AppHarvest (APPHW) 4 Aug 222022 Q2 Earnings call transcript

Good day, and thanks for standby. Welcome to the AppHarvest Q2 2022 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 [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Kaveh Bakhtiari.

begin. may You

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

management Eggleton, Founder today of Julie Board Nelson me several Officer; team Officer. President; senior including; and The Operating Loren Joining Member and Jonathan Financial CEO; and are Webb, Chief David Chief Lee, the members remarks no We'll available investors.appharvest.com. we'll call Please there prepared is at begin then our call. note today's website slide the investor on accompanying open release to is presentation team questions. from with that the earnings

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

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

Kaveh. Thanks,

region and require years recognize to facilities we Kentucky. not from Though damage massive relief who into the Before to flooding, Eastern around we those about by made have will the the of start massive have contributed efforts to I that by detail our thanks inquiries to if recover. not go any well-being on the me identified quarter, months devastation saying let flooding impact our in is caused and

Kentucky team We like Eastern who are encourage those organizing relief of for Appalachia, fund. help those days efforts. and you crisis I Kentucky's towards foundation to consider would team our flood direct the to volunteer donations, relief with for mission

to opportunities following details on can Facebook social and media Twitter, You support ongoing LinkedIn, our by recovery more find efforts Instagram. and

AppHarvest The made in second Turning the quarter. team forward strides significant now business. to the

results Morehead, We operating improved continue to our deliver Kentucky. farm at in

progress our quadruple our opening would those by by of will We the the facilities diversify farm berries on development And year. adding end continued farms new our and farms more also as making greens, three salad tomatoes. as cucumbers crops by well that

in been good financing making We to the on including have non-dilutive expansion also million support securing USDA-backed progress recently announced our loans. $XX

in million second sold tomatoes pounds XX% a to increase quarter, sales year-over-year. the and we million six quarterly of for farm from Turning net X.X the Morehead

make in selling progress team detail. reducing distribution Our Julie continues to fees in more will which varieties, review in improving quality, higher-priced and

Importantly the home this development. quarter, entered farm for our stretch we new

to interest this well. year-end begin Berea top and expect first from salad are of visiting who shipments the to enthusiasm be QX, to soon. tomatoes of national customers green farms continue commercial lot and a Berea, strawberries Somerset and quarter. been In expected shipping as Richmond begin have set them and We with operational by Somerset farms Richmond will These its have generated

and to instability inflation, to for demand locally our continued operational more the continued sourced and on water of have add to vegetables serve This including recent quality network produce US. the quarter served increase that and we've to the sustainable headlines restrictions to high-tech maximize for only our fruits focus use interest. in Demand produce fresh has execution growing expand and geopolitical to farm yield to and

represents a also publicly On score of announced corporation a status, for of way initial which that's B-Corp in certification planet B-Corp recertification that improvement we in benefit traded a June a priority a certified. Finally better do XX% people continuing top over is with and only remains one of of our ours business to as of handful our X, XX.X%, XXXX. public

Oversight about this wage all increased encourage I proud AppHarvest results. record expansion. a in and on stakeholders, to that a to Directors now report we third designation, especially, a established and and network read and time and our level more farm area, strong in Sustainability area Board of production QX President, we David progress our Lee David? Additionally, track more company during of certified in share issued our I will June. sustainability of detail I'm our this Committee. earned living continued commitment, ask

in with compared resulted to Thanks, increase quarter continued AppHarvest the and strong year. the raise to a sales at bar team The second in labor that year-over-year, prior improved the in Jonathan. performance, Morehead net XX% delivering trends operational quality

while We challenging to all also continued expansion, issues. by chain, environment with economic navigating network our characterized progress, farm supply and an make inflationary impressive

we AppHarvest's berry moment, will Somerset one key our fund across $XX will of on a have the million, delivered means completion I'm that last of in more Importantly, on also guarantees to farms, ability well, with XX-acre incumbents pleased secure priorities our online the to lending farm. from growth, to model to sheet our but late this USDA with share on domestically grow closing and by a environment. security week, positions fund a resource sources non-dilutive of Loren, loan balance In water two we and team's against business cost to cost bring new period our three food lower global, year. expect geopolitical limitations sell higher with in us of we the disruptions, conflict, funding, believe

more network FarmCo. on previously deal progress economics. the scale unit national made If broader, give have to we also venture announced completed, for and AppHarvest a this expect joint attractive potential We footprint additional

