Local Bounti Corporation: Form 10-Q for the period ended Mar 31, 2026

The following discussion should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements, including the Notes to those statements, included elsewhere in this Quarterly Report on Form 10-Q, and the section entitled "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. As discussed in more detail in the section entitled "Cautionary Note Regarding Forward-Looking Statements," this discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.

Our Mission and Vision

Our mission is to revolutionize agriculture, ensuring accessibility to fresh, sustainable, locally grown produce to nourish communities everywhere for generations to come. Our vision is to reimagine freshness. We envision a future where transformative innovation and technology combine to enable us to locally grow produce with minimal food miles, ensuring the freshest and most sustainable offerings for communities everywhere. We believe that happy plants make happy taste buds, and we are committed to reimagining the standards of freshness. We also believe that local is the best kind of business, and we are committed to helping communities thrive for generations to come. We are committed to building empowered local teams. Together, we believe we are capable of extraordinary achievements in sustainable agriculture.

Company Overview

Local Bounti is a controlled environment agriculture ("CEA") company that produces sustainably grown produce, focused primarily on living and loose leaf lettuce. Founded in 2018 and headquartered in Hamilton, Montana, Local Bounti utilizes its patented Stack & Flow Technology® to grow healthy food sustainably and affordably. Our proprietary process is a hybrid growing approach, utilizing vertical farming in early plant growth, followed by greenhouse farming for final grow out. We designed our Stack & Flow Technology to give our products exactly what they need at every step of their growth cycle. Our goal is to grow in an environmentally sustainable manner that not only increases harvest efficiency and enhances unit economics, but also limits water usage and reduces the carbon footprint of the production and distribution process. Controlling the environmental conditions in both the 'Stack' and 'Flow' components of our growing system helps to ensure healthy, nutritious, and consistent products that are non-genetically modified organisms ("non-GMO"). We use 90% less water, 90% less land, and significantly less pesticides and herbicides than traditional outdoor agriculture operations.

Our first facility in Hamilton, Montana (the "Montana Facility") commenced construction in 2019, reached commercial operation by the second half of 2020, and now acts as a corporate headquarters without active commercial operations. The Company is currently evaluating the future commercial use of its Montana facility because we no longer have additional capacity at other facilities. Management is exploring various utilization options, including supporting capacity needs within the Company’s existing network as well as potential third-party commercial arrangements. In 2022, we acquired California-based complementary greenhouse farming company Hollandia Produce Group, Inc. and its subsidiaries, which operated under the name Pete's (the "Pete's Acquisition"). Through the Pete's Acquisition, we significantly increased our growing footprint to include two then-existing facilities in California and one under-construction facility in Georgia. The Georgia facility became operational in July 2022 and was significantly expanded in 2023. In 2024, we completed construction of two new facilities in Washington and Texas.

We distribute our products to approximately 13,000 retail locations across 35 U.S. states, primarily through direct relationships with blue-chip retail customers, including Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, Brookshire's, and H-E-B. Our primary products include living butter lettuce – for which we are a leading provider with an approximate 80% share of the CEA market within the Western U.S. – as well as packaged leafy greens and cress. Our leafy greens consist of ready-to-eat blends, value add salad kits, and specialty greens like arugula.

We intend to continue to increase our production capacity and expand our reach to new markets, new geographies, and new customers through building of new facilities, the expansion of existing facilities, or the acquisition of existing greenhouse facilities, which we would evaluate to update with our Stack & Flow Technology. We conduct an ongoing build-versus-buy analysis whenever we decide to build a new facility or acquire an existing facility. We also continue to explore expanding our product offerings to new varieties of fresh greens, herbs, berries, and other produce. Additionally, we evaluate commercial opportunities as part of these expansion efforts on an ongoing basis.

Product Development

Our launch of our family-sized 10-ounce Romano Caesar Salad Kit in the Pacific Northwest continues to build momentum with consumers at retail. After realizing a 75% increase in its baseline velocity (units sold per store per week) during the fourth quarter of 2025, we were awarded an additional distribution center with a national retailer in the first quarter of 2026 that is set to launch in May of 2026.

