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 2023 financial results shortly before market open 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 and with knowledge of such industry and markets, which it believes 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. Vassilios 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 2023 Earnings Call. On today's call, I will provide 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 31, I highlighted that Advent has further consolidated its business operations and it was focusing on the core sectors of mobility and stationary power. This has continued in the first quarter. We remain focused on expanding and executing our commercial pipeline with a view to invent our technology and product portfolio in these key power sectors. The opening of our new facility at Hood Park in Boston represent a significant milestone achievement for Advent because this will provide a firm anchor to our business growth in North America. Hood Park encapsulates R&D and production facilities as well as our headquarters, its commission has expanded our global footprint for manufacturing. We also continued our capital investment program in state-of-the-art equipment that's required to complete our scale-up production capacity. We intend for this progress to continue towards large-scale manufacturing as soon as our Green HiPo project commences. The broad support for the energy transition through legislation and economic incentives is snowballing globally. We believe that the future demand for Advent's high-temperature PEM technology and related products will create a significant opportunity, and we believe Advent will be ideally positioned to capitalize on this. In the first quarter, we continued to execute on our strategy of innovation, commercial focus and market permeation. We look forward to growing our commercial activities and achieving long-term profitable growth. Our business focus is on the production of advanced fuel cell materials, leading to direct sales, the development of advanced fuel cell systems and joint development agreements in collaboration with OEMs, which enables to enter long-term licensing agreements. The latter is expected to deliver revenue consisting of milestone payments and royalties, which will provide the upside to our business. I will now give you an overview of key business updates. In March, Advent and Hyundai announced the conclusion of a successful technology assessment. The assessment evaluates Advent's proprietary MEA technology for supplying Hyundai's high temperature fuel cell needs and following its success, the 2 companies entered into a joint development agreement. This agreement solidifies the interest of one of the world's leaders in fuel cell technology to further develop the high temperature PEM technology in collaboration with Advent. The first step of the JDA focuses on the MEA. Advent's goal is to provide its MEAs and its high temperature PEM fuel cell development expertise to codevelop with automotive manufacturers, the next generation of fuel cell systems for heavy-duty mobility. Advent will pursue strategic joint development agreements to achieve its goal of supplying key MEA components and technology to the mobility market. In the maritime sector in February, Advent announced a new collaboration with Siemens Energy, offering sustainable solutions across the entire energy value chain. Advent and Siemens Energy will work together to develop a 50-kilowatt to 500-kilowatt marine time fuel cell solution for a range of Superyachts, which will provide a sustainable and reliable source of auxiliary power and offer improved power density. This maritime fuel cell solution is initially expected to be used as a hybrid power source, enabling clean electricity generation instead of using conventional diesel engines and generators for procedures such as anchoring and maneuvering. As part of the agreement, Siemens Energy has placed an initial order of 20 of Advent's methanol-powered Serene fuel cell systems. Following the completion of the project, the 2 parties will explore the potential of development of similar solutions for a wide range of business application beyond maritime, such as industrial power solutions. In March, Advent announced that the opening of the new R&D manufacturing facility at Hood Park in Boston, Massachusetts, located at the heart of one of Boston's newest innovation and energy communities, the Hood Park facility will enable Advent to scale up and deliver on the increasing global demand for electrochemical components in the clean energy sector by including state-of-the-art coating machines to support the seamless transition from prototypes to production runs for advanced membranes and electrodes, a complete analytical facility dedicated to quality control, performance analysis and improving product lifestyle. Fuel cell and water electrolysis test station for statistical process control and development of next-generation MEA materials, and a mechanical engineering lab for development automated assembly processes for MEAs. One of the products will be manufactured at Hood Park is the ion-pair Advent MEA, which is currently being developed within the framework of the L'Innovator, the company's joint development program with the U.S. Department of Energy. Advent intends that its proprietary fuel cell products, such as Serene and Honey Badger 50 will incorporate the ion-pair Advent MEA, beginning in 2024. The company expect the introduction of the ion-pair Advent MEA will significantly reduce the cost of our Serene flagship product suite and thus expand the immediate addressable market. Furthermore, the expected system increase in power density and lifetime will highly differentiate Advent's fuel cells in the heavy-duty mobility industry. In May, Advent and BASF Environmental Catalyst and Metal Solutions, a global leader in precious metals and catalysts, jointly announced a new agreement to join efforts in building a close-look component supply chain for fuel cells and ended discussions to extend the partnerships into the field of water electrolysis. For 20 years, BASF Environmental Catalyst and Metal Solutions has been a leader in membrane and MEA technology for high temperature PEM fuel cells with a strong foundation in precious metal service and catalysts. High temperature PEM fuel cells operate at 120 to 180 degrees Celsius, offer a broad operating window and tolerate impurities in the hydrogen fuel cells. The fuel cells also enable simplifying cooling and need no humidification. Advent offers competitive fuel cell systems for stationary and portable applications based on methanol and on-site reforming. In the future, high-temperature PEM fuel cells will also be available for heavy-duty mobility and maritime power. The scope of the agreement includes BASF's role in scaling up MEA production at Advent's planned state-of-the-art manufacturing facility in Western Macedonia, Greece, while offering Advent its full portfolio of products and services to enable circularity in key materials. Both companies will cooperate on BASF's latest membrane development Celtec-Z, and the new Ion Pair MEA by Advent, aiming for improved performance, lifetime and cost competitiveness. Finally, turning to Green HiPo. I was elected as the Chair of the EU Important Projects of Common European Interest Hy2Tech Facilitation Group. The election took place at the first general assembly for Hy2Tech and Hy2Use, two of the European Union's IPCEIs. The General Assembly was held in March in Berlin and was attended by executives from companies with project ratified by the European Union under the IPCEI framework as well as government and EU officials. Advent's Green HiPo project received a notification in June 2022 for up to EUR 782.1 million in funding from the Greek State, the highest amount of funding received for a project under IPCEI Hy2Tech. The European Union officially ratified the project in July 2022. Green HiPo will be based in the Western Macedonia region of Greece, where a state-of-the-art facility will be established for the R&D and production of innovative fuel cells and electrolyzer systems for the production of power and green hydrogen respectively. We have already progressed to identify a suitable site and have now purchased the site and commenced planning. Advent is actively working with the Greek State for the timely sign of the company. We look forward to reporting on future growth. Advent is well positioned to take advantage of the growing focus on clean energy. We're continuously developing our technologies and consolidating our operations to address new and key opportunities. We have a product portfolio that's focused to enable a greener economy, one that will abate the reliance on fossil fuels and will disenfranchise energy supply market, therefore, provide them energy security to communities and economies. With that, I would like to hand over to our CFO, Kevin Brackman.

