Advent Technologies Holdings Inc (ADN) 2021 Q3 法說會逐字稿

Good morning, everyone. I will be your conference operator today. At this time, I would like to welcome everyone to the Advent Technologies' third-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's CFO.

Before we begin the prepared remarks, we would like to remind you that Advent issued a press release announcing its third-quarter 2021 financial results shortly before market opened today. You may access the material 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, customer orders, 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 expectation 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, i n addition to any risk highlighted during this call.

Important factors that may affect Advent's future results are described in its most recent SEC report filed with the Securities and Exchange Commission, including today's earnings press release. Except as required by applicable law, the c ompany 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 industrial competitive position in the market in which it operates is based on information from independent industry and research organizations, other third-party resources, 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 this experience and knowledge of such industry and markets, which 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. Vasilis Gregoriou. Dr. Gregoriou, I'll now turn it over to you.

Thank you, operator. Good morning, everyone, and thank you for joining us on Advent's third-quarter 2021 earnings call. I'm joined today by Advent's CFO, Kevin Brackman. On today's call, I will provide some brief comments regarding our third-quarter result, followed by an update of the business. I will then turn things over to Kevin to review our financial performance and outlook in more detail.

After the acquisitions of SerEnergy and UltraCell, we're now rolling out complete hydrogen fuel cell systems, which have integrated the acquired business under one structure and one brand name, and a global sales force is now in place to expand our reach in North American, European and Asian markets. The focus is on delivering complete clean energy systems and replace diesel generators with key applications in telecom power backup, which is our SerEnergy system; critical infrastructure power, which is our M-ZERØ system, that significantly reduces methane emissions; and defense and portable power, which is our Honey Badger system. To accomplish our commercial goals, we have expanded and trained a global sales force, and we are forging strategic global partnerships to accelerate revenue.

In the third quarter, we delivered $1.7 million in revenue, up 643% from the prior year, driven by strong customer demand for Advent's high-temperature MEAs and redox flow battery material as well as acquisitions of SerEnergy, fischer eco solutions, and UltraCell. We continue to have strong cash reserves totaling $92 million at quarter end.

In all, our performance this quarter leaves us confident about the long-term growth and earnings potential of the company. We had a busy quarter, highlighted by the August 31 closing of the acquisitions of SerEnergy, fischer eco solutions, the fuel cell business of the fischer Group. SerEnergy operating in Denmark and the Philippines is a leading manufacturer of high-temperature hydrogen fuel cell system globally, with thousand shipped around the globe during its 15-year operation.

Fischer eco solutions, based in Germany, provides automated fuel cell stack assembly and testing as well as the production of critical fuel cell components, including membrane electrode assemblies, bipolar plates, and reformers. The acquired businesses specialize in manufacturing of hydrogen fuel cell systems and align with Advent's ability to provide clean power in the stationary, remote, portable, and off-grid markets under the any fuel anywhere value proposition.

Our ability to deliver hydrogen through liquid fuels allows to have immediate market opportunity today without having to wait for the global hydrogen infrastructure to develop. The acquisitions also accelerate our strategy to cover the fuel vertical supply chain with our products. We are in a competitive position to deliver reliable, efficient, and cost-effective fuel cell system with a new product portfolio of the latest high-temperature PEM fuel cells, covering a range of 25-watts to 90-kilowatt system.

The acquisition also made Advent a leading manufacturer of high-temperature PEM fuel cells for critical backup, temporary or continuous 24/7 power to stationary markets across Europe and Asia. Expanding our business in Europe and Asia is a strategic move and allows to have well-placed production capabilities and market penetration. We have already seen the benefits from the acquisitions through our partnership with Smart Communications, a leading telecom provider in the Philippines. In October, we completed the first installation of 85,000 fuel cell systems in the Philippines as part of Smart Communications rollout of sustainable energy solutions to telecom tower sites.

