AMCI Acquisition Corp. (AMCI) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining this transaction announcement conference call set up by AMCI Acquisition Corp. to discuss the business combination with Advent Technologies, Inc. Today, we are joined by Bill Hunter, CEO of AMCI Acquisition Corp.; Dr. Vasilis Gregoriou, Advent's CEO; Dr. Emory De Castro, Advent's CTO; and Nick Stamp, Advent's CFO. [Operator Instructions] Please note, this call is being recorded. Kicking off the call will be Bill Hunter. Mr. Hunter, I now turn it over to you.

Thank you, operator, and thank you, everyone, for joining us today. I'm thrilled to be here today to discuss an exciting business combination with Advent Technologies, Inc. which is an innovation-driven fuel cell technology company that is unlocking the hydrogen economy. AMCI Acquisition Corp. was started with a view towards finding an acquisition target in the emerging themes of infrastructure and electrification, which is clearly represented in this transaction. We are paying $250 million of equity to the existing Advent shareholders who are rolling 100% of their equity into the combined company, demonstrating their commitment to the transaction. At closing, the combined company will retain the Advent name, and we anticipate closing in the fourth quarter of 2020. The implied enterprise value of $358 million at closing represents a significant opportunity for our investors going forward. On the line with me today is Dr. Vasilis Gregoriou, the founder, CEO and really the main architect of Advent. Dr. Vasilis holds a PhD in physical chemistry from Duke University and has been a leading pioneer in the renewable energy space for the last 35 years, developing innovative materials used in fuel cells and other renewables. We also have Dr. Emory De Castro, our CTO. Emory has a PhD from the University of Cincinnati and has held leading manufacturing roles at BASF, PEMEAS and E-TEK where he was crucial in developing the manufacturing processes used in the industry today. Lastly, we have Nick Stamp, our CFO. Nick is a graduate of Oxford University and has a 20-year career in finance, most recently with Macquarie Capital. In addition, Nick has held financial leadership roles in 2 North American energy companies. Before I turn everything over to Vasilis, I want to take a moment to touch on why AMCI Acquisition Corp. is really excited about this transaction. First, the core nature of the company's products make it critical to the success of OEMs and manufacturers. The high-temperature membrane and electrode assemblies are analogous to the microprocessor and the computer and as a critical component of the fuel cell. In addition, the company's technology solves a number of key issues with existing fuel cells such as range, durability and recharge time. Solving these issues will make fuel cells competitive with both battery technology and the internal combustion engine, which we all know is being phased out by various jurisdictions globally. Advent has a high recurring revenue stream which is driven by embedding their technology and people in the customers' products. Advent's 2021 revenue is completely baked with our existing customers and when you extrapolate forecast out to 2025, 60% revenues will come from those very same customers. With that, I'll turn it over to Vasilis to walk you through the company.

