Meta Materials ended up with $155 million in cash at the end of Q2 2021, after its reverse takeover of Torchlight Energy.
Its cash position in early October may be around $69 million after $14 million in cash burn during Q3 2021 and its $72 million acquisition of Nanotech Security.
This may give it only five quarters of runway unless it reduces its cash burn.
Revenue growth for 2021 has been well below Meta’s earlier expectations (as previously provided to Torchlight in the deal evaluation process).
A spin-off of the oil and gas assets is much more likely than a cash dividend.
Looking for a helping hand in the market? Members of Distressed Value Investing get exclusive ideas and guidance to navigate any climate. Learn More »
luchschen/iStock via Getty Images Meta Materials ( MMAT ) significantly improved its financial position through its reverse takeover of Torchlight Energy. However, it has also increased its spending rate, while its revenues are trending well below its earlier projections (given to Torchlight for the deal evaluation process). This puts Meta at risk of needing to raise more funds by late 2022.
As well, I remain skeptical that former Torchlight Energy holders will end up with a cash dividend for the oil and gas assets. Various oil and gas transactions are still occurring at a discount to PDP PV-10 and the Hazel Project and Orogrande assets have historically reported minimal to zero PDP reserves. Cash Position
Meta Materials had only $1.4 million in cash at the end of 2020, but its June 2021 stock offering helped bolster its cash position to approximately $155 million at the end of Q2 2021. Meta’s cash position decreased to approximately $141 million at the end of Q3 2021 and it used $72.1 million in cash to complete its acquisition of Nanotech Security in October 2021. Pro-forma for that acquisition, Meta’s cash balance would be $69 million. This gives Meta around five quarters of runway at its Q3 2021 burn rate. Nanotech is currently slightly cash flow positive (with under $1 million in positive cash flow in the three quarter period ending June 2021), but that acquisition is not expected to make much immediate difference to Meta’s burn rate.
Thus Meta may need to raise additional cash by late 2022 unless its cash burn diminishes significantly. Flat Sequential Revenue Growth
Meta has recorded strong year-over-year revenue growth, but has so far not demonstrated much in the way of sequential revenue growth. It reported $0.596 million in revenue in Q1 2021, $0.624 million revenue in Q2 2021 and $0.573 million revenue in Q3 2021.
The sluggish sequential revenue growth has resulted in Meta’s results falling well below its earlier projections (provided to Torchlight Energy as part of the deal evaluation process).
For 2021, Meta had projected $13.4 million in revenue, $2.7 million EBITDA and free cash flow of negative $6.3 million. Source: Torchlight Energy – Schedule 14A – March 23
For the first three quarters of 2021, Meta has actually reported $1.8 million in revenue and free cash flow of negative $22 million.
Meta appears to be on track to end up far short of those earlier stand-alone projections for 2021. Meta seems likely (based on my estimates) to end up with around $4 million to $5 million in revenue in 2021, along with over negative $30 million in free cash flow, including the contributions from Nanotech in Q4 2021. Hazel Project And Orogrande
The status of the oil and gas assets is of interest to former Torchlight Energy holders (who are supposed to receive the net proceeds of the sale of those assets, which is supposed to happen by the end of 2021).
The Hazel Project (located in Tom Green, Sterling and Irion Counties) was supposed to be sold by the end of September 2021 for as much as $14.7 million (or approximately $1,500 per net acre). However there has been no indication that the purchase option was exercised, and the performance of the Flying B Ranch #4 well didn’t look very good.
The 24-hour initial production rate for the well was 176 barrels of oil based on Texas filings, which is a low amount of production for what was supposed to be a 7,500 foot lateral . That sort of production wouldn’t result in good well economics even with $100 WTI oil. This makes it unlikely that there will be a cash dividend paid out for Torchlight’s oil and gas assets. The Orogrande is less proven and explored than the Hazel Project, and […]