AppHarvest (APPHW) 11 Nov 212021 Q3 Earnings call transcript

Good afternoon, and welcome to the AppHarvest Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the call host Kaveh Bakhtiari. ahead. go Please

joining earnings for Investor the third AppHarvest for Thank I'm us Kaveh XXXX call. and Bakhtiari, quarter AppHarvest. you on VP Relations Finance

management several Joining David CEO; Officer. Member Loren of today A in and Board Jonathan are President; Chief me the Founder Kentucky Lee, senior Eggleton, team and and copy including Webb, our members Financial of rest we investor of will open to available is investors.appharvest.com. at release Jonathan we'll website and team. on from the our the with Then the begin questions. today's earnings prepared remarks call, On call

management's of like remind we our securities company's about that financial are current they statements differ I'd start, we disclaims on update obligation to and laws. uncertainties events, regarding results prospects In them. are today could forward-looking intent performance involve that or make the the expectations. materially other pursuant providing risks Before and to knowledge These business and the cause plans, based to and provisions statements made you actual assumptions to statements that comments from the any forward-looking future future Harbor and Safe company projections

recent affect that, call For important on factors our that Jonathan. And I'd to over filings. expectations additional please see could most like to information the SEC with these turn

quarter. the Kaveh. I'm Thanks, impressed and progress our third proud made in the teams of

doing we than season remained and We summer we better achieving August. the delivered priority on XXXX September. up that sales while were with that in the top of first we our In completing into the First, coming net annual a growing track on and wrapping schedule this outlook quarter. we replanting efficiently shared refresh expected so accomplished in on little results the

care new The training along Next number crop bonus. effective of resulted we a quadrupling implemented key and training of earning program. specialists a in leadership changes, an designed productivity the with

lowering one fourth of our provides the tomatoes and increased production of internal the is through Along we And improving the farm Kentucky. consistently we of continue our results, As our our distribution receive network of our quarter currently to tomatoes top of and part focus. network operating our number progress was benefit remains a the make quality we with first above in on farms and increasing mix priority pound dual the result our produce Improved for finally, per and price a key costs. projections. development

and indoor lift by while crops high-tech price We additional farms our of at These end next with expect leafy operating berries the greens year. diversify we volatility. be per which expect scale farms reducing will pound to realized to our

expect spot this our remain the current development to for bright environment. a in team We

are by in this continued change teams raise we environment solutions our as our harvest opportunity interest Our the season's We're controlled and given second season by across like energized company strong remains mission, with growing ever entering and the climate new lessons under belt. to as our excited crop. approach. agriculture more bar experience We're important the a which learned sustainable into

and team development us teams the additional raise The fund of our on has to our network. to great The level. expanding construction expansion a farm higher positioning a team capital of to at performing done is job continue operation necessary Our work farms. finance

principles sum-up, most of To AppHarvest to are with of the B employees next expect by to and and end we're to and our long-term in ESG With also as the one that deliver companies the foundation. food our sustainable we're the a As making of towards progress industry. we one long-term goal year, public value a corporations future making a Certified, leading into global of trusted handful sustainable scale only diversity benefit of technology applied moving into Corp our company shareholders, world traded CEA the serving building across we're communities. increased progress

more David President, David? quarter. the Lee provide detail on now will Our

also top Morehead priorities new in business operational We progress our I'm improving performance with fundamentals our Thanks, development. Jonathan. and the pleased our farm quarter. focused at delivered the and on of

into pounds more detail our for get to want over the the little do first current with I sold $X.X wrapped beginning the X.X dive initiatives, to on season and deep I early harvest operations. from Before on season for our prepare better million. of strategic growing In tomatoes quarter, nearly we third million quarter a the a up

Importantly, of in pre-summer and USDA by expense. reflect planted namely an remnants, reflect QX number per versus ratio changes number market to tomatoes, factors and results prices This summer unfavorable results a QX tomatoes new driven the plants not pound low similar one last for distribution historically refresh. resulted $X.XX two refresh. do plants QX operating from figure the higher quarter

to implemented However, already refocus and in training have expect we leadership we the pay the season. growing the in on made off that changes second improving the investments we business quality

number fact, line our prices. harvest of and we and from specifically: four midpoint based analysis of has appears our in early has availability; it's significant are seasonal In quality. projected QX, and that quarters. about seeing, in avoiding percent the we pricing first through historic averages. rededicated data, pricing USDA than early yields the of low fundamental weeks we're ones terms to rebound USDA number are by note The business of two the QX initially we on although of chain improvement intentional QX improve tomato troughs progress in supply typically poised two The between marks the with three we're a improvement years two We in ones focus typically higher higher and labor period the quarter; in of strides in believe XX in encouraged overall XX in full in point driving one both far impacts the nearly on meaningful been and over QX fourth labor made a results productivity, of quarter pricing been we've point the percent percentage second and harvesting the season than one; so two shows while first weeks the the of

