Q3 2022 AppHarvest Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good day and thank you for standing by welcome to the App Harvest third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
We'll then hear an automated message advising your hand is raised.
Be advised that today's conference is being recorded I would now like to hand, the conference over to Travis Department Chief Communications Officer. Please go ahead.
Thank you for joining us on the App harvest third quarter 2022 earnings call I'm Troubled Department Chief Communications Officer for Rep Harvest. Joining me today are several members of the senior management team, including Jonathan Webb founder and CEO , Lauren Egelton, Chief Financial Officer, and David Lee President and Board member.
The earnings release is available on our Investor website at investors Dot at harvest Dot Com on today's call will begin with prepared remarks from the team then we will open the call to questions before we start I'd like to remind you that comments today regarding the company's future business plans prospects and financial performance are forward looking statements that.
We make pursuant to the safe Harbor provisions of the Securities laws. These statements are made based on management's current knowledge and assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations in providing projections and other forward looking statements the company disclaims any intent or obligation to.
Update them for additional information on important factors that could affect these expectations. Please see our most recent SEC filings and now I'd like to turn the call over to Jonathan Thanks, Travis as I believe all of you understand historically the third quarter is a low revenue period for us based on our annual refresh and re.
Planting of our Moorhead farm to prepare for the next growing season.
That is the case again this year and our focus has been to take lessons learned and to apply them to what we hope to be a robust growing season that has already started.
The domestic need for CA continues to grow we believe that the U S remains significantly under Bill it's estimated that the U S has about 6000 acres of CEO compared to Europe at nearly 520000 acres. According to USDA reports the value of U S fruit and vegetable imports.
Rose to a record level in 2021, and it's been projected to keep increasing in 2022 changing weather patterns ranging from mega drought in the southwest of the U S to more frequent flooding to catastrophic wind events are making it harder than ever for open field farmers to predict the duration of their growing season.
And to have conditions that result in quality harvest.
Major food retailers had demonstrated increasing interest in high tech indoor farms for their ability to derisk fruit and vegetable production with a more climate resilient more sustainable year round growing solution that uses far fewer resources and we continue to have top national grocery stores visit.
New farms 165 acres, nearly 8 million square feet that will be the size of our four farm network. Once completed we believe thats the largest simultaneous CE build out in the U S. I am proud that the App harvest team has set new standards for developing such at scale.
<unk> infrastructure, but working to quadruple our number of farms by the end of this year. These farms once completed will diversify our crops by adding a variety such as salad Greens berries cucumbers as well as more tomatoes.
On October 26, we announced the start of commercial shipments from our new 15 acre Bria salad Greens farm.
This farm features a touchless growing system with autonomous harvesting.
We're in the process of opening bria on a phased approach beginning with five acres, we're working to bring on additional productive acreage this year.
At capacity App harvest Berea will have about $35 million latest plan is growing at a time, which is expected to be able to harvest. The equivalent of an estimated 10 miles of lettuce per day salad Greens from App harvest Maria will be used in the new Queen of Greens, Washington ready to eat packaged salad brand.
And last week, we announced the opening of our 30 acres Somerset Berry farm the team planted nearly 1 million strawberry plants for this season and we already have started commercial shipments of wild berries for our customer master already produce in addition to strawberries, we expect to alternate the crop seasonally with <unk>.
English cucumbers construction continues on our 60 acre Richmond farm, which we expect will allow us to double our capacity to grow Tomatoes, when completed combined with the more add farm. The Richmond facility is expected to enable us to grow nearly $1 5 million tomato plants per season, we expect to plant.
The first half of the Richmond Farm. This November we also have been making good progress on securing non dilutive financing to support our expansion, including the recently announced $50 million USDA backed loans and a $30 million loan from Mastercard produce 15 million of which has been funded.
$15 million of which remains to be funded we continue to evaluate financing alternatives, including a potential sale leaseback of our barilla salad Greens farm to mastronardi produce to fund further development and growth.
Lauren will share more details on our strategy later regarding our flagship farm in Moorhead. Our team has taken lessons learned and applied them to what we expect to be a good growing season.
Planting for the third growing season at Morehead is complete and harvesting is expected to begin in early November the crop is healthy and shows none of the planned health issues that we have previously encountered the team continues to make progress in improving quality, reducing our distribution fee and in selling in higher priced varietals.
This quarter, we've continued to focus on operational execution to maximize quality and yield of our produce for the upcoming season, we expect to keep benefiting from enhanced training and productivity improvements put in place. The team has also made progress with robust recruitment efforts to staff our three.
New farms.
Demand for locally sourced produce has continued to increase and the recent headlines regarding water use restrictions and food and security caused by geopolitical instability should only serve to add to that interest I will now ask our chief financial Officer, Lorne Angleton to share more details on our performance in the third.
