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 First Quarter Earnings Conference Call. [Operator Instructions] On the call today, we are joined by Dr. Vassilios Gregoriou, Advent's Chairman and CEO; and Kevin Brackman, Advent's CFO. Before we begin the prepared remarks, we would like to remind you that Advent issued a press release announcing its first quarter 2022 financial results shortly before market opened today. You may access the materials on the Investor Relations section of the company's website, www.advent.energy. I would 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, customer 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 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 most recent SEC reports 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 in which it operates, is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates 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 industries and markets, which is pleased 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. Dr. Gregoriou, I'll turn it over to you.

Thank you, operator. Good morning to everyone listening in and thank you for joining us on Advent's First Quarter 2022 Earnings Call. I'm joined today by Advent's CFO, Kevin Brackman. On today's call, I will provide comments regarding our first 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 outlook in more detail. During my last update on March 28, I concluded by remarking that 2021 was a very significant and progressive year for Advent and that we have built the foundation for growth. This foundation is already bearing fruit and is providing to be a catalyst exemplified by the agreements that we have put in place in the first quarter of 2022. As a clean energy technology company, we will continually improve and leverage from our technology and expertise and focus on market needs. We hold around 190 issued license and [ pending ] partners worldwide for our fuel cell technology and have 38 R&D programs allowing Advent to offer a spectrum of products to the energy market from [ advanced materials ] fuel cell. Our global reach includes Boston, Massachusetts as our headquarters. We're building state-of-the-art membrane [ electrode ] manufacturing facilities in [indiscernible] in Livermore, California, with design to manufacture lightweight systems. Denmark and Germany sales develop [Technical Difficulty]

And it appears we've lost Dr. Gregoriou. Mr. Brackman, if you would go ahead, I'll dial back out.

Sure. Thank you. In Denmark and Germany, the [indiscernible] development and the assembly responsibilities for Advent's 5 kilowatts to 15 kilowatts SereneU systems. In the Philippines, we service the telecom market through sales, service and site preparation. And in Greece, we have expanded our MEA production and polymer synthesis capacity including polymer for the next-generation Advent MEA. During 2022, we will continue to consolidate our business to make operations more efficient and effective and to concentrate activities on our key markets. Our business focus is on the production of advanced fuel cell materials leading to direct sales and the development of advanced fuel cell systems in collaboration with OEMs, which will enable us to enter into long-term licensing arrangements. The latter is expected to deliver revenue consisting of milestone payments and royalties which will provide the upside to our business. We continue to have strong cash reserves totaling $59.3 million at March 31. Overall, our performance this quarter leaves us confident about the long-term growth and earnings potential of the company. I will now give an overview of our key achievements during the quarter. In March, Advent announced the availability of its next-generation MEA. These MEAs are already undergoing testing and validation by select strategic partners. The Advent MEA technology...

I'm back in now, sorry.

Vasilis, I'm on the paragraph talking about the next-generation MEA technology.

Yes, yes, I see it. Apologies, somehow my connection is not good, it was good before. So I'll take over and then we'll go back to you, Kevin. So basically, the milestones already achieved -- because you were there on the U.S. Department of Energy collaboration. The milestone already achieved include accelerated stress testing that has confirmed the potential for a greater than 5x improvement in lifetime versus current high-temperature PEM MEAs, a strong potential for 2 to 3x the power density versus current high-temperature PEM MEA. Advent is now in various discussions for joint development agreements in the genset, heavy-duty automotive, marine and aviation markets. Advent intends to scale up the production capacity of the Advent MEA in the order of hundreds of kilowatts per month in mid-2023 and megawatts per month in the end of 2023. Advent also intends that its own products such SereneU, Honey Badger and MZERØ as well as third-party products will be able to use the new Advent MEA in mass production as soon as 2024. Due to the high temperature operation, Advent MEAs can work within pure hydrogen that can be reformed onboard from methanol. Now [Technical Difficulty]

And again, we've lost Dr. Gregoriou's connection. I'll dial back out to him.