take results our best-in-class Nelson planning at layer operations Vice newly supply on program; Operations our accountability; actions drive training chain to we've Executive site and process; performance from to: While a redesign removing experience leadership our by our having a redesign of from of opportunities approach brings Morehead real-time management focusing into strong season still and operations seen her the and we one of a second two implement appointed three PepsiCo. have significant organization resources increase our to data-driven President early Julie who to four by the time improve report directly streamline

roughly third this replanting and similar a Over last planted for season Tomato and growing the both on we ramped of up Vine schedule in to in quarter, are the second week. completed and were September. levels on the plants Importantly, XXX,XXX as varieties year to Beefsteak full amounts production

time. is premium opportunity SKU both we Vine. second select rows of Beefsteak continue the tomato our on growing has premium and and set off. over season the growing our focus currently Tomato well on paying our for for variety for mix in New The are new past cocktail the fundamentals is the will retailed cocktail improve generally to significant summary, to and In which to look a optimize

and steadily our been quality have now volumes good is improving. Our

management Q Our structure and off-balance attract we the farm We've the at separate quarter, on we business. on to to Loren us platform sheet our our announced And this next greater in to also focus within review and Loren? expect to improvement driving which it last our strategic early core CFO, to core venture area, and more turn focus made will detail. joint strategy our by in continue over to I'll Eggleton install these proposed our call. who development funding initiatives. performance good FarmCo is now teams enabled financial announce on initiatives on business our enables to TechCo progress have

of our quarter Thanks, third update before as start operational. give an our net quarter third line XXXX and was of move quarter sales sales David. in no then by I'll We to third outlook. XXXX development time the achieved Morehead compared reviewing financing our the and $XXX,XXX on to results,

In terms third into the as quarter. the X.X growing to season first second of generated at the similar million for economics approximately of beginning of pounds stretched sale yield, we the tomatoes quarter,

quarter came the season. third projection our as growing we above sales our first concluded initial in However, net still

our As from in season Jonathan our second lessons a and David quarter net are million mentioned, third with the expectations. about optimistic $XX.X on first we've million made learned growing operational loss $XX.X progress loss in and significant We was season. based recorded adjusted EBITDA line of and growing

to prepare labor summer costs planting with investments results productivity the the and season. associated at and second the quarter training and driven the workforce were new development by the the of crop Third refresh of Morehead Farm and continued new with for associated

tomato important As our quality pricing. is we determinant the have previously, discussed most of

second are in season quality we lows and the by first USDA. through growing QX, QX initial rebound seasonal our historical the in based tomato and typically encouraged on the are prices We the experienced XX-year the data seeing from weeks several of

guidance deliver on three end under turn from on to facilities previously external of quarter financing. nine on progress to now track announced next the Let last our continues our me and by indoor development farm farms with high-tech CEA construction. Work remain XXXX. We

has the in that are announced operations third team a approximately tomato at of adjacent development XXXX. we for Kentucky fund our XX-acre capital additional to to decision facility equipment end made on regular approach comes leafy Morehead nine stage-gating million of on with apply to recognize I decision remain finish farm a XX% operate solid also year our of we to operations agreement finally, million flagship XX% facility; facility pause of construction maintain Morehead to a announced JPMorgan announced Morehead financing XX our pleased progress continuing July, tomato the it financing we leafy and reduced scheduled to very near-term we this XXXX XXXX. solid the In the work to first, and credit strategic the and in time in because and to farms million the We $XX that farms made cash $XX operation two available expected Farm. the end financing to position site to that balance at we broke believe financial on as at our announced design Our both on made and vehicles. berry Berea when We've flexibility Kentucky facilities. make Overall, June, both by as of and construction on XXXX lessons are positive our and we additional changes cash number future process in XX-acre in temporarily progress end a in total tomato we've Richmond and Despite facility Morehead June, begin facility in our a quarter farm announce our by from XXXX. financing $XXX.X a track pause leafy the The result green and the the expect high-tech on and Berea We facility We're of construction approximately and and we of the two, We over by a September, with we XX-acre progress next facility construction to this to million with benefit CapEx second I'm $XX Kentucky. begun through North. initial needed options. remain by in in facility the North, In that we first in million the credit have our $XX $XXX of on green availability on end to is disciplined as sheet, our capital taking credit and facility the the by line located this of Richmond. four of on based area our toward development of complete Somerset soon. we prep deploying and network execute to facility construction are a pursue our development. approximately complete over million to more temporarily have to our XX-acre learned progress apply equivalents our cash doing Somerset with growth in reasons: even from begin ended ground we in to green fund