We FarmCo have investor. capital expansion. to of benefit if for closes, with the are And institutional additional expected negotiations, is committed an also it in exclusive

for controlled farms. part the agriculture backdrop, is available become US limited growth environment in it's our where at grow, to that domestic by time underbuilt, large build need the where significantly the remains With and capital continues to only, the clear AppHarvest line new and

and to in consumer year, and consistent, fresh the consistent we in the top grocery almost we harvest at demand expanding like up, coldest the the facilities US, when offer. an more in sales operators commercial believe CEA to made We've meeting with that year it the expect operational can the at largest for Morehead, substantial as are the our chains net consistent and scale, local months of ramping quality, the new one execution open through of that our we more CEA progress and As year. that this this farms comes restaurants year-round produce, three advantage volume,

structuring, pipeline, to that piece, with more And if our for are ask Officer, on a like our back improvements, operational project On progress to this to venture, business, Operating significant detail completed The core the fundamental the we're Nelson, our if highlights. in achievement and key of is Julie financing success. the joint potential Julie? FarmCo new the review I'd driving Chief shareholders.

metrics. you, distribution season Thank key premium fee our growing at productivity on David. operating our quarter, year-end the second labor improved the In second the prior achieved six increase and harvest Morehead, reduced sales year-over-year. enhanced tomato XX% overall quarterly of stronger results of in year, several pounds This additional quarter, million percentage and percent an versus these price increased tomatoes and team We varietals, net from sales our tomatoes, The market tomato higher-priced of represents, at grade a of sales through $X.XX drove net pricing increase to in training pound. compared productivity. sold per last a

our the these improvements the in QX. from million in to reducing by together, original X.X helped The XX% plant prior effect overall pound some production issue in plants versus caution. was condition our of of higher forecast, we XX% to overall impact area quarter some this extra XX% the abundance our yield, XX% the our of we to that of of offset Taken XXXX key to slightly an affected year. the health than the as in issue ultimate yield, in was us reported removed That driver,

Loren extend quarter steady to we and we begin see third second longer in will longer into rows day-to-day strategic improvements of overall in we second performance. the made a the of soon. some outlook of to season the the maximize our expect run from to means of replanted the season, the the than detail any Additionally, benefit that no planting production to original cover growing greater the Operationally, shift third sales harvesting impact net our will which sales which quarter, decision portion This the a continue rest has crop, moment. our in not

and Our percentage come are has translated learnings room last deploy protocols facilities of has same quarter for this as packhouse the which pleased across an making reduced steady growing we online. including efficiencies to with I progress, network key new believe they our as improvement, tomatoes improvements increased still from premium seeing training three enhanced overtime. both versus our and I'm sides the year, on and We're in productivity, impact. as

five available it and factors, commercial an to sales but may that's it's tailwind The serving due large to increased percentage to a shipments customer as of percentage As direct first of percentage a it's us, key direct from quality we transportation points over the versus Shipping quarter. also costs. fluctuate net last high our our point, a to lowers direct by shipments quarter-to-quarter option is execution as level at and increasingly accounts national improve.

