Advent Technologies Holdings, Inc. (ADN) Earnings Call Transcript & Summary

Good morning, everyone. I will be your conference operator today. At this time, I would like to welcome everyone to Advent Technologies Fourth Quarter Earnings Conference Call. [Operator Instructions] On the call today, we are joined by Dr. Vasilis Gregoriou, Advent's Chairman and CEO; and Kevin Brackman, Advent CFO. Before we begin the prepared remarks, we would like to remind you that Advent issued a press release announcing its fourth quarter 2021 financial results, shortly before market open today. You may access the materials on the Investor Relations section of ir.advent.energy. I'd also like to remind everyone that during the course of this conference call, Advent's management will discuss forecasts, targets and other forward-looking statements regarding the company's future. Customers orders and the company's business outlook that are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. While these statements represent management's current expectations and projections about the future results and performance as of today, Advent's actual results are subject to many risks and uncertainties. That could cause actual results to differ materially from those expectations. In addition to any risks highlighted during this call, important factors that may affect Advent's future results are described in its foremost recent SEC report filed with the Securities and Exchange Commission, including today's earnings press release. Except as required by applicable law, the company undertakes no obligation to update any of these forward-looking statements for any reason after the date of this call. Lastly, information discussed on this call concerning the company's industry competitive position in the market, which operates is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are delivered -- are derived from publicly available information released by independent industry analysis and other third-party resources as well as data from the company's internal research and are based on assumptions made upon reviewing such data in this experience and in knowledge of such industry and markets, which we believe to be reasonable. These assumptions are subject to uncertainties and risks, which could cause results to differ materially from those expressed in the estimates. Please note, this call is being recorded. Kicking off the call will be Dr. Vasilis Gregoriou. So Dr. Gregoriou, I will now turn it over to you.