Quarter Lorne.
Thanks, Jonathan I'll start by briefly reviewing our third quarter results given update on our development progress and then discuss the 2022 outlook. We achieved third quarter net sales of 524000 as compared to 543000 in the same quarter last year. The plant health issues, we discussed earlier this year.
Negatively impacted our yields during the third quarter. However, our net price per pound was higher in Q3 than in the same quarter last year. The third quarter net loss of $24 million was higher than the net loss and a corresponding period of the prior year of $17 $3 million largely due to the change in fair value of the private.
Warrants last year, which was partially offset by lower SG&A costs. This year. Despite the investments in expansion and growth. This year, we improved our third quarter adjusted EBITDA loss of $12 million from $16 $5 million last year.
Let me turn next to our progress on farm development and financing costs.
Construction continues at the previously announced CEO facilities, which once completed will quadruple our farm network. Additionally.
Additionally, in the fourth quarter, we have started commercial shipments at both a 15 acre Berea salad Green facility and a 30 acre summer said Barry facility as Jonathan mentioned, the breeder facilities opening in a phased approach similar to our Moorhead farm will also follow this model at a 60 acre Richmond tomato facility expected to be operational by year.
And we are planning to bring in Richmond online in two phases with the first 30 acres expected to be planted by year end and a second 30 acres are expected to be planted in 2023, turning to the balance sheet. We ended the quarter with cash and cash equivalents of $36 $2 million with about $25 million in availability remaining.
On our credit facilities during the quarter, we sold 542000 shares for $1 $4 million via the ATM facility with Cowen at 360000 shares for $1 $3 million on a committed equity facility with B Riley principal capital in terms of capital expenditures, we estimate spending them.
Proximately 85 billion to.
To $95 million in remaining Capex during the next two quarters for the completion of the three construction projects underway.
50 million to $55 million of which is expected to be spent in Q4.
With the remaining $35 million to $40 million expected to be paid in Q1 of next year total expected capex spend increased by approximately $30 million due to supply chain disruptions construction delays as well as scope modifications related to automation and configuration of equipment food safety and office space.
During the quarter, we closed on $50 million and USDA guaranteed loans with greater Nevada credit Union. The loans are backed by our summer set farm with a current interest rate of 645% and a 23 year term.
<unk> three years being interest payments only this loan permitted us to repay the previous JP Morgan credit facility and freed up $48 million in restricted cash, which was replaced by $22 million in restricted cash dedicated towards the remaining construction cost of Somerset. We also recently announced a $30 million credit facility with Madison Rd Proteus.
Backed by a verity of farm $15 million of which has been funded and $15 million of which remains to be funded in connection with our entry into this credit facility. We are engaged in discussions with Maserati produce related to a potential sale leaseback transaction that we are currently pursuing on the breeder farm now let me turn to our full year 2022.
Net sales and adjusted EBITDA outlook, we now expect our full year 2022, net sales outlook to be in the range of $14 million to $17 million.
Reflecting the supply chain related construction delays that we've experienced at our three new farms affecting the timing of commercial shipments regarding adjusted EBITDA loss. We are also updating our outlook range for the year and now expect a loss in the range of $67 million to $72 million, reflecting the reductions in costs from the farm delays as well as the cost saving measure.
We have implemented in the second half of this year, including a reduction in corporate staff. We continue to staff up farm operations to support the core business since the beginning of 2022, we have grown from about 500 employees to about 700 and expect to be around 800 employees by year end. We also expect to hire more as.
We ramp up production at our Richmond Farm next year now I will turn the floor over to David Lee.
Thanks, Laura.
As we continue to get more experience in this sector. We are fortunate to have access to more executives with controlled environment agriculture experience.
Who appreciate our mission based work, we recently added Tony Martin to the board.
Tony is a cta industry veteran from wind set farms wind said, it's one of the largest CA producers and marketers of indoor grown crops in North America with more than 250 acres in the United States and Canada.
<unk> set Tony supported both significantly infrastructure and revenue growth Tony will have the opportunity to engage with a strong general managers that we've already put in place at each farm and to provide valuable guidance.
As a result, we are able to leverage Tony's deep CA expertise, including the areas of facilities staffing and operations.
It means we can streamline our organization with Tony's guidance, our general managers at each far and we will keep working to increase the level of rigor and discipline in the operation as we endeavor to make fruit and vegetable production more consistent and reliable similar to consumer packaged goods manufacturing Tony success.
The ability to the team also frees me up to focus on LIBOR responsibilities.
Two years ago, as we began our public company journey. The Board asked me temporarily to take an additional management responsibility in the role of President.
