Business Overview and History

Alpine 4 Holdings, Inc. (ALPP) is a publicly traded conglomerate that has been actively acquiring and managing a diverse portfolio of businesses since its inception in 2014. The company's unique business model, centered around the "Drivers, Stabilizers, and Facilitators" (DSF) strategy, has positioned it as a dynamic player in various industries, ranging from manufacturing and technology to construction and aerospace.

Alpine 4 was incorporated under the laws of the State of Delaware in April 2014, initially formed as Alpine 4 Automotive Technologies Ltd. The company later changed its name to Alpine 4 Holdings, Inc. in February 2021. Since its inception, Alpine 4 has focused on identifying and acquiring small to mid-sized businesses that align with its DSF strategy.

In the early years, Alpine 4 made several acquisitions to build out its portfolio, including Horizon Well Testing, LLC in 2017. However, this acquisition later led to challenges, as the seller filed a lawsuit against Alpine 4 in 2020 regarding a promissory note. The lawsuit was subsequently settled in 2023 on acceptable terms for the company.

The company's growth continued with the acquisition of Vayu Aerospace Corporation in 2020, expanding its presence in the aerospace industry. In 2021, Alpine 4 further diversified its portfolio by acquiring Alternative Laboratories, LLC and DTI Services LLC (doing business as RCA Commercial Electronics).

Throughout its history, Alpine 4 has faced various challenges, including the impacts of the COVID-19 pandemic, which adversely affected some of its operating subsidiaries. In response to these challenges, the company has made efforts to improve its financial reporting and internal control processes, hiring additional accounting staff and engaging a third-party consultant to help remediate material weaknesses identified in its internal controls.

Financial Performance and Liquidity

Alpine 4's financial performance has been mixed in recent years, with the company reporting a net loss of $12.88 million in 2022 and a net loss of $19.48 million in 2021. The company's annual revenue has grown from $33.45 million in 2019 to $104.56 million in 2022, highlighting the impact of its acquisition strategy.

For the most recent fiscal year (2022), Alpine 4 reported revenue of $104.56 million, a net loss of $12.87 million, operating cash flow of -$19.58 million, and free cash flow of -$20.65 million.

As of the latest 10-Q filing for the third quarter of 2023, Alpine 4 reported quarterly revenue of $25.60 million, a decrease of 6.9% year-over-year. This decrease was primarily driven by a $3.5 million reduction for RCA and a $0.8 million decrease for Morris Sheet Metal (MSM) as they focused on increasing margins. However, this was partially offset by a $3.7 million increase for Alternative Laboratories (Alt Labs) due to organic growth from new customers. The company reported a quarterly net loss of $40.96 million, operating cash flow of -$397,620, and free cash flow of -$1.46 million.

Alpine 4's liquidity position has been a concern, as the company had negative working capital of $7.20 million as of September 30, 2023. The company has relied on a combination of bank financing, debt issuances, and equity offerings to fund its operations and acquisitions. As of the latest reporting, Alpine 4 had $2.93 million in cash and $3.1 million available out of $35 million total credit facilities.

The company's debt-to-equity ratio stands at 1.07, indicating a significant reliance on debt financing. The current ratio of 0.86 and quick ratio of 0.43 further underscore the company's liquidity challenges.

Operational Challenges and Pandemic Impact

Alpine 4's diverse business model has exposed the company to a variety of operational challenges. In 2022, the company recorded significant impairment charges of $14.90 million for goodwill and $18.41 million for intangible assets, primarily due to a decline in market capitalization and lower-than-expected revenue growth and margins across some of its subsidiaries.

The COVID-19 pandemic also had a significant impact on Alpine 4's operations, with supply chain disruptions and fluctuating customer demand affecting several of its subsidiaries. The company has been working to navigate these challenges by implementing cost-cutting measures and focusing on improving operational efficiency.

Subsidiary Performances and Diversification

Alpine 4's subsidiaries operate across a range of industries, including manufacturing, construction, defense, aerospace, and technology. The company's business is structured into several segments:

A4 Construction Services: This segment includes Morris Sheet Metal (MSM), which provides commercial construction services primarily as a sheet metal contractor. In Q3 2023, MSM generated $3.86 million in revenue and had a gross profit of $198,240. For the first nine months of 2023, MSM had $11.23 million in revenue and a gross profit of $979,930.

