Local Bounti Corporation (NYSE:LOCL) Q2 2022 Results Conference Call August 15, 2022 8:00 AM ET
Company Participants
Craig Hurlbert – Co-Chief Executive Officer and Chairman of the Board
Jeff Sonnek – Managing Director, ICR
Brian Cook – President
Travis Joyner – Co-Chief Executive Officer and Director
Kathleen Valiasek – Chief Financial Officer
Conference Call Participants
Ben Klieve – Lake Street Capital Markets
Brian Wright – ROTH Capital Partners
Kristen Owen – Oppenheimer
Christopher Barnes – Deutsche Bank
Pamela Kaufman – Morgan Stanley
Operator
Good morning, and welcome to the Local Bounti’s Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please also note today’s event is being recorded.
At this time, I’d like to turn the conference call over to Jeff Sonnek, Investor Relations at ICR. Please go ahead.
Jeff Sonnek
Thank you, and good morning. Today’s presentation will be hosted by Local Bounti’s Co-CEOs, Craig Hurlbert; and Travis Joyner; President, Brian Cook; and Chief Financial Officer, Kathleen Valiasek.
The comments made during today’s call contained 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 the 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 Hurlbert, Co-CEO.
Craig Hurlbert
Thank you, Jeff, and good morning, everyone. We made important progress on our commercial facility expansion during the second quarter and demonstrated solid sequential improvement in our financial performance, which has us on track to meet our goals for 2022. The integration of Pete’s is progressing extremely well. We had great engagement across the organization, and I have been very impressed by our team, our expanded capabilities and our growing depth of technical knowledge.
We recently completed a leadership offsite with ‘22 Local Bounti leaders from all four corners of our business. Our goal was to get everybody on the same page and to build out our tactical plan for the next 24 months. The event was a huge success, and to a person, our team is more committed to the future today than ever before. We continue to bring fresh thinking and solutions to the industry and are implementing new elements in real time that accelerate our build out schedules and drive higher crop turns. The combination of which support our unwavering focus on capital efficiency. All of this leads to Local Bounti providing much needed financial leadership in our industry.
Capital efficiency continues to be at the forefront of our strategy, directing capital towards revenue generating activities. This was a foundational element of our strategy in acquiring peace, which brought three facilities into our production network, cemented our presence in the West Coast market with its two California locations, and added improved bi-coastal service to customers via the New Georgia facility, that just commenced operations last month.
We expect strategic acquisitions to play an important complementary role in our long-term facility expansion strategy as we balance visibility of demand from existing retailers against construction timelines. Our ability to utilize existing assets and integrate Stack & Flow is a significant advantage in our efforts towards rapid scale up and achieving greater market penetration. However, we will also continue to pursue greenfield build outs where appropriate, and we are excited to announce the location of our next facility, which will be in Eastern Texas. This location will augment our ongoing Georgia build-out and cement our presence across the Southern United States, as we fortify our relationships with key retailers.
We have also made great advancements in our technology, both in terms of its performance as measured by yield, as well as expanding the addressable market for those technologies. Our Co-CEO, Travis Joyner will speak to some of these developments in his remarks. And on the product innovation front, our President, Brian Cook will provide commentary around some tests in adjacent product categories that we are really excited about, and provide an update on our various construction projects before Kathy concludes with her financial review.
With that, I’ll pass it over to Travis.
Travis Joyner
Thanks, Craig. We have an insatiable appetite for achieving efficiencies, whether through our technology design, yields or crop turns, we strive for efficiency in all four corners of our business. It all comes back to finding novel ways to drive productivity and enhance our unit level economics, like we said from the beginning, high yield and low cost.
Fortunately, we have been able to facilitate those advancements with our patent pending Stack & Flow technology. Unlocking 1.5x to 2x yield improvement compared to traditional greenhouse operations, Stack & Flow is highly disruptive and highly differentiated and fuels our excitement about the opportunities that lie ahead as we continue to execute on our plan to be the leader in CEA.
Simply put, our technology strategy gives us an advantage to make a direct iterative improvement on existing infrastructure in a capital efficient manner, which we expect will ultimately drive higher return on investment while minimizing required capital. Evidence of this improvement is reflected in the hardwork being done in our Hamilton, Montana facility to drive advancements in our growing systems, and to continue to improve Stack & Flow.
Year-to-date ended July 22, 2022, our annualized yields from this facility have improved by 20% versus the comparable prior year period. This direct and progressive improvement in yield is an apples-to-apples comparison highlighting our ability for current and future facilities to drive yield improvement. Importantly, these improvements do not reflect the impact of existing and future R&D enhancements and innovations that are expected to further accelerate performance at each of our facilities.
