lower SG&A expenses, and decreased R&D costs from the transition of the Montana facility to a more commercially oriented operation will enable it to achieve positive adjusted EBITDA in early 2025, a key milestone in its growth strategy.

Risks and Challenges

While Local Bounti has made significant strides in expanding its production capabilities and distribution network, the company faces several risks and challenges. These include the ability to successfully scale its operations, manage its capital-intensive business, and navigate the competitive landscape of the fresh produce industry. Additionally, the company's reliance on third-party contractors for construction and supply chain disruptions could impact its ability to complete facility expansions on time and within budget.

Conclusion

Local Bounti is at a pivotal point in its growth trajectory, as it continues to scale its production, expand its product offerings, and broaden its geographic reach. The company's innovative technology, strategic partnerships, and focus on sustainability position it well to capitalize on the growing demand for locally sourced, fresh produce. With its robust pipeline of facility expansions and new product introductions, Local Bounti is poised to deliver significant revenue growth and achieve its goal of positive adjusted EBITDA in the near future.

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