Local Bounti Corporation/DE Q1 FY2025 earnings call

• Craig Hurlbert expressed gratitude to the Local Bounti team and noted customer validation for CEA products, stating the company is positioned for positive adjusted EBITDA near term.
• Kathleen Valiasek echoed Craig's sentiment, mentioned the team's alignment to reach positive adjusted EBITDA in Q3 2025. Operational progress: Texas facility product mix recalibration near completion, new harvester to be installed in Q3 for efficiency; Georgia facility yields up 20% in Q1 due to refined growing system, with plans to implement in Texas and Washington. Commercial progress: Expanded Arugula with Brookshire's, distributed Organic Living Butter Lettuce to HEB, shipped Living Basal to retail customer, strengthened Walmart relationship with additional distribution, evolved Grab-and-Go Salad Kits with new launches and family size kit exclusive launch planned.

First quarter sales were $11.6 million, a 38% increase compared to Q1 2024 and a 15% sequential increase from Q4 2024. Adjusted gross margin improved approximately 500 basis points versus prior year and 400 basis points versus Q4 2024. Adjusted EBITDA loss for the quarter was $8.8 million compared to $6.9 million in the prior year period.

• Second quarter revenue expected in range of $12 million to $12.5 million.
• Anticipate material lift in second half of 2025 from Texas facility transition completion, Georgia yield improvement, new product introductions, and expansions with existing customers.
• First quarter had temporary cost increases (utilities, G&A) expected to be eliminated in Q2, providing tailwind to achieving positive adjusted EBITDA in Q3 2025.

Q: Hi, good morning and thank you for taking my question. Congratulations on the nice progress made in the first quarter here. Kathy, you touched on this in some of your final prepared comments here, but I want to double click on sort of what's driving that material lift coming into the back half of the year, you noted Texas transition, the Georgia yield improvement and new products. I want to double click on that Georgia yield improvement. I think you said 20% over fourth quarter. Just help us understand what's changing in the production process? How you're achieving that yield? And then on the commercial side, sort of the velocity of sales and your ability to sort of sell out that incremental yield as you're thinking about that in the back half of the year.

A: Yes, great series of questions, Kristen, and good morning to you. Thank you. So yes, the 20% yield increase in Georgia is an R&D program that was developed last year. We were able to finally put it in place in Georgia and it was -- it actually exceeded our expectations in terms of yield increases, which is fantastic, right? So, as we said in my -- as I said in my comments, we will also be implementing that program in Texas and Washington in Q3. So, we expect to see that similar level of bump in yields in both of those facilities. If you think about it, so out of Georgia, when the yield increases that much, your production increases, right? And so it takes a little bit of time for our sales team to place the product, right, which is normal. So -- and then in terms of the ramp in the back half, right, it's several things going on with all of our customers, right? We talked about all of the Walmart projects, the Grab-and-Go Salad, the increased revenue that we will anticipate out of Montana. Several things are impacting the uptick, including also as we discussed the yields. So, hopefully, that's helpful.

Q: The follow-up question that I have is a little bit more modeling-oriented. Just given some of the nuance around the restructuring that you announced last quarter. You mentioned the balance sheet implications. I'm trying to think about the income statement implications, in particular, how to think about the interest expense that you're reporting? What of that is cash versus noncash? And how that will change with this restructuring? Just a little bit of nuance on the model there would be helpful.

A: Yes, sure. So, GAAP accounting, right? You would have anticipated that we would be able to recognize the full gain of the debt write-off of 197 million, but we're actually having to take it over 10 years, which actually in effect is fantastic, because every quarter it will reduce our interest expense on the face of our P&L, right? So, the accrual every quarter is the debt balance on the interest rate, which again, we -- as we disclosed, it's 50% of what it used to be and then the amortization of the premium will reduce the interest expense on the face of the P&L. So in effect, every quarter, the interest expense as it appears on the P&L will be less than 5 million. And also keep in mind -- yes, let me just add one more comment there. Keep in mind that the restructure with cargo allows for 2 full years of no cash interest or amortization payments. So -- but obviously, right, there's still the accrual.

Q: Hi, thanks for taking my questions. I want to circle back to this 20% yield enhancement. I'd like to kind of better understand. I think, Kathy, in your prepared remarks, you said that this was a project explicitly around the stack phase of the Georgia facility. And so I'm wondering, is this a situation where you have 20% more plants coming out of the stack phase just from a pure kind of per square foot perspective. Are they coming -- are the same number of plants coming off 20% faster? Are you kind of changing the varieties to maybe faster growing options? What exactly is the driving force behind that?

A: Yes, sure. Great question, and good morning Ben. Yes, so it's really within the stack phase, it's very simply light optimization, okay? And it's something we nicknamed it, [Thor] [ph], our R&D scientists who are amazing developed the program actually early last year. What it does -- it increases the output out of the stack phase. And basically, even all the way through then the process through the greenhouse, we're literally seeing 20% increase in pack pounds every single week. It's actually pretty amazing. But it's basically within the stack, it's light optimization and what it does is it increases the output of number of plants -- poundage of plants out of the -- coming out of the stack phase.

Q: Got it. So, [Thor] [ph] is light optimization on the same number of plants that makes those plants grow 20% faster?

A: Correct.

Q: My other question then before I'll get back in queue is you talked -- it seems like it was a bit more kind of conviction regarding the future of the Midwest facility. And I'm wondering if you can talk about how you're thinking about financing that facility. Are you looking at kind of project-specific financing the external parties leaning back into the existing credit facility that you have, a mix of those 2 or something else?

A: So, -- as any company, right, you're always trying to bring new capital providers in the capital stack. So, we are talking to sort of very project-specific financing; but, I think we'll probably be bringing new obviously non-dilutive partners into the capital stack.