Local Bounti sees significant momentum with 19% Q3 revenue growth and improved EBITDA, positioning for sustainable growth and profitability in 2026.

OPERATOR - (00:01:37)

Good morning and welcome to Local Bounty's third quarter 2025 earnings conference call. All participants will be in a listen only mode at this time. I'd like to turn the conference call over to Jeff Sonic, Investor Relations at ICR. Please go ahead.

Jeff Sonic - Investor Relations - (00:01:54)

Thank you and good morning. Today's presentation will be hosted by Local Bounti Executive Chairman Craig Hurlburt and President, Chief Executive Officer and Chief Financial Officer Kathleen Valasek. 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.localbounty.com for reconciliations of non GAAP financial measures to their most directly comparable GAAP measures. And with that I'd now like to turn the call over to Craig.

UNKNOWN - (00:03:09)

Go ahead.

Craig Hurlburt - Executive Chairman - (00:03:11)

Thank you Jeff and good morning everyone. I want to start by expressing my gratitude to the entire Local Bounti team for their exceptional execution this quarter. What makes Q3 particularly noteworthy isn't just our operational achievements. It's the fundamental shift we're seeing in how the market views controlled environment agriculture. We believe we have reached an inflection point and Local Bounti is positioned at the center of it. Three years ago, conversations with major retailers were exploratory and measured. Today they're active strategic discussions about long term supply partnerships. Retailers who once questioned Controlled Environment Agriculture (CEA) viability are now designing supply chains that assume its permanent infrastructure. They're actively looking for the right partners who can deliver consistent quality and innovation at scale. This shift from if to how much and how fast represents the market validation we've been charging towards. And it's why we're being deliberate about the partnership structures that create long term value, not just near term revenue. And with that I will now turn the call over to Kathy.

Kathleen Valasek - President, Chief Executive Officer and Chief Financial Officer - (00:04:38)