digit For comparison, year. in our starting shipments percentage when out direct were we the single of was just last

outlook the CFO, who performance Loren? will detail. review Now Loren in our our Eggleton, over and I'll turn to financial call greater

stronger on briefly for outlook. and our second tomato tomato to of resulting at The XXXX the varieties quarter progress million, lower same was year. higher-priced by by Thanks, Julie. Morehead last reviewing compared as quarter last in enhanced market a driven achieved update development million start $X.X and then quarter I'll in We pricing the an overall distribution fee. results, second give selling net sales discuss to productivity our compared improvements and year, a increase training $X.X

last annual as increase through Through approximately to the versus to to $X.X of in on quarter net the offset quarter related our savings million million, $XX costs million an announced trimmed SG&A basis. February. prior net $XX.X expect farms baseline restructuring loss from $XX year-end. a of this by online EBITDA $XX.X preparation in million than versus of Despite the to we were growth approximately able and improvement rate year, realized loss investments of $XX.X three new loss to year, be June, adjusted second second we despite million that our year prior the run was we we and expansion savings expected more continued our million of The opening

that complete; Richmond, the and complete; XX% Kentucky is XX-acre end Berea, Somerset, green XX% XX-acre the of berry the facility approximately about tomato development financing. Kentucky be network. salad Construction me on previously on next to turn progress to farms Let facilities and three expected by our announced operational our additional the farm CEA farm are XX% will our is Kentucky is The facility quadruple continues year. XX-acre The about complete. facility

facility additional We each quarter. expect acreage that time. expect approach, the that full Similar over at we first be the starting to kind to ramp opening brings up facility of on a with phased the of will this Morehead, this XX-acres opening phased at Berea the

and with about Turning million, facilities. to quarter the equivalents $XX the our remaining million balance We $XX.X on with cash credit sheet. ended availability of cash in

we committed million During equity sold that last B. facility $X.X with the we the X.X via for million Capital year. quarter, shares established Principal late Riley

terms full approximately that balance projects we the for $XX CapEx, $XX be Of approximately three for we total, year cash. the that In capital million with to of million remaining remains funded expenditures construction $XX the sheet to completion anticipate which of million this underway. accounts estimate in XXXX,

in quarter credit existing our and satisfy facility upon USDA CapEx of recently balance XXXX balance loan with total satisfy cash USDA that on to The in from closed the needed of of a would our draw in majority to loan JPMorgan cash We we to arrangements net release approximately collateral cash estimate pro a cash $XX that approximately CapEx. the $XX line guarantees cash equilibrium million estimated sheet million, draw million As be $XX our of forma this amount. end for million balance. $XX in will our

the our set of USDA financing addition loan strengthened available options. we the of guarantees, With

also we last to facility addition the network facility from farm, as Riley, the today. that on equity in committed liquidity In to of greens with our realize intend our Berea remains salad unlevered availability the B.

at Morehead sales outlook reflecting plant from initial supply adjusted net our guidance and and closer Now to chain affect me now to sales expect XXXX three to the from tightened of $XX million incremental the outlook. the impact be turn full net end have We our commercial let to timing our range XXXX full issue potential yield year of shipments that original year to lower could new EBITDA million health $XX farms. and our delays

EBITDA expect adjusted maintenance million the adjustments the loss also of guidance lower reflecting our for $XX the to to we loss year a Regarding now outlook end tightened million $XX and of mentioned. the With range and around net Bakhtiari. of our Julie cost to back Kaveh turn higher of end sold Relations, VP impacts inflationary season sales the I'll improvements of over goods it that, Investor

Operator, Loren. we'll you, now Thank to questions. begin take

our And Instructions] Ben comes of [Operator first Certainly, Barclays. from Theurer question

line open. is Your

Yes. Thank you good and afternoon. very much

families and get it's there's worse floodings -- First were weeks. all with going of and all, you hopefully to the your in hopefully not coming safe