We continue to pursue growth of our Arugula offering following its successful launch at both our Pasco, WA and Mount Pleasant, TX facilities in 2025. Conventional arugula is often unreliable and insufficient and is a category that we believe we can continue to address through leveraging our baby leaf capabilities.

Distribution

We currently service approximately 13,000 retail doors and expanded our retail presence in select southern markets with a new national retailer in the fourth quarter of 2025. During the first quarter of 2026, we secured and launched programs with two additional accounts, including a large premier retail customer covering more than 250 stores with a six SKU rollout, and a large regional retailer. Our quarterly sales to a major e-commerce and direct-to-consumer customer continue to perform strongly following significant growth during 2025.

We continue to benefit from strong demand and ongoing support from our long-standing customer base. In the first and early second quarter of 2026, we were awarded bids that extend supply programs with multiple national retail accounts through the first quarter of 2027. These commitments span several of our key product lines, including baby leaf lettuce and organic butter lettuce. The awards underscore the strength of our relationships with blue-chip retail partners and reflect those customers’ continued confidence in our ability to deliver consistent, high-quality products over the long term.

Commercial Facilities Update

Yield Enhancement

We continue to advance our yield improvement and cost reduction initiatives across our facility network. Tower upgrades were completed at our Georgia, Texas and Washington facilities during the fourth quarter of 2025, which resulted in enhanced production efficiency and an approximate 10% increase in run-rate yield capacity to reach the highest yields in our history.

We are also making select investments in our California facilities to improve operational efficiency, which we believe can improve yields by as much as 20%, resulting in increased throughput and enhanced margins.

Capacity Expansion Project

Plans remain in place to build additional capacity across our network of facilities enabled with our patented Stack & Flow Technology®. The expansions are designed to provide additional capacity and allow for our growing product assortment to meet existing demand from our direct relationships with blue-chip retailers and distributors. The timing and scope of these projects, including plans to expand into the Midwest, remain under review pending ongoing discussions with retailers to optimize those facilities for specific products in support of retail commitments and strategies to expand distribution.

Intellectual Property

In February 2026, we were issued U.S. Patent No. 12,557,741, titled "Optimizing Growing Process in a Hybrid Growing Environment Using Computer Vision and Artificial Intelligence." The patent covers our proprietary methods for using computer vision, machine learning, and automated environmental controls to optimize plant growth across our hybrid vertical and greenhouse growing phases. This is a significant milestone that strengthens the competitive moat around our patented Stack & Flow Technology platform and underscores our technology leadership in controlled environment agriculture. We have been deploying these capabilities across our Stack & Flow

Technology–enabled facilities with tangible results, using AI-driven analysis of plant growth and environmental data to drive improved consistency and yield.

Factors Affecting Our Financial Condition and Results of Operations

We have expended, and we expect to continue to expend, substantial resources as we:

• Standardize operating and manufacturing processes across our facilities, including increased expenses associated with growing operations;
• Identify and invest in future growth opportunities, including new product lines;
• Invest in product innovation and development; and
• Invest in sales and marketing efforts to increase brand awareness, engage customers, and drive sales of our products

Results of Operations

Three Months Ended March 31, 2026 compared to the Three Months Ended March 31, 2025

The following table sets forth our historical operating results for the periods indicated:

(in thousands)

(1) Amounts include stock-based compensation as follows:

(in thousands)

24

(2) Amounts include depreciation and amortization as follows:

The following sections discuss and analyze the changes in the significant line items in our Unaudited Condensed Consolidated Statements of Operations for the comparative periods in the table above.

Sales

We derive our revenue from the sale of produce grown at our five facilities. Sales increased by $1.7 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was due to increased production and growth in sales from our facilities in Georgia, Texas and Washington.

Cost of Goods Sold

Cost of goods sold is the direct cost of growing produce for sale at our greenhouse facilities, including labor costs, which consists of wages, salaries, benefits, and stock-based compensation, seeds, soil, nutrients and other input supplies, packaging materials, depreciation, utilities, and other manufacturing overhead. As we scale our business, we expect the cost of goods sold to decrease over time as a percentage of sales.