Thank you, Bill, and thanks to all of you for taking the time to get to know Advent Technologies. I cofounded the company 10 years ago and has been at the heart of our team's work since. We're incredibly excited to take the next step in our growth story by combining with AMCI. If you turn to Slide 7, this is a brief snapshot of the company. We are, at our core, a global provider of key components of Advent's hydrogen fuel cells and sensors. Our products are revolutionary as they provide durability, lifetime and the flexibility to use virtually any hydrogen bearing fuel to create electricity. Our products have been developed by our team in conjunction with leading partners such as the U.S. Department of Energy, Los Alamos National Laboratories and Brookhaven National Laboratories. Our products are proven and currently used by our customers and positioned for mass market adoption. The movement towards a lower carbon electrification economy is being driven by national, state and local governments as well as leading firms in the industry and Advent is poised to help advance for real. Moving to Slide 8. In the middle of the screen, you can see a fuel cell. We believe that in the near future, fuel cells will replace the internal combustion engine and the diesel generator. The biggest obstacle so far has been the competitor fuel cells require 99.99% pure hydrogen, which is expensive for production and infrastructure point of view and their assets. Our fuel cells can use hydrogen that is created on the spot, in the car, for example, from natural gas or other low carbon fuels. There can also be any kind of renewable liquid fuels with zero carbon footprint. These fuels will be available in the near future. They will be liquid delivered with today's infrastructure, tanker, trucks and gas stations. On Slide 9, you will see a complete fuel cell system as it will be used in a heavy truck application. It should be noted that our system is not replacing the battery in the electric vehicle but rather complementing it and reducing it in half for big trucks. Our fuel cell continuously charges the battery and thus solves their range and recharge problems with increasing useful payload. This configuration is ideal for heavy trucks, but also heavy equipment, train and marine applications. If we go to Slide 10, we see demonstration that the greatest impediment to realizing the hydrogen electrification economies. In order to mass adapt the EVs and other noncarbon-based electric application, it will require a complete overhaul of the electric grid in developed current economies. While the estimates vary, the base case for this upgrade is approximately $5 trillion. To move to an infrastructure that utilize existing fuel cell technology, it will cost in excess of $15 trillion due to the special needs of transporting and storing pure hydrogen. Our fuel cell technology utilizes existing storage and transportation infrastructure. You only have to change the pump at the gas station, and this is happening now in China and India. We can use any liquid low carbon and in the near future renewable zero carbon fuel. We can deliver the hydrogen economy at 1% of the infrastructure costs. On Slide 11, what makes us all of the above possible the high temperature MEA, the Membrane & Electrode Assembly. Competitor MEAs cannot handle any other fuel except pure hydrogen and use water as conducting medium. This creates a multitude of problems in heat management. They require very big radiators and have lifetime problems. The MEA is the heart of the fuel cell, similar to the lithium-ion cell for the battery industry. Advent has proprietary technology for both membranes and electrode assemblies and will produce and sell these products to end users. On the right-hand side of the page, you will see the fuel cell stack and fuel systems. We developed prototype systems, and we license them to our customers to accelerate the first phase of product development. Thus, we will generate revenue from not only the MEA sales but also from engineering and license fees. This vertical integration allows us to be the critical supplier to our customers and end users. On Slide 12, you can see that our material IP puts us in a unique position of meeting the needs of our customers all the way through the life cycle. They are end users and OEMs. The need to find solutions that reduce the carbon footprint without degrading the product's performance characteristics. They are actively working with suppliers, including Advent, to develop the next generation of vehicles, aircraft, sensors, and power production and storage. Unlike our competition, Advent will be the only supplier of products that is U.S.-based and owned. Since our MEA is a core component, we like the slogan Advent inside as we're more analogous to Intel Corporation. This really demonstrated on Slide 13, which shows the depth and breadth of our potential markets. I would emphasize that this isn't just applicable to EVs and transportation but can be used in off-grid applications, defense and aerospace scenarios as well as nonpower sensing capabilities. On Slide 14, you can see that our team here at Advent has been creating and developing these products from inception to the current point of commercialization, which have partnered with firms like BASF, UltraCell and Palcan, but also governmental agencies like the Department of Energy, NASA, BrookHaven and Los Alamos. These relationships have allowed us to utilize our core competencies to commercialize over $0.5 billion of R&D on these products over time. On Slide 15, you can see that Advent technology is proving and already available in products that have entered the market and passed the most stringent qualification test in the defense industry, among others. We have active customers across our markets as off-grid, portable power, aviation, auto and sensors, which have earned engineering fees and sold MEAs to these customers, enabling them to sell their products to the end users. Just to give you an example, UltraCell is an advanced manufacturer of low weight recharging systems that allows for reliability and flexibility for the soldiers in the field to recharge and power various electronics. ESS is a leader in flow related batteries that's backed by Breakthrough Energy and BASF ventures and silicon value-based IoT company that's working with Samsung to implement specialized sensors that can detect minute level of gases and other toxins right on your cellphone. The sensor technology has many security and health applications that we believe will become mainstream in the coming years. Advent MEAs have been chosen because they are the only sensor material that can withstand the heat of a solider in line. Moving to Slide 16. You can see the relatively power needs of various products and the market size potential of those applications. This illustrates the potential of Advent's revenue user economics on the right-hand side of the page. Through working with our customers, we know they are targeting a cost of $80 per kilowatt for MEAs in 2025, which we believe is readily achievable. At that level, Advent will generate approximately $100 million of revenue per gigawatt of power provided. As you will see, in some of our targeted customers, this is exactly the rate of total power need for various applications. Slide 17. This slide shows our partnerships with various research labs and government agencies. The Department of Energy through its L'Innovator program and the partnership with Advent has developed the next generation and high-temperature proton exchange membrane based fuel. Advent won the right to commercialize this technology through a competitive bid process that demonstrates not only our capabilities in design commercialization, but also the ability to work through this competitive process with various entities. In addition, one of our early adopters of our high temperature technology has been our customer UltraCell. We have shared a license agreement with them, and we're working through a non-binding LOI to acquire them after closing. We believe UltraCell lightweight system, combined with the L'Innovator technology will allow us to advance even smaller charging systems that will revolutionize the aviation, drone and auto markets along with other industries. Slide 18 demonstrates our low temperature technology, while applicable to rare application does not meet the needs of most customers. Advent's high-temperature PEM technology is truly is a game changer in reliance, durability, adoption and cost for nearly all end users. Lastly, on Slide 19, to be a successful company, you need to have good people. Advent has been able to recruit a world-class group of scientists, engineers and administrative professionals in order to commercialize this technology. This effort will be further bolstered by having the capital and visibility of being a public company for a transaction. Now let me turn it over to Emory to do a deeper dive into the technology. Emory?