And potential on and much EBITDA revisions ultimately issue so just was Now to how if the for much of hoping outlook facing That or chain the on into much Thank into you. that that need be which is think that changes obviously be on the as some by get delays top up delays potential the in that's was facilities on? the if how as you business and understand out we would would of how ramp-up not external, supply revision? some number and -line were frame then question. and you on control. supply as better little of of guidance just us much on chain is you maybe the running bit internal maybe an the being I clarification minor certain to inefficiencies three initially can a -- external But you just time caused to help of you're maybe attribute factors first my look some those to understand of internal constraints can to much how with time on obviously

pleased safe is very we're some Julie reason you why This Morehead. are to our guidance, that increase our was met XX% that on started and Ben. farm through statement I question the Thanks, QX remains we first noted, sales of largely so to thing facilities is the the health you And first close our emphasizing with appreciate heard regard David versus heard XX% With is company. with here intact. in plant to damage in But Lee note expectations we to regarding of there our our net XX% far XX% you performance we through the which this while think Loren's grateful as QX. out community and you in the your mentioned amount we commentary to

as So better we off. really and you our in strong on And I'll remains core are healthy better business farms and the operating part leadership getting like very output its one we're XX% that core at mentioned growing our farm through Julie control shipping our we're is Richmond and her our productivity and realizing, pay labor new Morehead. facility. is things This beginning note amount recall on and the to that our direct we're the is in as of and the existing similar pricing

three to believe QX year. heard farms we running still and harvesting intend began the You of the and in of we targeting issues" start-up those in farms. have we "potential heard we calendar this which up are also chain guidance expect our And to you've supply talked that output the that about in still

I matter helps now be think there those don't the new can to color is but of some we significantly to still a tempered calendar our sit wanted we of from are statements out in around know up use you try facilities So in expectations I expecting months that infer the to give by what's where to the lower given tightening timing commentary. publicly year. if on the I you that range that start-up end driven

I was then may. second Thanks And good that that. for No David. Okay. if question very

just working case -- you've you've on been was and on quarter, improvements which the good operational well. XQ benefited from the the as a side, the relatively obviously, this well what pricing and as On in already environment

to your amount versus this you So, target. quarterly the premium. out to side what's to if with say x in of do can pricing is be would control degree a want on. on your other which this I that environment think is where you harvesting. volume want get on we of about what the basis part efficient internal as I a think health and plant on within I get efficiency of the stand you to my while terms control, out you so want on control,

an where So, where on we single optimal operation? with understand we in that stand do the more just of journey of could to a be one facility environment

This you, is Julie. Ben. Thank

on focus sort improvements operations Morehead. is quarter-after-quarter really in metrics steady paying continue on our off mentioned, see David importantly, sustainable As and our core we of, and labor to

room and continue so packhouse of happening we're execute. rise this additional excited tasks Our to our in the productivity continues quarter-after-quarter. we're to as rise our productivity we is while in speak have And importantly see our grow and to the complexity importantly increasing do to to farm the frontline

prepared additional the in the in we planted season. varieties and that this mentioned we further plant amount As premium increase Richmond premium Morehead in in next of to we and expect varieties comments, the year have for Morehead

that And so our overtime frontline, that the improve this element decline and sure we've our of engagement a of the to grow. on seen of eye we're I'd with significant. to our absentee to while sort increasing which close decline is that also we productivity complexity and also keeping an we QX hours the continue add policy in that crops we're is make rate we've as due seen well

that -- data quality, back one. less QX, things Direct we USDA we in. not job. means job about to about productivity at market its is three market has a exogenous you'll there's you her she's is the recall that step a asked whole is that quarter jump that consistently sales widely of Direct higher factors, That's a of know that plant traditional That exogenous Julie let Julie which and market been David. and from levels different look but tends B you amazing beginning as fundamentally up stakes But varietals Yes to But a pricing the previous market an enjoy fruit. to see you we're done being if releases, quality rational for And and these in Richmond. two. that pay can for number learn, really the control think on is frequently. third in the Ben the don't has the we we're though was revert exogenously market that to QX, pricing, part year-on-year. great consumed you control And for contract done us are of That's This -- then to shipping. just QX, within priced or me we our net team about. have talking shipping logistics. higher costs for are there Morehead continuing quarter not just less in different the willingness to

control a improve So, team. more say seeing is I improvement lot mentioned that there to a as operations but our room there's lot we would from steady we're Julie

perfect. Julie, thanks Thanks Okay, David.

will question from come Holland next Brian our And & of Cowen Company.