Thank you, operator. Good morning to everyone listening in, and thank you for joining us on Advent's Fourth Quarter 2021 Earnings Call. I'm joined today by Advent CFO, Kevin Brackman. On today's call, I will provide comments regarding our fourth quarter results followed by an update on the business. I will then hand over to Kevin, who will give a review of our financial performance and now look in more detail. 2021 was a very significant year of change in progress for Advent. From February 2021, after a successful listing on NASDAQ, Advent has grown from a headcount of around 50 to nearly 200 people in December 2021 and now is additional offices and manufacturing facilities in Denmark, Germany, Silicon Valley and the Philippines. We now have a global structure of integrated manufacturing sales. Prior to 2021, Advent has grown organically into an advanced fuel cell materials manufacturer with a target of moving across the value chain to both lightweight stationary advanced fuel cell system. During 2021, the acquisitions of UltraCell, SerEnergy, SerEnergy Philippines and fischer eco solutions enable open to lead product backed by years which effectively accelerated our development and growth plan. The acquisitions have brought together some of the leading expertise in high temperature fuel cell space and have expanded Advent's platform to meet the increasing demand for clean energy worldwide. We now hold our 190 issued pending patents worldwide for our fuel cell technology and have 38 R&D programs, allowing Advent to offer a spectrum of products to the fuel cell markets from advanced material to final systems. After the acquisitions, Ultracell, SerEnergy, SerEnergy Philippines and fischer eco solutions were consolidated and integrated under one structure and one brand name. This consolidation to maximize efficiencies of scale began in earnest in 2021 and will continue throughout 2022. The activities throughout our global REITs cannot be summarized as followed. We are headquartered in Boston, Mass. We're building state-of-the-art membrane electrode manufacturing facilities in Charlestown, Mass in Liberman, California, we design manufacture lightweight system with a former ultra-cell staff Denmark and Germany sales development and assembly responsibility for advanced 5 kilowatts to 15 kilowatts SerEnergy systems. In the Philippines, we service the telecom market through our sales, service and site preparation and in Greece, we have expanded our MEA production in polymer synthesis capacity included polymer for the next-generation Advent MEA. We are now rolling out complete hydrogen fuel cell systems and our global sales force has expanded our reach across North America, Continental Europe, the Middle East and Asia. The business focus is on the production of advanced fuel cell materials leading to direct sales on the development of advanced fuel cell systems in collaboration with OEMs, will enable us to enter into long-term licensing agreements. In the fourth quarter, we delivered USD 2.9 million in revenue, up 714% from the prior year, driven by strong customer demand for advanced high temperature MEAs, fuel cell systems and flow battery materials. We also collected $3 million from SerEnergy customers during the fourth quarter related to pre-acquisition revenue. For the full year, we generated $7.1 million of revenue. On a pro forma basis, though, as if SerEnergy and fischer eco solutions had been acquired at the beginning of the year, our revenue would have been $16 million. We continue to have strong cash reserves, totaling $79.8 million at year-end. Overall, our performance this quarter and for the year leaves us confident about the long-term growth and earnings potential of the company. Our last quarter validated our business model, and I will now give an overview of the selection of our [indiscernible]. In October, we announced that the new order has been placed for Advent’s SereneU system for the rollout in the Asian market. The new fuel cell stacks and reformers are intended to support internal testing set-ups to evaluate performance and to showcase results with Thai telecom operators. Our business in Denmark has been a partner with Thai-based Alright Combination Centric since 2017, which is a product distributed and service provider to Thailand's information and communications technology industry. The 5-kilowatt fuel cell will address the multimillion-dollar telecom sector in Thai. Advent’s SereneU fuel cells are fourth generation fuel cells, and this generation introduced advantages, including longer lifetime, less service and maintenance fees and improved total cost of ownership. The product upgrade places Advent fuel cells in a pivotal position to respond to an increasing global demand for sustainable energy. Also in October, Advent announced that with its partner, Smart Communications, we have successfully completed the first installation of the HG 5,000 fuel cell system across the Philippines. The delivery agreement was made early in 2021 with smart communications and these partnerships follows the commitment to the United Nations Race to Zero Campaign. The movement of the global industry of mobile network operators highlights a broad-based commitment to zero emissions for all stakeholders. Smart's shift to green energy follows the announcement of the Philippines Department of Energy that the government would no longer accept proposals to build new coal power plants. These significant policy shifts support the development of cleaner energy sources to help ensure a more sustainable growth for the country. In December, Advent and BASF signed a MOU to develop and increase the manufacturing scale of advanced fuel cell membranes designed for long-term operations under extreme conditions. Under this agreement, we will explore the implementation of high-volume manufacturing for Celtec membranes, utilize Advent's fuel cell stack and system testing facilities to assess and qualify the new CelTec membrane for our SereneU product for telecom power, M-Zero product for methane emission reduction and Honey Badger product to portable power. In addition, BASF supports a realization of the White Dragon and Green HiPo project which are pending EU approval through materials for power generation, hydrogen generation and power storage. BASF will also evaluate the product -- production -- producibility of the ion-pair membrane developed in collaboration between Advent and the U.S. Department of Energy. Advent is working to increase the performance and scope of its products to satisfy the requirements of its customers and to address new applications by development next-generation fuel cell materials. Also in December, Advent announced that its fuel cell unit for the Marine sector develop within the framework of the RiverCell Consortium, had passed safety testing, as well as a safe assessment completed by DNV, one of the world's leading classification societies. The RiverCell project is dedicated to the design and development of a fuel cell hybrid system for inland vessels. In addition to cutting greenhouse gas emissions, the hybrid concept demonstrated an increase in both safety and efficiency in shipment. As part of demonstration, the prototype of Advent’s SereneU marine fuel cell unit was successfully integrated into a modern hybrid DC electric energy grid, which was equipped with all relevant ship systems including battery storage. During the fourth quarter, we have continued to progress the White Dragon and Green HiPo project in Southeastern Europe. The goal of the 2 projects as submitted by Advent and the White Dragon Consortium of companies is to replace Greece's largest coal-red power plants with the renewable solar energy parks, which will be supported by CO2-free hydrogen production of 4.65 gigawatts capacity and fuel cell heat and power production of 400 megawatts capacity. Through Green HiPo Advent will use renewable electricity to produce green hydrogen bioelectrolosy. This green hydrogen is converted to clean electricity, green energy and heat through Advent high temperature PEM fuel cells. The products are part of the hydrogen technologies, IPCEI with the European Union. While the approval time line is not within our control, we're expected formal notification from the EU during Q2 or Q3 this year with final ratification by the [indiscernible] thereafter. In parallel, Advent has started to put in place an operational structure that will deliver on these significant power projects with other being ideally poised to commence immediately upon final ratification. We're pleased to be the technology partner for [Indiscernible] large and important environmental project in Europe and to have received approval from the Greek government. We look forward to being able to provide more information on EU approval and the final scope of the project over the coming months. Advent remains well positioned to take advantage of the growing focus on clean energy and where current government businesses and societies will work together to address the climate crisis. We believe that clean energy technology and the hydrogen economy will play a key role in power decarbonization. With that, I would like to hand over to our CFO, Kevin Brackman.