I will step down from that role later this year I feel that it's important that I model that cost containment and streamlining thats critical for the organization to deliver shareholder value I want to commend the team for the hard work that has gone into getting our soon to be four farm network in place to generate new revenue streams from a diversified set of.
Crops.
I look forward to continuing to support this team and this mission to improve food security with a climate resilient solution that provides good jobs that Appalachia now Jonathan will close out our prepared remarks.
I want to thank David for his leadership guiding us through the process to go public and I am happy to David Lee will continue and as Hap Harvest Board position, David helped our team lay the groundwork and strategy for our four farm network to put the enterprise on a path to profitability. We are fortunate that our mission based work has brought us such great.
Talents like David Lee to help us get firmly established with that I'll turn it back over to our Chief Communications Officer Travis apartment.
Thank you Jonathan operator, we will now begin to take questions.
Okay.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please standby, while we compile the Q&A roster.
Our first question comes from Bryan <unk> with Cowen. Please go ahead.
Yes. Thanks, good afternoon, I guess I'll just start with some of the delays that were referenced with the new facilities.
I guess I wasn't anticipating.
Kind of the magnitude of impact. So if you could just provide us an understanding of what exactly happened maybe pushed back the timeline as it pertains to your 2022 targets.
Yes, Brian this is Jonathan.
The magnitude is the sheer size and scale of each facility. So.
As the timing on those facilities as we're at the finish line on each project we're landing at.
Jumbo jet with each one of these you have been through and Brian .
No.
Yes.
A delay to get to get each one of these launched is going to have a material impact at the end of the year.
Now the good thing is that that's a short term problem as we're just dealing with supply chain issues example is.
<unk>.
And one facility we had.
Electrical panel that we were simply waiting for and something as small as that can delay the launch of the entire facility. So that's one example that as we get each each III up and online as you saw the strawberries are fully planted so we have 1 million plants now in Somerset.
We are spinning up Ria and multiple phases, and we will have Richmond.
Planted this year as well so all three facilities will be up and online by the end of the year, but as we closed out here at the finish line supply chain issues like everywhere else, we're squeezing us here here at the finish line.
I appreciate the color Jonathan if.
If I could shift to.
Good to hear that the third growing season is off to a healthy start can you just remind us the health issue.
That's kind of weighing on your year to date.
What gives you the confidence that we're not going to see one of those I guess, what I'm trying to ask is if I think about the phasing of the harvest when did that issue hit you last year when do we get comfortable that youre, maybe over any hurdles such that.
Health issues are a little to no concern I understand that that's probably.
A bit dynamic and there's always something out there but im.
Just wondering if I can understand a little bit better how that how that works.
Yes.
Well.
Crops are in.
Multiple facilities now Tomatoes strawberries lettuce.
And the plan help across all facilities.
I can I can say.
With strong conviction looks looks much better than where we've started previously and.
Thats really some of the painful learning lessons of just.
The work of standing up this business and being able to take those lessons and going in to next season. So we look strong in the facilities, where we have planted.
And then we're also going to benefit from a diversity of crop, where we're not just pigeonholed into growing.
Not only one crop, but one type of tomato, but we're going to have a whole host of variety of crops with different different not only just tomatoes, but salad greens and berries. So.
That won't be as.
Large of an issue going forward given the fact that we'll have we'll have diversity across our product lines, but as we start and go into all of these facilities. The plant health is looking very strong at the moment.
Yes, Thanks, and last one for me just thinking about.
Obviously as we work on ramping these facilities and.
You know, it's obviously a tremendous a dynamic environment.
And the heavy lift.
And Brian .
Tough cost environment.
As you mentioned supply chain et cetera, just curious.
Where else, we see room for the either streamline like where is the optionality here to make sure that as we ramp these facilities, we're keeping costs contained.
And giving yourself sufficient runway to scale these facilities up thanks.
Yes.
Brian .
We have the benefit of having our four assets now and moving from a development and construction company to a pure play operations company.
And we're going to continue to work to streamline the business and as we stand up each one of these facilities how can we leverage savings across the facilities, how can we leverage the team across facilities.
David had mentioned earlier, Tony Martin Tony is a veteran that we're very fortunate.
To have here with us in Kentucky now and.
He is looking with our team as well on on how do we how do we better operationalize.
The team we have here across all four facilities.
Okay.
Thank you one moment for our next question.
Okay.
Our next question comes from Ben <unk> with Barclays. Please go ahead.
Yes. Good afternoon. Thank you very much for taking the question just wanted to follow up a little bit on the delay issues and some of the things on the build out.
If I listen to it right. During your prepared remarks, you said, there's about a $30 million impact on the capex because of the delays can you elaborate a little bit more on what the exact capex impact here is where those $30 million are coming from is that because of just the material got more expensive and you havent secured the prices.