Okay. I'll pick it up. Advent's MEAs can work with impure hydrogen that can be reformed onboard from methanol, natural gas and other renewable fuels. The new Advent MEA is expected to redefine the MEA market globally and further validate Advent's leading position in the electrochemistry components business. In February, we announced new contracts with manufacturers of clean power generation and energy storage solutions for the delivery of advanced electrochemistry components. These contracts have a combined value of $2.2 million. Advent began delivering electrochemistry components in the fourth quarter of 2021, and deliveries are expected to continue to September 2022. The vast majority of the new business is from customers based in North America. Advent's electrochemistry components business includes electrodes, membranes and MEAs. These components are critical for fuel cells, electrolyzers and long-duration energy storage such as flow batteries. The performance of these components defines the lifetime, efficiency, weight and ultimately a substantial portion of the cost of the end electrochemistry products. Advent is continuously innovating in the area of electrochemical components. Advent’s electrochemistry materials R&D team is primarily based in Boston, Mass with synthesis and manufacturing capabilities in Europe. In January...

I'll take over. Apologies again. And this time, I don't think we'll drop off because we changed the line completely. So apologies, everybody for this. In January, we announced that we have entered into distribution and service agreement with Calscan Solutions, a Canadian-based industrial service company focused in the oil field industry. The agreement allows Calscan to market, resell, install and service the Advent M-Zero, the SereneU fuel cell products to meet the demand for electric systems in the oil and gas sector. Current regulatory pressure is focused on targets. We will be aggressively reduce oil and gas industry methane emissions throughout Canada. Advent’s diverse family of products, including the M-Zero and SereneU fuel cell products aim to significantly reduce wellhead methane emissions where they replace methane polluting pneumatic injection technology, increase well productivity and safety and decrease maintenance cost in well sites based in North America. Advent's products emit significantly less carbon compared to conventional diesel remote power generation technologies and can be deployed in more extreme environments than solar panels and electric battery systems. The Advent M-Zero products can also integrate with current systems to enhance the reliability and ensure that these systems continue to operate creating additional value opportunities for customers. The Advent M-Zero products are designed specifically to generate power in remote environment. The overall methane emissions related to wellhead [ Canada ] approaches 40 million tons of carbon dioxide emissions per year, which is equivalent to a carbon footprint of more than 8 million passenger cars. M-Zero will initially be featured mainly in Canada and the United States with the aim of providing remote power to up to 185,000 oil and gas wellheads. Also in January, we announced that Advent will be upgrading various sites of Globe Telecom in the Philippines with 10 kilowatts SereneU fuel cell systems, enabling Globe to reach its ambitious targets for reducing CO2 emissions. By deploying Advent SereneU fuel cells, Globe aims to reduce carbon emissions across its network, consume cleaner fuel in smaller quantities, achieve lower emissions and maintain energy-efficient heat removal. Advent SereneU fuel cells produce fewer emissions than traditional generator sets and also generate less noise, thereby providing a system with a low footprint to surrounding areas and communities. Depending on the fuel use, the system can be close to CO2 neutral, as will being easier to store and transport. Advent SereneU systems also have higher temperature and environmental conditions tolerance ensuring uninterrupted back-up power and stronger resilience against extreme environment, such as typhoons, monsoon rain and even long dry seasons. By using fuel cells for its green transition, Globe complies not only with regulation and its own ambitions for best environmental practices but also secures several competitive advantages. Globe's commitment to establish a science-based target and net 0 emissions by 2050 are in line with the Paris Agreement and #RacetoZero. The Paris Agreement aims to limit global warming to 1.5 degrees Celsius compared to pre-industrial levels. #RacetoZero is the UN backed global campaign, rallying non-state stakeholders to take rigorous and immediate action to halve global emissions by 2030 and deliver a healthier, fairer zero-carbon world by 2050. All of Globe's initiatives in the green transition reflect its commitment to the UN Sustainable Development Goals and also to [indiscernible] economic growth for environmental degradation, increased resource efficiency and promoting sustainable lifestyles by changing the way people produce and consume [indiscernible] resources. In February, Advent announced the signing of an MoU with Electric Ship Facilities, or ESF, a Dutch based business with over 15 years of experience in electric and hybrid propulsion systems and energy system. Under the agreement, ESF commits to becoming a future distributor of Advent SereneU fuel cell products, further strengthening its portfolio of innovative CO2 reducing technologies. ESF offers demonstrations and state-of-the-art components, helping its customers significantly reduce emissions and achieve energy efficiency. This new collaboration will enable Advent to facilitate trial processes and fuel cell configurations for both land-based and maritime applications with the initial geographic focus being Benelux, Germany, Switzerland and Austria. Advent SereneU fuel cells are currently being used for demonstrations within the framework of the Green Shipping Wadden Sea Program. This program aims to accelerate innovation in the field of CO2 neutral and fossil-free shipping for the Wadden Sea fleet, as well as to develop the associated port facilities and infrastructure and to secure governmental pathways promoting the transition towards innovative CO2-reducing technologies. In March, Advent announced that it entered into preliminary strategic agreement with Daiden, a leading power generation and industrial equipment provider in Malaysia. Daiden has declared its intention to become a distributor of Advent SereneU fuel cell products. This will enhance the promotion of Daiden's clean power generation sources and actively support the ongoing green energy transition effort in Malaysia. Advent has already shipped units of its SereneU fuel cell products to Daiden for test and evaluation. Once these tests are complete, Daiden and Advent will determine the best strategic approach for the introduction of Advent's methanol-based fuel cell to the Malaysian market. During the first quarter, we have continued to progress with the White Dragon and Green HiPo projects in Southeastern Europe, which are subject to EU approval. While the approval timing is not within our control, we anticipate formal notification from EU during Q2 or Q2 of this year with the final ratification by the EU or [indiscernible] thereafter. In parallel, Advent started to put in place an operational structure that will deliver on these very significant projects with Advent being ideally poised to commence immediately upon final ratification. We look forward to providing more information around EU approval and the final scope of the projects over the coming months. Advent is well positioned to take advantage of the growing focus on clean energy. We are continuously developing our technologies and consolidating our operations to address new [indiscernible] opportunities. We have a product portfolio that's focused to enable green economy, one that will abate the resilience on fossil fuels and will [indiscernible] the entire supply market, therefore, providing energy security to communities and economies. Our [indiscernible] flow pipeline is getting stronger, and we're looking forward to reporting on future progress. With that, I would like to hand over to our CFO, Kevin Brackman.

