IPO Update: Opti-Harvest Readies $8 Million U.S. IPO

A Quick Take On Opti-Harvest

Opti-Harvest (OPHV) has filed proposed terms to raise $8 million in gross proceeds from the sale of its common stock in an IPO, according to an amended registration statement.

The firm develops and sells agriculture technologies to improve crop yields.

Given the lack of material revenue, history of heavy losses, thin capitalization at IPO and excessive valuation assumptions, I'll pass on the IPO.

Company & Technology

Los Angeles, California-based Opti-Harvest was founded to create light-altering filters and a software monitoring system to assist farmers in increasing the yield from their planted crops.

Management is headed by Chairman, CEO and Secretary Jonathan Destler, who has been with the firm since its inception in 2016 and was previously president of Touchstone Advisors, a management consulting firm.

The company’s primary offerings include:

• Opti-Filter

• ChromaGro

• Opti-Shield

• OptiView Software

Opti-Harvest has received at least $17.7 million in equity investment from investors including Touchstone Holding Company (Destler family) and others.

Opti-Harvest - Customer Acquisition

The firm pursues both commercial agriculture and home garden markets.

The company began selling its Opti-Gro and ChromaGro products in the first half of 2021 and intends to begin selling its Opti-Shield, Opti-Panel and Opti-Skylight products in the first of 2022.

Selling, G&A expenses as a percentage of total revenue have been extremely high as revenues have only recently begun to be recognized, as the figures below indicate:

(Source)

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, was essentially 0 in the most recent reporting period, as shown in the table below:

(Source)

Opti-Harvest’s Market & Competition

According to a 2020 market research report by MarketsAndMarkets, the global market for precision farming products and services was an estimated $7 billion in 2020 and is forecast to reach $12.8 billion by 2025.

This represents a forecast CAGR of 12.7% from 2020 to 2025.

The main drivers for this expected growth are a shortage of skilled labor, increasing strain of global food supplies and growing farm mechanization activities by farming concerns.

Also, changing weather patterns combined with increasing government initiatives will increase demand and support for more accurate farming techniques to yield greater crop production.

Major competitive or other industry participants include:

• John Deere (DE)

• AGCO (AGCO)

• CNH Industrial (CNHI)

• Kubota Corp. (OTCPK:KUBTY)

• Aerobics

• Taranis (OTCQB:TNREF)

• AeroVironment (AVAV)

• Trimble (TRMB)

• CiBo Technologies

• Farmobile

• CropX

• Sencrop

• Arable

• SemiosBio

• FarmX

• Climate Corp

• Others

Opti-Harvest Financial Performance

The company’s recent financial results can be summarized as follows:

• A tiny amount of top-line revenue

• Gross loss

• High operating and net loss

• High cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

(Source)

As of September 30, 2022, Opti-Harvest had $840,000 in cash and $5.4 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was negative ($6.1 million).

Opti-Harvest’s IPO Details

OPHV intends to sell two million shares of common stock at a proposed midpoint price of $4.00 per share for gross proceeds of approximately $8.0 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest in purchasing shares at the IPO price

The company will have two classes of shares: common stock and Series A preferred stock.

The Series A preferred stock will be held by founder Jonathan Destler, who will retain voting control of the company immediately following the IPO.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $98.6 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 7.75%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

Up to approximately $4,000,000 for the repayment of outstanding principal and interest accrued on Senior Convertible Promissory Notes, referred to as the “Notes”;

Up to approximately $251,000 for the repayment of outstanding principal and interest accrued on our Convertible Promissory Notes, referred to as the “Promissory Notes”;

approximately $2,000,000 to fund the sales and marketing, as well as research and development and field trial activities supporting ongoing commercialization of our products; and

the remainder for general corporate purposes, including working capital and operating expenses.

(Source - SEC)

Management’s presentation of the company roadshow is available here until the IPO is completed.

Regarding outstanding legal proceedings, management says the firm is not currently a party to any legal proceedings.

The sole listed underwriter of the IPO is WestPark Capital.

Valuation Metrics For Opti-Harvest

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

(Source - SEC)

Commentary About Opti-Harvest

OPHV is seeking public capital market funding to finance its continued R&D and commercialization plans for its various technologies and to pay down debt.

The company’s financials indicate a very small amount of top-line revenue, gross loss, large operating and net loss and significant cash used in operations.

Free cash flow for the twelve months ended September 30, 2021, was negative ($5.1 million).

The market opportunity for providing precision agriculture products and services is substantial and expected to grow at a considerable rate of growth in the coming years, so the firm enjoys strong industry growth dynamics in its favor.

WestPark Capital is the sole underwriter, and IPOs led by the firm over the last 12-month period have generated an average return of negative (66.2%) since their IPO. This is a bottom-tier performance for all significant underwriters during the period.

The primary risk to the company’s outlook is the very early stage of its commercialization efforts.

We don’t know yet if management can scale the company’s revenue growth and if its products have market fit.

As for valuation expectations, management is asking IPO investors to pay an Enterprise Value / Revenue multiple of 3,287x, a truly astonishing multiple.

Given the lack of material revenue, history of heavy losses, thin capitalization at IPO and excessive valuation assumptions, I'll pass on the IPO.

Expected IPO Pricing Date: March 6, 2023.

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