Your open. line is

Yes, I'll kind you revision question probe to on for afternoon to guidance tack thanks. Ben's during of, bit this And and and the and the topline. Ben's wishes could thoughts your time. on if just also community I here a Good further best echo on

more execution execution expect facility. the the progress this you'd that as coming product new like sounds is like of from about sounds three not It it that good subsequent commercializing it's that's resulting out So, is performing there.

that at that of you help the understand So, about number that. changed part down, would any you QX QX point I'm feel like because me the just from of is catalyst -- guide that presumably correct been bringing the anyway. wrong some for But have if to made us what that assuming can

some like push this a it's seems really timing So revenue of out just this generation that next would year. to

what's understand behind curious Just to that timing?

Brian. Yes,

all projects, speak, construction these so the kind the we it's of supply land -- know As we plane, to chain next issues. on

just slipping XX% Our put clock. team this And incredibly everything get square designs, of on facilities something going talking feet these has leafy diversity close go completion managing three those been And fine-tuning as to launching again, that green that a we're has we're And really operational projects different at making actively million this But we're just the complexity all product in we on in and very going teams plane crops, of coming them. to facilities be several year all on are XXX%, like just real to in on managing of we're been some that bit to landing be but three going three three but from around anticipate facilities so and David crop you as in mentioned, but all time. three in already of has construction. and the managed little to with our those got well, perspective, in timing vine line. the closing all this the the berries facilities operational selling live to of these revisions and QX, year and of we're

there. I we flow And seeing we specific to to EBITDA the point that that there execution more about incremental is less that board? Okay. pressures presumably I would cost we're anything any line, appreciate the mean just and issues I as just on about it's down color.

new would you that just to our core from this year. think done adjusted they're know [indiscernible] I -- that largely comments line EBITDA the great our job. the three if articulating, adjusted line, way was even you going about But, these all be characterize business a time the facilities Jonathan EBITDA has construction Brian, to for the want characterize part the public strong, I execution that up

know be are that You to several harvesting soon. going

week as in adjusted well or of on lower targeting the could guidance previous the end both a a as on line us range expectations approach even two in So, and change by EBITDA. result top

shocks our disclosed We business inflationary not have any manage significant our model. large We inflation quite to well.

be function as been in that new versus of fundamental facilities would that's part Now, business our a of we all our this inflation, continues which really a issue core not timing And have to characterize why has strong. I but on disclosures.

Okay, online starting got to out peers and the it. I speak contribution to Thanks financing moving can't funding started subsequent the for about talking we're look farms securing in subsequent about pushes what Is color. getting I from side, there? year. any think from year, next provide line for and but Help directional beyond this guidance guess can model bringing on that kindly far the how facilities. out I us there time have to my you

just Brian we said want And Yes, I'm can. that, to remind economics. I we you unit sure you remember on what

So the here greenhouse, produce proven what economics. we're large talking about new glass that's and positive technology-enabled Dutch when is unit

use look after unit the glass good you in set the commissioning new about at economics in year If new forget us, look a plus we've at empirical industry, that you seen industry like technology scale if at proven evidence have about -- the those what like facilities large said, three ours. Dutch of

very to Now longer automated globally. our sometimes for in vine facilities for which recent be been leafy, in similar what more and We've tends that expecting been see periods demonstrated has empirically from perhaps some you green time periods shorter consistent crop. varies, guidance

frame -- we the we us, capital three the commission. when that over facilities. And from begin know significant the of for new think that these think that from life on So timing we've the just of invested the facilities. that we contribution I to positive and I can model disclosed the timing return timing you helps. Morehead of from farms expect to year you And about three-plus come time hope is