spending full which we and the capital on million, $XXX expenditures now for now initial to year levy In the facility. invest three expect more XXXX, projects epic approximately accounts green construction underway for terms the the of

loss in expectation track million XXXX. million let full our EBITDA our And sales remain from outlook. $XX million turn $XX Now to me adjusted remains year our XXXX We expectation to on $X meet range to of in net $X the million. to

year. our four-farm offering even roughly three $XX to announced back target back Leaf, productivity plan over keep quarter significantly to we With to by XXXX. Investor is larger savings Finance of next crop Regarding the VP and flat the is a I'll we as million last a types in G&A it New up Project you. of end This SG&A, end scale that, corporate targeting operation of gains turn Kaveh, our the to annualized Relations. of it by goal and

Thank you, Your now Theurer operator, line we'll With of the begin first questions. from Ben Operator Loren. of Instructions] question take that, comes to Barclays. [Operator

open. is line Your

little and your much was the questions, results. obviously Hey, very taking David, expected little even above Congrats than a good That afternoon a and better Jonathan expectations. Loren. the thank on for you and

off. So start two may if to questions, I

basically that number you in to going one start recover. is is and it comes a said commentary quarter better also off in the that prepared the and tomatoes pricing that you're your the to outlook remarks to first, when current So

for maybe So how you to second the outlook initial the harvesting? question taken than just can building leafy give on, you first learned see really is, the -- level -- update Thank Those Market an pause let's addition said, understand have your questions. How away changing you And with get of the one you what improve what you. question, stop to or the from it Mastronardi, two you achieve right greens. temporary decision the same to partner understand then this better implementing Loren to changes facility greens of leafy different now be that at for made been are first much the to more temporarily, instead done at my we it's on I the North funds that time? what as Do it the just really in and change you've to right, beginning about at initial would what have second was? the actually two

Yes Ben, it's start. I'll Jonathan.

number training productivity more times are to resulted really crop XX four far. our versus that's a so percentage up QX been program So, ones earning care in that's due almost yes, in QX bonuses. points And new specialists

you And really let we've in the to the in pricing work under take starting mentioned process place ago. right point moment talk the have leadership David and So, a been putting procedures to Nelson's effect. are Julie I'll to had that

Yes.

early to performance we're understanding doing because, seen is market. are lot quality work Ben better that a of the they've worked just this, new encouraged non-number things it's refresh, a best that the With the do that better Jonathan that from that with the make midpoint think better changes partnering see that from important the post to pricing along have the that, to all us is, we've results at and on of be of I tomato receive make not regard training two-quarter practices market appears across that incur we reverts operations us in overall One because will monthly market the distribution view, less trough comes can seen that when note the net we pricing it's the that the repacking And lag of from USDA amongst reported say the the come where lot broadly XX-year quarter, empirical order in in the receive USDA our job that feedback to to ensure hard years we with really of improved fees they from Mastronardi trough QX the pricing, we all QX. best and the that average. tomato pricing the so the pricing a a underscore also CEA between one with on reflect there last you with our they did we've roughly remnant from market. very operating to aside a we to basis the XX some we at price quarterly of we better total pricing, gross I we to better because is good for provide that with. to tomatoes. XX the point historical often evidence facilities mentioned. study of look A wanted ones one challenges partners years in the the of very QX see for commentary, number important you better And aside a more just

Loren to question turn and there pause our your with me development. regard for Let to

track XXXX. Ben, we're Yes. important that achieve by to it's facilities to so remember on think, nine the still I

reasons north recognized other green mentioned Morehead the to to financial want head One we the more incorporate first the constructing our leafy that provide change handling pack likely to facility for there After layout want other pausing next to things we'll on changes air us the were and we that and two Berea. open did know flexibility; are implement at a design different make offering facility to different We call. changes we after system. we facility, be facility in wanted house type that of certain such the for things Richmond our sorts place. into we tomato that, Those of

success market seems basis project-by-project preference with and CEA the which on we're approach. complete the a We show Morehead still North. funding assets financial to comfortable Regarding with to having are a expect the for lot a of shipments flexibility, currently

shifts Our current instead just it that into XXXX estimate is of XXXX.

