ADN - Advent Technologies: Ongoing Cash Burn Likely To Result In Near-Term Dilution - Sell

2023-06-05 05:11:44 ET

Summary

• Last month, the company released another set of disappointing quarterly results with immaterial sales and material cash usage.
• With remaining liquidity depleting quickly, management warned investors of the company's ability to continue as a going concern.
• Key Green HiPo project will be subject to a high-level review by the Hellenic Ministry of Transportation and Investment.
• Agreement on a potential funding mechanism for Green HiPo likely to be delayed well into the second half.
• Given the high likelihood of substantial near-term dilution, 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 do not require pure hydrogen and can handle almost any low- or zero-carbon fuel. In addition, Advent asserts its technology to be highly resilient and enables a more efficient heat management.

The company 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.

Two weeks ago, Advent released weak first quarter results and subsequently filed its quarterly report on form 10-Q with the SEC.

Despite not being a development-stage company, Advent's first quarter sales came in below $1 million which doesn't exactly inspire confidence in the company's ability to live up to the single analyst's expectation of revenues to increase to $34.7 million this year, up from a paltry $7.8 million in 2022.

Advent reported negative free cash flow of $13.3 million for the quarter, thus leaving the company with unrestricted cash and cash equivalents of just $19.5 million at the end March.

Not surprisingly, management was required to include a going concern warning in the company's quarterly report (emphasis added by author):

Based on the Company’s current operating plan, the Company believes that its cash and cash equivalents as of March 31, 2023 of $19.5 million will not be sufficient to fund operations and capital expenditures for the twelve months following the filing of this Quarterly Report on Form 10-Q, 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 unaudited condensed consolidated financial statements, the Company has not received an agreement which provides the terms of the funding .

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 our ability to continue as a going concern for one year from the date the unaudited condensed consolidated financial statements are issued.

With remaining liquidity depleting quickly and no funding mechanism for the company's key Green HiPo project agreed with the state of Greece yet, Advent will likely be required to dilute common shareholders sooner rather than later.

That said, the company provided an update on the Green HiPo project last week. Among other things, Advent revealed the requirement for a high-level review of the project by the Hellenic Ministry of Development and Investment:

As a prerequisite for unlocking the State Aid funding for Green HiPo, the Hellenic Ministry of Development and Investment has commissioned a high-level review of the Green HiPo IPCEI project as previously ratified by the European Union. It is expected that this review will take approximately 6-8 weeks, during which time systems and processes will be assessed in order to ensure full transparency and accountability for the effective implementation of the Green HiPo IPCEI project. (...)

Once the evaluation has been completed, the Hellenic Ministry of Development and Investment will invite Advent, as one of the two eligible companies under the IPCEI Hy2Tech framework in Greece, to confirm its final funding documents. Upon submission, Advent anticipates receiving up to 782.1 million euros in funding from the Greek State over a six-year period for its Green HiPo IPCEI project.

Quite frankly, I would be very surprised to see a Greek state institution finishing a high-level review within just six to eight weeks but even assuming the ministry acting quickly, it will likely take well into the second half of the year before a funding mechanism has been put in place.

Please keep in mind that the complementary "White Dragon" project appears to have been shelved for the time being thus causing additional uncertainties regarding the implementation schedule for Green HiPo.

On the Q1 conference call , management remained optimistic about the company's ability to close on a funding agreement for Green HiPo " relatively soon " but failed to mention the required review by the Hellenic Ministry of Development and Investment.

In recent months, the company has been actively looking for ways to raise additional funds.

On April 10, Advent entered into an up to $50 million discounted stock purchase agreement with Lincoln Park Capital and on Friday disclosed an up to $50 million "At The Market Offering" or "ATM Offering" agreement with H.C. Wainwright & Co. LLC.

Both agreements have the potential to substantially dilute common shareholders, particularly in the likely case the company manages to obtain shareholder approval for substantially increasing the number of authorized shares from 110 million to 500 million at the annual meeting on June 13.

In addition, Advent might have to consider a reverse stock split going forward as the company remains out of compliance with the Nasdaq's $1 minimum bid price requirement. That said, Nasdaq has provided the company a 180-day grace period until November 20 to regain compliance. Under certain conditions, the company would be eligible for a second 180-day grace period.

Bottom Line

While management remains optimistic regarding its ability to secure near-term state funding for its key Green HiPo project, the previously undisclosed requirement for the project to be reviewed by the Hellenic Ministry of Development and Investment will delay a potential agreement into the second half of the year.

With Advent Technologies' remaining liquidity depleting quickly, the company is likely to substantially dilute common shareholders sooner rather than later, particularly with the above discussed new ATM Offering providing an easy and rather inexpensive way to sell large amounts of newly issued common shares into the open market.

Given the high likelihood of substantial near-term dilution, I would advise investors to avoid the shares or even consider selling existing positions.

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