Description

Let’s do this one again.

Alpine 4 is a cash burning, roll-up promote that is out of money. Death spiral financing ($50mm ATM) will become effective any day. ALPP has a $250mm market cap but only 4% short interest and ample borrow. 

ALPP is a better short now than ever. ALPP is a zero. 

History

Alpine 4 started as a rollup of small industrial-type businesses (circuit manufacturing, sheet metal fabrication, etc.) but has morphed into a fantastical promotion. The company claims to have technology that will make them a leader in drones, advanced manufacturing and solid state batteries. ALPP compares themselves to an early stage Berkshire and Danaher. None of this is true. 

The promote started at the end of 2020 when Alpine acquired two defunct drone companies (Impossible Aerospace and Vayu) for $12mm in stock. Retail mania had started and Reddit took the bait. ALPP rose from $0.04 to $4 in just a few months. Driftwood wrote up ALPP on VIC on 1/20/21 and highlighted the absurdity of the situation, but the mania continued with ALPP peaking in Feb 2021 at $9.50, a 250 bagger. Grizzly also wrote up ALPP on 3/10/21. 

ALPP used their stock to raise capital, buy additional businesses and expand their promote. But investors are fatigued with Alpine’s pivoting story and are frustrated with the dilution and stock performance. ALPP retail holders are about to learn the danger of roll ups - the bigger you get the more cash you need to survive. 

ALPP is out of liquidity

Alpine 4’s collection of small, sub-scale businesses are collectively declining with growing operating losses. The company is burning a lot of cash. ALPP used $9.2mm in operating cash flow plus capex in 1Q21, $5.5mm in 2Q21, and $9.5mm in 3Q21. That’s an average of $8mm a quarter. Alpine 4 ended 3Q21 with $5.4mm of cash and $17mm of debt. By November 4th they were down to just $3.4mm of cash. 

Alpine was saved by a Nasdaq uplisting in October 2021 and the company raised $24mm ($22.5mm after fees) via a private placement of stock and warrants in November. Instead of keeping the money for operations and drone investment, Alpine acquired ElecJet, an importer/reseller of cell phone charging batteries from China, for $6.5mm of cash (plus $5.5mm of stock) and RCA, a distributor of private label imported TVs and LED lights logo’d with the licensed RCA brand for $14mm of cash (plus $5mm stock/warrants). Alpine 4 expanded its story to having world changing solid state battery technology for drones, EVs, et al that would be manufactured in the United States under the iconic RCA brand. Investors don’t seem to be buying it and the stock has grinded lower. 

Acquiring these businesses used all but $2mm of the capital raised and my diligence suggests these acquisitions are not FCF positive.  On a pro forma basis, ALPP had $5.4mm of cash at 11/4/21 and $8.9mm of credit availability ($5.6mm in ALPP bank lines plus $3.3mm of available credit at RCA, Note 4 of 8-k), for a total of $14.3mm of liquidity. 4.5 months of 2021 burn rate is a $12mm cash burn. 

I estimate ALPP currently has just $2mm of cash, $27mm of debt, and no access to additional capital. This is less than 1 month of liquidity. 

Management has no experience with these types of situations. The CEO’s prior experience was working for a mom and pop gas station pump repair company. The cofounder was a home building project manager. And the board is full of inexperienced members that include a used car salesman, a music teacher, a foodie, and a storybook artist. 

Alpine 4 filed a $50mm ATM with AGP on Wednesday morning (3/9/22) that is not yet effective. Alpine 4’s previous capital raises were private placements through AGP at significant discounts to stock price, but these previous investors are apparently no longer interested. These investors don’t appear as holders in any filings and ALPP only has some passive institutional ownership due to their Nasdaq uplisting. 

ALPP appears to be caught in a dangerous death spiral situation. ALPP has low trading volume relative to its significant capital needs, a frustrated shareholder base, and a pending Nasdaq delisting if the stock falls below $1.

4Q Results? 

Alpine 4 has yet to file 4Q21 results and has until the end of this month to file their 10K. I anticipate disappointing results since my diligence suggests 4Q operating results and cash burn got worse. I would also not be surprised to see an NT 10K (again) given the complexities around acquisition accounting for their two end of quarter deals. 

Alpine 4 missed their 3Q sales guide by 15% and was only profitable on a net income basis because of PPP loan write offs. Operating losses and cash burn got worse. The company did not guide for growth or profitability in 4Q and the CEO’s commentary has become increasingly cautious on the near term. The most recent example is his 2021 investor letter from 2/4/22 which laments the challenges of 2021 and hopes for cash burn improvement in 2Q22. 

Promote Exhaustion

ALPP bulls have gotten everything they hoped for but the stock has not delivered. The Nasdaq uplisting rally was short lived and additional press releases have been met with market skepticism. 

I would not be surprised if the SEC is investigating the company for some of the claims it has made. For example, on 11/18/21 Alpine touted a multi-year drone mapping contract with the US Army Corp of Engineers. The stock rallied on this seemingly good news and ALPP raised capital 5 days later. A few weeks later on a Friday afternoon Alpine provided “clarity” around its previous press release and said it was just a subcontractor for a contractor to the Army Corp of Engineers. 

A Tegus conversation with a drone mapping industry expert (and ex Identified Technologies CMO) suggested this contract is worth <$750k in total over several years. Identified Technologies is likely doing <$100k in sales per year and has been crushed by well funded competitors like Kespry and Airware. 

I have diligenced all of Alpine 4’s 2021 acquisitions and am very comfortable that there is nothing there. Alpine 4 either acquired defunct VC investments (Vayu, Impossible Aerospace, Identified Technologies) or low-tech, owner-operator businesses (Alternative Labs, Thermal Dynamics, ElectJet, RCA). In either situation, Alpine 4 spins a story. For example, Thermal Dynamics is an international thermal engineering contractor to the DoD. In reality it is just an HVAC contractor to US Embassies. ElectJet is a two man team run out of a house in Plano TX that imports and resells cell phone chargers from Shenzhen. According to Alpine 4, ElecJet has game changing battery technology that will change the world. I can discuss specific deals further in Q&A if interested.  

Alpine has spent ~$67mm (~$37mm cash, ~$29mm of stock) acquiring 7 businesses. The company has raised $67.5mm through AGP offerings, but has consumed $36mm from operations. At a current $270mm EV, ALPP is still trading at 4x the value of its previous M&A. The company is trading at ~3x forward sales estimates while profitable industrial conglomerates trade at 1x sales. 

Kent Wilson, Alpine 4’s CEO, has not sold any stock but on 12/30/21 he gifted 194,000 shares to a charity he had set up just a few months earlier. 

Alpine 4 faces additional risk via lawsuits with ex employees where Alpine could be on the hook for cash payouts upwards of $10mm. I have researched these lawsuits and it appears the plaintiff’s have strong cases and there could be a summary judgment on one within two months. 

Conclusion

Alpine 4 is a cash burning promote that I estimate is down to <1 month of liquidity. The company appears out of options for cash and will have to aggressively use its $50mm ATM in order to survive. ALPP has a $250mm market cap but low short interest and ample borrow. I believe the death spiral financing will ultimately lead to investor capitulation. My target price is zero.

Catalyst

ATM goes effective and starts being used

4Q21 Results

10K with going concern language

SEC investigation

Nasdaq delisting

Alpine looses lawsuit(s)