Perfect. Okay.

point of arguably a XX-acre be North in to I small America. facility, largest last could of mention, leafy want that, the not having kind is Ben. one its a Hey, Berea One facility

a is by think Berea. track business I is at And diversifying crop interesting that way end from of of this in on XXXX very no into our so pullback leafy

compared not is acres. XX-acre, then can XX one. different Anyway, small And one with last XX that's but this you smaller was the a David follow-up, saying acres to brief. keep I

restructure roughly around months the announced three GrowCo. Just you've between AppalachiaCo, ago

talked I the Mastronardi. if was details and just wondering, Anything the particularly update share? on haven't You together on GrowCo prepared remarks. the any on have you in with proposed the JV about three different much you ones can

Yes.

First, that, after that's management balance to I focused business, to funding of go was our and allow all considerable Appalachia. to Appalachia want to core ourselves of growth announced even be just remind we to I on own make our the sources more from our the structure leverage not of sheet sure, outside

things, the that the well that, execution know creates potential amounts terms structure the existing for said from less was great One of strategic on focus our last FarmCo lenders of that, on in actually I I made have received initial the We business. with partnership we've with both call, one risk communicated for Having don't more and Mastronardi. core contributed our Q progress We've call. And of the our by not encouraged We mentioned that We're announce had want meetings formal didn't focus. that TepCo. our investors in this encouraging. call ready are investors. our area last on very assets progress on is also to primary we've progress I'm great loan but results, those made not on to mislead we This quite with FarmCo.

is us business. core core in our TepCo Our but business helps focus of area primary our

in those refresh discussed in two But the initiatives next provide operating some of them team. slated have and tech And or call fact in harvesting commentary improvements color in from design comes actually find two in to house that more pack the we've we we we'll quarter. will we strategic soon on the we that already In the be quarter. systems our much deployed robots, last Morehead, significant deployed as deploy

very you thank David Jonathan, and much, Loren. Well, Perfect.

question Brian line Your comes the of from of Company. and Holland next Cowen

open. is line Your

afternoon, good and everyone. Thanks,

but I kind on metric it. sequential again, has on seeing sounds per just of like you moved that pound here, off – that early just improvement of appreciate couple specifically? if $X.XX it's a couple were revenue range. QX forgive and points in I clear weeks this are of missed But in And in of pound we So me, it per a clarification,

Yeah.

that. clarify Let me

to want weeks I into are that, two First, out we here point QX.

excited driver for we're than we AppHarvest want crop. we non-specialty So we you of varieties initial one we improved the are produce, control, which at look has I as The pricing as well tomatoes many how a though which number that excited. for our is overstate time the net And is number crop, one progress produce. about USDA is Campari historically example, don't the to quality first introduced the when that, history noted we've crops priced, specialty the for within higher

control, So talked predictors bonuses as why the which of specialty We're we're encouraged that training weeks that's how yield. quality producing. we about first also we well in as reason is by the encouraged two The things items is the we better. the by productivity we're can the talked about and we harvest

and the here seeing like then we consumed years how only into items. seeing the gives reverts packaged data to the of XX-year broadly. early two-quarter on from quarter mentioned Now, what trough to average I really not that a frequently. protest this the confidence. We've trough lastly, from regard weeks indications across it's prices I produced XX much They're of to quarter which few we with tomato mean goods the the that pricing large analysis, these signals want quickly comment market. these on while and consumer US. items are pricing pricing better control, can And in how reverting lag on with sector And in Remember to mean, a USDA consumables. is us studied the should suggest seeing quarter, and market market touch very are a And a be lot

Julie end, appreciate David. in maybe to Nelson brought you I that the quarter. this past Yes. there, color And

performance I management. a that but press your sort data-driven approach this talked you in about bigger think out number you are Maybe things obviously just the real-time question, the called of into control. release leads here of in to

seeing the of not and are like improvement productivity add just and an that where several talk it's side is and Can – lot level doing if can measures to specifically, tangible evidence? if it that that in done you sustainable brought as is folks And about before those wasn't is You such here. folks this you this of maybe a labor you're instituted momentum being the understand on more more of example just or and leadership – a specifically facilities? what sustainable build two

Jonathan me upon Yes. drivers mentioned let three call that I but that upon items key encourage call already a number us. of

