ADN - Advent Technologies: Going Concern Warning And Imminent Capital Raise - Sell

2023-04-02 23:07:39 ET

Summary

• Last week, the company released weak fourth quarter results and subsequently filed its annual report on form 10-K with the SEC.
• Dwindling cash resources resulted in the requirement to warn investors of the company's ability to continue as a going concern.
• Still no agreement on funding terms for the company's key Green HiPo project in Greece.
• Management intends to pursue a capital raise in the current quarter.
• With an equity or equity-linked financing likely straight ahead, I would advise investors to avoid the shares or even consider selling existing positions.

Note: I have covered Advent Technologies Holdings ( ADN ) previously, so investors should view this as an update to my earlier articles on the company.

Advent Technologies Holdings or "Advent" is a small, Boston-headquartered fuel cell company primarily focused on high-temperature polymer electrolyte membrane ("HT-PEM") technology.

HT-PEM fuel cells don't require pure hydrogen and can handle almost any low- or zero-carbon fuel. In addition, Advent asserts its technology to be highly resilient and enable a more efficient heat management.

Advent used the 2020/2021 ESG hype to obtain a backdoor listing by combining with SPAC AMCI Acquisition Corp. in February 2021.

The transaction raised an aggregate $158.3 million in capital, including $93.3 million of AMCI's cash in trust and $65 million from a PIPE investment led by Jefferies LLC and Fearnley Securities.

Over the past two years, the company has spent most of the funds for covering operating losses as well as a number of acquisitions.

Last week, Advent released weak fourth quarter results and subsequently filed its annual report on form 10-K with the SEC.

Total FY2022 revenue of $7.8 million came in at a tiny fraction of the company's original $23 million forecast.

Advent reported negative free cash flow of $46.6 million for fiscal 2022, thus leaving the company with unrestricted cash and cash equivalents of just $32.9 million at the end of last year.

Consequently, management was required to include a going concern warning in the company's annual report (emphasis added by author):

Based on the Company’s current operating plan, the Company believes that its cash and cash equivalents as of December 31, 2022 of $32.9 million will not be sufficient to fund operations and capital expenditures for the twelve months following the filing of this Annual Report on Form 10-K, and the Company will need to obtain additional funding.

In July 2022, the Company received official ratification from the European Commission of the European Union for one of the Important Projects of Common European Interest (“IPCEI”), Green HiPo . This project provides for the availability of funding of €782.1 million over the next six years. As of the issuance date of the consolidated financial statements, the Company has not received an agreement which provides the terms of the funding .

In addition to Green HiPo, management will pursue an additional capital raise in the second quarter of 2023 , but this is based on estimates that are subject to risks and uncertainties. There can be no assurance that the Company will be able to obtain additional funding on acceptable terms, if at all. If the Company is unable to obtain sufficient funding, it could be required to delay its development efforts, limit activities and reduce research and development costs, which could adversely affect its business prospects. Because of the uncertainty in securing additional funding and the insufficient amount of cash and cash equivalents as of the financial statement filing date, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are issued.

Adding insult to injury, the company will be pursuing a near-term capital raise and hasn't been able to come to an agreement with the state of Greece on funding terms for its key Green HiPo project:

We have been working with a Greek state on the mechanism and timing schedule for the funding facility. These meetings have been included visits by Greek state officials to the company’s research and production facilities in Patras, Greece. It is our goal to finalize these discussions as soon as possible and proceed with the rollout of the program. The scope of Green HiPo, over the initial period of 6 years, is to innovatively develop and manufacture fuel cell systems and electrolyzer systems for the production of power and green hydrogen respectively.

We are aiming for cumulative capacity of 118 megawatts of fuel cells and 1.5 gigawatts of electrolyzers over this time. The production of these systems will take place in Greece in the region of Western Macedonia, which will become our focal point for technology development and mass production. The company intends to create approximately 600 direct jobs for qualified scientific and technical personnel and up to 4,600 indirect jobs over the 6-year period.

Unfortunately, the complementary "White Dragon" project appears to have been shelved for the time being thus causing substantial uncertainties regarding the implementation schedule for Green HiPo.

During the question-and-answer session of last week's conference call , CEO Vasilis Gregoriou was asked about the next steps and timing with regards to the Green HiPo project implementation but didn't have much to offer:

(...) Here is the situation, the IPCEI has been ratified at €5.4 billion across the continent. Not all countries are at the same level, okay. And as a very newly elected Chairman, my first thing is to – for all of us to find out where we are and to go in the next couple of months when we have our first reporting to see where everybody is. So, the idea is that the Greek state is very positive about it. We received a letter in March that first of all congratulated us on this amazing success, if you will. And second is that they go as fast as possible to go to the next level, meaning, give us a call. And in the call, we are going to see the exact details of what’s going to happen there. (...) So, I think that’s how much I can say. I think we in the next few months, we will know things.

But the bad news doesn't stop here as the company disclosed an aggregate $38.9 million in impairment charges related to the €52 million acquisition of SerEnergy and fischer eco solutions GmbH in June 2021.

Remember, the acquisition of SerEnergy was a big bet on the stationary telecom backup power market in the Philippines but key customers like PLDT and Globe Telecom have recently started to monetize their towers in sale-and-leaseback transactions, thus resulting in significant order delays which are unlikely to be addressed anytime soon.

At least Advent managed to continue its work with Hyundai following a successful technology assessment over the past year.

The assessment evaluated Advent's proprietary Membrane Electrode Assembly (“MEA”) technology for supplying Hyundai’s high-temperature fuel cell needs, and following its success, the two companies have entered into a Joint Development Agreement (“JDA”). (...)

Under the agreement, Hyundai and Advent will work together to further develop HMC-Advent Ion Pair™ MEA, establish commercial criteria for MEA supply, and evaluate Advent's advanced fuel cell technology for Hyundai's heavy-duty and/or stationary application. Additionally, the parties will introduce advanced cooling technologies for mobility High-Temperature Proton Exchange Membrane (HT-PEM) fuel cell stacks. Advent will work closely as Hyundai evaluates these stack cooling technologies and ensure optimal performance under different operating conditions.

Unfortunately, the ongoing development work with Hyundai is unlikely to result in any material near- or medium-term financial benefits to the company.

Given Advent's disappointing 2022 performance and considering ongoing delays in telecom backup power orders as well as limited visibility into the timing of Green HiPo project funding, management has abstained from providing revenue guidance for 2023.

Currently, the two-analyst consensus is calling for 2023 revenues to increase more than sixfold from last year's levels to a whopping $52.3 million which the company is likely to miss by a very wide margin again.

Bottom Line

Lots of bad news for Advent Technologies Holdings' badly stricken shareholders as the business continues to perform well below management's original expectations and available liquidity dwindling fast.

As a result, the company has warned investors of its ability to continue as a going concern and stated its intent to pursue a capital raise in the current quarter.

With the share price hovering near all-time lows, raising a substantial amount of cash might prove increasingly difficult.

That said, the company has no debt which might leave the door open for a small convertible deal.

With an equity or equity-linked financing likely straight ahead, I would advise investors to avoid the shares or even consider selling existing positions.

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