Local Bounti - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue grew 38% year over year to $11.6M and came in roughly in line to slightly ahead of expectations; management reaffirmed a Q3 2025 positive adjusted EBITDA inflection, supported by distribution wins (e.g., Walmart DCs), 20% yield gains in Georgia, and Texas reconfiguration nearing completion.
• Non-GAAP profitability metrics improved sequentially: adjusted gross margin reached ~29% (vs. ~25% in Q4 2024), and adjusted EBITDA loss improved to $(8.8)M from $(9.3)M, reflecting mix optimization and cost actions; however, GAAP net loss widened on higher interest expense due to lower capitalized interest following project completions.
• Balance sheet optics reflect the March debt restructuring: GAAP shows a $168M “debt premium” amortized against interest over 10 years, which will lower reported interest expense going forward; cash and restricted cash ended Q1 at $28.4M after a $25M equity raise.
• Near-term guide: Q2 2025 revenue of $12.0–$12.5M; management highlighted H2 acceleration as Texas returns to full capacity, Georgia yield gains roll to Washington/Texas, and new SKUs scale. Key stock catalysts: execution toward Q3 positive adjusted EBITDA, Walmart expansion/velocity, yield-driven margin progression, and clarity on Midwest expansion financing.

What Went Well and What Went Wrong

What Went Well

• 38% YoY revenue growth to $11.6M on production ramps in Georgia and new Texas/Washington output; adjusted gross margin improved to ~29% (vs. 24% LY) and ~400 bps sequentially on mix/efficiency gains.
• Commercial momentum: expanded Walmart relationship to 13 DCs for Conventional Living Butter Lettuce; Brookshire’s Texas-grown arugula expansion (~80 stores); H‑E‑B distribution for Organic Living Butter Lettuce; launched/iterated salad kits and basil program.
• Execution/operations: Georgia yields up ~20% vs. Q4 due to stack-phase light optimization; the SOAR program to be replicated in Texas/Washington in H2 to drive further yield and margin improvement (“we’re literally seeing 20% increase in packed pounds every single week”).

“I'm particularly excited to share that our yields in our Georgia facility have increased by 20% in the first quarter compared to our fourth quarter rate...Our next step is to implement this program in our Texas and Washington facilities” — Kathleen Valiasek, CEO/CFO.

What Went Wrong

• EPS missed Street despite revenue in line to slightly ahead; GAAP net loss widened to $(37.7)M vs. $(24.1)M LY, largely from higher interest expense as capitalization declined after Texas/Washington builds completed.
• Texas reconfiguration temporarily constrained utilization in H2’24 and Q1’25; full efficiency depends on automated harvester installation in early Q3 2025.
• G&A rose to $8.1M (+$2.3M YoY) mainly from stock-based comp dynamics; management cited temporary items (weather-related utilities, donation mix, lower labor capitalization, severance) that impacted Q1 EBITDA by ~$0.9M but are not expected to recur in Q2.

Transcript

Operator (participant)

Good morning and welcome to Local Bounti's first quarter 2025 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the call over to Jeff Sonnek, Investor Relations at ICR. Please go ahead.

Jeff Sonnek (Head of Investor Relations)

Thank you and good morning. Today's presentation will be hosted by Local Bounti's Executive Chairman Craig Hurlbert and President, Chief Executive Officer, and Chief Financial Officer Kathleen Valiasek. The comments made during today's call contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today.

Please refer to the press release, which can be found on our Investor Relations website, investors.localbounti.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that, I'd now like to turn the call over to Craig. Craig, please go ahead.

Craig Hurlbert (Executive Chairman)

Thank you, Jeff, and good morning, everyone. I want to start by taking a moment to express my sincere gratitude to our Local Bounti team. The dedication and commitment I've witnessed across the company has been truly remarkable as we navigate this important phase of our company's journey. We have assembled an exceptional group of people who continue to drive our mission forward with passion and focus. I'm pleased to see the continued validation from our customers, whose increasing desire for CEA products reinforces the market opportunity ahead of us. The foundation we've built over these past years has positioned Local Bounti to achieve positive adjusted EBITDA in the near term. I'm confident that under Kathy's leadership, we'll continue to execute on our strategic vision to create meaningful value for all stakeholders. With that, I'll now turn it over to Kathy.