Cost of goods sold increased by $1.7 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was due to production ramp-up at our facilities in Georgia, Texas and Washington.

Research and Development

Research and development expenses primarily consist of costs associated with the ongoing development, improvement, testing, alteration, and refinement of our product offerings, production lines, manufacturing processes, growing techniques, and post-harvest packaging methods. Our research and development efforts focus on enhancing each facility’s indoor environmental controls, growing recipes, and refining Stack & Flow Technology processes, all aimed at meeting facility design and production yield specifications. Additionally, we also focus on the development of new leafy green product offerings, value-added products such as Grab & Go Salads, and new crops, including arugula and berries.

Research and development costs decreased by $1.3 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease was primarily attributable to the maturation of our production, harvesting, and post-harvest packaging initiatives. As testing and refinement of our commercial-scale Stack & Flow Technology and related production processes at the Washington, Texas, and Georgia facilities progressed toward operational deployment, associated development activities declined.

Sales and Marketing

Sales and marketing expenses consist of employee compensation, including salaries, benefits, and stock-based compensation for our sales and marketing teams, transportation and delivery costs, marketing, and advertising, among others.

Sales and marketing costs increased by $0.1 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase is driven primarily by an increase of $0.1 million in transportation and delivery costs as a result of increased shipments of produce driven by an increase in sales.

General and Administrative

General and administrative expenses consist of employee compensation, including salaries, benefits, and stock-based compensation for our executive, legal, finance, information technology, and human resources teams, expenses for third-party professional services, insurance, computer hardware and software, and amortization of intangible assets, among others.

General and administrative expenses decreased by $0.6 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily driven by a decrease of $1.1 million in salaries, benefits, and payroll-related expenses and a decrease of $0.2 million in insurance expense, which was partially offset by an increase of $1.0 million in professional fees primarily related to litigation and financing activities. The remaining difference is due to individually immaterial differences.

Change in Fair Value of Warrant Liabilities

The change in fair value of warrant liabilities reflects mark-to-market adjustments related to our outstanding warrants, including the Cargill Amended Warrants, the 2025 U.S. Bounti Warrant, and the 2026 U.S. Bounti Warrant issued in connection with our convertible note financing.

During the comparative periods, fluctuations in fair value were driven primarily by (i) amendments to the Cargill Amended Warrants, including reductions in exercise price and extensions of contractual lives pursuant to the Eleventh Amendment to our credit agreement, (ii) the issuance of the 2026 U.S. Bounti Warrant and the 2025 U.S. Bounti Warrant, and (iii) changes in key valuation inputs, most notably our stock price at each reporting date. As a result of these factors, the Company recognized a net gain of $5.2 million for the three months ended March 31, 2026, compared to a loss of $3.5 million in the prior-year period.

Interest Expense, net

Interest expense consists primarily of contractual interest and amortization of debt issuance costs, net of interest capitalized for construction assets, related to the loans with Cargill Financial, interest recognized per the terms of our financing obligation related to the Montana Facility and the California Facilities, and the interest on the U.S. Bounti, LLC convertible notes. We capitalize interest costs on borrowings during the construction period of major construction projects as part of the cost of the constructed assets.

Interest expense, net decreased by $14.8 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease is primarily due to a decrease in the principal amount outstanding under the Senior Facility as well as a reduction in the overall interest rate as a result of the Eleventh Amendment, which decreased interest expense by $15.0 million, net of interest capitalized, over the prior year period. This decrease was partially offset by an increase of $0.2 million of interest expensed related to our three financing obligations related to sale leaseback transactions.

Liquidity and Capital Resources

We have incurred losses and generated negative cash flows from operations since our inception. At March 31, 2026, we had an accumulated deficit of $530.3 million and cash and cash equivalents and restricted cash of $18.8 million.

