Missed by half
AppHarvest reported revenue of $3.1M for Q2, an increase of $0.8M from Q1, but less than half of the implied guidance for the quarter. AppHarvest produced 8.6 million pounds of tomatoes, up 126% from 3.8 million pounds in Q1 as production ramped up to the full 60 acres in Q2. The price per pound for tomatoes fell 40% to $.36 from $.61 sequentially. Realized price was impacted by quality. Adjusted EBITDA was a loss of $22.6M compared to a $1.6M loss last year.
The guidance takes the run rate down by another half.
Management slashed expectations for 2021 but maintained their outlook for 2025. (It was a first for us to see current year expectations slashed, but plans to remain the same for four years.) Management lowered financial expectations for the remainder of the year to reflect lower price projections and higher distribution costs. Management now expects sales for the year to be between $7-9M, down from $20-25M. The revised revenue guidance implies the 2H to be below the 1H, despite Q1 not having a full 13 weeks of sales. The higher end of guidance implies Q3 and Q4 combined will only slightly exceed Q2 despite one of the benefits of an indoor grow facility's absence of growing seasons. The adjusted EBITDA outlook for 2021 was revised to a $70-75M loss from a $48-52M loss.
Changes coming
The company continues to expect to have four production facilities by the end of next year. Capex guidance was raised to $185-205M from $145-155M. Management announced several internal changes to the lines of business, reporting structure, and new business ventures. The company will launch value-added products with the produce it grows, establish a tech division to sell its technology to other companies, and a growing division to expand products.
There were signs
Investors who did not get past the climate change narrative missed very critical signs. Management provided very few financial details around their plans and projections. What they got instead read like a trailer for a climate apocalypse movie with AppHarvest’s grow facility starring as the hero. Management said their near-term outlook has never been reflective of the long-term value they expect to create. That’s a fair comment, but it is also why I have said the company went public too soon.
Plenty of cheap capital to destroy
We are moving AppHarvest lower on our shortlist because the rate of change will likely be less bad in Q3. It is hard to see worsening trends since guidance implies results are down by half again. We remain short because the company is still far from establishing a “proof of concept” in the actual results. Yet, the company is accelerating its expansion to four facilities and destroying further capital. The biggest positive for the company is that it continues to demonstrate relatively inexpensive access to capital.