Kathleen Valiasek (President, CEO and CFO)

Thank you, Craig, and good morning, everyone. First, I completely echo Craig's sentiment and want to acknowledge the incredible dedication and focus of our entire organization. As Craig alluded, our team has fully embraced our mission to reach positive adjusted EBITDA in the third quarter of this year. From operations to sales to finance, everyone is aligned around this critical goal, and I couldn't be prouder of the collective effort. To that end, our first quarter progress, including all of our commercial and operational initiatives, is converging toward a significant revenue lift in the second half of 2025, and our achievement of this positive adjusted EBITDA milestone we are positioned to reach in Q3.

Importantly, the disciplined approach we've taken, from product diversification to operational efficiencies to cost management, is creating a strong foundation that will support our long-term growth and profitability as we scale our business to meet growing retail demand for our products. Starting with our operational progress, the product mix recalibration work at our Texas facility continues to advance as planned. We are in the final stages of completing this work and expect to begin full commercial production in this section starting this month. As we discussed previously, the purpose-built automated harvesting equipment will be installed early in the third quarter, replacing the temporary harvester we will use this quarter. The new harvester is expected to drive significant operational efficiencies and margin improvement. I'm particularly excited to share that our yields in our Georgia facility have increased by 20% in the first quarter compared to our fourth quarter rates.

This improvement is largely attributable to the refinement of our growing system with the stack phase, which has outperformed our internal expectations. Our next step is to implement this program in our Texas and Washington facilities, where we expect to achieve similar yield increases. These yield improvements over our existing performance create an excellent opportunity for our sales team to engage prospective retail partners who are looking for CEA suppliers that can deliver consistent performance, something that truly differentiates us at a time when retailers are increasingly taking interest in CEA products. Regarding our plans to enter the Midwest with a new facility, I'm pleased to report significant advancement in our strategy there. We are actively engaged in promising discussions with multinational and national retailers to include the Midwest region in their sourcing plans. While we're very far along in this process, it's still too early to announce anything definitive.

These developing relationships represent important validation of our expansion strategy and our ability to serve retail partners across multiple regions. Turning now to our commercial progress, building on the incredible momentum from last year, in Q1 2025, we expanded our Texas-grown arugula offering with Brookshire's in approximately 80 stores and began distributing organic living butter lettuce from California to H-E-B. We also started shipping living basil to an existing large retail customer across 60 stores and secured distribution with several other wholesalers for our basil products. Notably, our relationship with Walmart continues to strengthen. In addition to the 191 stores we are already serving with premium baby leaf varieties as of Q4, we've secured an additional commitment to serve 13 Walmart distribution centers with our conventional living butter lettuce, with those shipments having commenced just a couple of weeks ago from both our California and Texas facilities.

We've also evolved our grab-and-go salad kit offerings to better serve retail partners and consumer trends. This includes the launch of new salad kits in Q1 2025, with additional flavors expected to be introduced in Q3, as well as the creation of a new product line that meets the needs of today's value-oriented consumer. We're particularly excited about our upcoming exclusive launch of a new, larger, approximately 12-ounce family-sized Caesar salad kit with a large multinational retailer in the Pacific Northwest beginning in the third quarter. We also continue to expand our relationship with a leading meal subscription business that is now seeking additional SKUs from us. These commercial wins demonstrate the strong pull we're seeing from our customers and their increasing desire to purchase more CEA products, validating our mission and reinforcing the long-term market opportunity ahead of us.