In October, we announced that Advent's partner in Thailand placed a new order for SerEnergy's fourth-generation 5-kilowatt fuel cell system. The new fuel cell stacks and reformers are intended to support internal test setups and evaluate performance and to showcase the results with the Thai telecom operators as well as support government projects for micro grids and remote islands.

Advent grew its team by 92 employees with the acquisition, now employing over 170 people across the world. The acquisitions bring together some of the leading minds in the high-temperature fuel cell space and further expand Advent's platform to meet the increasing demand for clean energy worldwide. We now hold over 100 issued patents worldwide for our fuel cell technology and have 38 R&D projects.

Another significant development in the third quarter was the continued progress of the White Dragon and Green HiPo projects in Southeastern Europe. On September 7, Advent announced that these two important projects of common European interest have been approved by the Greek Minister of Development and Investments and the Greek Minister of Environment, Energy, and Climate Change. These projects were among five projects out of 20 submitted to receive approval.

The White Dragon project aims to replace coal-fired power plants across Western Macedonia and transition to clean energy production and transmission. The project plans to use renewable electricity to produce green hydrogen by electrolysis, would then be stored, and through Advent's high-temperature PEM fuel cells, supply Greece with cleaner electricity, green energy, and heat.

The Green HiPo project is complementary to White Dragon and that focuses on the development, design, and manufacturing of high-temperature PEM fuel cells to produce heat and power. The projects are part of the Hydrogen Technologies IPCEI and will now move towards approval at the European Union level. As a next step,until we demonstrate before the European Commission of the economic, environmental, and technical feasibility of the project and the positive spillover effects to the European economy and society, Advent hopes to receive final notification from the European Commission by mid-2022.

If both projects are approved, we will provide the technology will power White Dragon's green energy plan. These projects are a special significance to the future growth of our company as we will be the designated technology partner for a potentially EUR8-billion project. If approved, Advent and the White Dragon consortium of companies will implement the project between 2022 and 2029.

In terms of capacity, the White Dragon and Green HiPo projects will represent 4.65 gigawatts of green hydrogen and 400 megawatts of fuel cells. In addition, we'll be a key player in the decarbonization of the Southeastern Europe energy system. As Greece looks to decommission all coal-fired power plants by 2028, we see Advent Technologies an integral part of the energy transition.

We are pleased to be the technology partner for such a 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 around EU approval and the final scope of the projects in the coming months.

Our effort with the Department of National of Energy National (inaudible) also continues to gain momentum. This group of leading scientists and e ngineers is working closely with our Advent development and manufacturing teams and are furthering the understanding of breakthrough materials that will advance high-temperature PEM fuel cells.

The next generation of high-temperature PEM is well suited for heavy-duty transportation, marine, and aeronautical applications, as well as delivering benefits in cost and lifetime for stationary power systems used in telecom and other remote power markets. The next-generation MEA, which will be scaled to manufacture for them in 2022 is expected to be in products in 2023 and has drawn interest from several multinational businesses.

Advent remains well positioned to take advantage of the growing focus on clean energy, and we're encouraged by government, businesses, and society will work together to address the climate crisis. Reflecting the recent UN Climate Change Conference held in Glasgow, we see evidence of a growing support for the fight against climate change. We believe our fuel cell 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. Turning to our financials. As Vasilis noted earlier, we delivered revenue of $1.7 million in the third quarter, a 643% increase from the prior year. The increase was driven by growing customer demand for Advent's MEAs, fuel cell systems, and other products, as well as the August 31 acquisition of SerEnergy and fischer eco solutions and the acquisition of UltraCell earlier in the year. Cost of revenues increased $1.6 million year over year i n the third 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 as well as the completed acquisitions.

R&D expenses were $0.9 million in the third quarter, primarily related to our Cooperative Research and Development Agreement with the Department of Energy, which we announced in March, as well as the R&D costs at SerEnergy and fischer eco solutions in the month of September.

Administrative and selling expenses were $13 million in the third quarter, a year-over-year increase of $12.2 million, primarily due to increased staffing and costs to operate as a public company, costs related to the acquisition of SerEnergy and fischer eco solutions, stock-based compensation expenses, and a nonrecurring $2.4 million charge for executive severance.