Thank you Craig and good morning everyone. Third quarter results demonstrate our operational momentum. Is building as planned. We delivered 19% year over year revenue. Growth, improved our adjusted EBITDA loss year over year and completed critical facility upgrades. Our Texas automated harvesting system is now. Operational and the Georgia tower upgrades are driving further yield improvements. What makes this quarter particularly significant is. How our execution is converging with the. Market shift Craig just described. Let me start with Texas because completing. This transition successfully was our critical Q3 milestone. We finished the facility reconfiguration in late July and reached full harvestable capacity in early August, essentially doubling the productive output of that facility. The automated harvester is now fully operational and the efficiency gains are quantifiable and significant. From July to October, we've increased labor productivity by approximately 19%, measuring pounds per labor hour per labor hour while simultaneously reducing our direct labor cost per pound by approximately 17%. These improvements demonstrate the scalability of the. company's stack and flow technology as volume increases. This operating leverage will be especially impactful. As the Texas facility is now sold. Out on a run rate basis, which. Will help us accelerate toward our broader. Goal of enhancing our consolidated cash flow on yield improvements and cost optimization, we're seeing tangible results across the network. We completed tower upgrades in Texas and Washington in early September. These upgrades are designed to achieve better climate control through the stack phase to enhance production efficiency and increase yield capacity across our stack and flow technology platform. We expect to complete optimization in the. Fourth quarter of 2025 and anticipate yield. Increases of more than 10% to follow. These are not incremental tweaks, they're structural improvements to our production efficiency that will continue ramp as the system is optimized. In connection with these ongoing yield improvement. Efforts, our previously filed patent application in. 2022 titled Optimizing Growing Process in a Hybrid Growing Environment using Computer Vision and. AI continues to advance and we are now anticipating that this patent will be issued in the coming months, perhaps as early as next month. We've been utilizing computer vision at all. Of our facilities to analyze plant growth growth data in conjunction with environmental data to identify patterns that drive improved consistency and yield with great results, and I want to commend the team on their relentless pursuit of efficiencies, which is remarkable. We're also advancing our seed cost reduction program at our Texas and Washington facilities, with the implementation continuing in the third. Quarter of 2025 and further implementation expected in the fourth quarter and throughout 2026. Building on previous successful implementations at our. Georgia facility that have demonstrated meaningful cost reductions, this program is designed to optimize seed costs while maintaining the high quality. Standards that local Bounty customers expect. We've made tremendous progress optimizing our operations, which is validated by nearly 8 million. In annualized cost reductions that we've actioned through the first nine months of the year, spanning both cogs and operating expenses. Looking ahead, we have targeted additional cost reduction initiatives in the range of 1.5 to 2 million annualized to be actioned in the fourth quarter of 2025 and. Realized in the first half of 2026. With additional measures to follow in 2026. We believe these actions represent sustainable improvements. To our cost structure that will compound as and are critical pieces to our path to positive adjusted ebitda. Now let me talk about what's happening commercially because this is where Craig's inflection. Point comment becomes really tangible. I want to commend Dane Almasi's leadership. As our new Chief Commercial Officer as well as that of our entire commercial team. They're executing at an incredibly high level amid our operational improvements, driving both new. Door expansion and deeper penetration with existing partners. In fact, several key accounts have doubled. Month over month as a result of. Our added capacity and new product introductions. One area where the team is focusing. Is right sizing our price pack architecture. To better align with marketplace needs. We're working on packaging formats that increase. Product visibility, putting what we grow front and center for consumers. This demonstrates our confidence in our quality and addresses what shoppers consistently tell us they want the ability to see the. Fresh premium leafy greens they're buying at. The point of purchase. As these initiatives progress through the development and retail reset cycles, we believe they'll. Be meaningful differentiators in how we compete on the distribution front. We're excited about our Walmart expansion in. The Pacific Northwest, launching our new 10 ounce Romano Caesar Kit these are family size salad. Kit across 89 stores on October 13th. This is more than a new skew. It's a proof point for our regional facility strategy and our ability to deliver product innovation that meets consumer demand. The Pacific Northwest has historically struggled with consistent access to fresh, locally grown greens. Our Washington facility solves that, delivering harvest to shelf in days versus the weeks plus conventional supply chains require. The packaged salad market is expected to. Grow at 8.6% annually through 2029 and. The family size format addresses robust consumer. Demand in this underserved segment. Following this Pacific Northwest launch, we're planning. To roll out the same product to. Customers across the southern states from our Texas facility in early 2026, extending our geographic reach in this fast growing category. The Walmart expansion is part of our broader commercial story. The launch of the Romaner Caesar Kit is just the next step in our. Growth and increases our footprint in 89. Of the 191 stores carrying premium Baby Leaf products. We also continue to service the 13 Walmart distribution centers out of our California and Texas facilities with conventional Living