Turning briefly to our first quarter results, our first quarter sales were $11.6 million, in line with our expectations and representing a 38% increase compared to the first quarter of 2024 and a 15% sequential increase compared to the fourth quarter of 2024. This growth was driven by increased production and sales from our Georgia, Washington, and Texas facilities, partially offset by the ongoing product mix recalibration work at our Texas facility, which has temporarily decreased capacity. Our adjusted gross margin for the first quarter improved approximately 500 basis points versus the prior year and approximately 400 basis points versus the fourth quarter 2024. This improvement is particularly encouraging as it demonstrates that our product mix recalibration work and operational efficiency initiatives are yielding tangible results.

We continue to expect that over time, our adjusted gross margin will increase as a percentage of sales as a result of the continued scaling of the business and ongoing efforts to optimize costs. Net loss for the quarter was $37.7 million compared to a net loss of $24.1 million in the prior year period, which largely reflects higher interest expense. Our adjusted EBITDA loss for the quarter was $8.8 million compared to $6.9 million in the prior year period, and importantly, representing an improvement of $500,000 from our fourth quarter 2024 loss of $9.3 million. We remain on track to achieve our third quarter target to reach positive adjusted EBITDA, driven by the full realization of our ongoing cost reductions alongside our anticipated revenue lift that we expect to be more fully visible in the third quarter of 2025.

To emphasize the cost reduction points, we took out approximately $3 million of annualized G&A expenses in the first quarter, and during the second quarter to date period, we've actioned another $4 million of annualized expenses across both G&A and cost of goods sold. These initiatives are a direct result of our operational focus, which is resulting in significantly improved consistency across all facets of our growing operations and allowing us to drive those efficiencies through our income statement. Turning to our balance sheet, we ended the quarter with a significantly strengthened financial position with cash and cash equivalents and restricted cash of $28.4 million. That said, I do want to provide some clarity on how our debt restructuring appears on our financial statements.

While we eliminated approximately $197 million of debt through our market restructuring, accounting rules require us to maintain the original carrying value of the pre-restructuring debt amount on our balance sheet, with the reduction being recorded as a debt premium that is amortized over the new loan term. You'll see this as a new line item on our first quarter balance sheet. This means that our reported debt balance won't immediately show the reduction, but the economic benefit remains unchanged and will be reflected through lower interest expense over time. This accounting treatment is standard for transactions of this nature and does not impact the fundamental improvement of our capital structure. Now for some comments on our outlook.

For the second quarter, we expect revenue in the range of $12 million-$12.5 million, which reflects the partial impact from our Texas facility transition, which is expected to be complete in the third quarter. Looking at the cadence for the balance of the year, we expect to see a material lift in the second half of 2025 resulting from the convergence of activity, including the aforementioned full quarter contribution from our Texas facility transition and the additional capacity from our Georgia yield improvement. Additionally, new product introductions and expansions with existing customers are anticipated to also support our expectation for sequential growth in the second half of the year. I'd also like to briefly comment on our EBITDA progression from Q4 to Q1 and highlight how we expect to improve on this in Q2. In Q1, we experienced temporary cost increases that we expect will be eliminated in Q2.

These included higher utilities associated with weather anomalies and higher G&A expenses, which were impacted by the combination of a higher mix of product donations associated with the better-than-anticipated yield improvements in Georgia, lower capitalization of labor now that the construction projects have been completed, and lastly, higher severance associated with our cost optimization work. These collectively impacted our EBITDA by approximately $900,000 in the first quarter and are not expected to reoccur in second quarter. These dynamics, combined with our second quarter-to-date cost actions, are providing us some tailwind toward our goal of achieving positive adjusted EBITDA in the third quarter of 2025. In conclusion, we're energized by the progress we're making across all areas of our business. Our entire organization is aligned behind our mission to reach positive adjusted EBITDA in the third quarter, and I couldn't be prouder of the collective effort of our team.

With that, please open the call for Q&A.

Operator (participant)

Thank you. If you'd like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Our first question comes from the line of Kristen Owen with Oppenheimer & Company. Please proceed.

Kristen Owen (MD)

Hi, good morning, and thank you for taking the question. Congratulations on the nice progress made in the first quarter here. Kathleen, 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, some 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.

