Meta Materials: Equity Offering Gives It Funding Into 2023

Jul. 15, 2022 3:35 PM ETMeta Materials Inc. (MMAT)MMTLP2 Comments

Summary

  • Meta Materials raised $50 million in gross proceeds via an equity offering.
  • At its current rate of cash burn, it may need to raise more funds in 1H 2023 if the warrants (exercise price of $1.75) aren't exercised.
  • Full exercise of the warrants would likely give it enough cash to last until mid-2024 without additional funding.
  • The oil and gas spinoff (Next Bridge Hydrocarbons) will likely go public at some point due to it needing to raise funds of its own.
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Meta Materials (NASDAQ:MMAT) raised $50 million in gross proceeds via an equity offering in late June. This was in line with my expectation that it would need to raise money in Q2 2022 or Q3 2022 due to its significant rate of cash burn.

If Meta Materials does not substantially reduce its cash burn from Q1 2022 levels, it may need to raise additional funds in 1H 2023. However, if it receives repayment of the funds it has lent to OilCo (Next Bridge Hydrocarbons), that would give it another one to two quarters of runway. The full exercise of the warrants would likely push the need for additional funds into 2024.

The oil and gas spinoff (Next Bridge Hydrocarbons) has filed a registration statement for the registration of its common stock. Currently, it appears that one Series A Preferred share will be exchanged for one common share in Next Bridge Hydrocarbons. It appears that Next Bridge Hydrocarbons will not be publicly traded initially, but I believe it will end up as a public company at some point to raise funds. These funds would be used to repay Meta Materials and maintain the leases and/or start a development program.

Equity Raise

I was accurate in my previous prediction that Meta Materials would raise money by issuing more shares in Q2 2022 or Q3 2022. Meta Materials had $30 million in cash on hand at the end of Q1 2022 and had a cash burn rate of approximately $13 million per quarter excluding costs related to the oil and gas assets.

This would have put Meta Materials on track to end Q2 2022 with approximately $13 million in cash on hand, pro forma for the Optodot acquisition, and excluding the proceeds from its equity offering. Since companies try to avoid completely running out of money before raising additional funds, the timing of this offering makes sense.

The $50 million equity offering nets Meta Materials' $47 million in cash after fees while it is also putting another $5 million towards the oil and gas assets. The remaining $42 million covers a bit over three quarters' worth of operations at its current rate of cash burn.

Thus, I'd expect Meta Materials to do another equity offering in 1H 2023 unless its stock price is high enough during 1H 2023 to cause a significant portion of its warrants to be exercised. Complete exercise of the warrants will give Meta Materials another 5 quarters of runway at its current (Q1 2022) cash burn rate, and that may push the need for another equity offering out to around mid-2024.

As well, after the new $5 million in spending on the oil and gas assets, Meta Materials is owed approximately $20 million by OilCo. If it gets that repaid, those funds would cover approximately 1.5 quarters of cash burn.

Revenue And Cash Burn

Since Meta Materials currently has operating expenses that are well in excess of its revenues, it would need to grow revenues much faster than its operating expenses in order to reduce its rate of cash burn. For example, if its operating expenses go up around 25% to 30% from Q1 2022 levels, it would need around a 200% increase in revenues (also from Q1 2022 levels) to maintain the same rate of cash burn.

Notes On Share Count

Meta Materials has been actively making acquisitions, so in combination with its equity offering, it has approximately 361 million shares outstanding now. If its share price gets high enough for the 37 million warrants (with an exercise price of $1.75) to be exercised, it will have approximately 398 million shares outstanding.

Oil & Gas Entity

It appears that the oil and gas spinoff (Next Bridge Hydrocarbons) will be private, at least initially. I believe this entity will need to go public in order to raise funds to repay Meta Materials and do some development work. This would result in some dilution to current Series A Preferred shareholders. This dilution will be in addition to the shares that Next Bridge intends to offer to other Orogrande working interest owners in order to increase its ownership of the Orogrande.

The amount that the oil and gas entity will need to raise depends on its future plans. It could probably get by with raising $50 million if the objective is just to repay Meta Materials and do the minimum needed to maintain the leases. Next Bridge Hydrocarbons will need to drill five wells in 2022 and another five wells in 2023 in order to maintain the Orogrande leases.

An actual attempt to develop the Orogrande (with a series of regular-length horizontal wells) would likely require $100+ million.

Next Bridge's registration statement notes that it does not expect to pay cash dividends in the foreseeable future. This matches my previous expectations.

I continue to believe that the Orogrande has limited value in its current state due to the unproven nature of that asset and the lack of regular-length horizontal wells that could demonstrate economic viability.

Conclusion

While Meta Materials' equity offering may have surprised some people, the timing of the offering was exactly when I expected it. Meta Materials is burning a substantial amount of cash currently, with no clear visibility as to when this cash burn will abate. It should have enough cash until 1H 2023 with this offering, and if the warrants are fully exercised, it could have enough cash until mid-2024 at its current rate of cash burn.

Meta Materials' rate of cash burn will be a key metric to focus on with its upcoming Q2 2022 earnings.

The oil and gas assets appear to be spinning off as Next Bridge Hydrocarbons. This company will likely end up being publicly traded at some point so that it can do an equity raise to pay back Meta Materials and maintain lease compliance. If it wants to prove out some of the Orogrande, then it would need to raise a more substantial (such as $100+ million) amount of money.

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