Beyond our advancements to yield, we are excited to discuss additional opportunities and applications of our Stack & Flow technology to reduce costs and increase yields across a variety of crops in growing environments. Stack & Flow is not just for [weeklies] anymore, we are in the early trial stages of long-term projects for high value crops such as berries and we continue to believe that our technology has a very important place in the future of agriculture.
Key long-term initiatives to apply Stack & Flow to adjacent produce production work hand in hand with our efforts to translate our innovations into a robust IT portfolio, across process improvements, genetics, computer, vision, AI, and controls. Formalizing our IT portfolio is an important component of the competitive moat we are developing around stack and flow and will ensure that we are well positioned for long-term growth.
I’ll pass it over to Brian for his remarks.
Brian Cook
Thank you, Travis. I’ll start with a quick update on the progress of our facility build and then speak to some of the new product innovations we are testing. As Greg noted earlier, we achieved a significant milestone with our Georgia facility in July with the commencement of operations, following the completion of Phase 1A construction. This consists of seven greenhouses, which are now in the midst of wrapping up commercial production as customers and consumers were able to see during our tours at our ribbon coating, our investment in the right equipment in achieving high quality lettuce even at the height of Georgia heat and humidity.
Speaking of customers, we are very excited to partner with companies across the supply chain, including local legends, like Collins Brothers Produce, who for three generations have been providing local produce directly to retail and food service operators across the Southeast. It is our expectation by the first quarter of 2023 our first building will be sold out, which is why in parallel with Phase 1A’s completion, we began construction on Phase 1-B in June, 2022, which will mirror Phase 1-A in terms of size and capabilities effectively doubling the capacity of the Georgia facility to 14 greenhouses.
In parallel with the commencement of Phase 1-B, we also began construction of the Stack & Flow components to the facility, which will be integrated across both phases and is expected to add approximately 40% of incremental revenue generating capacity to the completed 14 greenhouses at the Georgia facility. Construction is expected to be completed in the second quarter of 2023 and operations commence in the third quarter of 2023.
At our current facilities in Carpinteria and Oxnard, California, we are currently undergoing targeted and phased upgrades to the existing structure. The first phase, which is currently planned, will complete necessary infrastructure upgrades and increase near-term yields of select SKUs by an estimated 10%. The second phase, which is under consideration, will provide an additional yield increases and create opportunities to grow new products further expanding our SKU diversity. The last phase will be the complete preparations for Stack & Flow integration, which is expected to commence in 2023, given coordination and other planning measures with local utilities.
Our future Pasco, Washington facility continues to progress towards construction, which is expected to recommence in September. The site has been redesigned to further optimize operational synergies drive best-in-class unit economics and to account for synergies with Pete’s growing systems to meet demand across the combined product portfolio. And as you heard, we’ve chosen Texas as a site of our next facility. We are still in the diligence stages, but we have a site selected that would fit our operation rather well and look forward to updating you on progress as formal agreements are reached.
Texas was of particular interest to us, given strong consumer demand for our brand and products with some existing retail accounts that have indicated a desire to grow the category with us.
Finally, I’m excited to share some updates with you on the commercial front with the test launch of our new salad kit innovations in the third quarter. Complementing our existing product assortment is a new category of product innovation, premium salad kits. The SKUs will launch as tests with retailers in the Northwest through the end of 2022 in anticipation for a broader launch in 2023.
Now, I’ll turn this call to Kathy for her review of the financials.
Kathleen Valiasek
Thank you, Brian.
I’ll cover our second quarter results, which reflect the completion of our Pete’s acquisition on April 4, 2022, creating a scaled CEA operator with a national distribution footprint that reaches approximately 10,000 retail doors. Second quarter 2022 sales were $6.3 million as compared to $108,000 in the prior year period. Revenue from our Hamilton, Montana, facility increased by 52% on a sequential basis in second quarter reflecting pivot from R&D to commercial production. And our California facilities increased revenue by 9% on a similar sequential basis. This performance was consistent with plan and we are very pleased with the progress that we are making to expand capacity and generate growth.
Adjusted gross margin excluding depreciation, stock-based comp, business combination related integration costs and business combination fair value basis adjustment to inventory was approximately 38% in second quarter of 2022. Reported gross profit was essentially breakeven in the second quarter of 2022 and impacted by the aforementioned variables. Further, the lower reported gross profit also reflects temporary supply chain challenges with suppliers that have since been resolved that impacted second quarter yields in our California facilities resulting in higher cost to fill orders.