Kathleen Valiasek (President, CEO and CFO)

Yeah, great series of questions, Kristen, and good morning to you. Thank you. Yeah, 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 actually exceeded our expectations in terms of yield increases, which is fantastic, right?

As I said in my comments, we will also be implementing that program in Texas and Washington in Q3. We expect to see that similar level of bump in yields in both of those facilities. If you think about it, out of Georgia, when the yield increases that much, your production increases, right? It takes a little bit of time for our sales team to place the product, which is normal. In terms of the ramp in the back half, it's several things going on with all of our customers, right? We talked about all of the Walmart projects, the grab-and-go salads, the increased revenue that we will anticipate out of Montana. Several things are impacting the uptick, including also, as we discussed, the yields. Hopefully that's helpful.

Kristen Owen (MD)

That's great.

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 non-cash, and how that will change with this restructuring, just a little bit of nuance on the model that would be helpful. Thank you.

Kathleen Valiasek (President, CEO and CFO)

Yeah, yeah, for 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?

The accrual every quarter is the debt balance times the interest rate, which, again, as we disclosed, it's 50% of what it used to be. The amortization of the premium will reduce the interest expense on the face of the P&L. In effect, every quarter, the interest expense as it appears on the P&L will be less than $5 million. Also keep in mind, yeah, yeah, let me just add one more comment there. Keep in mind that the restructure with Cargill allows for two full years of no cash interest or amortization payments. Obviously, right, there's still the accrual. Perfect.

Kristen Owen (MD)

Thank you. I'll pass it on.

Kathleen Valiasek (President, CEO and CFO)

Okay. Thanks, Kristen.

Operator (participant)

Thank you. Our next question comes from the line of Ben Klieve with Lake Street Capital Markets. Please proceed with your question.

Ben Klieve (Senior Research Analyst)

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, Kathleen, your prepared remarks, you said that this was a project explicitly around the stack phase of the Georgia facility. 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 sq ft perspective? Are the same number of plants coming off 20% faster? Are you kind of changing the variety to maybe faster growing options? What exactly is the driving force behind that?

Kathleen Valiasek (President, CEO and CFO)

Yeah, sure. Great question. Good morning, Ben. Yeah, so it's really within the stack phase. It's very simply light optimization, okay? It's something we nicknamed SOAR. Our R&D scientists, who are amazing, developed the program actually early last year.

What it does is it increases the output out of the stack phase. Basically, even all the way through then the process, through the greenhouse, we're literally seeing 20% increase in packed pounds every single week. It's actually pretty amazing. It's basically within the stack. It's light optimization. What it does is it increases the output of number of plants—sorry, poundage of plants coming out of the stack phase.

Ben Klieve (Senior Research Analyst)

Got it. SOAR is light optimization on the same number of plants that makes those plants grow 20% faster.

Kathleen Valiasek (President, CEO and CFO)

Correct.

Ben Klieve (Senior Research Analyst)

Got it. Okay. Very impressive.

Kathleen Valiasek (President, CEO and CFO)

It's incredible.

Ben Klieve (Senior Research Analyst)

Yeah, it sounds like it. 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.

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 via external parties or leaning back into the existing credit facilities that you have? A mix of those two or something else?

Kathleen Valiasek (President, CEO and CFO)

As any company, right, you're always trying to bring new capital providers into the capital stack. 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.

Ben Klieve (Senior Research Analyst)

Okay. Very good. That's helpful. I appreciate you taking my questions. Best of luck here in what should be a pretty interesting next few months for you guys. I'll get back in queue. Thanks.

Operator (participant)

Thank you. Ladies and gentlemen, I'm showing no other questions at this time. I'll turn the floor back to Ms. Valiasek for any final comments.

Kathleen Valiasek (President, CEO and CFO)

I just would like to thank everybody for joining us today, and we look forward to updating you on our progress as we further scale and grow Local Bounti's business in the coming quarters. Thank you very much.

Operator (participant)

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.