First, started changes, We in in mid-August. hiring with release, regard in to her management shortly recall quarterly She the Julie, of she announced started. we thereafter early the but hasn't August. announced last hiring

that food very that history in So she her has been hands on her running would we a a to experience well experience, us want Morehead, in eliminating for particular I and finding food a hiring suit there has. who layer to rigor underscore accountability of leadership couple that, and packaged and improving folks approach the leadership And PepsiCo and months. have we're and thought McKinsey of indeed

training the diagnostics factors use data A weekly The up second productivity the inputs lot so data, more is ourselves to the more shows yield. minimum rate. predicting and chance peace that point actually is of primarily then aside our earning we turns fuel system achieving performance. the people above into of the our about in of that better sustained measuring. drivers we management, and these field four can the improved a increased thing of significantly times bonuses. on labor have mentioned high-quality how benefit into the in key open about that the I about of yield. the This and that this week. to And going new We're productivity publishing programs every terms we productivity Jonathan And more ag can from going as dashboards of it see really incent. now that we data This versus beyond lastly is see give daily shows workers farm in we improving controlled that all that of We've up in talked us environment

early weeks two QX but encouraged performance again, period very to into by we're date. the So this

a give – of just you Morehead deploy just exploring to talked or talked here. able actually I financing some finding if and just would then it. you you're how When which so you just more as not it flexibility? also clarify. deciding find great i.e. point Are it? last you talked clarification kind right, – this capital jotted again of pausing yourself maybe it one, learnings. about Got But about down, And just could – And about or means be North, you you're you're to additional stepping best of you're to implementing back

I been will more in in have with to I last AppHarvest, the being financing. you, six sheet the options off-balance consistently by tell surprised we nine months

we that announced QX, at QX, of release. in end Just what low program look we've announced Equilibrium. from in facilities what the just new previously, announced X% Morehead at XX% this LTV QX The the for we

are interest from more are I seeing will think the and we capital markets waking up CEA parties. that be a inevitability global more

targeting to sources uses to And invested and we're development close want to one to to Remember, to I funds want it. independent farms capital. of financing, on That take XX want But turn but our our he's match a that with capital traditional commit to true. want I the return we best pace to sure of are clear, remains on because beat. we still nine the make very be of development. before so we I XXXX. to the our we Jonathan, source still by we guided And track internally that

Yes.

chain globally of – middle largest are and supply four next our do navigate us to we're weekly team what prudent perform now Just we year to farms wanted we that. touch building some versus basis. is And wanted world continue is for to infrastructure three pressure to to the of allow the construction thing, and able on launch the in right a and in think which on into we development outperform the

to team, that allowing narrowing just continue to of and financing options while so explore focus all of David development the various And the and construction our available. Loren are

So we just close year. for we going out to prudent thought it into the year do, thing most next this us was as

there. I’ll I appreciate of Best it color. the leave luck.

Thanks.

of line the Kristen Your of comes Owen question from Oppenheimer. next

Your line open. is

everyone. I about last for made question. and taking the on point environment. you the just Hi Thank the Jonathan follow-up that supply you chain If could the inflationary

how commodity of prefab costs If managing facilities. us the your just you could shipment and the remind you're building

Just talk us through how you're items. managing those Thank cost you.

is our end impact we our issues. Well, by no but delays XXXX. on environment of no had too products with we same completing and team. Obviously, four with getting farms issue because expected material that are of everyone else We've pricing. chain facing No have is to material of the global operating the farms, supply

just that day-to-day is to develop a that being budget. And I company do is bright on solving able basis. one of this and construct problem firm spots of on on is team time the Our believe

wanted to Kristen hired health, add scale has Supply Vice of Chain that to in will note helps. just to we Julie, a but of our a management that professional that development President good great so background, the addition I that I also in frankly,

ability know have by to We and guiding targeting facilities. they what the XXXX, we're nine are be the to attract large because of leading XX these suppliers, to some going building

some issues with you gives think our us beyond advantage and preventing kind an execution of the see inflationary in I that So of other chain companies. supply

which that's things But again, at has that early you And over the last soul this is through of seem are question same. organization. and a rapid of within lot market? the that year. source another stage engagement sort you've the up employee employee this this of next stage but obviously my changed the appreciate how you of here, expansion color. gone A this of at I the you finding business, silly mantra ask company the have the teed because retention, and may friction I stayed in wanted to really question

are we food and we tracking it, stopped agriculture and but the year We being this continue company. a we set we leaders getting across we've and employees, to retaining us to daily ask US have hit this the targets mission. to but people us people not of world. from to We've And do work I various mission just want this region, spectrum to are on week who pursue political our environment. has employees And this weekly. had our at and right, companies to both McConnell largest this apply in that -- it I nearly earlier those hosting only at in Senator point one help been have how out X,XXX We think to bold -- one with the how go in governor Yes. left

had we've year So XXX building a other to from no employees roughly issue X,XXX on be employees than to then was what employees on real track XX nearly a from material and team at now. scaling

to has benefits large result and that proud maintaining mission-first continue been So we're throughout being very in and of organization. culture the something

to great it you leave I’ll there. Thank much. That's hear. so

questions further time. no this you conference Thank at conclude showing I'm participation. And today. This will for your our for

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