Is it because of the cost of shipment that's part of it and flows into Capex just to understand a little bit what's been driving that that would be my first question. Thank you.
Yes.
The increase in expected Capex was due to expenses incurred to <unk>.
<unk> offset the link of delays.
Startup of the new facilities.
And what we've talked about in an environment of supply chain disruptions.
Construction delays.
This is in addition to enhanced sense and scope related to <unk>.
Automation and configuration of equipment.
So as you think about all of the automation.
And the lines that February a facility in.
In addition, food safety and other office space requirements, which were not in the initial scope of the projects.
A lot of things that have been delayed as Jonathan mentioned earlier, the electrical panels, we've had to try to come up with our own solutions to get these bonds online faster and so sometimes we didn't want to wait.
For the solution to solve itself so.
That added to some of the expense.
As we think about the three facilities.
I would say approximately one half of that increase so that incremental capex spend was related to our Richmond facility.
The remaining probably split approximately half between.
Barry in Somerset.
Okay.
And then on.
On the financing side.
Congrats on securing by the way this $30 million loan for mastronardi.
Is that necessary to basically cover those $30 million in capex as a system.
The metro of it.
Not necessarily.
Immediately, but we view it more as.
Something to kind of help us as we evaluate this potential sale leaseback transaction.
Okay got you and then just yeah.
Good.
I just think it shows the strengthening of the relationship between us and.
And in Mastronardi, and we've really.
We're going from one one facility one product.
Quadrupling that size and facilities to all across the produce aisle.
They're showing that theyre going to be a strong partner with us and I think Warren and team have done a great job on finding non dilutive capital sources and this was another example of that but but it's also an example of the strengthening of the relationship with <unk> with our partner Mastronardi.
And then if I can squeeze in one last one on the operational side.
Is there a way I mean, obviously you have those health issue. If you had a couple of other quality issues about a year ago. So as you will learn and go through the fact that you have the relationship with mastronardi, which is a well established player with many years of experience within the CBA.
Have you thought or are you actually working together with them too.
Not included or more of these issues because obviously now you're opening up a bunch of new facilities right. You've just opened two there's one more coming.
So what can you do working with them to avoid any issues speed <unk>, Somerset or the enrichment and wanted to have when it is yet to come.
Yes, the short answer is absolutely and yes, we're not only working with mastronardi, but again.
Tony Martin being here in his CEO experience.
And then frankly our team. This is are you look at we shipped our first product in early 'twenty one.
By the end of the year, we will have products.
Wide ranging products out the door, but our team is going to really be able to take those learning lessons over the last 18 months.
And again.
Let's be cautious here, but.
The plant health and all the facilities across all of the crops look stronger than it's ever looked so one thats.
Learning lessons, our team will carryforward, but doubling down with mastronardi.
Absolutely. It's something we are actively doing to ensure that we can get good product out the door and on on store shelves as quickly as possible.
Okay. Thank.
Thank you very much.
Thank you one moment for our next question.
Okay.
Our next question comes from Christopher Glynn with Oppenheimer. Please go ahead.
Hey, good afternoon, everyone. Thank you for the question.
Dovetailing on some of those last comments I mean coming into that third year, Mark on Morehead Youll have the four firms up and running by year end.
Few other items to get in place, but in a lot of ways you sort of hit this moment, where you've gotten the things that you wanted to get in place or at least nearly there. So as we start to think about maybe 2023. The year ahead, what are some of the operational milestones or business milestones that you and investors should be looking for thank you.
Well, it's now we can focus on on the assets, we have which are these.
For CA facilities that span nearly 8 million square feet across product type and what we're going to be focused on is operational efficiency streamlining the business.
And obviously getting to a place where were these farms are thrown off cash and producing producing as planned. So right now we're going into 'twenty. Three just focused on these four farms and getting them up and efficiently running as quickly as possible.
Great.
If I were to ask you to expand a little bit on that particularly around that.
The operating costs, you talked about going from employees 700 employees to 800 by yearend and then ramping a bit more for Richmond, how we should be thinking about opex coming into 2023, and if you could maybe share.
There are some of the benefits of the automation that you are putting in place.
Help us think about how that influences your total capital spend or Opex spend next year.
Part of it is different facilities have different needs.
High amount of automation and Maria for the salad Green facility.
To have different needs and summer set for the Strawberry facility.
But then really just sharing our team too.
We say enterprise athletes.
Having having talented people that can be cross functional across the organization.
As we're fixing and solving problems so.
It's different needs of different facilities, but also being able to share our team across the facilities in and try to capture operational efficiencies, where we can.
Thanks, I'll take the rest offline.
Thank you.
