AppHarvest, Inc.

Quarter 2023 earnings call. I'm Travis Parman, Chief Communications Officer for AppHarvest. Joining me today are several members of the senior management team, including Jonathan Webb, founder and CEO, Tony Martin, Chief Operating Officer and board member, and Lauren Eggleton, Chief Financial Officer. The earnings release is available on our investor website at investors.appharvest.com. On today's call, we'll begin with prepared remarks from the team. Then we'll 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 more 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. $13 million. AppHarvest achieved $13 million in net sales for Q1 2023. That's nearly 90% of our sales for the full year of 2022. We're working hard to make these farms as productive as possible as quickly as possible. In 2022, we quadrupled the number of farms in our network. With our flagship farm in Moorhead now in its third harvest season, we're seeing fantastic progress. Production is looking great, and Moorhead is regularly setting weekly performance records. This quarter marked the first time that all four farms were shipping commercially to top national grocery store chains, restaurants, and food service outlets. That means we still have lots of room for upside as we fully plant the new farms and continue to increase production. This year, we are laser-focused on achieving operational excellence as we work to ramp up production and revenue from the four farms with an increasingly diversified crop portfolio. As you know, Masternardy is our exclusive marketing and distribution partner. Paul Mastronardi and his team have been tremendous mentors to our team and great problem solvers as we work to ramp up production and improve core operations. We are pleased that our board member, Tony Martin, agreed to join us starting this past January as Chief Operating Officer to help us with that journey. As you likely recall, Tony is a veteran in the controlled environment agriculture industry. we already are benefiting tremendously from his experience and the resources he readily brings to the table. In the brief time Tony has been with us as COO, he already is shaping a culture of measurement, accountability, collaboration, responsiveness, and learning. Farming is not for the faint of heart. Fortunately, AppHarvest's mission has helped us attract a purpose-driven team with the faith and grit to keep moving us forward on a path to profitability. I believe Tony can help us accelerate our path to profitability and positive operating cash flow. Tony is working to optimize production, revenue, and cost through the strategic plan Project New Leaf. I'll welcome Tony to the call to share more details on progress in the first quarter.

Thank you, Jonathan. Last quarter, we shared details on the next phase of Project New Leaf, our five-point strategy to focus operational efforts across the farms. As you can see from our net sales for Q1, we're strengthening our core business plan and it's driving better results. The first of our strategic initiatives, leveraging our relationship with Mastro Nardi. As the largest domestic producer for Mastro Nardi produce in the U.S., it's critical that we work as strategic partners, driving mutually beneficial results. We are actively focused on increasing the cross-functional integration between the Mastro Nardi and App Harvest teams as we bring new products to market. For example, this quarter we accelerated our plan to plant Long English cucumbers at Somerset. The Mastro Nardi team were instrumental in facilitating the crop changeover and were able to quickly place the new product with their customers. Just as variety is the spice of life, variety also matters in CEA. We are leveraging Mastronardi's industry knowledge to further diversify our crop portfolio through more favorably priced varietals of tomatoes. We are trialing high-wire cucumber growing in Somerset to improve yield and trialing mini cucumbers to round out our product offering. Another area where we're seeing progress is in better understanding Mastronardi's produce grading guidelines. Working directly with their teams, we are achieving higher compliance rates and obtaining better pricing for our tomatoes. We have successfully completed our food safety audits at the Moorhead, Somerset, and Richmond farms. That means we've been able to increase the number of direct shipments, reduce transportation costs, and the number of food miles traveled so our fruits and vegetables arrive on the shelves fresher and with less waste. In Berea, we're working on our food safety certification so that we can also do more direct shipments from that facility. We meet regularly with the Mastinardi sales and marketing team on format packaging, inline bagging, and other product specifications for some of their largest clients. This level of collaboration between our companies is especially important as we launch new products. It helps to ensure that we can coordinate sufficient lead time for packaging and placement in the marketplace. Our second strategic imperative, improving labor efficiency. Our labor fulfillment is at the level we need it to be. We aren't experiencing any concerns with labor