Great. Thank you, Vasilis. And on Slide 21, you will see the range of electrification by power needed on the Y-axis and the power supply on the X-axis. As you can see, smaller vehicles requiring relatively little power are easily supported by battery power. As the weight of the vehicle increases, the power requirements increase as well, highlighting the range, payload and recharge limitations of batteries. This is where fuel cells shine as a complement to the battery vehicle. The breakpoint is really longer range and bigger personal vehicles as well as small commercial vehicles. If you get into heavy equipment, aircraft, power storage and ships, the fuel cell replaces batteries almost entirely as it is nearly impossible to make a battery big enough to effectively power these applications. On Slide 22, we show the technical benefits of Advent's technology versus low temperature PEM. The biggest advantages are in life, durability, range and resilience. Advent's technology works in virtually any environment, anywhere on the planet. The ability to run at hotter temperatures gives the end user the ability to thrift the weight of the system by reducing the need for radiator cooling systems. In addition to our roll-to-roll processing technology, the L'Innovator technology, will allow us to reduce platinum by 8 to tenfold, further reducing the cost of the system. Next slide. We have already covered most of the points on this Slide 23. But I would point out that by driving the cost of the MEA down, we are effectively increasing the range of potential applications. This price reduction will allow both larger and smaller applications throughout the automotive, off-grid and infrastructure industries. Slide 24 demonstrates how we plan to reduce the cost to our customers to $80 per kilowatt by 2025. There are 3 fundamental shifts that will allow this to occur. First, the Advent L'Innovator technology will provide the same output with 25% of the raw materials, allowing us to minimize costly inputs while also making MEAs smaller and more efficient. Number two, we will utilize our experience along with the capital raise to automate our MEA production, which will result in 3x efficiency improvement in labor costs. And finally, number three, the increased scale from our ramp-up will provide significant unit cost reduction. Next slide. So other than fuel cells, what other markets can we approach with this technology. Slide 26 shows some additional markets that are addressable with Advent's core material IP. As we know, the major issue with wind and solar power is storage and transmission. The power is frequently there when it's not needed and not there when it is. Redox flow batteries helped solve this issue with utility, industrial and off-grid storage and Advent's MEAs are a key component to flow battery technology. In addition, Advent's MEAs can be used to take energy and develop green hydrogen to power fuel cells through an electrolysis process. Lastly, our membranes high-temperature qualities make it perfect for miniaturized sensor technology such as an electronic nose, which allows your cell phone to sense various gases and toxins. I'm now going to turn it over to Nick to discuss our business plan in more detail.