I am showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program you may now disconnect.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
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The conference will begin shortly.
Raise your hand during Q&A, you can dial star one one.
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Good day and thank you for standing by welcome to the App harvests third quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to Travis Bartlett Chief Communications Officer. Please go ahead.
Thank you for joining us on the App harvest third quarter 2022 earnings call I'm Travis Department, Chief Communications Officer for EPP Harvest. Joining me today are several members of the senior management team, including Jonathan Webb founder and CEO , Lauren Egelton, Chief Financial Officer, and David Lee President and Board met.
The earnings release is available on our Investor website at investors Dot at harvest Dot Com on today's call will begin with prepared remarks from the team then we will open the call to questions before we start I'd like to remind you that comments today regarding the company's future business plans prospects and financial performance are forward looking statements.
That we make pursuant to the safe Harbor provisions of the Securities laws. These statements are made based on management's current knowledge and assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations.
Providing projections and other forward looking statements the company disclaims any intent or obligation to update them for additional information on important factors that could affect these expectations. Please see our most recent SEC filings and now I'd like to turn the call over to Jonathan Thanks, Travis as I believe all of you understand historically the <unk>.
Third quarter is a low revenue period for us based on our annual refresh and replanting of our Moorhead farm to prepare for the next growing season.
That is the case again this year and our focus has been to take lessons learned and to apply them to what we hope to be a robust growing season that has already started.
The domestic need for CA continues to grow we believe that the U S remains significantly under Bill it's estimated that the U S has about 6000 acres of CEO compared to Europe at nearly 520000 acres. According to USDA reports the value of U S fruit and vegetable imports.
Rose to a record level in 2021, and it's been projected to keep increasing in 2022 changing weather patterns ranging from mega drought in the southwest of the U S to more frequent flooding to catastrophic wind events are making it harder than ever for open field farmers to predict the duration of their growing season.
And to have conditions that result in quality harvest.
Major food retailers had demonstrated increasing interest in high tech indoor farms for their ability to derisk fruit and vegetable production with a more climate resilient more sustainable year round growing solution that uses far fewer resources and we continue to have top national grocery stores visit.
New farms 165 acres, nearly 8 million square feet that will be the size of our four farm network. Once completed we believe thats the largest simultaneous CEO build out in the U S. I am proud that the App harvest team has set new standards for developing such at scale.
<unk> infrastructure, but working to quadruple our number of farms by the end of this year.
These farms once completed will diversify our crops by adding a variety such as salad Greens berries cucumbers as well as more tomatoes on October .
26, we announced the start of commercial shipments from our new 15 acre Bria salad Greens farm.
This farm features a touchless growing system with autonomous harvesting.
We're in the process of opening bria on a phased approach beginning with five acres.
We're working to bring on additional productive acreage this year.
At capacity App harvest Berea will have about $35 million latest plans growing at a time, which is expected to be able to harvest. The equivalent of an estimated 10 miles of lettuce per day salad Greens from App harvest Maria will be used in the new Queen of Greens, Washington, ready to eat packaged salad brand and.
Last week, we announced the opening of our 30 acres Somerset Berry farm the team planted nearly 1 million strawberry plants for this season and we already have started commercial shipments of wild berries for our customer master already produce in addition to strawberries, we expect to alternate the crop seasonally with Inc.
<unk> construction continues on our 60 acre Richmond farm, which we expect will allow us to double our capacity to grow Tomatoes link completed combined with the more AD form the Richmond facility is expected to enable us to grow nearly $1 5 million tomato plants per season, we expect to plant the.
First half of the Richmond Farm. This November we also have been making good progress on securing non dilutive financing to support our expansion, including the recently announced $50 million USDA backed loans and a $30 million loan from Mastercard produce 15 million of which has been funded.
$15 million of which remains to be funded we continue to evaluate financing alternatives, including a potential sale leaseback of our barilla salad Greens farm to Mastronardi brothers to fund further development and growth.
Warren will share more details on our strategy later regarding our flagship farm in Moorhead. Our team has taken lessons learned and applied them to what we expect to be a good growing season.
Planting for the third growing season at Morehead is complete and harvesting is expected to begin in early November the crop is healthy and shows none of the planned health issues that we have previously encountered the team continues to make progress in improving quality, reducing our distribution fee and in selling in higher priced varietals.
This quarter, we've continued to focus on operational execution to maximize quality and yield of our produce for the upcoming season, we expect to keep benefiting from enhanced training and productivity improvements put in place. The team has also made progress with robust recruitment efforts to staff our three new.
Farms.
Man for locally sourced produce has continued to increase and the recent headlines regarding water use restrictions and food and security caused by geopolitical instability should only serve to add to that interest I will now ask our chief financial Officer, Lorne Angleton to share more details on our performance in the third.