Thank you, Vassilios, and good morning, everyone. Turning to our financials. We delivered revenue of $1 million in the first quarter and income from grants of $0.5 million for a total of $1.5 million. R&D expenses were $3.1 million in the first quarter primarily related to internal R&D costs incurred in each of our businesses as well as our cooperative research and development agreement with the Department of Energy. Administrative and selling expenses were $8.5 million in the first quarter. Combined with R&D expenses, total operating expenses were $11.6 million, a year-over-year decrease of $1 million primarily due to administrative cost reductions implemented throughout 2022, which were partially offset by an increase in research and development expenses. Net loss in Q1 was $12 million, or $0.23 per share. Unrestricted cash reserves were $19.5 million as of March 31, 2023, a decrease of $13.4 million from December 31, 2022, driven by R&D and administrative and selling expenses as well as annual insurance renewals, a $2.2 million increase in inventory and $1.9 million of CapEx spending in the first quarter. Our existing cash balances and projected operating cash flows are not expected to be sufficient to support planned operations for the next 12 months. However, as Vassilios discussed earlier, we have been working actively with the Greek State for a timely implementation of the funding mechanism for the Green HiPo project. Additionally, we have been evaluating various opportunities to raise additional capital. And in April this year, we finalized an agreement for an equity line of credit with Lincoln Park Capital, which gives us the option to access up to $50 million of capital over the 3-year term. The use of this equity line of credit is entirely at Advent's discretion, and provides us with an effective buffer if required, that can be used alongside other sources of capital. In the meantime, we will manage our cost structure closely and capitalize on opportunities to reduce costs where possible. I will now turn to our outlook. Advent entered 2023 with a strong pipeline of opportunities. As we all know, however, not every opportunity in the pipeline will transpire due to factors that are beyond Advent's control. Opportunities may not materialize or could be delayed. Due to the long-term contract nature of our business model, the timing of our revenue can also be difficult to predict. Due to the level of uncertainty caused by these factors, we are not providing a revenue outlook for 2023 on this call. However, we expect to provide an outlook for revenue and income from grants on the next earnings call. With that I will hand back to Vassilios for closing remarks.