A4 Manufacturing: This segment includes Quality Circuit Assembly (QCA-W) and Alternative Laboratories (Alt Labs). QCA-W, a contract manufacturer within the technology industry, generated $3.68 million in revenue and $396,190 in gross profit in Q3 2023. For the first nine months, QCA-W reported $13.19 million in revenue and $2.29 million in gross profit. Alt Labs, a contract manufacturer in the dietary nutraceutical supplements industry, had $6.39 million in revenue and $985,610 in gross profit in Q3 2023. For the first nine months, Alt Labs reported $17.41 million in revenue and $3.71 million in gross profit.

A4 Defense: This segment includes Thermal Dynamics International (TDI), which contracts for the U.S. Government, particularly for the U.S. Defense Department and U.S. Department of State. In Q3 2023, TDI generated $2.07 million in revenue and $221,670 in gross profit. For the first nine months, TDI had $7.46 million in revenue and $1.78 million in gross profit.

A4 Technologies: This segment includes RCA and Elecjet. RCA, a business-to-business commercial electronics manufacturer, had $8.00 million in revenue and $2.57 million in gross profit in Q3 2023. For the first nine months, RCA reported $23.99 million in revenue and $7.69 million in gross profit. Elecjet, a battery research and development company, generated $65,890 in revenue and $71,280 in gross profit in Q3 2023. For the first nine months, Elecjet had $290,230 in revenue and $198,090 in gross profit.

A4 Aerospace: This segment includes Vayu Aerospace, a drone aircraft manufacturer. In Q3 2023, Vayu had $4,170 in revenue and $593 in gross profit. For the first nine months, Vayu reported $25,000 in revenue and $6,060 in gross profit.

The company also has an "A4 All Other" segment that includes the results of its other subsidiaries, such as QCA-C, Identified Technologies, Global Autonomous Corporation, Excel, and corporate activities. In Q3 2023, this segment had $1.53 million in revenue and $142,380 in gross profit. For the first nine months, the A4 All Other segment generated $4.42 million in revenue and $105,910 in gross profit.

While some subsidiaries, such as Alternative Laboratories (Alt Labs) and Identified Technologies (IDT), have shown consistent growth, others, like Morris Sheet Metal (MSM) and Thermal Dynamics International (TDI), have faced more challenges.

In 2023, the company announced plans to wind down the operations of its TDI subsidiary, as part of a broader strategy to focus on its more profitable and strategic business units. This decision is expected to result in non-cash expenses of between $10.00 million and $12.00 million, including impairment charges.

Alpine 4's diversification strategy has allowed it to mitigate some of the risks associated with its individual subsidiaries, but the company's overall performance remains closely tied to the collective performance of its diverse business units.

Shareholder Concerns and Delisting Risks

Alpine 4's stock has faced significant volatility and shareholder concerns in recent years. In 2024, the company received multiple Nasdaq Staff Determination letters, indicating potential delisting due to non-compliance with certain listing requirements.

The company has stated that it is working to address these issues and regain compliance, but the outcome remains uncertain. Shareholders have expressed concerns about the company's financial performance, governance, and the overall direction of the business.

Legal Issues and Challenges

Alpine 4 has faced several legal challenges in recent years. In August 2020, the company filed a lawsuit against Alan Martin regarding his note payable. The parties settled the dispute in July 2023, with Mr. Martin receiving $100,000, 500,000 shares, $2 million in cash, and a $1.8 million note payable.

In November 2022, Mark Bell filed a complaint against the company and its subsidiaries Excel and A4 Construction regarding the 2020 purchase of Excel Fabrication LLC. The case is set for trial on June 25, 2024.

These legal issues have contributed to the company's financial challenges and have raised concerns among investors about the company's management and governance practices.

Geographic Markets and Industry Trends

Alpine 4 primarily operates in North America and does not have a significant international presence. The company operates across several industries, including manufacturing, construction, and technology. While specific industry CAGR data was not provided, the company's diverse portfolio exposes it to various industry trends and market conditions.

Conclusion

Alpine 4 Holdings, Inc. (ALPP) has positioned itself as a diversified conglomerate with a unique business model focused on acquiring and managing small to mid-sized businesses. The company's history is marked by a series of strategic acquisitions, which have expanded its presence across various industries.

However, Alpine 4's financial performance has been inconsistent, with the company reporting significant net losses in recent years. The company's liquidity position and operational challenges, exacerbated by the COVID-19 pandemic and legal issues, have raised concerns among shareholders.

As Alpine 4 navigates these diverse challenges, its ability to effectively manage its subsidiaries, address operational inefficiencies, resolve legal disputes, and regain compliance with Nasdaq listing requirements will be crucial in determining the company's long-term success and its path forward. The company's diverse portfolio of businesses provides both opportunities and risks, and management's ability to capitalize on synergies while mitigating sector-specific challenges will be key to improving Alpine 4's financial performance and shareholder value in the future.