Quarter Lorne.
Thanks, Jonathan I'll start by briefly reviewing our third quarter results give an update on our development progress and then discuss the 2022 outlook. We achieved third quarter net sales of 524000 as compared to 543000 in the same quarter last year. The plant health issues, we discussed earlier this year.
Negatively impacted our yields during the third quarter. However, our net price per pound was higher in Q3 than in the same quarter last year. The third quarter net loss of $24 million was higher than the net loss and a corresponding period of the prior year of $17 3 million largely due to the change in fair value of the private work.
<unk> last year, which was partially offset by lower SG&A costs. This year. Despite the investments in expansion and growth. This year, we improved our third quarter adjusted EBITDA loss of $12 million.
$16 $5 million last year.
Let me turn next to our progress on farm development and financing construction continues at the previously announced DEA facilities, which once completed will quadruple our farm network.
Additionally, in the fourth quarter, we have started commercial shipments at both the 15 acre <unk> facility and a 30 acre summer said Barry facility as Jonathan mentioned, the breeder facilities opening in a phased approach similar to our Moorhead farm will also follow this model at a 60 acre Richmond tomato facility expected to be operational by year.
And we are planning to bring Richmond online in two phases with the first 30 acres are expected to be planted by year end and a second 30 acres is expected to be planted in 2023, turning to the balance sheet. We ended the quarter with cash and cash equivalents of $36 $2 million with about $25 million in availability remaining.
Our credit facilities during the quarter, we sold 542000 shares for $1 $4 million via the ATM facility with Cowen at 360000 shares for $1 $3 million on a committed equity facility with B Riley principal capital in terms of capital expenditures, we estimate spending.
Proximately $85 million to $95 million in remaining Capex. During the next two quarters for the completion of the three construction projects underway.
50 million to $55 million of which is expected to be spent in Q4 with.
With the remaining $35 million to $40 million expected to be paid in Q1 of next year total expected capex spend increased by approximately $30 million due to supply chain disruptions.
Traction delays as well as scope modifications related to automation and configuration of equipment.
Safety and office space.
During the quarter, we closed on $50 million and USDA guaranteed loans with greater Nevada credit Union. The loans are backed by our summer set farm with a current interest rate of six 4% to 5% and a 23 year term with the first three years being interest payments only this loan permitted us to repay the previous JP Morgan credit facility and freed up for.
$8 million in restricted cash, which was replaced by $22 million in restricted cash dedicated toward the remaining construction cost of Somerset. We also recently announced a $30 million credit facility with Madison already produce backed by Iberia farm $15 million of which has been funded and $15 million of which remains to be funded and can.
And with our entry into this credit facility. We are engaged in discussions with Maserati produce related to a potential sale leaseback transaction that we are currently pursuing on the breeder farm now let me turn to our full year 2022, net sales and adjusted EBITDA outlook. We now expect our full year 2022, net sales outlook to be in the range of <unk>.
$14 million to $17 million.
The supply chain related construction delays that we've experienced in our three new farms affecting the timing of commercial shipments regarding adjusted EBITDA loss. We are also updating our outlook range for the year and now expect a loss in the range of $67 million to $72 million, reflecting the reductions in costs from the farm delays as well as the cost saving measure.
We have implemented in the second half of this year, including a reduction in corporate staff. We continue to staff up farm operations to support the core business since the beginning of 2022, we have grown from about 500 employees to about 700 and expect to be around 800 employees by year end. We also expect to hire more as.
We ramp up production at our Richmond Farm next year now I will turn the floor over to David Lee.
Thanks, Laura.
As we continue to get more experience in this sector. We are fortunate to have access to more executives with controlled environment agriculture experience, who appreciate our mission based work, we recently added Tony Martin to the board.
Tony is a cta industry veteran from wind set farms wind said is one of the largest CA producers and marketers of indoor grown crops in North America with more than 250 acres in the United States and Canada.
<unk> set Tony supported both significantly infrastructure and revenue growth Tony will have the opportunity to engage with a strong general managers that we've already put in place at each farm and to provide valuable guidance.
As a result, we are able to leverage Tony's deep CA expertise, including the areas of facilities staffing and operations.
That means we can streamline our organization with Tony's guidance, our general managers at each far and we will keep working to increase the level of rigor and discipline in the operation as we endeavor to make fruit and vegetable production more consistent and reliable.
Similar to consumer packaged goods manufacturing Tony's accessibility to the team also frees me up to focus on my board responsibilities.
Two years ago, as we began our public company journey. The Board asked me temporarily to take an additional management responsibility in the role of President.