Thank you, Kevin. Advent has significant opportunities for its technology, advanced materials and fuel cell system products. Along with Hood Park, the Green HiPo project will cement our global reach and focus in the mobility and stationary power markets. Advent is a clear energy technology company developing innovation and products for key sectors that require clean energy. We look forward to growing the business and to keep you abreast of developments. I would like to thank you all for joining us today, and we're ready to answer questions from the company's analysts. Thank you very much.

[Operator Instructions] And we'll take our first question from Sanjay Jha at Panmure Gordon.

I just wanted to check how important is this BASF agreement in winning business for fuel cell systems. Can you give us some examples of whether this has opened doors for you?

Yes. Thank you, Sanjay. Good to hear from you. The Advent agreement is very significant because, first of all, it endorses the technology, our technology and also secures, if you will, the supply chain. This is very essential for this long term and the scale-up of the business. As you know, BASF is a global leader. They have been for a long time on high temperature PEM. We collaborate with them for a long time as well. We have our products with a license from them. And now we have this tremendous opportunity with the Green HiPo project and the new facility we're going to build to co-manufacture a lot of these things to work together also on the scale up of ion-pair. So that's very important. The second very big benefit for us, it's the management of the precious metals. As you know, the more we start selling, all of these things become very, very important. And a closed-loop process of these materials are a key. You need a giant like BASF along with us, in our opinion, to go the next level -- get the prices down and make the customer very happy about what they get. Because now, and I'll take the opportunity with BASF, we have big companies. We have [indiscernible] Siemens Energy and also big organizations like -- with Los Alamos that are very excited to work with us. They have their own announcements. We tag along with them. And these are the long-term relations we always wanted to have, and we're very excited to have these people with us and BASF, in particular to answers your question. Thank you.

We'll go next to Jeff Grampp at Alliance Global Partners.

I was -- a little question on the ion-pair. Can you guys quantify at all to the extent you're comfortable kind of the cost reduction expectations you may have for this. And then regarding the rollout in 2024, I'm curious, obviously, we're only in May here of '23, but is there any kind of pipeline building yet at this early stage that you guys can comment on?

Yes. Thanks for the question. Now regarding the ion-pair, as you know, this is a very revolutionary is the next level of high tem PEM. You remember the low temperature PEM requires pure hydrogen. It has environmental issues, you have to take tremendous care of the humidity and thus when it comes to trucks and things like that, it's very difficult to have a final product as we've seen. So for that matter, all these become Hyundai and the other among, which is another [indiscernible] but also Alfa Laval, Siemens Energy, all are very interesting high temperature PEM. Now with the existing techs, we go that higher. The ion-pair promises to be 2x at least power density, 2x the lifetime, which, as you know, immediately becomes a 4x better product. And it is our belief that we're going to have this very exciting new MEAs in our products in 2024, which you say is not far away. So for us, this is a big step, and we put a lot of effort there. But so far, it looks actually very, very good. Now regarding the pipeline, let's take a look about what we're talking about. You remember before we have built the sales pipeline on the telecom and we said that unfortunately things that happened last year that we actually have certain telecom operators that they divested their telecom towers to tower companies. So what we do now, we work with the tower companies themselves in order to have these sales. As you know, this is a long sales cycle, but we have successful proof of concepts, one of these things with Vantage Towers. So 1 part of our pipeline will be built on that. The other is from the marine and automotive. You've seen the progress that we'll make there with the Sanlorenzos and the Hyundais. And the third thing next year, a lot of things will depend on the defense product, the Honey Badger, which are now we are in the preproduction stage, if you will, and go no-go will be for production of a lot of the systems in 2024, pending the approval from the DOE. As Kevin said, because the IPCEI is such a monumental change for the company. And it really has a lot of say money associated with it. We will provide, in my opinion, a very detailed expectation for next year in our next call after the end of Q2.

Great. If I can sneak one more in. On the Green HiPo project, I think you guys said in your prepared remarks that you have a site purchase, which is great to see that project moving forward. Can you talk to the extent given that there's some funding or should I say a lot of funding, obviously, but out of your control, given the timeline there, can you still kind of dual track some of the preplanning or [ pre-feed ] kind of items to the extent you can accelerate the project given that some of the funding is obviously out of your control from a timing standpoint?