Thank you, Vasilis, and good morning, everyone. Turning to our financials. As Vasilis noted earlier, we delivered revenue of $2.9 million in the fourth quarter, a 714% increase from the prior year. The increase was driven by growing customer demand for Advent MEAs fuel cell systems and other advanced material products. We also collected $3 million from SerEnergy customers during the fourth quarter related to pre-acquisition revenue. For the full year, we generated $7.1 million of revenue. On a pro forma basis, as if SerEnergy and fischer eco solutions had been acquired at the beginning of the year, our revenue would have been $16 million. Cost of revenues increased $2.6 million year-over-year in the fourth quarter. The increase was directly related to revenue growth over the last year, and the requirement for increased production of MEAs and fuel cell systems to satisfy customer demand. R&D expenses were $2 million in the fourth quarter primarily related to our cooperative research and development agreement with the Department of Energy as well as the R&D costs as SerEnergy and fischer eco solutions. Administrative and selling expenses were $14.3 million in the fourth quarter, a year-over-year increase of $12.4 million primarily due to increased staffing and costs resulting from the acquisitions of SerEnergy and fischer eco solutions and the cost to operate as a public company and to incentive and stock-based compensation expenses. Net loss totaled $9 million in the quarter and adjusted net loss was $15.9 million. I should note that our adjusted net loss excludes a $6.9 million gain from the change in the fair value of outstanding warrants. Our net loss per share was $0.18 in the fourth quarter. Advent remains well capitalized with $79.8 million in cash reserves on the balance sheet at year-end, which provides us with the flexibility to be agile in executing on our strategic and operational priorities. This is a decrease of $12.7 million from September 30, 2021, driven by the increased level of R&D and administrative and selling expenses. Our existing cash reserves and projected cash flows are anticipated to be sufficient to support our planned operations for the next 12 months. I will now turn to our outlook. Advent has developed significantly during 2021, and we have entered 2022 with a more advanced product range, a dedicated technical sales team focused on key sectors and geographies and potentially large infrastructure projects. We, therefore, have a strong pipeline. As we all know, however, not every opportunity in the pipeline will transpire due to factors that may be beyond advents control. Opportunities may not materialize or could be delayed. Advent will use its expertise and resources to bring opportunities to fruition, which will translate into revenue. Due to the long-term contract nature of our business model, the timing of our revenue can also be difficult to predict. Having said that, we anticipate revenue and income from our grants for 2022 to total approximately $23 million, which will be heavily weighted towards the second half of the year. This estimate does not include a significant contribution from the White Dragon and Green HiPo projects in Southeastern Europe due to the uncertainty around timing and approval of the project. In closing, we believe that Advent is well positioned to be the provider of clean energy solutions across a variety of end markets. The company has built a solid foundation for the business and continues to grow and execute on its strategic initiatives. With that, I will hand back to Vasilis for closing remarks.