I will step down from that role later this year I feel that it's important that I model that cost containment and streamlining thats critical for the organization to deliver shareholder value I want to commend the team for the hard work that has gone into getting our soon to be four farm network in place to generate new revenue streams from a diversified set of cross.
<unk>.
I look forward to continue to support this team and this mission to improve food security with a climate resilient solution that provides good jobs that Appalachia now Jonathan will close out our prepared remarks.
I want to thank David for his leadership guiding us through the process to go public and Im happy to David Lee will continue and as Hap Harvest Board position, David helped our team lay the groundwork and strategy for our four farm network to put the enterprise on a path to profitability. We're fortunate that our mission based work has brought us such great.
Talents like David Lee to help us get firmly established with that I'll turn it back over to our Chief Communications Officer Travis Department.
Thank you Jonathan operator, we will now begin to take questions.
Okay.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please standby, while we compile the Q&A roster.
Our first question comes from Brian Holland with Cowen. Please go ahead.
Yes. Thanks, good afternoon, I guess I'll just start with some of the delays that were referenced with the new facilities.
I guess I wasn't anticipating.
Kind of the magnitude of impact. So if you could just provide an understanding of what exactly happened to maybe pushed back the timeline as it pertains to your 2022 targets.
Yes, Brian this is Jonathan.
Although the magnitude is the sheer size and scale of each facility. So.
As the timing on those facilities as we're at the finish line on each project we're landing at.
A jumbo jet with each one of these you have been through and Brian .
No.
Yes.
A delay to get to get each one of these launched is going to have a material impact at the end of the year.
Now the good thing is that that's a short term problem as we're just dealing with supply chain issues example is.
<unk>.
And one facility we had.
In electrical panel that we were simply waiting for and something as small as that can delay the launch of the entire facility. So that's one example that as we get each each III up and online as you saw the strawberries are fully planted so we have 1 million plants now in Somerset.
We are spinning up Ria and multiple phases, and we will have Richmond.
Planted this year as well so all three facilities will be up and online by the end of the year, but as we closed out here at the finish line supply chain issues like everywhere else.
We are squeezing us here here at the finish line.
I appreciate the color Jonathan.
If I could shift to <unk>.
Yes.
But theyre growing season is off to a healthy start can you just remind us the health issue.
That's kind of weighing on your year to date.
What gives you the confidence that we're not going to see one of those I guess, what I'm trying to ask is if I.
Think about the phasing of the harvest.
When did that issue hit you last year, when do we get comfortable that youre, maybe over any hurdles such that.
Health issues are a little to no concern I understand that that's probably.
Bit dynamic and there's always something out there, but im just.
Just wondering if I can understand a little bit better how that how that works.
Yes, we.
Crops are in it.
Multiple facilities now Tomatoes strawberries lettuce.
And the plan health across all facilities.
I can I can say.
With strong conviction looks looks much better than where we've started previously and thats really some of the painful learning lessons of just.
The work of standing up this business and being able to take those lessons and going in to next season. So we look strong in the facilities, where we have planted.
And then we're also going to benefit from a diversity of crop, where we're not just pigeonholed into growing.
Not only one crop, but one type of tomato, but we're going to have a whole host of variety of crops with different different not only just tomatoes, but salad greens and berries. So.
That won't be as.
Large of an issue going forward given the fact that we'll have we'll have diversity across our product lines, but as we start and go into all of these facilities the plant health.
Is looking very strong at the moment.
Yes, Thanks, and last one for me just thinking about.
Obviously as we work on ramping these facilities and.
It's obviously a tremendous a dynamic environment.
And the heavy lift.
And Brian .
A tough cost environment.
As you mentioned supply chain et cetera, just curious.
Where else, we see room for the either streamline like where is the optionality here to make sure that as we ramp these facilities, we're keeping costs contained.
And giving yourself sufficient runway to scale these facilities up thanks.
Yes.
Brian .
We have the benefit of having our four assets now and moving from a development and construction company to a pure play operations company.
And we're going to continue to work to streamline the business and as we stand up each one of these facilities how can we leverage savings across the facilities, how can we leverage the team across facilities.
David had mentioned earlier, Tony Martin Tony is a veteran that we're very fortunate.
To have here with us in Kentucky now in.
He is looking with our team as well on on how do we how do we better operationalize.
The team we have here across all four facilities.
Okay.
Thank you one moment for our next question.
Okay.
Our next question comes from Ben <unk> with Barclays. Please go ahead.
Yes. Good afternoon. Thank you very much for taking the question just wanted to follow up a little bit on the delay issues and some of the things on the build out.
If I listen to it right. During your prepared remarks, you said there is about a $30 million impact on the capex because of the delays can you elaborate a little bit more on what the exact capex impact here is where it was $30 million are coming from is that because of just the material got more expensive can you havent secured the prices.