Thank you, Emory. On Slide 28, we show an illustrative outline of our business model. This is based on an existing customer that we're dealing with at the moment. We break down the revenue cycle into 3 phases. In Phase 1, we earn engineering fees whilst our technical team codevelop systems side by side with the customer. In Phase 2, we begin production and start assembling and selling MEAs to the customer, and it is at this point that we also begin to earn licensing fees on the final fuel cell. In Phase 3, we are mass producing the MEAs in order to meet demand from our customers as they scale up their own fuel cell consumption. At full scale production, we are projecting a cost to our customer at $80 per kilowatt, which will make us extremely competitive. At this level Advent earns approximately $100 million per gigawatt produced. Slide 29 shows the rapid growth of revenue we expect over the next 5 years. By 2025, we're projecting $250 million of revenue, the majority of which comes from MEA sales, and this is really just a fraction of our total addressable market. On Slide 30, we illustrate the breakdown of our 2021 revenue forecast, which is fully baked at this point and also have the revenue from existing customers is expected to deliver the majority of our forecast in 2025. As illustrated on the middle column, approximately 60% of our 2025 revenue is projected to come from existing customers who are buying the Advent MEA today. This figure is derived from our customers' own scale-up plan and strongly illustrates the extent to which we become embedded as a critical component supplier with each of our customers. This translates into a highly visible revenue stream and high-quality earnings. On the right-hand side of this page, you can see a selection of our major pipeline opportunities. Each one of these opportunities is substantial, each representing in excess of 1 gigawatt of power demand. And as we've said before, we project a $100 million of revenue per gigawatt of power outputs from our MEAs in 2025. And when we consider the size of our pipeline opportunities and the growth of our end markets, we believe we prepared these estimates on a very conservative basis. Slide 31 shows the use of funds from this merger. Between the transaction and the capital raise, we will be funding our business plan fully through to the point where we expect to be free cash flow positive. This significantly derisk the business plan and removes any need to return to the capital markets in the near term. I'll now turn it over to Emory to walk through some of the granular line items.

Thanks, Nick. So still on Slide 31. And as you can see, the bulk of the funds utilized over the next 3 years will go towards product development, capital and operational expense with the balance going into upgrading and expanding our manufacturing systems. As previously discussed, these investments will bring down the ultimate per kilowatt cost to the customer and eventually end user over this time period. Slide 32 demonstrates how we effectively partner with our customers. UltraCell was an early adapter of advanced high-temperature MEAs that allow them to make the breakthrough products for military use around the globe. When small tactical teams go into the field, they typically have to carry over 121 pounds of batteries for a 3-day mission. UltraCell's portable charger utilizing 3 gallons of methanol provides the same power output with a fivefold reduction in weight. Our letter of intent to acquire UltraCell in conjunction with our new L'Innovator technology will allow us to apply this technology to a wide variety of applications, including drones, that we'll be able to extend their current range into multiple hours from mere minutes today. Let me send it back to Nick then for a discussion of our financial projections.

Thanks, Emory. On Slide 34, you'll see a more granular breakdown of our financial projections. As you can see, our MEA sale significantly through 2025, representing $250 million of revenue and 2.2 gigawatts of power output. And when we think about the huge growth in our target markets and our unique position in the value chain, and we believe we are being very conservative in these assumptions across the forecast period. We anticipate delivering a tenfold price production per MEA to our customers whilst maintaining our margins, and we do this through 3 major factors. Firstly, our increased power output per MEA; Secondly, the economies of scale in our manufacturing process; and thirdly, the investment in our product development activities to streamline and automate our processes. I'll now turn it over to Bill to walk through the structure of the transaction.

Great. Thanks, Nick. Let me just quickly walk through the transaction as Nick said. AMCI is issuing 250 million of shares at $10 a share to the existing Advent shareholders, who are rolling 100% of their equity into the transaction. At closing, the Advent shareholders will own 52% of the company. In addition to the $153 million in trust, we're seeking to raise $25 million in additional proceeds through a potential financing. The sum of these proceeds will be used to do 2 things: one, fund the $122 million of cash to execute on the business plan that the company has laid out. And two, we're also intending to address the warrant situation at closing by allocating $1.50 a warrant in either a tender or a restructuring of the warrants. These 2 factors will reduce potential future dilution to all shareholders going forward and will allow us to fully fund the company through becoming free cash flow positive. As previously stated, Advent shareholders will own 52% at closing, the public shareholders will own 31% with the balance of 12% and 5%, respectively, between the sponsor and potential financing sources. Turning to Slide 36. The $358 million enterprise value is very attractive to the existing public comparables. On the left-hand side of the page, we have laid out our core comps of Ballard Power, PowerCell and Ceres Power. These are companies that make products that compete with Advent in the market. On the right-hand side, we have added other fuel cell companies that are more system integrators and who we'll likely sell into. As you can see, by any metric on this page, this Advent transaction represents a compelling valuation and will present shareholders with the opportunity to re-rate these shares more in line with the public comparables. But it just isn't the public comps that validate our view. On Slide 37, you will see a number of investments and acquisitions done by OEMs and strategics of fuel cell component manufacturers. And each of these transactions were done in multiples in excess of the valuation represented by this transaction. In closing, both Advent and AMCI teams are incredibly excited about this deal. We believe that the hydrogen economy is poised to accelerate its growth over the next 5 years and Advent has the technology, the manufacturing experience and the people to execute on this rapidly expanding business opportunity. Thank you for your time today, and we'll now open it up for Q&A. Operator?

