A few hours after we published a note on Akerna’s planned acquisition of Ample Organics, the company filed an 8K updating the details.
The filing and presentation had key additions and differences from the initial announcement, including:
- Calendar Year 2020 pro forma revenue target of $27.5 million for Akerna overall. This is slightly ahead of the $26 million target implied by KERN’s previous guidance of 50% growth annually.
- With $8.7 million in annualized revenue expected from Ample Organics in CY2020, this new figure implies that Akerna and Solo Sciences will generate a combined $18.8 million of revenue in CY2020, for growth of 47% versus the F1Q20 run rate of $12.8 million.
- Ample Organics generated $5.0 million (CA$6.5 million) in 2018, so the $8.7 million (CA$11.5 million) CY2020 target implies a 34% compound annual growth rate (CAGR) for 2019 and 2020. That translates to per-client revenue generation of $55,000 (CA$72,000) based on its 2018 client base of 89. This, however, would not include revenue from the Last Call acquisition that closed in January 2019.
- Ample Organics will be issued 3.295 million shares of KERN at $9.80 for the equity consideration at close, for a value of $32.3 million. This brings the total number of shares to 16.2 million before the earnout and the potential acquisition of the remaining 20% of Solo that KERN doesn’t own. This is slightly different than the language in the initial announcement, which implied that the equity portion was a fixed dollar amount to be divided by the share price at close.
- Given that the KERN share price is currently 15% higher than the deal price, the acquisition value is arguably 15% higher. That said, we think fixed-share deals have a better chance of closing amid volatile stock prices.
- The Ample Organics equity earnout payment is CA$10 million, to be paid in KERN shares (which are priced in U.S. dollars). At the current exchange rate and KERN price of $11.16, this is up to 683,205 shares for a total of 16.9 million shares.
- The CAD amount of the earnout is based on Ample Organics generating “recurring revenue” of at least CA$9.0 million ($6.9 million) in the unspecified “Deferred Consideration Period.” Since this is below the CA$11.5 million ($8.7 million) targeted for CY2020, it looks as if this will be paid. Specifically, the payout structure scales between zero payout if recurring revenue is less than CA$7.5 million ($5.7 million) to the full CA$10 million for recurring revenue between CA$7.5 million and CA$9.0 million. Akerna is basically paying CA$6.67 in stock for each CA$1 of revenue above CA$7.5 million, up to CA$9.0 million.
The acquisition seems to round out Akerna’s platform, so the question is whether any other acquisitions are needed to continue the revenue growth, or if Akerna can drive 50% growth organically with the integration of Akerna, Solo and Ample.
Mike Regan can be reached at miker@mjbizdaily.com.