Thank you, Vasilis. Turning to our financials. We delivered revenue of $1.3 million in the first quarter compared to $1.5 million in the prior year quarter. The decline resulted from the timing of revenue recognition under certain of our long-term customer contracts. However, there was a significant increase in income from grants of $0.5 million compared to the prior year quarter. Gross profit decreased $1.4 million year-over-year in the first quarter due to the mix of products and customers included in revenue, a higher fixed cost base resulting from the acquired businesses and supply chain cost pressure in the first quarter of 2022. R&D expenses were $2.1 million in the first quarter, primarily related to our cooperative research and development agreement with the Department of Energy as well as the R&D costs at Serenergy and fischer eco solutions. Administrative and selling expenses were $10.5 million in the first quarter, a year-over-year increase of $2.6 million primarily due to increased staffing and costs resulting from the acquisitions of Serenergy and fischer eco solutions and operating as a public company and from stock-based compensation expenses. Net loss totaled $4.1 million in the quarter and adjusted net loss was $12.5 million. I should note that our adjusted net loss excludes an $8.4 million gain from the change in the fair value of outstanding warrants. Our net loss per share was $0.08 in the first quarter. Advent remains well capitalized with $59.3 million in cash reserves on the balance sheet at March 31, which provides us with the flexibility to be agile in executing on our strategic and operational priorities. This is a decrease of $20.5 million from December 31, 2021, driven by the increased level of R&D and administrative and selling expenses as well as annual insurance renewals and incentive compensation payouts during the quarter. 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 developed significantly during 2021, and we 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 Advent's 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 grants for 2022 to be approximately $23 million, which will be heavily weighted towards the second half of the year. This estimate does not include contribution from the White Dragon and Green HiPo projects in Southeastern Europe because these projects are still pending EU approval. 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 execute on its strategic initiatives. With that, I will hand back to Vasilis for closing remarks.