Thank you, Kevin. It is clear that the hydrogen economy is now in the commercialization phase and Advent has a massive opportunity for its advanced materials and fuel cell system products. The repercussions from climate change, coupled with an impetus for decarbonization are quite simple factors that cannot belong to be north and this requires creative solution as a positive change to address this issue. I would like to conclude by saying that Advent has the technology and product now to create a cleaner decarbonized world bans offerings are economically feasible in the face of an increased global demand for energy. I would like to thank you all for joining us today, and we're now ready to answer questions. Thank you very much.

[Operator Instructions] We have our first question on the phone lines from Laurence Alexander of Jefferies.

This is actually Kevin Estok on for Laurence Alexander. Mine is actually just a more broader general question. I guess you talked a little bit about it on the call, but I just wondering if you had any more detail or anything that you didn't touch on like on new -- the new project pipeline and given some recent business wins, maybe any updates on timing or potential milestones? Or just anything that you didn't touch on the call, would be helpful.

Yes, Kevin, I can put a little bit color to this, as you say. First of all, as you know, we are trying to replace the diesel generator. So our basic approach is to go after the off-grade, backup power and the portable. But with the new tech that we're developing, we made an announcement. You saw very recently, with a new generation MEA that we call developed with Los Alamos and that's a game changer. We're talking about automotive and marine also in 2022. So the whole idea here is that to be able to get the sales. We project as Kevin said, $23 million without the big projects, and I'll spend a little bit of time on that. And that will be basically driven, as I said, about the existing revenue clean power project, off-grade backup power and then the [indiscernible] for the new [indiscernible] developed. Because keep in mind that Advent has 2 major pillars, if you will. One is a fuel cell company right now, 2022, more than 200 people the patents, the manufacturing capability, the inventory, almost 1,000 SereneU systems in the field. So we're not the company that we were before. Now we're a fuel cell company. So I think the sector also has changed for us were with this particular group. And you know the set of companies, we trade in the U.S. and Canada, in the U.K., Sweden, so we need to be looked at that. And I think as I said, 2022 will be a big year for us. Now the other potentially big thing, and I say that because we announced it on September 7, where we actually got 2 of the 5 approved out of the 20 submitted projects for IPCEI from the Greek government. And one is the White Dragon and the other is the Green HiPo. The Green HiPo is ours. The White Dragon is a Consortium with the largest energy companies. But what we know there is that at least for the Green HiPo is that we have gone to the second set of questions. And I think in the next few months, as I said, before, either Q2 or Q3, we expect they're going to go. And there, we will know. Now, are we optimistic or pessimistic? I will say we're very optimistic. The reason being that there are 2 things that have happened. One is the geopolitical aspect of it. I think it's very obvious that Europe would put a lot of effort on renewables for energy independents, and hydrogen will be a big part of the storage. Because right now, the renewables don't have a very good storage. Methanol is not good enough and hydrogen is coming up now. But take our word for it. Hydrogen will be a big part. So it's not going to be only in a gas form or liquefied form, we'll find out what it is, and all of them are there. But we also believe, as you know, in methanol fuels or use hydrogen to produce fertilizers. The fact of the matter is the geopolitical thing it was before strong and now has become much, much stronger because of the world. And the other is the geoeconomical part of it. Keep in mind that all the other things have become very expensive also liquid financial gas is also expensive, bring it to Europe, you need to make terminals as well. So -- and also the fact that we do it in Greece, and it's not an accident that the other big project also is in the south of Europe, in Spain because there's a lot of sun here. So you can imagine if you have 2.5x, the sun in the South that we have, let's say, in [indiscernible], then we produce we produce hydrogen 2.5x cheaper. So the -- even though we haven't gotten the approval for the White Dragon and Green HiPo, we feel confident that -- an optimist, but I cannot -- I cannot say that we got or not. But all the things go there. Having said that, and I think Kevin said it again, and I would say, we project $23 million for this year without any significant contributions. And I know it's a tough year. We have a COVID. We have supply chain manufacturing companies are not very much in favor. But for us, traded at 238 right now, we believe we will vastly grossly undervalued because if you take a look at the sector, as I mentioned in the comments before, take a look at their valuations. Take a look at the revenue, the total revenue, as is defined, how much everybody spent in order to make this revenue, if there is any debt or not, you will see that we're in the wrong with the wrong side. So I think I'm optimistic that in 2022, we'll get our fair share.

