Filing Overview
Source discrepancy: The request identifies RYTHM, Inc., but the provided Form 10-K is for Agrify Corporation (NASDAQ: AGFY). The filing covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter filing. The filing was signed March 31, 2022.
Business Context and Reporting Period
Agrify develops hardware and software cultivation solutions for indoor agriculture and provides extraction, post-processing, testing, facility design, and building services for the cannabis and hemp industries. Its principal offerings include Vertical Farming Units, Agrify Insights SaaS, total turnkey solutions, and extraction equipment.
During 2021, Agrify launched its total turnkey solution and expanded into extraction through the October 1, 2021 acquisitions of Precision Extraction Solutions and Cascade Sciences and the December 31, 2021 acquisition of PurePressure. Lab Society was acquired on February 1, 2022 and therefore contributed no 2021 revenue.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $59.9 million | $12.1 million | +395% |
| Gross profit | $5.2 million | $0.6 million | +818% |
| Gross margin | 8.7% | 4.7% | +4.0 percentage points |
| Loss from operations | $(35.1) million | $(12.6) million | Loss increased |
| Net loss attributable to Agrify | $(32.5) million | $(21.6) million | Loss increased |
| Loss per share | $(1.69) | $(5.32) | Improved due principally to higher share count |
| Cash flow from operations | $(30.1) million | $(14.8) million | Greater use of cash |
| Cash flow from investing | $(104.7) million | $(1.2) million | Greater use of cash |
| Cash flow from financing | $138.8 million | $23.9 million | Higher inflows |
Revenue consisted of cultivation solutions of $11.4 million, Agrify Insights software of $8 thousand, facility build-outs of $36.2 million, and extraction solutions of $12.3 million. Precision and Cascade contributed approximately $12.3 million from October 1 through December 31, 2021.
At December 31, 2021, cash and cash equivalents were $12.0 million, current marketable securities were $44.6 million, accounts receivable were $7.2 million net of a $1.4 million allowance, inventory was $20.5 million net of a $0.9 million reserve, and loan receivables were $22.3 million. Total assets were $182.0 million and stockholders’ equity was $137.1 million.
Total liabilities were $44.6 million at year-end. Reported debt included approximately $1.1 million of current long-term debt and $12 thousand of non-current long-term debt, in addition to lease liabilities and the remaining PPP obligation. The convertible notes with $13.1 million of principal converted into 1,697,075 common shares upon the IPO.
Material Changes Versus the Prior Comparable Period
- Revenue increased by $47.8 million, driven primarily by facility build-outs under the new turnkey solution, higher VFU sales, and the Precision and Cascade acquisitions.
- Gross margin improved but remained low at 8.7%; management attributed fourth-quarter improvement to a high-margin sale of older VFU equipment and extraction equipment revenue.
- Operating expenses increased to $40.3 million from $13.2 million, including higher payroll, stock-based compensation, public-company costs, bad debt expense, acquisition costs, amortization, and a $2.4 million investment banker termination fee.
- Operating cash use increased to $30.1 million. Investing cash use included $35.9 million for acquisitions, $22.1 million of TTK-related loan receivables, $44.5 million of net marketable-security purchases, and $2.2 million of capital expenditures.
- Financing cash inflows were largely generated by the February 2021 IPO and follow-on offering, which produced approximately $57.0 million and $79.8 million of net proceeds, respectively.
- Goodwill and intangible assets increased materially following acquisitions, reaching $50.1 million and $14.1 million, respectively, at year-end; no impairment was recorded.
- Two related-party customers represented approximately 52.5% of 2021 revenue, or $31.4 million, compared with 46.8% for two customers in 2020.
Guidance, Outlook, Risks, and Unusual Items
- Management expects extraction-related revenue to support gross margins in the mid-teens range and expects further improvement when meaningful SaaS and production-fee revenue from TTK solutions begins, currently anticipated in late third or early fourth quarter of 2022.
- Backlog was reported at $837 million at December 31, 2021, with approximately $110 million expected to be recognized as 2022 revenue. Management cautioned that backlog and qualified pipeline may not convert into bookings or revenue as projected.
- The TTK model requires substantial upfront working-capital investment and exposes the Company to customer credit, construction, production, and product-marketing risks. Approximately $20.3 million had been committed to five TTK customers at year-end.
- Management and the auditors identified substantial doubt regarding the Company’s ability to continue as a going concern, although management stated that year-end liquidity, the January 2022 private placement, and the March 2022 debt facility were expected to fund planned operations for at least 12 months.
- After year-end, Agrify raised approximately $27.3 million gross in a January 2022 private placement. On March 14, 2022, it issued a $65 million senior secured note and warrants for 6,881,108 shares, with potential additional $35 million closings. The note carries 6.75% stated interest, matures March 1, 2026, and includes minimum-liquidity, revenue, and adjusted EBITDA covenants.
- Internal controls over financial reporting were not effective as of December 31, 2021. Management identified a material weakness involving the design and timeliness of the financial statement close process and was still remediating previously identified weaknesses.
- The Company faces significant cannabis-industry regulatory risk because marijuana remains illegal under U.S. federal law, as well as customer licensing, banking, insurance, supply-chain, COVID-19, cybersecurity, competition, litigation, and intellectual-property risks.
- The Company is subject to litigation brought by former employees and has initiated related arbitration and indemnification claims. The filing does not provide a clear quantified loss exposure.
- The remaining $779 thousand PPP loan was still under review for forgiveness; $44 thousand had been forgiven in September 2021.
Investor Verification Checklist
- Verify the issuer identity: the supplied filing is Agrify Corporation, not RYTHM, Inc.
- Reconcile the reported $837 million backlog with signed customer commitments, expected conversion timing, collectability, and cancellation provisions.
- Assess customer concentration, related-party transactions, receivables, allowances, and the $22.3 million TTK-related loan receivable balance.
- Review liquidity under the March 2022 senior secured note, including minimum-liquidity, revenue, and adjusted EBITDA covenants and required amortization beginning February 2023.
- Evaluate the sustainability of the projected mid-teens gross margin and the timing of TTK SaaS and production-fee revenue.
- Review acquisition purchase-price allocations, contingent consideration, goodwill, intangible assets, earn-outs, and potential impairment exposure.
- Confirm remediation of the material weaknesses in internal control over financial reporting.
- Assess dilution from the January and March 2022 financings, outstanding options, warrants, acquisition shares, and potential earn-outs.