Net loss totalled $11.3 million in the quarter, and an adjusted net loss was $10.4 million. I should note that our adjusted net loss excludes the offsetting impacts from the change in the fair value of outstanding warrants and the charge for executive severance as well as acquisition-related costs. Our net loss per share was $0.23 in the third quarter of 2021.

Advent remains well capitalized with $92.5 million in cash reserves on the balance sheet, which provides us with the flexibility to be agile in executing on our strategic and operational priorities. This is a decrease of $23.6 million from June 30, 2021, driven by approximately $13.5 million for the acquisition of SerEnergy and fisher eco solutions, net of the cash acquired, and the increased level of 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.

Turning to our outlook. Based on our performance today and the current macro factors, we expect to invest between $35 million and $40 million in combined CapEx and operating expenses to develop our next-generation fuel cell products and expand our business. This is adjusted to exclude nonrecurring charges related to the AMCI business combination and executive severance.

We plan on utilizing between $25 million and $30 million on a net-cash basis, which reflects our current revenue projections and excludes non-cash stock-based compensation expenses. We continue to anticipate entering 2022 with a significant portion of our current cash balance and a liquidity position that will allow us to fund operations for the foreseeable future.

In closing, we believe Advent is well positioned for the future of clean energy 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 over to Vasilis for closing remarks.

Thank you, Kevin. We believe that the hydrogen economy is now and there's a massive opportunity for any fuel anywhere fuel cell products. The issue of climate change and the need for decarbonization is not only growing, providing the need for thoughtful solution and positive change to tackle the difficult issues. We're committed to providing the technology to create a cleaner decarbonized world.

I want to thank you all for joining us today, and we're now ready to answer questions. Thank you very much.

(Operator Instructions) Laurence Alexander, Jefferies.

Good morning. Could you sketch out in more detail what being the technology adviser on White Dragon means in terms of how much of the 8-billion project potentially could flow through your P&L, either as a project coordinator or through product sales? Can you just give a sense or kind of what the range of scenarios might be?

Yeah. It is difficult to say that because we don't know exactly the level of funding after we're approved. But I can tell you it'll be very significant, meaning that we're not an adviser, we're the technology provider, meaning that we are the only company there that has the capability to make the fuel cell and the technical infrastructure when it comes to the hydrogen part. Therefore, I would expect it to be very significant, and it would be a big portion of the final number. Okay?

I guess just to clarify, so your position would just be selling the equipment? Or would you also be coordinating parts of the projects in an E&C capacity and then taking that through your P&L as well?

We would design the equipment, keep in mind that there is two projects under one. One is the White Dragon umbrella project. And then there is a Green HiPo, which is ours. The umbrella project, which will be part of the JV. So we will take income from that as well. Being part of the consortium, but our role with the Green HiPo is to provide the machines, if you went through the White Dragon JV. So we will get income from two different avenues, if you will. One is from selling equipment and the other from being part of the White Dragon, the JV

And the capacity expansion to support the Green HiPo, that would be capacity that then you keep after the project is completed or does that get transferred to a third party?

No, we keep it.

Great. And then just last question, can you give a sense for the rough splits between MEA sales and system sales or how you think that's going to evolve over the next couple of years, will one dominate the other?

Yeah, go ahead, Kevin, (inaudible) little more color.

Yeah. So over the next couple of years w hat we envision is our system sales would be roughly half of our overall revenue, which would be significantly more than the MEA sales. MEA, I think we're projecting around 20% of our overall revenues. So about 50% from system sales, 20% from MEA sales, a nd the remainder would be engineering fees, licensing fees, and et cetera, as well, and that's kind of break down that we (inaudible).

Okay, great. Okay. Thank you very much,

(Operator Instructions) Adam Forsyth, Longspur.