Butter lettuce. During the third quarter, we also expanded distribution of our salad kit line across. Additional regional retailers in the Pacific Northwest. Demonstrating ongoing demand for convenient and fresh. Meal options in the home delivery channel. We successfully launched four new grab and. Go offerings with a leading partner, increasing the depth of our assortment and further positioning ourselves for growth in the direct to consumer segment. Additionally, we entered into an agreement to. Pack private label Living Butter lettuce for Marcon Cooperative, which serves as the purchasing, logistics, information and marketing partner for its five member distributors and their North American food service customers. This partnership highlights the trust and credibility. Local Bounty has established with its partners. As Craig briefly touched upon at the beginning of the call, what's different now versus six months ago is the nature of our conversations with retailers. We're seeing strategic partners actively helping us. To expand our footprint with major customers. We're getting earlier visibility into their deployment timelines and reset schedules. The velocity of engagement reflects market recognition. That CEA has crossed the threshold from. Emerging technology to essential and permanent infrastructure. Let me just repeat that CEA has. Crossed the threshold from emerging technology to. Essential and permanent infrastructure. Beyond volume growth, we're focused on product mix optimization. The new product launches we're executing family sized salad kits, expanded Living Butter lettuce offerings. Private label partnerships carry more attractive margin profiles than our base business. As these ramp through late Q4 and. Into 2026, they become important levers for improving our overall unit economics and will. Help us drive toward our goal of achieving positive adjusted EBITDA. Turning to our third quarter results, our. Third quarter revenue increased 19% to 12.2 million. Million driven by increased production from our Georgia, Texas and Washington facilities. Sequentially, revenue growth was constrained by the Texas transition work through July, but that facility is now positioned to contribute meaningfully going forward. Our adjusted gross margin Percentage was approximately. 29% excluding depreciation and stock based comp. And other non core items. With Texas at full capacity in Q4. Following our work on harvest automation and. Optimizing our product mix and as our tower upgrades mature across all facilities, we expect that over time our adjusted gross margin will increase as a percentage of sales. Our adjusted EBITDA loss was 7.2 million, which improved from 8.4 million in Q3 of last year, representing meaningful year over year progress. With Texas now operating at full capacity and our cost initiatives reaching full run rate, we expect an improved adjusted ebitda performance in Q4. Notably, our Q3 net loss improved to 26.4 million from 34.3 million prior year, primarily reflecting lower interest expense from our Q1 debt restructuring. Now turning to our balance sheet, we. Ended the quarter with cash and cash. Equivalents in restricted cash of 12.7 million. The 10 million convertible note we closed. In August paired with $10 million in. Debt reduction was strategically significant. It wasn't just capital, it was our existing strategic investors doubling down at an inflection point while simultaneously improving our balance sheet. We also closed an equipment leasing transaction. That we expect to provide cash of approximately 2 million in the coming weeks. Combined with the March restructuring where we. Brought in $25 million in new equity. And amended our debt agreement to defer cash payments until April 2027, we've transformed. Our capital structure in 2025. This capital structure transformation provides us with added financial flexibility to be strategic with partnerships and growth investments looking ahead. Let me provide perspective on Q4 and our trajectory heading into next year. Revenue growth and product mix optimizations are key levers to achieving positive adjusted EBITDA, which we continue to expect in early 2026. Let me break down the drivers that. Will get us there. First, volume and mix as our new value added product launches ramp through late. Q4 and particularly to the first half. Of 2026, they improve our overall unit level economics. Second, operational efficiency. The tower upgrades across Georgia, Texas and Washington, combined with automated harvesting in Texas and our seed cost reduction programs are improving our cost structure. These initiatives take time to reach full productivity. We're seeing early benefits now, but the. Full impact materializes as the Systems optimize. Into 2026 and third, cost discipline. The nearly 8 million in annualized cost. Reductions we've actioned through the first nine months of the year spanning both cogs and operating expenses, plus the additional 1.5 to 2 million we're implementing through year. End represent sustainable structural improvements that flow. Directly to adjusted EBITDA as revenue scales. Taking all of this together, we expect. A theme of ongoing sequential improvement in. Adjusted EBITDA loss rates over the coming quarters with an aim to achieve positive adjusted ebitda in early 2026. We're pacing our growth alongside retail partner development schedules to ensure we're building sustainable, profitable revenue to close. Q3 represents a foundational quarter where we. Completed critical infrastructure investments, particularly Texas, reaching full capacity, demonstrated commercial traction with strategic launches like Walmart in the Pacific Northwest. And continued to improve our cost structure year over year. We're entering Q4 with more operational capacity. Better unit economics being built into our. Operations, and stronger commercial momentum than at any point in our history. The market inflection Craig described is real, and we're positioning local bounty to capitalize on it while building for long term durability. That concludes my prepared remarks. Thank you for joining us today and for continued interest in local bounty.

OPERATOR - (00:18:48)

Ladies and gentlemen, that concludes today's conference call. We thank you for attending. You may now disconnect your lines.