In response to realized cost inflation, we expect to realize the benefit from price increases during the third or fourth quarter of 2022. Looking ahead, we continue to see opportunities to capture the COGS synergies between Local Bounti and Pete’s operations, which we believe could approximate about 10% savings on Local Bounti’s existing cost of goods sold from raw materials and packaging in the first full year of operation.
Net loss was $31.7 million in the second quarter 2022 and includes approximately $11.7 million in stock-based compensation, $5.5 million in interest expense, $3.4 million of depreciation and amortization, a fair value inventory adjustment mentioned above of $1 million, business combination and integration costs of $1.6 million and restructuring costs of $500,000. Adjusting for these and other discrete items, adjusted EBITDA loss was $7.9 million.
From a capital structure perspective, our balance sheet as of June 30, 2022 reflects the combined operations of Local Bounti and Pete’s following our April acquisition of that business that was financed through a combination of $92.5 million in debt through our existing agreement with Cargill and $30 million of equity. We ended the quarter with cash, cash equivalents and restricted cash of $41.3 million and had approximately $42 million of undrawn capacity on our credit facility with Cargill.
We had approximately 94 million shares outstanding as of June 30 and on a pro form a basis, including our warrants and our employees restricted stock units outstanding, we have a fully diluted share count of approximately 116 million shares.
With respect to our outlook, we are reaffirming our 2022 revenue guidance of at least $20 million, which includes partial year contribution of Pete’s. We also continue to expect to achieve initial run rate revenue of at least 30 million at full production from our California and Georgia facilities, excluding the expected future positive impact from additional capacity due to implementing Stack & Flow across Pete’s legacy facilities.
We look forward to continuing to update you on our progress as we execute on the achievement of milestones and identify new opportunities to drive growth in this exciting CEA marketplace. As Craig mentioned, the leadership offsite was a tremendous kickstart to our business, and we look forward to driving the planned growth with the excellent team we have in place.
That concludes our prepared remarks. Operator, please open the call for questions
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Ben Klieve with Lake Street Capital Markets.
Ben Klieve
First, I have a couple questions around CapEx. One, can you — I didn’t see this in the release and if I missed it, I apologize. Can you update us on what CapEx was in the quarter maybe year to date period?
Craig Hurlbert
Great to hear your voice. Kathy, do you want tackle that one?
Kathleen Valiasek
So the spend within the quarter, Ben — and great to hear your voice this morning and thank you for the question. The spend within the quarter was 8 million.
Ben Klieve
And then with all these initiatives ongoing at the same time, can you help us just kind of get a general — of what your expectations are? Either on a, kind of fiscal year basis here in ‘22 or maybe on a project basis for either — or California, something of that nature, help us just kind of get a sense of what the spend is going to look like?
Kathleen Valiasek
Sure. So what I would say is — I’m sorry, go ahead.
Craig Hurlbert
Go ahead, Kathy.
Kathleen Valiasek
So the spend for Pasco and the Texas facilities is a little bit further out, right? The Georgia facility is — we started construction on 1-B already, and we also have started construction on implementing the first aspect of the Stack. So that’s a little bit heavier spend I would say between the next couple of quarters, and obviously the project is supported by Cargill.
Ben Klieve
And then, one kind of high level question here around your initiatives here for next-generation products in barriers and salad kits. So, I mean, especially salad kits seem like a no brainer that nobody in the — few participants in the space really seem like know what they’re doing, it seems like a very common sense value add way to use the products that you’re already making.
Can you talk about kind of the decision to go into that? And why this seems to be something pretty novel within the space that the other CEA participants aren’t really doing at least at scale, why are you doing it and why do you believe that others maybe aren’t?
Craig Hurlbert
Hey Brian, do you want to take that question and Travis, maybe you could chime in also.
Brian Cook
Yeah, for sure. Thank you for the question. Yeah, I mean, to your point, I mean, you got to look at natural progression value add is just a huge piece of the overall category. For any person to be successful long-term, you really got to think beyond just the lettuce itself. Salad kit was a great progression. We really took a fresh look at it and focused on a premium kit to match the premium lettuce that goes into it. So we are launching on day one with a couple SKUs that really are an elevated chef inspired taste profile. And we continue look at other categories and adjacencies that are within utilizing the lettuce that we grow, but provide that value add to consumers, which they continue to look for day in and day out
I guess maybe just to answer, I think there was one question of why others are doing it. I can’t answer that question, not knowing why. But to your point, it just seems like it is a natural progression into it, when you’re growing the lettuce yourself.
