What happened
On Monday, indoor farming company AppHarvest (APPH) provided a preview of its year-end earnings report. Investors apparently didn't like what they saw, sending AppHarvest shares down as much as 20% at the market open.
So what
Initially, there was a lot of excitement surrounding AppHarvest as it prepared to join public markets via a SPAC. But investor enthusiasm has waned, and the shares are down 90% in the past year. AppHarvest is deploying indoor farming tech proven to be effective in Europe, but the company is in the early stages of its development and for most of the year has had just one farm in operation.
Image source: AppHarvest.
On Monday morning, AppHarvest said it expects its fiscal 2021 revenue to come in at between $8.9 million and $9.1 million, on the high end of the company's guidance range of $7 million to $9 million and above the $8.3 million consensus estimate. But AppHarvest is going to lose a lot of money. The company said it expects a full-year net loss in the range of $170 million to $172.5 million, including a fourth-quarter noncash goodwill charge of $59.9 million.
CEO David Lee in a statement struck an upbeat note, predicting accelerated growth in the new year.
"We remain on track to quadruple our number of operating farms this year -- adding three new farms that together will expand tomato capacity and diversify our growing capabilities into salad greens and berries," Lee said. "We remain confident in our plan to deliver long-term value to all shareholders based on the operational improvements in our business and significant scale that we're adding."
Now what
The company's tech shows promise. AppHarvest's flagship Morehead, Kentucky, farm has been harvesting tomatoes since January 2021 to positive reviews, with the produce being sold in more than 1,000 stores and restaurants in six states. And bringing additional farms online should help boost revenue in 2022. The issue is that farming has never been a high-margin business, and AppHarvest for all its innovation is likely to have trouble hitting software-type profits.
With that in mind, part of the bull case for the stock was AppHarvest's potential to license its tech and robotics to other farmers. But the massive $60 million goodwill charge is needed to write down AppHarvest's investment in Root AI, an artificial intelligence and robotics company that AppHarvest acquired last year. The company said the impairment charge in part reflects the further investment required in the tech, as well as current market valuations. AppHarvest said it does not expect its robotics business to become revenue-generating this year.
That implies we're still some time away from AppHarvest reinventing itself as a "farming as a service" business, to coin a phrase, and in the near term this is all about AppHarvest's ability to profitably grow produce. Given the challenges of that core ag business, investors have decided not to wait around and see how the robotics business develops.
