IPO Update: Opti-Harvest Prepares for $8M IPO (Pending: OPHV)

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Opti-Harvest in fast forward

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

The company develops and sells agricultural technologies to improve crop yields.

Given the lack of tangible earnings, heavy loss history, small initial capitalization and excessive valuation assumptions, I will not go public.

Company & Technology

Based in Los Angeles, California, Opti-Harvest was formed to develop light-altering filters and a software monitoring system to help growers increase the yield of their cultivated crops.

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

The company’s main offerings include:

• Opti filter

• ChromaGro

• Opti shield

• OptiView software

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

Opti-Harvest – Customer Acquisition

The Company operates both commercial farming and home garden markets.

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

Selling, general and administrative expenses as a percentage of total revenue was extremely high as revenue has only recently been recognized as shown in the following figures:

Sale, G&A	Expenses vs. Income
Period	percentage
Nine Mo. Ended September 30, 2022	20206.7%
2021	16477.5%
2020	–%

click to enlarge

(Source)

The Sales, G&A Efficiency Ratio, defined as how many dollars of incremental new revenue generated by each dollar of Sales, G&A expenditure, was essentially 0 for the most recent reporting period, as shown in the following table:

Sale, G&A	efficiency rate
Period	Several
Nine Mo. Ended September 30, 2022	0.0
2021	0.0

click to enlarge

(Source)

Opti-Harvest market and competition

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

This equates to a projected CAGR of 12.7% from 2020 to 2025.

The main drivers for this expected growth are a shortage of qualified workers, the increasing strain on the global food supply and the increasing mechanization activities of farms.

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

Key contestants or other industry participants include:

• John Deere (DE)

• AGCO (AGCO)

• CNH Industrial (CNHI)

• Kubota Corp. (OTCPK:KUBTY)

• aerobics

• Taranis (OTCQB:TNREF)

• Aerovironment (OPEN)

• Trimble (TRMB)

• CiBo Technologies

• color mobile

• CropX

• syncope

• field

• SemiosBio

• FarmX

• Climate Corp

• Other

Financial performance of Opti-Harvest

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

• A tiny amount of top-line earnings

• gross loss

• High operating and net loss

• High use of cash in the company

The following are relevant financial results arising from the company’s registration statement:

total revenue
Period	total revenue	% variance vs. before
Nine Mo. Ended September 30, 2022	$30,000	-25.0%
2021	$40,000	–%
2020	$20,000
gross profit (loss)
Period	gross profit (loss)	% variance vs. before
Nine Mo. Ended September 30, 2022	$ (25,000)	-51.9%
2021	$ (62,000)	–%
2020	$ (95,000)
gross margin
Period	gross margin
Nine Mo. Ended September 30, 2022	-83.33%
2021	-155.00%
2020	–%
Operating Profit (Loss)
Period	Operating Profit (Loss)
Nine Mo. Ended September 30, 2022	$(7,835,000)
2021	$ (927,400)
2020	$(3,284,000)
net income (loss)
Period	net income (loss)
Nine Mo. Ended September 30, 2022	$(11,978,000)
2021	$(10,053,000)
2020	$(3,284,000)
Cash flow from operations
Period	Cash flow from operations
Nine Mo. Ended September 30, 2022	$(3,615,000)
2021	$(5,303,000)
2020	$(2,504,000)
(Glossary of terms)

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(Source)

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

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

Opti-Harvest IPO details

OPHV intends to sell two million shares of its common stock at a proposed mid-point price of $4.00 per share for gross proceeds of approximately $8.0 million, excluding the sale of customary underwriter options.

No existing or potential new shareholders have expressed an interest in purchasing shares at the IPO price

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

The Series A Preferred Stock will be held by founder Jonathan Destler, who will retain voting control of the company immediately after the IPO.

The S&P 500 Index no longer includes companies with multiple share classes in its index.

Assuming a successful IPO in the middle of the proposed price range, the Company’s enterprise value at IPO (excluding underwriter options) would be approximately $98.6 million.

The free float to outstanding share ratio (excluding underwriter options) will be approximately 7.75%. A number below 10% is generally considered a “low float” stock, which can experience significant price volatility.

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

Up to approximately $4,000,000 for repayment of principal and accrued interest on senior convertible debentures, referred to as the “Debentures”;

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

approximately $2,000,000 to fund sales and marketing, research and development and field testing activities in support of the 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’s roadshow is available here until the IPO is completed.

Regarding pending lawsuits, management says the company is not currently involved in any lawsuits.

The sole publicly traded underwriter of the IPO is WestPark Capital.

Valuation metrics for Opti-Harvest

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

Measure [TTM]	Crowd
Market capitalization at IPO	$103,285,100
Enterprise value	$98,596,100
price / sale	3442.84
EV / Revenue	3286.54
EV / EBITDA	-57.21
earnings per share	-$0.57
operating margin	-5744.67%
net margin	-50036.67%
Ratio of float to shares outstanding	7.75%
Proposed IPO midpoint price per share	$4.00
Net Free Cash Flow	-$6,116,000
Free cash flow yield per share	-5.92%
sales growth rate	-25.00%
(Glossary of terms)

click to enlarge

(Source – SEC)

Comment on Opti Harvest

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

The Company’s financials indicate a very small amount of revenue, gross losses, large operating and net losses and substantial cash used in operations.

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

The market opportunity for the provision of precision agriculture products and services is significant and is expected to grow at a significant growth rate in the coming years, allowing the Company to benefit from strong growth momentum in the industry.

WestPark Capital is the sole underwriter and IPOs led by the firm over the past 12 months have generated an average negative return (66.2%) since its IPO. This is a lowest performance for any major underwriter during the period.

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

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

As for valuation expectations, management is asking IPO investors to pay an enterprise value/revenue multiple of 3,287x, a truly amazing multiple.

Given the lack of tangible earnings, history of heavy losses, sparse capitalization at the IPO, and excessive valuation assumptions, I will not go public.

Expected IPO pricing date: March 6, 2023.