Hi, guys. F irst question just on the gross margin, which obviously is lot lower in Q3 compared to the very good numbers we saw in Q2. I wonder if you could give background for that. Give us perhaps a feel of how representative is this, in particular, I wonder if you can say something about pricing and also about supply chain, whether you're seeing any cost impacts on the supply chain side as many others are?

And perhaps related to that, I wonder if you can give us a feel for actually the megawatts of capacity sold in this quarter? And then also, can you give us a breakdown of the nonrecurring costs, which have been a feature? And then if it's not too many questions, just one final one. Just talk about R&D expenditure at fischer and SerEnergy, what sort of R&D are they actually undertaking? What are they doing? Is it complementary to the work within the historical Advent Group or is it something very different? Thanks.

Thank you, Adam. L et me try to tackle those questions, and maybe Vasilis can follow up with anything I miss.

So on the gross margin, I think right now with a small revenue base, our gross margin is probably going to be volatile from quarter to quarter, depending on the mix of products and the mix of customers that falls on any particular quarter. And so that's why you may see a swing from 30% one quarter, which is I think where we were in Q2 to a very small margin in Q3. So that's the reason for the fluctuation in the gross margin. And we're still targeting long term, we're still targeting a gross margin of 30%. Let me take the second part of your question was related to some nonrecurring costs and SG&A. Let me give you a feel for that. So SG&A costs were about $13 million in Q3. That includes a nonrecurring charge of roughly $2.5 million for executive severance. It also includes about $1 million -- just under $1 million related to acquisition-related costs. So if you remove those, yeah, that gets us down closer to the $10 million range. Now having said that, keep in mind, we only had SerEnergy and fischer for one month in the third quarter. So when you -- in future quarters, when we have a full quarter of their results, I would expect maybe another $1 million SG&A costs related to that.

So I think a run rate moving forward should be in the, let's say, $10.5 million to $11 million range for SGA cost. Now, that's not all cash. There's about -- moving forward, I expect around $3.5 million per quarter of stock-based compensation expenses, which is non-cash. And so let's say, $10.5 million in total, $3.5 million will be noncash. So roughly $7 million a quarter in cash SG&A expense.

And then the third part of your question was R&D. So we had $900,000 R&D costs in the third quarter. Again, that only includes one month R&D costs at SerEnergy. So when we have a full quarter of expenses with the acquired businesses, I would expect our R&D number will be a little bit higher than what we had in the third quarter. So hopefully that answers your number's q uestions. Vasilis, I don't know if you want to add onto that.

I think we're fine. I don't know, if Adam wants something more.

Yeah, it would be nice to get a feel for the actual R&D that is being undertaken, given it feels like it must be adjacent to the core Advent R&D. It would be interesting to see what sort of traction it might take you.

Yeah. Listen, I mean, I can give you a qualitative overall answer. Keep in mind that we're very happy that finally we have a global green energy company, right? And we have operations in many parts of the world. We have different types of products and all of them -- they have something to gain from each other.

We have the Honey Badger, M-ZERØ, now we have SerEnergy, as you say, with the telecom project, and you know, the liquid cooled system. We all talk to each other. And it is our job also to integrate the groups in the right way. So definitely there is a central direction to all of this, r ight, but then as we get new products and new capabilities and new development needs and costs, we integrate that under one umbrella. But that's where we are now.

Great. Great, that's really helpful. Thanks for that.

Thank you.

Thank you. And we have no further questions. I would now like to turn the call back to Dr. Vasilis Gregoriou for final remarks. Dr. Gregoriou, please proceed.

Yeah, I want to thank everybody for being on this call. I don't have much more to say. We're very happy about the progress. We're in a very positive trajectory, and we're looking forward to the next quarters. We have transformed the company from, as you remember, a materials company to a system company now.

We have a mix of very exciting new products. The market is positive, and we've given our best in order for us to get the right amount of revenue. Keep in mind, we came from the spark, and we have that as well to deal with. But I think overall, we're in a very good trajectory, as I said before, and now we're looking forward to the next quarters. Thank you.

And this concludes today's conference call. Thank you all for participating. You may now disconnect.