Ben Klieve
Yes. Fair enough. Very good. Well, that’s an interesting development. We look forward to hearing more about that in coming quarters. Plenty more to talk about, but I’ll leave it there. Thanks for taking my questions. I’m going to get back in queue.
Craig Hurlbert
Hey, thanks. Thank you so much. We appreciate it. One thing I will comment Ben on your question we can speak later also is, you mentioned CapEx for the rest of the year. One of the things we have to do is match talent with the CapEx. And that’s something we have spent a tremendous amount of time on and we are really excited about that whole side of things, which was part of the reason for getting everybody together at the off-site. So we’re matching talent with the CapEx to make sure that we nail it. So appreciate your questions as always, Ben. Thank you.
Operator
Our next question is from Brian Wright with ROTH Capital Partners. Please proceed with your question.
Brian Wright
Thanks. Good morning. I was hoping you could just give us a little more color on the, in the press release you mentioned for the East Texas facility potential off-take agreement. So any additional color would be great on that.
Craig Hurlbert
Yes. Hey, Brian. Thank you so much for your question. Good to hear your voice. I think the whole concept of future facilities for Local Bounti at this point, it will be driven largely by customer communication and kind of what we’ve talked about in this pent-up demand that we are realizing from existing customers. It’s one of the huge benefits of bringing 10,000 doors in with Pete’s legacy system. So yes, all facilities — you are right to think about it in terms of there is healthy customer interaction on where the location should be.
Brian, do you want to comment further on the Texas location?
Brian Cook
Yes, sure. So yes, I mean, to Craig’s point, whenever we’re looking at a new location, we’re looking at it through the lens of our customers and ultimately the consumer base, and our ability to be successful in each of those regions. We have had a big quality action in Texas with our customers and prospective customers to say, hey, we need you here. And so, the team got together and looked at through what we could do from a CapEx perspective, knowing the team that we have and knowing that what we could get accomplished and knowing that Georgia expansion of Pasco and Texas could happen at the same time and done well. We moved forward with it because of those requests.
Brian Wright
So that’s — it’s kind of really a follow-up to — You’ve kind of basically already done it with Georgia. And so this is just a continuation of that strategy where others have kind of built the capabilities and hoping to get the contracts. You’re — they’re kind of happening simultaneously for you guys, is that a fair —
Craig Hurlbert
Yeah, Brian, this is Craig. I think, the fact that Georgia will be sold out, it really gives you the whole answer there. We are in — rather than doing market research and saying, I think a facility should go here, we’re actually in the conversations with the customers and they’re saying, Hey, this is where we need you, this is where we need you. And so that’s really leading what I will say, the geographic decisions we’re making on where to put locations and it just strengthens the whole case.
And so again, when your customers are involved, that voice of the customers that strong in these decisions, it gives you a high degree of confidence in the decision. Then it just comes down to matching capital and people talent to be able to build the facilities with our game changing technology. And you’ve really got something.
Operator
Our next question is from Kristen Owen with Oppenheimer.
Kristen Owen
This is Kristen on for Collin. Just wanted to ask about the activity in the construction pipeline. You’ve got a lot of, sort of pokes in the fire, but now that you have this kind of network and this scale, I’m wondering if you can talk about the various back leverage financing options that may be available to you, maybe some longer-term financing options beyond the Cargill relationship.
Craig Hurlbert
Give our best to Collin. Kathy, why don’t you take that question, it’s a good one?
Kathleen Valiasek
Sure. So Kristen, great to hear your voice this morning. So we spend a lot of time thinking about capital efficiency, right? How do we drive revenue with every dollar we deploy, whether that’d be through an acquisition such as Pete’s, where we don’t need to use any cash, we use the Cargill funding or CapEx with our own farms and initiatives. Our capital structure is in a great place today, and pro forma for the transaction. But yes, our primary objective is preserving cash, utilizing equity and debt and scaling up revenue as quickly as possible. All in an effort to get to cash flow positive so we can self-fund.
Kristen Owen
And certainly a lot of opportunities that are available to you that we understand new markets might be opening for sourcing some of that capital. So, and any sort of conversation that you’re maybe having on longer-term outside of those sources?