Is it because of the cost of shipment that's part of it flows into Capex just to understand a little bit what's been driving that that would be my first question. Thank you.
Yes.
The increase in expected Capex was due to expenses incurred to <unk>.
<unk> offset the link of delays.
Startup of the new facilities.
And what we've talked about in an environment of supply chain disruptions.
Construction delays.
This is in addition to enhanced and scope related to <unk>.
Automation and configuration of equipment.
So as you think about all of the automation.
And the lines that February facility in.
In addition, food safety and other office space requirements, which were not in the initial scope of the projects.
A lot of things that have been delayed as Jonathan mentioned earlier, the electrical panels.
Add to try to come up with our own solutions to get these farms online faster and so it's been at times, but we didn't want to wait.
For the solution to solve itself so.
That added to some of the expense.
As we think about the three facilities.
I'd say approximately one half of that increase so that incremental capex spend was related to our Richmond facility.
The remaining probably split approximately half between.
Korea in Somerset.
Okay.
And then on.
On the financing side.
Congrats on securing by the way this $30 million loan from mastronardi.
Is that necessary to basically cover those $30 million in capex as a system.
The metro of it.
Not necessarily.
Immediately, but we view it more as.
Something to kind of help us as we evaluate this potential sale leaseback transaction.
Okay got you and then just yeah.
Good.
I just think it shows the strengthening of the relationship between us and.
And mastronardi and we've really.
We're going from one one facility one product.
Quadrupling that size and facilities all across the produce island.
They're showing that theyre going to be a strong partner with us and I think Warren and team have done a great job on finding non dilutive capital sources and this was another example of that but but it's also an example of the strengthening of the relationship with with our partner Mastronardi.
Okay, and then if I can squeeze in one last one on the operational side.
Is there a way I mean, obviously you hit those health issue. If you had a couple of other quality issues about a year ago. So as you will learn and go through the fact that you have the relationship with mastronardi, which is a well established player with many years of experience within CA.
Have you thought or are you actually working together with them to <unk>.
Not included or more of these issues because obviously now you're opening up a bunch of new facilities right. You've just opened two there's one more coming.
So what can you do working with them to avoid any issues speed <unk>, Somerset or the enrichment wanted to see it when it is yet to come.
Yes, the short answer is absolutely and yes, we're not only working with mastronardi, but again.
Tony Martin being here in his CEO experience.
And then frankly our team. This is are you look at we shipped our first product in early 'twenty one.
By the end of the year, we'll have products.
Wide ranging products out the door, but our team is going to really be able to take those learning lessons over the last 18 months.
And again.
Let's be cautious here, but.
The plant health and all the facilities across all the crops look stronger than it's ever looked so one thats.
Learning lessons, our team will carryforward, but doubling down with mastronardi.
Absolutely. It's something we are actively doing to ensure that we can get good product out the door and on on store shelves as quickly as possible.
Okay. Thank.
Thank you very much.
Thank you one moment for our next question.
Okay.
Our next question comes from Christopher Glynn with Oppenheimer. Please go ahead.
Hey, good afternoon, everyone. Thank you for the question.
Dovetailing on some of those last comments I mean coming into that third year, Mark on Moorhead Youll have the four firms up and running by year end.
Other items to get in place, but in a lot of ways you sort of hit this moment, where you have gotten the things.
Wanted to get in place or at least nearly there. So as we start to think about maybe 2023. The year ahead, what are some of the operational milestones or business milestones that you and investors should be looking for thank you.
Well, it's now we can focus on on our the assets, we have which are these.
For CA facilities that span nearly 8 million square feet across product type and what we're going to be focused on is operational efficiencies streamlining the business on.
And obviously getting to a place where were these farms are throwing off cash and producing producing as planned. So right now we're going into 'twenty. Three just focused on these four farms and getting them up and efficiently running as quickly as possible.
Great.
If I were to ask you to expand a little bit on that particularly around it.
The operating costs.
You talked about going from employees 700 employees to 800 by yearend and then ramping a bit more for Richmond, how we should be thinking about opex coming into 2023, and if you could maybe share some of the benefits of the automation that you are putting in place.
Help us think about how that influences your total capital spend or Opex spend next year.
Part of it is different facilities have different needs.
High amount of automation and Maria for the salad Green facility, we're going to have different needs and some are set for the strawberry facility.
But then really just sharing our team too.
We say enterprise athletes.
<unk>, having talented people that can be cross functional across the organization.
As we're fixing and solving problems so.
It's different needs of different facilities, but also being able to share our team across the facilities and try to capture operational efficiencies, where we can.
Thanks, I'll take the rest offline.
Thank you.
I am showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program you may now disconnect.