back Understood. helpful. Thanks Thanks in leave and Okay. everyone. I'll there the get queue. it

question come And Kristen our will Owen of Oppenheimer. next from

open. Your line is

come question afternoon. I interesting to quarter. second but costs or the follow-up you've cost you've the you into apart my costs. that about? what into this I should had EBITDA really that maybe EBITDA you around just you've restructuring, with some about or XXXX? that the per what costs year-over-year What think of And Good economics in less ramp and should about quarter, piecing will from I'm the Hi. also progress sticks ramp improvement with unit we next a think the outlined se, as echo your wanted wondering we thoughts A how a savings made perspective on described community. lot but year? of Loren what other going about

Yeah.

just think how maybe expenses as quick basis, terms we'll of year the on in quarterly I about rest talk think well. a real we about So the of

the of small year. will turn crop quarter higher of at similar and QX, the our lowest out be year refresh the of In portion to So this of Morehead very have of sales we'll because of Berea. a small QX, potentially sales QX last amount sales amount year and a

with largest QX our expect by We be then. that expectation sales farms will that to-date quarter completed all the are and planted

about terms operating expenses, think you're run asking which In of I rate kind of here.

of I expect from get going of kind to to kind we've forward QX, that's where would that we our would We of see once expenses. measures favorability continued run year. operating and QX we the QX rate be kind cost expect in into this saving that enacted in first on say of half

our with would in adjusted range. think In QX, in EBITDA QX what with that line terms loss making the of QX with be guidance I EBITDA adjusted relatively loss difference we've in up seen

a I that to That’s wanted of financing about ask about this about sheet to this really quite with also management, the you that like-for-like ask just not you wanted helpful. week. also week. sort the facility. announced And it's thinking I swap announced JPMorgan the balance earlier financing earlier

your discussed restricted up cash. your in remarks how of think I that some you frees prepared

ahead that seems is wondering related financing. think transaction involved JPMorgan go you transaction now that was I'm that had that would of kind guess I backed secure helpful. forward? But going just template that pretty Thank kind and the you. facility through about have replicable should around how some of confirmation detail a you a it to USDA we And that for that of how additional be process that So like or to first

Yeah.

the through loan getting lengthy very be project. and the guarantee USDA on it process depend So can can circumstances of the

our facility generally Now to are they for in one project available a forward. financing that CEA also of for needs options place or loan be certainly existing Greenfield will These consider these facilities, a new loans going proven an loan the acquire project. that we've continue guarantees we completed

But announced the place, we unlevered JPMorgan Somerset we loan completed coming With available week is just USDA guaranteed could permanent on could timeline. a already solution. the believe in which construction that months exploring one For and in and and loan expected be are under other be we Berea currently currently financing we may options this have also financing the which are a that different us options be take attractive quicker to there a to we easily out.

hope we'll have more topic to so on soon. to share And that

As question, loan sheet USDA out your takes to relates the JPMorgan loan. so it the balance

So with restricted $XX a and JPMorgan collateral $XX was million. loan the cash million of cash

And the up so million $XX cash basis million to a for $XX in a prepaid remaining will the going cost net Somerset with of effectively on that free project.

that process, I promises the we and will going the it haul. long ours back do Hey, Lee. David is with how a outcome. This This to of USDA JPM X% strong think through to why Loren big and And great arduous ag the is I few a can't Loren we're a infrastructure rate underscore days. it. Kristen This XX-year I and finance X% was to for think controlled interest is I a the it's let me to XXX one very proven like that jump between make want The achievement. how team environment attractive the do in. know know facility deal. facility statement

this have So for projects we noted, Loren the not is of for underway as an Berea, non-dilutive just lot financing for industry important precedent I think us. while

it leave I'll there. much. so you Thank

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

may disconnect. You now