Kathleen Valiasek
Yeah. I will share we are having many conversations, right? Because there is a lot of capital out there ready and willing and ready to deploy and Local Bounti has positive, gross margins, right? So that’s why practically every other day of the week I have a debt or debt provider coming to me saying, hey, would you look at some different options? And we are evaluating all of them, although keeping in mind, obviously that Cargill is a very, very strong strategic supporter of us. And as we’ve said, repeatedly, they are walking us into all of their big box retailer customers to have discussions with them for facilities that they would like throughout the country.
Kristen Owen
And then on the operations side, I think you mentioned in the press release, and in your prepared remarks some comments about pricing in 3Q and 4Q to help offset some elevated supply chain costs that you saw in California. And I was wondering if you could give a little bit more detail about what those bottlenecks were and maybe talk about how you are able to capture price in this kind of environment? How difficult or how easy has it been to get that pricing through? Thank you.
Craig Hurlbert
Kristen, thank you. Great questions. Go ahead, Kathy. Why don’t you start on that?
Kathleen Valiasek
Yes, I was just going to quickly talk about kind of the supply chain issue that we had and then I’ll pass it off to Brian to discuss the price increases. So Pete’s had a supply chain issue in that one of the products that they use in their grow, P-E-A-T. Their long-term provider, they weren’t able to use that long-term provider in Q1 of this year. So they had to switch providers and they just hit some speed bumps is what I would say scaling it up in Q1, and so kind of at the end of Q1 and so we were short supply in Q2. And so, we basically had to source supply elsewhere in Q2.
However, in order to meet customer demand, but the Peat is working fine. I mean, we — Pete’s folks had resolved the P-E-A-T issue by the end of Q1, we just sort of had a further speed bump in Q2. So it’s all resolved and running smoothly at this point. But we did also see some higher costs in packaging. And so, we talked to Brian and said, hey, what are the possibilities to combat any inflation that we’re seeing.
And with that, I’ll pass it off to Brian.
Brian Cook
Thanks, Kathy. Hi, Kristen. Yes, I mean, I guess it’s never easy, it’s never fun and it’s really the last thing that we ever want to do to ultimately the consumer. But as a business, we always have to look at what are the levers that we could pull. And so, we don’t take price increases lightly, but there are times and now we are in those times where you have to really look at where we are and what’s ahead of us. And really what we do is, we tell that story.
We’re all living in the same world, and so unless you just haven’t been paying any attention to what’s going on, we know that there is not only supply chain cost increases, but overall disruption. And so we tell that story. We show it to our customers of what we’re looking at. And at the end of the day, while no one enjoys doing it, it’s something that we all know that we have got to do at some point and it generally goes through. So I hope that answers your question.
Kristen Owen
That’s really helpful. I’ll leave it there. Thank you so much.
Craig Hurlbert
Thank you, Kristen. One last point on that, the whole supply chain thing. In some ways, our customers view us as helping them to solve their supply problem, because we are closer to their distribution centers or to their customers, to the end customer ultimately. So that supply chain kind of cuts on all sides and it’s definitely a challenge, which is why it’s great to have the relationships we have with these customers that we’ve had in some cases for decades. So it’s — that conversation as Brian mentioned being difficult at times, it’s easier to have when you have those relationships in place. So Kristen, great questions. Thank you so much.
Operator
Our next question is from Christopher Barnes with Deutsche Bank. Please proceed with your question.
Christopher Barnes
Hi. Good morning and thanks for the question. I just wanted to follow-up on Kristen’s question there on the price increase. Are you able to quantify what level of pricing you’re putting into market and then just whether that’s set localized to certain markets or is it nationwide? And then what are you doing around that in terms of messaging to help educate consumers on, I guess the benefits of your produce, especially just given that wallets are being pinched more so now than they have been in much of the recent past.
Craig Hurlbert
Brian, do you want to take that?
Brian Cook
Hello, Christopher. Yeah, I mean, we don’t really share out price increases by dollar amount and it is a national issue, so we are doing national price increases. As it pertains to selling this story, it’s an area that frankly we just needed continue to do a better and better job about. The exciting news is the generations that are coming out, the new buyers in market have a better understanding of what the CEA space is and its benefits. But it’s still new and there’s a bigger dollar buying power to also get into the mix, right?
So, we’ve got to continue to work on the story tell the benefits of it and all aspects of it, and also get to a price though that’s approachable for the consumer. We’re not the only one seeing price increases and traditional farming is going to see the same cost increases. They’re going to see continued cost in transportation. And so having a facility just to call out, at one of our facilities, having a facility in Georgia doing salad is a huge value to retailers in the area because it — not only does it help with the overall cost increases that they’re going to see in traditional farming, but it also gives them the freshest product that they could get to market. And ultimately at the end of the day, once we get into the consumer’s carts, the product quality speaks for itself.