[Operator Instructions] Our first question comes from line of [ Glenn Tobias ].

Very interesting and exciting transaction. The question I have relates to the original perspectives of AMCI. If I recall correctly, where there was a reference to a $50 million forward purchase contract that would be provided by the sponsors of the stack. And I wonder if that's accurate and if so, how that does or does not fit in here?

Sure. Glenn it's Bill Hunter. I'll take that, and thank you for the question. In the original prospectus, we did have a reference to a contingent forward purchase that we were deciding at the time of the transaction. As you well know, the sponsor has put in additional capital to fund extensions. And I think at this point, what we're really looking to do is expand the shareholder base of Advent as we move forward, we think this represents a really attractive public company. We'd like to see the -- we'd like to see the public markets hold a very good sizable free flow to this business.

Well, Bill, I share that objective, but in the same respect, it would be great to have a backup by the sponsor to ensure that the viability financially of the company is very strong going forward.

Sure. I understand that, which is we're out discussing alternative transactions for additional capital, and we'll be making announcements when we have more to talk about.

Our next question comes from line of Chris Jones. Our next question will come from the line of [ Michael Broda ].

As a generalist, it would be helpful if you could help us understand what the difference in the technology is compared to some of the comps you've mentioned such as Ballard Power and PowerCell.

Great. Why don't we have Emory, do you want to kind of hit that one?

Yes, certainly. And probably the biggest difference is how the fuel cell works. So when you think about a Ballard fuel cell, it's called low temperature, meaning it operates less than 100 C, it needs water, it needs highly purified hydrogen. But our technology, it can operate over 100 C, you do not need water to conductivity and we could use hydrogen that is a lower grade, that's cheaper. Temperature is a difference in greater operational range for us.

And what's the difference in cost. I think you've mentioned your cost structure, what's the difference in cost structure between your product and some of the comps that you mentioned?

In the innovator technology, we specifically have a program to greatly reduce the platinum content of these MEAs. So we believe we'll be in a very competitive cost structure compared to the other technologies.

But Emory, I think we should also point out, it's not just the cost of just our base MEA to the end user, it's really the total cost of ownership. And so when you think about the additional durability and the additional lifetime that can be handled by our high-temperature MEAs, we're really driving that total cost of ownership down to the end user. Again, we all know the internal combustion engine, we're going to have to get very competitive with that, but we're also seeing that being phased out. So where we really have to get competitive against battery electric vehicles, not only as a competitor, but as a complement to it. And so what you see is this additional life really allows for larger trucks, industrial vehicles to become really competitive with battery technology. I was going to ask if that answered the question?

[Operator Instructions] And we have a question from [ Glenn Tobias ].

Could you give us some perspective about what's contemplated here for the warrants where you used a reference to redeeming them, I guess, for $1.50 a share in cash subject to approval by the warrant holders. What kind of approval is required in order to be able to go forward with that? And do warrant holders have the right to not tender the warrants and sit as they are and keep the warrants for the original 5-year period?

Yes. I can't get too much into the structure, Glenn. I think we can -- we'll have some more on that. But yes, of course, I mean, I think unless we get on a structure, I think the number was 65%. If we get 65% of the warrant holders, then it's -- we can have a transaction that cleans up all of them. But our intent in this is to provide a value to warrant holders that will take them out but also give us the ability to operate the business going forward in an effectively nondiluted fashion. Again, we're just -- we're -- we obviously want to do what's best for the company. And given the relatively low capital needs versus some of the other hydrogen and battery cell businesses that have come out, we believe this is prudent for all shareholders going forward.

It does eliminate the ability of the warrant holders to participate fully in the out years growth, which is envisioned here indeed, very exciting

Yes. Look, it's -- we think this is a very exciting opportunity as per you and we understand that point.

Okay. One other quick question. Is there any kind of condition to closing of the acquisition in terms of the financing condition or needing to have so much cash on the balance sheet?