We now have our next question on the phone line from Lacie Midgley of Panmure Gordon.

Can you hear me okay?

Yes, Lacie.

Firstly, congratulations on the results. And a couple of questions, probably 2 actually for Kevin. You've given the revenue guidance. I mean how should we think about that in terms of MEA sales, stock sales and system sales going forward? Is there any dramatic split for this year there and perhaps also next year after. I would let you sort of take that one first.

Yes, after the acquisition of SerEnergy, I think moving for probably over half of our revenue will be fuel cell systems, the full system with the remainder being split between MEAs and engineering fees, depending on the year, I don't know exactly which of those 2 pieces will be more significant as or engineering fees. So a little over half from systems and then the remainder MEAs and engineering fees.

That's helpful. And then just thinking of the costs, particularly for your CapEx, R&D costs over the -- well, I guess, 12 months. And [Indiscernible] is that focused on one -- I mean, firstly, some guidance there, if you can, would be helpful. And how should we think about that in a similar vein. Is that focused on one particular area, and the stacks or systems or fee any color there would be helpful.

Yes. Let me go down the individual lines on the P&L and provide a little bit of guidance on each. So let me start with research and development expenses. It was $2 million in the fourth quarter. I think that's a reasonable number moving forward on a quarterly basis. The $2 million that we had in the fourth quarter. So I think that's -- and that's mostly cash. The administrative and selling expenses that was $14 million in the fourth quarter, which included some accruals for incentive compensation and other items. So I think the number was a little bit high in the fourth quarter. I think moving forward, on a quarterly basis, that SG&A number will be more like $10 million to $12 million, which includes, let's say, roughly $3 million -- $3.5 million of stock-based compensation expenses, which are noncash. So that's the SG&A line. And then CapEx, I think we had, I believe it was around 1.5 in the 1.6, something like that in the fourth quarter. I think that's probably a reasonable run rate again, on a quarterly basis. And so on a cash basis, when you add those 3 lines up, let's say, $11 million from SG&A, but $3 million of that is noncash. So let's say, $8 million of cash for SG&A, a couple of million for R&D and then $1 million -- $2 million per quarter from a gives you a run rate of about $11 million, $12 million of cash used for our costs.

That's really helpful. Appreciate that. And then I guess -- well, probably more silly or tough questions. But when White Dragon and Green HiPo projects, well, if and when they're approved, where will advent service that demand from which of your sites and will you need extra capacity sort of coming on stream to meet the demand of those, I guess you will given the size, but just your thoughts on that would be good.

Yes, absolutely. As we said that we have separated the 2, the existing business, which is very strong and growing. And this will be a colossal project, okay? And obviously, as you very well pointed out, capacity is the question. It's not the finance and engineers of the project for a project like that. We know how to negotiate and get the final numbers. The thing it's hard to use actually fulfill the demand. And then we have already announcements. We have -- the announcement would be set, and we're talking battery players, okay? So the thing is that we're preparing in as if this is a go because the maturity is humongous. The most important thing, let's say you probably know is the access to super renewable energy. That's the key. And the mine we have it and we do have [indiscernible], then the rest can be built. So we're preparing and we're ready. And hopefully, we're a success.

One last one from me, sorry. The largest tax for the heavy duty applications that you're developing? What's the sort of next milestone? I think you said sort of prototypes in this financial year expected. Are you still on track for that? And when should we sort of be thinking of expecting first sales on that side?

I'm sorry, I think I missed the first part of the question. What's the question?