Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales increased by 31% year over year to a record $9.4 million.
- Adjusted EBITDA loss improved by approximately $800,000 year over year to $7.5 million.
- Commencement of shipments from new state-of-the-art facilities in Washington and Texas.
- Successful expansion of customer base and distribution network, including Brookshire Grocery Company and Sam's Club.
- Significant strides in optimizing seed costs, reducing them by approximately 20%.
Negative Points
- Net loss increased to $25.3 million in Q2 2024 from $10.7 million in the prior year period.
- Revenue contribution from the Montana facility was impacted due to a temporary shutdown.
- SG&A expenses remain high at $10.7 million despite cost-saving actions.
- Ongoing optimization and scaling up of growth facilities continue to impact adjusted gross margin.
- Dependence on additional financing, including a $175 million conditional commitment letter and a $55 million sale-leaseback, to support strategic growth plans.
Q & A Highlights
Q: Kathy, you gave some great color on how to think about the back half of the year. Can you help us understand the contribution of Texas and Pasco in the back half, and when we will see Montana get up and running? Also, how should we think about capacity utilization or run rate revenue on those facilities as we bridge into 2025?
A: Thanks, Kristen. We've made significant progress in the last few months. Our new facilities and customer base, including Sam's in Texas and Brookshire's, are ramping up quickly. New SKUs like Arugula, Spinach, and Basil Power Blends, which have higher price points, will significantly impact our revenue and margins in the second half. Additionally, our Grab-and-Go products, which had a delayed start, will contribute more in Q3. Montana's revenue was lower in Q2 due to SKU transitions, but this will improve in the second half. Overall, we are nearly sold out in our facilities, and we are closely working with customers to meet their demands.
Q: Can you provide additional details on the sale-leaseback of the Georgia facility, such as the cap rate and its impact on EBITDA and cash flow?
A: While I can't share specific rates at this point, this sale-leaseback strategy is consistent with our approach to each facility. We plan to implement similar strategies for our Texas and Washington facilities, which have ramped up quickly. This will allow us to replace higher-cost construction financing with lower-cost rent payments, improving our financial flexibility.
Q: Can you explain the sequential shift in EBITDA from Q1 to Q2, and what factors will drive improvement in Q3?
A: The lower revenue from Montana due to SKU transitions and delayed Grab-and-Go product launches impacted Q2 EBITDA. Additionally, some construction team costs, typically capitalized, hit the P&L in Q2. These factors will not recur in Q3, and we are on track to achieve positive EBITDA by Q1 2025. Montana's improved performance and the ramp-up of new facilities will drive this improvement.
Q: Craig mentioned that the Texas and Washington facilities can double in capacity. Can you elaborate on this potential?
A: The land for these facilities has been secured with expansion in mind. We constructed the initial facilities to facilitate easy expansion, which will primarily involve adding greenhouses. This approach allows us to meet increasing customer demand and deepen our relationships with them.
Q: Any updates on the Midwest facility and its timing? Are you securing customer agreements ahead of the build?
A: We are in the process of securing land for the Midwest facility, which will service multiple distribution centers. The design is being tweaked to efficiently handle new SKUs with faster crop cycles. Customer demand is high, and we are considering a larger build than initially planned to meet this demand.
Q: Can you provide guidance on CapEx and working capital needs for the second half of the year?
A: We are working to close additional financing that will cover construction for a 2024 build, working capital, and strategic capital. The sale-leaseback of our Georgia facility will also provide funds for working capital. Overall, we have sufficient capital to meet our needs.
Q: How are you managing the transition of the Hamilton Montana facility to commercial operations?
A: The transition is nearly complete, and the facility is expected to contribute meaningfully to our product output. This shift has already improved our facility-level EBITDA by approximately $1 million compared to Q2 last year. We expect the facility to be near cash flow breakeven by Q4.
Q: Can you discuss the impact of new SKUs and customer demand on your revenue and margin outlook for 2025?
A: The new SKUs, which have higher price points, will significantly impact our revenue and margins. Additionally, the rollout of our R&D project to increase yields across all facilities will further boost revenue. We are closely monitoring these factors as we plan for 2025.
Q: How are you optimizing your seed costs, and what impact will this have on your financials?
A: We have reduced seed usage and negotiated cost reductions with suppliers, achieving a 20% reduction in seed costs. These advancements strengthen our competitive position and contribute to our path towards profitability.
Q: Can you provide an update on your financing initiatives and their impact on your growth plans?
A: We are negotiating an additional $175 million of financing, which would bring our total committed future capital to approximately $400 million. This funding will support our strategic growth plans, including expanding capacity across our facilities. We also entered into a non-binding letter of intent for a $55 million sale-leaseback of our Georgia facility, which will provide additional working capital.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
