Earnings Update - AppHarvest

On July 23rd, I published a SHORT thesis on AppHarvest APPH 0.00, an indoor farming company based in Kentucky. You can find the article here.

My SHORT thesis was simple and can be summed up in a few points.

1. The company is too new to validate financial projections when they only have one farm up and operational and still needing to raise money for additional farms

2. Unit economics look good on paper but hiccups frequently occur and 4-wall EBITDA cannot be validated until kinks are worked out

3. Risks associated with energy consumption (directly affecting operating leverage)

4. It’s still a premium product and cannot be certain of price-conscious consumers willing to pay up for a highly commoditized product

5. ESG play is nice, but it’s not solving world hunger anytime soon

Sounds simple enough and as of this morning, the thesis was correct and as of this very moment, the stock is down 39.5%.

Earnings Takeaways

• Delivered net sales of $3.1 million (vs. $5.9m analyst estimate) on 8.6 million pounds of tomatoes sold, concluding the abbreviated 2020 planting season

• Company reaffirms long-term 2025 outlook but reduces 2021 outlook

• Recorded a net loss of $32.0 million and non-GAAP Adjusted EBITDA loss of $22.6 million in the second quarter of 2021, as compared to a net loss and non-GAAP Adjusted EBITDA loss of $1.6 million in the second quarter of 2020, when the company was still pre-production

• The company adjusted its full-year 2021 net sales outlook to the range of $7 million to $9 million from a prior range of $20 million to $25 million

• The company also updated its full-year 2021 outlook for Adjusted EBITDA to the range of a loss of $70 million to $75 million from a prior range of a loss of $48 million to $52 million, driven primarily by operational challenges encountered in the abbreviated initial growing season and the decision to dedicate a portion of the farm to the noted strategic investments

Conclusion

AppHarvest is a good company solving real problems in a way that we will need to scale drastically in the future for many reasons. But just because I like the company, does not mean I like the stock.

AppHarvest will need to really show it can scale its business the way it has planned to and just because the company has reaffirmed its 2025E projections that don’t mean anything to me. Frankly, they are just too far down the road to hold much water.

They have delivered on raising non-dilutive financing, a plus, so hopefully, the rest of their initiatives will take hold. After the 40% drop in price and covering SHORT position, I’m tempted to take a LONG position on the company in a purely speculative manner.

The company will do great things and I’m eager to see where they go and quite happy that the SHORT thesis was confirmed.

Disclaimer: I do not currently have a position in AppHarvest (APPH) at the time of this post being published. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from the Substack subscription). I have no business relationship with any company whose stock is mentioned in this article.