As of March 31, 2026, the principal amount due under our credit facility with Cargill Financial totaled $302.8 million, none of which is classified as current. In addition, the Company has outstanding convertible notes for $25.0 million to U.S. Bounti, LLC, none of which is classified as current. The debt agreements with Cargill Financial contain various financial and non-financial covenants and certain restrictions on our business, which include restrictions on additional indebtedness, minimum liquidity and other financial covenants, and material adverse effects that could cause us to be at risk of default. A failure to comply with the covenants and other provisions of these debt instruments, including any failure to make payments when required, would generally result in events of default under such instruments, which could result in the acceleration of a substantial portion of such indebtedness.

The CEA business is capital-intensive. Currently, our primary sources of liquidity and capital resources are cash on hand and cash flows generated from the sale of our products. Cash expenditures over the next 12 months are expected to include general operating costs for employee wages and related benefits, outside services for legal, accounting, IT infrastructure, and costs associated with growing, harvesting, and selling our products, such as the purchase of seeds, soil, nutrients, and other growing supplies, shipping and fulfillment costs, and facility maintenance costs. Also, we are scheduled to begin making quarterly cash interest payments on April 1, 2027 on the first $100 million principal balance of the Cargill Senior Facility (as discussed further in the Cargill Loans section below). The cash interest payments are estimated to be approximately $1.5 million each quarter through January 2, 2030, based on the current three-month SOFR rate plus the application margin.

We also believe additional cash can be secured through other debt, equity financings, or sale leaseback financing, if necessary. However, there can be no assurance that equity or debt financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Item 1A, Risk Factors, of the Company's most recent Annual Report on Form 10-K. Our failure to raise capital as and when needed could have significant negative consequences for our business, financial condition, and results of consolidated operations.

Cargill Loans

As of March 31, 2026, a total of $302.8 million of principal was outstanding on the Senior Facility. The Senior Facility is included in "Long-term debt, net" on the Unaudited Condensed Consolidated Balance Sheets. The Eleventh Amendment, as described in Note 6, Debt, to the Unaudited Condensed Consolidated Financial Statements, resulted in a lower principal balance and a reduced interest rate. In addition, a debt premium recorded in connection with the amendment will be amortized as a reduction to interest expense over the 10-year term of the Amended Senior Credit Agreement using the effective interest method.

From January 1, 2027 to December 31, 2029, interest will accrue on $100 million of the Senior Facility and will be due and payable in cash starting the first business day after the close of each calendar quarter, beginning with the quarter commencing April 1, 2027, and continuing through December 31, 2029. Interest accruing on the outstanding principal balance of the Senior Facility in excess of $100 million will, at the Company’s option, either be paid in cash or paid in kind, beginning with the quarter commencing April 1, 2027, and continuing through December 31, 2029. As no interest payments are due in the next twelve months, the accrued interest has been classified within "Accrued interest, noncurrent" on the Unaudited Condensed Consolidated Balance Sheets.

From January 1, 2030 to March 31, 2031, interest will accrue on up to $200 million of the Senior Facility and will be due and payable in cash starting the first business day after the close of each calendar quarter, beginning with the quarter commencing April 1, 2030, and continuing through March 31, 2031. Interest accruing on the outstanding principal balance of the Senior Facility in excess of $200 million will, at the Company's option, either be paid in cash or paid-in-kind, beginning with the quarter commencing April 1, 2027, and continuing through March 31, 2031.

At all times after April 1, 2031, interest shall be payable only in cash on the first business day after each calendar quarter end. Additionally, beginning in the fourth quarter of 2027, 50% of the free cash flow (as defined in the Eleventh Amendment) generated in the preceding quarter must be used for principal repayment on a quarterly basis. The maturity date of the Senior Facility subsequent to the Eleventh Amendment is December 31, 2035.

U.S. Bounti, LLC Convertible Notes

On August 1, 2025, the Company entered into a Convertible Note and Warrant Purchase Agreement with U.S. Bounti, LLC, providing for the issuance of (i) a convertible note with an initial principal balance of $10.0 million (the “2025 Note”) and (ii) a warrant to purchase 550,000 shares of the Company’s common stock at an exercise price of $0.125 per share. The 2025 Note has a maturity date of August 1, 2030 and bears interest at a rate of 6.0% per year, with interest added to the outstanding principal balance semi-annually through the end of 2028.

