In need of cash, Ky.-based AppHarvest sells more shares to get funding for rest of year

Kentucky-based AppHarvest completed an effort to raise roughly $40 million this week in an effort to get the cash-strapped company potentially enough funds to keep operating through the end of the year.

Earlier this month, the publicly traded company announced a plan to offer 40 million new shares to investors at the price of $1 each. Darla Turner, the company’s director of corporate communication, confirmed that the offering closed on Tuesday.

AppHarvest expected to net about $37.1 million from the initial sale, a prospectus filed publicly showed. Investors also have the option to buy 6 million more shares for up to a month after the sale began.

“We believe that net proceeds from this offering, together with our current cash and cash equivalents and other potential sources of financing, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the end of calendar year 2023,” the prospectus said.

The offering of new shares comes just months after the company — which grows large quantities of fruits and vegetables in massive, climate-controlled greenhouses in four Kentucky towns — said in public filings that it was running low on cash and disclosed “substantial doubt” about its future.

Preliminary financial results showed that the company brought in over $14.5 million in sales in 2022, but experienced over $123 million in losses, public filings show.

The company, which incorporated in 2018, has spent hundreds of millions constructing its greenhouses and has never turned a profit.

Start-up companies tend to be unprofitable toward the beginning of their existence, said Benjamin Woodruff, a professor of finance at Eastern Kentucky University. Most of those companies end up failing, he said, but even those that succeed can take years to become profitable.

“They’re just trying to see what avenues they have to raise capital, with the hope being that once this goes for a couple of years, and they’ve established a market, then it will reach profitability,” Woodruff said.

Jonathan Webb, AppHarvest’s founder and chief executive officer, told the Herald-Leader in November that the company will focus on getting their newer farms fully operational. Higher production numbers would lead to higher sales, he said.

Woodruff also noted that AppHarvest is a B Corporation, meaning that it focuses on more than turning a profit but also works to have a positive impact socially or environmentally. The company has been publicly lauded for its mission to grow produce in an environmentally sustainable way while also providing jobs in swaths of Southern and Eastern Kentucky.

“People that normally would not be as interested in investing in corporations, this is something that they may be willing to invest in,” Woodruff said. “But they just need to understand that they’re giving up some profit because they’re doing sort of non-profitable good things as well.”

The sale of shares is also not the only cash-generating move the company has made in recent weeks. In December, AppHarvest also finalized a deal to sell its 15-acre farm in Berea to Mastronardi Produce, AppHarvest’s marketing and distribution partner, and then lease back the facility.

The company gained about $57.5 million in net proceeds from the sale-leaseback transaction and said in the prospectus that they’re exploring other sale-leaseback deals on their other facilities as well as other potential sources of financing.

Two years ago, AppHarvest’s share prices were over $30 but have nosedived since, falling below a $1 for all of December. That triggered a warning from the NASDAQ exchange noting that the company could be delisted from the exchange if the price didn’t rise above a $1 for 10 consecutive days before July.

AppHarvest was able to quickly clear that bar, spending much of the last few weeks above $2 per share. However, the price dropped back below a $1 last week with the announcement of the new offering of shares. Woodruff noted that lower price stocks tend to be more volatile.

Charlie Moyer, a finance professor at the University of Louisville, told WDRB last week that the offering of shares was a “Hail Mary.” Woodruff said he could see where Moyer was coming from, noting that the company likely knows it can’t go into debt markets like a bank to get a loan.

“So that would literally make this part a Hail Mary, other than maybe some sort of angel investor that would swoop in and just buy them out or something,” Woodruff said.

In a statement to the news station, AppHarvest noted that the company was shipping produce from all four of its farms.

“The company is shifting from the construction and development phase to focusing on operations and execution across the AppHarvest four-farm network on the path to profitability,” the company said.