shortages. The development of the new productivity bonus program is now underway. As part of our work, we are further defining the assessment criteria and methodology verifying the tracking database, and measuring performance. At Moorhead, we're already seeing results where their teams are meeting the performance threshold necessary for productivity bonuses to kick in. The new bonus program will identify and provide opportunities for retraining any underperforming team members. That will enable them to improve their performance and further help the enterprise overall to be more efficient. It also allows us to be more selective when identifying and placing high-performing team members. We expect the full bonus program to be implemented across the four farm network in the 2023-2024 growing season. Our third strategic imperative, improving the feedback loop. As we strive to become a world-class production facility, communication is key to our continuous improvement process and to working more efficiently. We've established a regular cadence of management meetings across the farm network. These meetings help us avoid working in silos, and we constantly measure performance against our annual operating plan, or AOP. Each week, we meet with the farms to review performance metrics such as yield, labor efficiency, transportation, utility consumption, and production revenue. We compare actual results to the plan. The reporting is then cascaded to the four farm general managers and executive leadership. We also discuss opportunities for improvement, both in our meetings by farm and at the four farm general managers meeting. Opportunities to enhance our practices and drive results are shared and discussed. Because of our massive scale, even small changes to processes and equipment configurations now can have a much larger impact in the future when all four farms are at full production. This meeting cadence has enabled us to address issues from pests to plant health in a timelier manner. This helps to prevent small concerns from escalating and to identify any retraining opportunities as quickly as possible. We are even realizing on the benefit of insights from the new facilities having been operational for a few months. Our fourth strategic initiative, initiating comprehensive spending reviews. As the saying goes, a bargain ain't a bargain unless it's something you need. Our production and procurement teams continue to review our suppliers and vendors on a case-by-case basis to determine their return of investment to core operations and to reduce third-party spend when possible. We are also collaborating with the Mastinardi sales and marketing team to ensure alignment and efficiency when sourcing packing materials for new product launches. Next quarter will be our first full review of these expenditures. Our fifth strategic initiative, aligning our team members to milestones outlined in our five-year strategic vision. As we work to create a culture of transparency, all team members need to fully understand the five-year strategic plan for Project New Leaf to be successful and the importance of their contribution to our collective success. Following each quarterly call, we'll be hosting team meetings to share performance results, what went well, where we have opportunities for improvement, what we need to do to achieve our key milestones, and to celebrate our successes. We're also augmenting our talent pool by bringing on the right people at the right level to support core operations. We recently hired a business analyst to establish and track key metrics across the four farm network. Insights on pick and pack rates per hours, hours of crop work per square meter, pounds picked versus packed versus shipped will help us take a data-driven approach to continuous improvement. We have hired several food safety professionals to lead our food safe practice. We have added experienced growers for our diversified crop portfolio as we look to expand varietals. What I'm seeing this quarter is that there's a maturity building in the organization to better manage issues and to mitigate any material impact from challenges. We're working more collaboratively with our customer, Master Nardi. which is driving higher revenues, cost savings, and product quality. And we still have two facilities that are not yet fully producing. Both Berea and Richmond are opening in planned phases. We are finding it takes about three years to fully ramp up a facility to scale. We are working to shorten that time by applying lessons learned across the four farm network. Salad greens at Berea and strawberries and cucumbers at Somerset are new products to us. We expect our future performance to improve each quarter as we gain more experience under our belts. Moorhead is achieving significant production records in its third season. And by leveraging some of the experience talent from Moorhead at Richmond, we've been able to avoid some of the challenges that Moorhead encountered in its first year of operations. I'm proud of the progress we're making. I expect to see more operational efficiencies leading to increased performance in Q2. Now, over to Lauren to review the Q1 2023 financials. Thanks, Tony.