On March 13, 2026, the Company entered into an additional Convertible Note and Warrant Purchase Agreement with U.S. Bounti, LLC, providing for the issuance of (i) a convertible note with an initial principal balance of $15.0 million (the “2026 Note”) and (ii) a warrant to purchase 5,500,000 shares of the Company’s common stock at an exercise price of $0.125 per share. The 2026 Note has a maturity date of March 13, 2031 and bears interest at a rate of 7.0% per year, with interest added to the outstanding principal balance semi-annually.

The 2025 Note and the 2026 Note are each convertible into shares of the Company’s common stock at an initial conversion price of $2.50 per share. Conversion of the full initial principal amounts of the 2025 Note and 2026 Note would result in the issuance of approximately 4.0 million and 6.0 million shares of the Company’s common stock, respectively, in each case subject to increase for any accrued payment-in-kind interest. Each of the 2025 Note and 2026 Note includes automatic conversion features, pursuant to which 50% of the outstanding principal balance converts into shares of common stock on the fourth anniversary of issuance, with the remaining balance converting at maturity, unless certain conditions are met that permit repayment in cash. Both notes are subordinated to obligations under the Company’s Senior Facility.

From time to time after August 1, 2028 for the 2025 Note and March 13, 2029 for the 2026 Note, interest may be payable quarterly in arrears in cash, subject to certain conditions. As no interest payments are required within the next twelve months under either the 2025 Note or the 2026 Note, accrued interest has been classified within “Accrued interest, noncurrent” on the Unaudited Condensed Consolidated Balance Sheets.

Financing Obligations

We have three financing obligations related to sale leaseback transactions that did not qualify for sales treatment of the underlying assets. The following table summarizes future aggregate financing obligation payments by fiscal year:

(in thousands)

Cash Flow Analysis

A summary of our cash flows from operating, investing, and financing activities is presented in the following table:

(in thousands)

Net Cash Used In Operating Activities

Net cash used in operating activities was $6.1 million for the three months ended March 31, 2026 due to a net loss of $12.7 million, a non-cash gain of $5.2 million related to change in fair value of warrant liabilities, and $2.1 million in amortization of debt premium. This was partially offset by non-cash activities of $5.6 million in depreciation and amortization expense, $1.0 million in stock-based compensation expense, net of amounts capitalized, $0.1 million in amortization of debt issuance costs, and $7.2 million net increase of cash from changes in operating assets and liabilities.

Net cash used in operating activities was $9.6 million for the three months ended March 31, 2025 due to a net loss of $37.7 million. This was partially offset by non-cash activities of $15.3 million in paid-in-kind interest, a non-cash loss of $3.5 million related to change in fair value of warrant liabilities, $5.0 million in depreciation expense, $0.9 million in amortization expense, and $2.1 million in amortization of debt issuance costs.

Net Cash Used In Investing Activities

Net cash used in investing activities was $1.1 million for the three months ended March 31, 2026, due primarily to purchases of construction materials and services, equipment, and other items for the Washington and Texas facilities.

Net cash used in investing activities was $5.0 million for the three months ended March 31, 2025, due primarily to purchases of construction materials and services, equipment, and other items for the Washington and Texas facilities.

Net Cash Provided By Financing Activities

Net cash provided by financing activities was $15.2 million for the three months ended March 31, 2026, primarily driven by $14.9 million of proceeds from the issuance of the U.S. Bounti, LLC convertible note.

Net cash provided by financing activities was $35.5 million for the three months ended March 31, 2025, comprised of $21.5 million of proceeds from the issuance of Series A Preferred Stock and $10.5 million of proceeds from the issuance of debt.

Critical Accounting Policies and Estimates

There have been no changes to the Company’s critical accounting policies and estimates from those described under "Critical Accounting Policies and Estimates" in the Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2025.

Recent Accounting Pronouncements

For more information about recent accounting pronouncements, see Note 2 of the Unaudited Condensed Consolidated Financial Statements, which is incorporated into this Item 2 by reference thereto.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are not required to provide the information under this item.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2026, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material updates to our risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2025.