Christopher Barnes
And I guess just in terms of like the expanded product assortment, can you just comment on like how you balance, like the decision to increase and expand your assortment against the inherent complexity it adds to your existing operations? Like, so like right now, you’re seeing a ton of demand for, I guess, your existing products, but how do you introduce like the new SKUs without upending that demand or running into bottle, like self-created bottleneck there?
Craig Hurlbert
Brian, why don’t you start with that one?
Brian Cook
Yeah, definitely, it’s a very good question. And that’s ultimately what one needs to figure out, because if you don’t have that figured out, it could ultimately disrupt, but what we’ve done from day one is making sure that we’ve got the proper partners in place, and not partners just in specific regional areas, but some that we could take programs national. Its one of the most important things to solve for, because if you could — it’s great to say, hey, we’re doing X in Y location, but if you can’t expand that nationally, you basically got an additional niche product, which isn’t going to provide the value that we’re looking here at Local Bounti.
So a lot of it is really based in making sure that you have the proper partners in place to assure that there’s no disruption in what we’re doing on a day-in and day-out basis. So, we continue to do what we’re great at doing, and we let our partners do what they’re great at doing and in combination of the two, we end up being able to launch great products.
Craig Hurlbert
And Christopher, I think — this is Craig. This is a huge differentiator for us, because without those relationships, without those partnerships in place, it makes that process very, very difficult to do. And I think others you’re seeing in the industry are feeling how hard that is to do.
Operator
Our final question is from Pamela Kaufman with Morgan Stanley. Please proceed with your question.
Pamela Kaufman
Hi, good morning.
Craig Hurlbert
Good morning, Pamela. How are you?
Pamela Kaufman
I’m doing well. Thanks. So I just wanted to follow-up about your — on the Texas facility. I guess how are you thinking about building a facility, a greenfield, versus entering the market through an acquisition similar to Pete’s, just given that that was a strategy that helped accelerate your presence in Georgia and California? So how are you thinking about the trade-off between acquiring versus building?
Craig Hurlbert
Pamela, thank you for such a great question. We appreciate it. So because of our Stack & Flow technology, we believe we have a kind of a competitive advantage. It allows us to look at existing facilities and think about them as to what they would look like Stack and what that would do from an efficiency perspective. Both the buy versus build, I guess the option to do either or is something that will be part of our strategy we believe forever even as we grow out of the United States we’ll be looking for those kinds of things, buy versus build.
When there isn’t a facility that’s available, or one that we believe fits what we’re looking to do, then we will go into the build load. And I think that’s what’s happened in Texas. And so once again, back to the customers kind of driving the conversation or a very important part of the conversation, we know we need to be in Texas, that’s something that we have to do. So we look for facilities that are already in place. And if there isn’t one, we go ahead and we build. But the buy side of things will be part of the Local Bounti strategy because of Stack & Flow for a long time.
Pamela Kaufman
Got it. And then just on the Hamilton facility, can you talk about what improvements are contributing to the higher yields there? And then what drove the decision to shift back to commercial production versus R&D? And do you anticipate kind of going back and forth between the two, as you need to conduct more R&D?
Craig Hurlbert
It’s another great question. Travis, I’ll let you tackle that.
Travis Joyner
Great. Hey, great to hear your voice, Pamela. Thanks so much for the question. So really when you think about our Hamilton facility, it’s the first place that we have Stack & Flow in a live environment. And really this year has been about not only trialing process and product innovations within that facility to increase yield, but also trialing things that improve long-term CapEx and OpEx at other facilities. And so, just as for instance, today we are trialing a lot of process and product innovations that scale to Georgia.
So we’re very forward looking. And when we did the Pete’s acquisition, we started looking out ahead and saying, hey, how can we use this asset to validate assumptions in future facilities? So today we are pushing that facility more towards commercial production, but we still have — not insignificant amount of square footage dedicated to trialing things that will improve long-term CapEx and OpEx in future facilities.
Operator
Ladies and gentlemen — sorry. And ladies and gentlemen, at this time, I’m showing no further questions. I’d like to end the question and answer session, and turn the conference call back over to management for any closing remarks.
Craig Hurlbert
Okay. I would like to just thank everyone for joining us this morning, and we look forward to speaking with you again soon. It’s great to hear all your voices. Have a great day, everyone. Thank you.
Operator
Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your lines.
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